ContentsForeword 4Executive Summary 61. The Future Challenge 102. The Past Does Not Reflect the Future 163. A Toolkit for an Innovative Future Supply Chain 224. A New Model for Enhanced Supply Chain Collaboration 325. Next Steps Toward the Future Supply Chain 44Appendix: Building the Future Supply Chain 48
Future Supply Chain 2016 The big question is: What impact will these new parameters have on the design of future supply chains?
ForewordWhat does the current focus on sustainability have The breakthrough change presented in the reportto do with on-shelf availability and costs in the is based on the joint work of 24 companies in thephysical supply chain for consumer goods? The retail and consumer packaged goods industry. All theanswer is “everything.” elements of this change have been brought together into an integrated architecture for a future supplyIncreasing political momentum around issues such as chain, aimed at a more sustainable broad-basedresource scarcity, climate change, security and new solution for the industry.regulations brings to light critical challenges that ourindustry will face in the coming years. The 2007 Bali The time to act is now, for the benefit of all.Treaty and other political initiatives are driving theindustry to come up with breakthrough solutions. Roland DachsSuch solutions require new thinking, new approaches Vice President, Supply Chainand new collaboration on infrastructures. Crown EuropeUntil now, the most important parameters for Xavier Deryckesupply chain designs have been related to cost Directeur Flux Groupeefficiency and on-shelf availability. As a result of Carrefourthe growing importance of these emerging issues,new factors are becoming increasingly critical, Co-Chairmen, Global Commerce Initiativesuch as traffic congestion in urban areas, energy Future Supply Chain Work Teamconsumption, CO2 emissions and the permanentrise in transportation costs.The big question is: What impact will these newparameters have on the design of future supply chains?The ambition of this report is to provide relevantthinking, ideas and examples to help answerthat question.
Future Supply Chain 2016Executive SummaryIn the conclusion of “2016: The Future Value Chain,” Serving Consumers in a Sustainable Waythe Board of the Global Commerce Initiative (GCI) Current supply chain designs are primarily aimedidentified and approved three projects that GCI at improving on-shelf availability, reducing costwould pursue. These projects were determined to be and supporting sound financial figures (like ROI orcore to the competency of Board members and were return on brand equity). In the future, the industryaligned with the Board’s strategic direction: must design for additional parameters like CO2° New Ways of Working Together emissions reduction, reduced energy consumption, better traceability and reduced traffic congestion. The° Information Sharing impact of these new parameters on the current bottom° The 2016 Future Supply Chain line may not yet be substantial but will grow in the coming years and efficiency improvements will almostSince that time, GCI and Capgemini have worked certainly be realised. Supply chain strategy needstogether on the “Future Supply Chain” project to look ahead and give priority to these parameters.focussed on the following key areas: All stakeholders in the supply chain will need to° The challenges ahead that will force companies to play their part to accomplish this change. Consumer change their operation. awareness and demand for new products and services° The need for breakthrough change, as the past will also accelerate the adoption of new practices. does not reflect the future the industry will face. How should the industry build the future supply° The innovation that currently exists in the form of chain and what are the components? To answer new solutions, leading practices, example supply that question, four key elements must be taken chains and new ways to calculate the impact of the into account: new parameters on the supply chain.° Enhanced collaboration, which is essential among Solution areas: The solution areas cover existing all parties in the supply chain. challenges and those anticipated for the coming° The recognition that now is the time for a step decade. The solution areas are focussed on physical change to a future model leading to sustainability supply chain innovation. Seven key solution areas and new business opportunities. were identified: 1. In-Store Logistics: includes in-store visibility,This report, “Future Supply Chain 2016,” presents shelf-ready products, shopper interactionthe results of the project. 2. Collaborative Physical Logistics: shared transport, shared warehouse, shared infrastructure 3. Reverse Logistics: product recycling, packaging recycling, returnable assets
The 2016 Future Supply Chain Characteristics of the 2016 Future Supply Chain ° The future model will be based on multi-partner information sharing among key stakeholders: consumers (the originators of the demand signal, either from home or from a store), suppliers, manufacturers, logistics service providers and retailers. ° After production the products will be shipped to collaborative warehouses in which multiple manufacturers store their products. ° Collaborative transport from the collaborative warehouse will deliver to city hubs and to regional consolidation centres. ° Warehouse locations on the edge of cities will be reshaped to function as hubs where cross-docking will take place for final distribution. ° Non-urban areas will have regional consolidation centres in which products will be cross-docked for final distribution. ° Final distribution to stores, pick-up points and homes in urban and non-urban areas will take place via consolidated deliveries using efficient assets.
Future Supply Chain 20164. Demand Fluctuation Management: joint planning, New ways to calculate the impact on the supply execution and monitoring chain: These calculation models, using the5. Identification and Labelling new parameters, are an essential element of the future supply chain in determining the impact6. Efficient Assets: alternative forms of energy, of the leading practices and solutions. efficient/aerodynamic vehicles, switching modes, green buildings A New Model for Enhanced Collaboration7. Joint Scorecard and Business Plan Integrating these improvement solutions together with collaboration concepts into a cohesive modelLeading practices: Examples of existing leading will provide the future supply chain architecture thatpractices are integrated into the model to show how will help bring new efficiency and cost reduction forthey help to address these solutions areas. These the industry. This analysis demonstrates how theleading practices make it clear that benefits are real different solutions should be considered in relation toand achievable. each other, and makes it clear that a big impact on the parameters can be made when the following conceptsApplication to example supply chains: Simplified are merged and implemented:supply chains are used to demonstrate how the ° Information sharing – driving the collaborativenew supply chain model can work and how it can supply chainbe adapted to individual companies. In each case, ° Collaborative warehousingappropriate new solutions are posed, taking intoaccount the main characteristics of the example ° Collaborative city distribution (including homesupply chains. delivery and pick-up) ° Collaborative non-urban distribution (including home delivery and pick-up) Many of the trends, issues and changes discussed in this report areThe Future Supply Chain based on the industry supply chain primarily in Western markets. In ain Emerging Markets report of this nature it is not possible to envision the future situation in all geographies. History has shown that many of the emerging nations follow the trends set by Western markets and that they often do so by moving there more rapidly than was done in established markets. New technology often leads to leapfrogging developments, skipping the evolutionary phase. A good example is the widely accepted use of satellite technology in some developing markets over the more traditional land lines. At the same time, established markets may be hampered by existing legacy systems. Readers are encouraged to assess what the changes discussed in this report might mean for both the established as well as the developing markets across their distribution channels. Geographies, economies and social groupings will always be diverse, but many will be subject to the trends and changes identified in this report.
The future supply chain is expected to provideclear benefits for our society, for the industry,for individual companies, and ultimately forconsumers and shoppers.While individual examples of these concepts already Taking the Next Stepsexist, the key to their broader implementation across The realisation of the collaborative concepts thatthe industry will be improved collaboration. Improving comprise the 2016 future supply chain architecturesuch collaboration demands new ways of working will require a number of initial next steps, driven bytogether in the physical supply chain, a framework industry leaders. These steps are as follows:for which has been developed by GCI and is being ° Establish buy-in on the vision by a group ofaddressed by a separate work team. key stakeholders (such as leading retailers and manufacturers, mayors of big cities).The total impact of this supply chain redesign (even ° Check the concept’s business case with thetaking into account the usage of current transport and involvement of all key stakeholders.storage technology) could potentially reduce transport ° Pilot the concept (or possibly leverage and enhancecosts per pallet to the order of more than 30%, cut existing pilots).handling costs per pallet to the order of 20%, reducelead time by 40% and lower CO2 emissions per pallet ° Evaluate the implementation and share learnings.to the order of 25%, while also improving on-shelfavailability. This does not include additional energy The following pages provide insight into thecost savings stemming from more efficient assets such development of a future supply chain that willas green buildings and fuel-efficient/aerodynamic and react to and help satisfy tomorrow’s consumers in ajumbo trucks. sustainable way. (Note that further details of leading practices, example supply chains, calculation models,These benefits and others are expected to be the integrated model and a glossary of terms can beachievable when all the elements of the future found in the separate, freestanding Appendix thatsupply chain are in place. The future supply chain is accompanies this report.)expected to provide clear benefits for our society, forthe industry, for individual companies, and ultimatelyfor consumers and shoppers. “Future Supply Chain 2016” on the Web More information about the “Future Supply Chain 2016” report and project, including the freestanding Appendix, can be found at www.gci-net.org and www.capgemini.com.
The Future Challenge A view of the drivers of change and their impact on the future supply chain. 11
Future Supply Chain 2016Are you ready for 2016? That was the question posed This new report focuses on the future physical supplyin the vision report titled “2016: The Future Value chain and the critical role that collaboration willChain,” published by the Global Commerce Initiative play moving forward. The first step toward definingin conjunction with Capgemini and Intel. The report appropriate scenarios for the future supply chain isconcluded that: “Improved collaboration between all understanding the relevant forces and trends that areparties in the value chain will be essential in order to anticipated in the coming years.achieve a more efficient and effective value chain tobetter serve the needs of the consumer.” Forces and Trends That Will impact the F uture Supply Chain Sustainability and New markets and a new the scarcity of economic balance Driving the value chain natural resources Economic Ecological Consumer Behaviour Managing complexity Redesigning through supply chains transparency In fo rm w lo at tF io uc nF od lo Pr w Regulatory Demographic New Technologies New rules, Graying and new compliancy urbanisation Explosion of information External forces impacting the future supply chain will include economic issues, ecological issues, changing demographics, new technologies and regulatory forces. These external forces are difficult to influence but will have an effect on the future supply chain. However, the industry can be part of shaping the future supply chain around key industry trends in the areas of consumer behaviour, information flow and product flow.12
1. The future challengeExternal Forces Driving Change Ecological trends: sustainability and the scarcity ofWhen we look ahead, we see a number of external natural resources. Sustainability will be a primetrends that will shape the industry in the coming consideration for future scenarios. The industry will10 years, which are largely outside the control of need to convince consumers that it is operating inthe industry. But retailers and consumer products an ecologically responsible manner. The 2007 Balicompanies must consider the impact of these external Treaty and other political initiatives are challengingforces on their business and determine how best to the industry to come up with breakthrough solutionsrespond to the changes that will be brought about as a by 2020. Preserving energy and raw materials andresult of their impact. other resources like water will become a crucial aspect in future supply chains, as costs will likely remainEconomic trends: new markets and a new economic volatile and supplies will continue to dwindle.balance. Brazil, Russia, India, China, Africa andKorea will be major markets to consider in the coming Demographic trends: graying and urbanisation. Theyears. Each of these markets will evolve much more future will be dramatically changed by shiftingquickly, compared with the parallel changes that demographics, such as the graying of Westernoccurred in North America and Western Europe. countries and the increase in urban population. ForThere will also be changes in the balance between example, it is projected that 51.3% of the world’slocal and global sourcing. population will be urban by 2010.1 http://news.ncsu.edu/releases/2007/may/104.html1 13
Future Supply Chain 2016The coming years will see a new era forindustry collaboration, which will becomean important factor for future success.New technology trends: explosion of information. will become active partners in the supply chainMoore’s Law will continue to scale the effects of new and will directly drive product development andtechnologies in ways never before seen. For example, replenishment. They will increasingly interactRFID technologies will play a big role in the future. (including ordering and buying) via differentIn addition, the adoption and use of new technologies channels (online, in-store, mobile), 2 and willby consumers and shoppers (in home, in stores, require other delivery mechanisms besides theon-the-go) will grow rapidly. stores, including, for example, neighbourhood distribution and home delivery.Regulatory trends: new rules, new compliancy. Inaddition to consumer pressure and companies’ own Product flow: redesigning supply chains. Newgrowing emphasis on corporate social responsibility, industry challenges necessitate new supplygovernments will enact more regulations, particularly chain solutions. Urban structures will requiretargeting areas such as sustainability. This will special attention. Current transportation andbe done by government and regulatory bodies at infrastructures are increasingly congested anddifferent levels: local, national and international. hamper the required service levels. In addition,In addition, some current labour regulations must energy prices and government regulations (forbe repealed (for example, for more flexible working example, relating to city distribution) will have atimes) to allow infrastructures to be used to their significant impact on transportation. The industryfull capacity with less stress on the environment. will need to rethink how products are distributed.Industry Trends Driving Change Information flow: managing complexity throughThere will also be key industry trends that will affect transparency. Supply chains in the future will bethe future value chain, particularly in the areas of even more complex than they are today. Companiesconsumer behaviour, information flow and product will need to determine how best to work togetherflow. In contrast to the external forces, the industry to effectively match supply with demand. Opendoes have the power to shape how this change will information sharing will be an important foundationtake place, at least to some degree. to help companies anticipate dynamic consumer demands. Collaboration should focus on areas ofConsumer behaviour: driving the value chain. common interest, without affecting the competitiveConsumers and shoppers will continue to become positioning of companies.more demanding and empowered. In fact, they2 “Future Consumer: How Shopper Needs and Behaviour Will Impact Tomorrow’s Value Chain,” Capgemini.14
1. The future challengeConclusion: chain management capabilities. New types of supplyCritical Changes Need to be Made chain managers will look not only at efficiency, butTrue collaboration will be imperative. The coming will also understand the potential of innovation andyears will see a new era for industry collaboration, collaboration. The mindset regarding the currentwhich will become an important factor for future management capabilities should be changed in ordersuccess. In many cases, this will require companies to realise the vision. Achieving this new mindset willto rethink their areas of competitive advantage. require additional training and development of newSome business areas that are now considered to be skills and tools. Education programmes should be setcore differentiators may well become candidates for up to address these behavioural issues and to developcollaboration with competitors, such as replenishment a new approach to leadership.in inner cities. In addition, industry collaboration willbe essential to encourage governments to enact more This overview of trends that will impact and driveappropriate regulations. future supply chain scenarios makes clear that there are critical changes the industry will need to make.Supply chain managers will need new capabilities. The next chapter explores the changes to the physicalAddressing all of these challenges will require new supply chain that will be necessary in order to moveways of working, new tool sets and thus new supply toward 2016. 15
The Past Does NotReflect the FutureIndividuals, companies and nations must move to adoptmore sustainable supply chains, begin to measure againsta new set of sustainability KPIs and report progress ontheir reduction. 17
Future Supply Chain 2016Today the industry faces issues that remain difficult The Future Value Chain 2016to solve. For example, companies are still challenged The report titled “2016: The Future Value Chain”to put full truckloads on the road. Out-of-stocks defined a unique vision of the total value chain,continue to be a perennial problem. Results from a including a broad-based supply chain perspective thatrecent ECR Europe study on out-of-stocks show that starts with sourcing, progressing to manufacturing,the loss of revenue for all grocery stores in France then through distribution to the retailer and consumer.3alone is estimated at €200 million per quarter. Theindustry’s infrastructure remains complex. Energy Key aspects of this vision are as follows:costs continue to rise as the price of a barrel of oil ° The overarching goal is to greatly reduce the leadincreases. Urban distribution remains an issue, time from source to the consumer by treatingbecause the model is outdated: New infrastructures the value chain as a whole, not as a sequence ofand new rules such as congestion charges will lead to separated silos.major adjustments in managing flows. ° This requires re-evaluation of the physical layout of the supply chain and improved mechanisms toThese issues have changed little in the past 10 synchronise production with actual demand.years, yet real solutions have not been found andimplemented. It’s clear that the current way of ° Real-time, flexible and standardised informationworking is not sufficient and that the industry must sharing along the value chain is foundational fortake a new approach. this, with consumer-driven demand data as the starting point. ° Home shopping and neighbourhood distribution will emerge in co-existence with the evolved store‑oriented supply chain. Evolving Value Chain of 2016 For purposes of the future supply chain project, manufacturing is treated as a black box, although certainly manufacturing will also face existing and3 new challenges over the next decade, including issues such as ethical sourcing and fair trade.18
2. The past does not reflect the future Current KPIs Sustainability KPIsNew KPIs for the Availability to consumer (percent Energy consumptionFuture Supply Chain in-stock) CO2 emissions (greenhouse gases) Cost reduction Traffic congestion Financial KPIs Water consumption ° Return on investment (ROI) Security compliance ° Gross Margin Return on “X” Infrastructure simplification (GMROX) ° Return on brand equity ° Inventory TraceabilityNew Measurements Required Let’s look more closely at these new KPIs.Achieving this vision of the future value chain willrequire a different approach to measurement that Energy consumption. Companies and organisationsmust be designed for new parameters. Most supply must strive to use more renewable energy sourceschains today are measured by Key Performance and use less energy overall in their operations.Indicators (KPIs) such as availability to the consumer According to the International Energy Outlook(percent in-stock) and cost reduction, as well as 2007 (IEO2007) report, total marketed world energyfinancial KPIs like return on investment (ROI), consumption is projected to increase 57% from 2004return on brand equity and inventory. to 2030.Although current KPIs can be used to measure CO2 emissions are measured in tonnes of CO2. Forsupply chain efficiency, they do not adequately transportation, the amount of CO2 emitted is directlyaddress supply chain sustainability. For this purpose, attributed to weight, mode and distance travelled. Foradditional KPIs such as energy consumption, CO2 warehouse and store locations, the amount of CO2emissions, traffic congestion and infrastructure emitted is directly attributed to the type of energysimplification have also been incorporated into consumed to operate the facilities.the development of the future supply chain model.This set of KPIs will address the current and futuresustainability issues as well as on-shelf availabilityand business cost. 19
Future Supply Chain 2016Future supply chains will have to demonstratetheir reliability even in larger and complexcollaborative modes.Increasingly, governments are making commitments Security compliance will also be a key focus inand legislation to drive reduction in CO2 emissions. the coming years. Recovery action plans both forFor example, the British Climate Change Bill information and physical processes must be integratedpublished in mid-November 2007 set a legal target into everyday procedures. Security requirements infor Britain to cut national carbon dioxide emissions by warehousing and transport must be reinforced for60% by 2050. Or the energy bill in the United States the safety of people and the traceability of goods inthat calls for gasoline mileage requirements for cars compliance with regulations. Future supply chainsand trucks to increase to an average of 35 miles per will have to demonstrate their reliability even ingallon by 2020, a 40% improvement. larger and complex collaborative modes. Companies should monitor their level of compliance.Traffic congestion is a new measure that is beingused by various governments and regulatory bodies Lastly, infrastructure simplification is a measure inas a disincentive for urban traffic congestion and cubic metres of a company’s physical footprint sopollution. Several cities of varying sizes have adopted that going forward a base case can be established andprogrammes where vehicles are taxed or entirely measured against. The goal would be to optimise theprohibited from entering urban geographic regions. overall space occupied and relocate warehouses and distribution centres in more appropriate locations.For example, the London congestion charge is a feefor some motorists travelling within those parts of the Now that we have defined and considered thecity designated as the Congestion Charge Zone. And changes that should be applied to the physical supplyin Amsterdam, where 5,000 trucks per day enter the chain, we turn to the solutions available to make thiscity centre, there are restrictions on truck length and happen. The next section introduces the toolkit forweight and limited time slots for replenishment. making the desired changes to the supply chain.Water consumption will be a big issue in the future.Access to drinking water will become increasinglyscarce and environmental changes will occur asa result. Governments and non-governmentalorganisations have implemented awarenessprogrammes and policies to address the growingconcern.20
2. The past does not reflect the future A number of global events and recent regulations make clear the urgencyMajor Sustainability of addressing sustainability issues. Consider a few examples:Activities and Regulations Kyoto Protocol, December 1997. This treaty was signed by 36 industrial countries in 1997 in Kyoto, Japan, and called for all industrialised nations to reduce their collective emissions of greenhouse gases by 5.2% versus 1990 levels. The goal was to lower average emissions of CO2 and five other greenhouse gases. United Nations Climate Meeting, Bali, December 2007. Twelve thousand delegates from 190 nations gathered in Bali for two weeks of talks on climate change. A decision was finally reached to approve a “roadmap” for two years of negotiations on a broad pact to succeed the Kyoto Protocol from January 1, 2013. Carbon Disclosure Project (CDP).4 The CDP is an independent not- for-profit organisation aiming to create a lasting relationship among shareholders, purchasers and corporations regarding the implications for shareholder value and commercial operations presented by climate change. Increasingly, focus is shifting from companies’ own emissions to their supply chains, where, for many sectors, the majority of greenhouse gas (GHG) emissions are generated. Corporations require better information to develop and deliver robust and effective carbon management strategies and incorporate climate change into supply chain decisions. EU Directive on Renewable Energy, January 2008. On January 23, 2008 the European Commission put forth an integrated proposal for climate action. This includes a directive that sets an overall binding target for the European Union of 20% renewable energy by 2020 and a 10% minimum target for the market share of biofuels by 2020, to be observed by all member states. 4 www.cdproject.net 21
A Toolkit for anInnovative FutureSupply ChainSolution areas, leading practices, example supplychains and calculation models are the tools neededto build an innovative future supply chain model. 23
Future Supply Chain 2016Taking into account the considerable forces that are 6. Efficient Assets: alternative forms of energy,driving change, together with the changes that will efficient/aerodynamic vehicles, switching modes,need to be made to the physical supply chain, how green buildingsshould the industry build the future supply chain and 7. Joint Scorecard and Business Planwhat are the elements? To answer this question, fourkey components must be taken into account: 1. In-Store Logistics. Solutions in this area involve° Solutions areas: The solution areas address improvements within the store and focus on adding existing challenges and those anticipated for the value to the consumer and reducing business costs. coming decade. These solutions encompass products entering the° Leading practices: Examples of existing leading store at the back and products picked by or for the practices are integrated into the model to show consumer in the store. how they help address the solutions areas.° Application to example supply chains: Simplified An example is in-store visibility. RFID technology supply chains are used to demonstrate how the can be used to enable real-time insight into inventory, model works. with alerts via computer when supplies are running° New ways to calculate the impact on the supply low or when theft is detected. Another example is chain: These include both macro-level and micro shelf-ready products, which arrive as a merchandise calculation models. unit that is easy to identify, easy to open and can easily be put on the shelf. Shelf-ready products aim to improve shelf replenishment and enhance visibility.This section looks at each of these components.However, it is important to note that the componentsdo not stand alone; they interact with each other. At Shopper interaction is another in-store logisticsthe same time, they are not set in stone. Individual solution and requires improved availability ofcompanies can “play” with the elements and apply consumer data for both the manufacturer and retailer.them to their own specific situation. The results POS data should be available and used to build aprovide a realistic picture of a company’s own supply data warehouse, which provides analysis and reportschain and offer insight into which solutions will be that fit to the KPIs of the manufacturer and retailer.important in the future and the potential benefits. Shopper interaction may involve the use of mobile devices such as electronic labelling, mobile payments and mobile device marketing, and in-store kiosks andSolution Areas and Leading Practices narrowcasting to present information designed toAll of the solution areas focus on physical supply stimulate purchases.chain innovation. Examples of real-world leadingpractices help illustrate the achievable benefits in eachsolution area. Applying these solutions and leading 2. Collaborative Physical Logistics. This solution areapractices to example supply chains will help identify is defined as the sharing of physical infrastructurepotential improvement opportunities. such as warehouse storage and transportation vehicles in order to simplify the overall physical footprint, and to consolidate flows to improve service andThe following solutions areas are examined in asset utilisation. Sharing and collaboration canmore detail: take place both between and across various nodes1. In-Store Logistics: includes in-store visibility, of competitive supply chains and it can apply to shelf-ready products, shopper interaction existing infrastructure or to newly built collaborative2. Collaborative Physical Logistics: shared transport, infrastructure. Examples include: shared warehouse, shared infrastructure ° Shared transport: A collaborative approach3. Reverse Logistics: product recycling, packaging between manufacturers, between retailers, and recycling, returnable assets between manufacturers and retailers and possibly a4. Demand Fluctuation Management: joint planning, third-party logistics provider to share transport; it execution and monitoring involves sharing load planning and truck capacity.5. Identification and Labelling ° Shared physical infrastructures: Manufacturers, retailers and possibly third-party logistics providers collaborate to share warehouses and distribution centres for activities such as storing goods or cross-docking.24
3. a toolkit for an innovative future supply chain The Toolkit for the F uture° Shared information: Sharing information to These solutions can benefit from efficient asset manage flows among manufacturers, retailers and solutions, for example green buildings and more fuel- third-party logistics providers in order to combine efficient transport. deliveries from more than one source towards multiple stores via a warehouse or distribution 3. Reverse Logistics. This is defined as logistics centre. designed to reprocess assets, materials, packaging, products or other components that can be recycled,As an example of collaborative physical logistics, reused or remanufactured. Solutions includeECR Europe has set up a project with the objective traditional backhauling, product recycling, packagingto help companies in the supply chain reduce the reuse and packaging recycling.environmental impact of transport in a way that iseconomically and socially sustainable. The project Reverse logistics solutions encompass the reuse ofwill deliver a practical roadmap and self-assessment assets in the supply chain that are not directly producttool, which will allow organisations to identify, related, such as pallets and crates. For example, anplan and measure improvements in their transport automatic pallet labelling solution may incorporateoperations. Ultimately such collaborative sustainable “Flag Tag,” a feature that makes it possible to tag alltransport efforts will be measured in fewer and pallets with one type of tag, such as an RFID chip.friendlier miles. 25
Future Supply Chain 2016At a Glance: Solution A reas, KPIs, Leading Practices Solution Areas KPIs Leading Practices Company Leading practice Infrastructure simplification Availability to consumer Return on brand equity Energy consumption Security compliance Water consumption Traffic congestion CO2 emissions Cost reduction Traceability Inventory In-Store Logistics • • • • Schuitema Implementing RFID on crates with ready‑to‑cook vegetables. Sales have increased by 10% to 12%. Collaborative • • • • • Carrefour, A multi-player approach has resulted in Physical Logistics Bénédicta, benefits such as a 34% increase in average Nutrimaine, delivery frequency and a 115% increase in average load per delivery. Lustucru, FM Logistics ECR Europe ECR Europe’s sustainable transport project is designed to help companies reduce the environmental impact of transportation. Reverse Logistics • • HP, Braun/ Together the companies founded the Gillette, Sony, European Recycling Platform to encourage a Electrolux competitive market for Waste Electrical and Electronic Equipment (WEEE), which is expected to reduce costs by more than 50%. Demand • • • • • Scotts Scotts’ use of consumer‑driven Fluctuation replenishment has led to improved fill rates Management (98%), in‑stock service (95%), inventory turns and order forecast. Philips Philips’ Collaborative Planning, Forecasting and Replenishment programmes with several customers have created a consumer‑driven supply chain, resulting in an increase in forecast accuracy to above 80%, a reduction in stock levels in the supply chain by more than 30%, and an increase in on‑shelf availability to about 95%, driving sales and consumer satisfaction in the process. Identification • • • • • • GS1 The GS1 System of Standards provides a Labelling world-wide open standard, supported by published guidelines and precise allocation rules. Leading practices include GTIN, GLN, SSCC and Data Bar. Efficient Assets • • • • • • Macy’s Macy’s and SunPower Corporation’s solar and energy efficiency initiative has reduced energy consumption by about 40%. Metro Through the integration of EURO-5 trucks into its distribution network, MGL Metro decreased CO2 emissions by 25% between 2003 and 2006. It is aiming for an 84% reduction by 2009. Joint Scorecard • • • • Wal-Mart Implementing a packaging scorecard for Business Plan suppliers is Wal-Mart’s next step in moving toward achieving a 5% reduction in packaging by 2013.Source: Global Commerce Initiative, Capgemini 26
3. a toolkit for an innovative future supply chain4. Demand Fluctuation Management. Demand Metro serves as a leading practice case forfluctuations require new models to smooth the consolidation and the use of efficient assets bydemand signal coming from customers. These new a retailer. With the award-winning5 concept ofmodels transcend traditional approaches to retailer- procurement logistics—a collaborative approachsupplier integration and collaboration. across all categories and store formats (food, non‑food, apparel, DIY and consumer electronics)Vertical solutions include promotion/introduction that is consolidating flows and warehouses—Metrocalendars and supply/demand capacities to align already stated in 2002 positive environmental effectsintroductions and promotions. An additional and “conservative” savings on the order of €150solution is collaboration on execution, that million per year through higher fill rates and loweris, joint supply/demand anticipation based waiting times.on real-time visibility of the physical flow ofgoods and consumer (sales) behaviour. Also, In addition, through the integration of EURO-5collaboration on monitoring, which involves trucks into its distribution network, MGL Metrojoint, real-time access to results of introductions decreased CO2 emissions by 25% between 2003 andand promotions, based on secure systems. 2006. It is aiming for an 84% reduction by 2009. The use of GPS modules, traffic monitoring, planning5. Identification and Labelling through the use of systems and well-trained staff has delivered majorbarcodes and RFID tags. Identification is about efficiencies and improved asset utilisation, producingproviding all partners in the value chain with the some 40,000 additional driving hours per year fromability to use the same standardised mechanism to the same assets.uniquely identify parties/locations, items and events,with clear rules about where, how, when and by 7. Joint Scorecard and Business Plan. This solutionwhom these will be created, used and maintained. consists of a suite of industry-relevant measurementLabels currently are the most widely used means tools falling into two broad categories: qualitativeto communicate about relevant sustainability tools, which are a set of capability metrics designedand security aspects of a certain product toward to measure the extent to which the trading partnersconsumers and trading partners. (supplier, service provider and retailer) are working collaboratively; and quantitative tools, which include6. Efficient Assets. This solution area encompasses business metrics aimed at measuring the impactefforts by companies to modify existing or design new of collaboration.equipment or buildings, to enhance their productivityand reduce their environmental impact. The accompanying table (“At a Glance: Solution Areas, KPIs, Leading Practices”) provides anTransportation solutions include more efficient and/or overview of the solution areas and the related KPIsaerodynamic and jumbo vehicles; utilising alternative as well as examples of existing leading practices. Theor multiple modes of transportation; and switching details of the leading practices can be found in theto different transport modes. Solutions involving separate, freestanding Appendix that accompaniesbuildings include the adoption of a “green” building this report.policy by using alternative forms of sustainable energyor improving existing building energy efficiency.These types of solutions make more efficient use ofkey resources like energy, water, land and materials.For example, green buildings will typically use 25%to 30% less energy than conventional buildings, willhave lower peak consumption, will typically generaterenewable energy on-site, and most likely will usegrid power generated from renewable energy sources. MGL Metro, Deutscher Logistikpreis, 2002; MGL Metro, ECO Performance Award, 2007.5 27
Future Supply Chain 2016Understand and Reinvent Following are some illustrative thoughts on how theExample Supply Chains solutions can be applied in the context of the specificSimplified examples of current supply chains are used characteristics of these five example supply chains.to show how supply chains work today. Although The “as-is” flows of the five example supply chainsthere may be a wide variety of supply chains for the can be found in the separate, freestanding Appendixsame type of activity, the example supply chains that accompanies this report.are described according to the same structure (seeaccompanying diagram). Cereals. The cereals supply chain is characterised byWe have selected particular situations, which do not seasonal raw materialdescribe all cases, in order to illustrate how solutions production, regularcan be applied. A distinction is made among regular consumption patterns (butreplenishment, promotional flow and seasonal flow. influenced by promotions) and remote as well as localThe main characteristics of the five example supply sourcing (depending on the country). Overall, there ischains chosen are identified in the accompanying improvement potential on stock levels and the lengthtable (facing page). The results of this exercise of stay of stocks at distribution centres and onshould provide inspiration to companies to adapt retailers’ shelves. Also, transportation and storagethe examples to their own products. facilities could be improved in respect to their CO2 emissions and energy consumption. Some illustrative solutions for this example supply Supply Chain Structure chain include shipping larger volumes or cross- docking, sharing transport to stores, efficient and aerodynamic vehicles (especially for city replenishment) and shared warehousing on combined categories using “green” facilities. Remote sourcing/ production White Goods (large household Local sourcing/ production appliances). The main characteristics of the white goods supply chain include long lead time from source to shopper, yet sometimes the product lifecycles can be short; inventory levels could be improved, especially Distribution at retailers (many retailers hold inventory even though it needs to be delivered); stocking locations could be reduced; significant physical distribution and reverse logistics; collaboration and integration with other parties could be improved; home delivery could be more flexible; and opportunities exist involving Urban ﬁnal mile standardisation of products. Non-urban ﬁnal mile Examples of suitable solutions to apply include the use of point-of-sale data for production planning, collaboration on fulfilment between manufacturer and retailer, improved forecasting and inventory management and SKU rationalisation, shared warehouses and standardisation of product components.28
3. a toolkit for an innovative future supply chainK ey Characteristics of E xample Supply Chains Product Group Final Mile Retail Distribution Production Sourcing Example Regular Collaborative Remote Cereals Store, urban Continuous Supply Chain A replenishment warehouse and local Example Home Short product White Goods Seasonal Reverse logistics Remote Supply Chain B delivered lifecycle Example Direct store Highly Beverages Store Promotional Local bottler Supply Chain C delivery continuous Example Store, Cross-dock, Small local Vegetables Seasonal Local Supply Chain D non-urban crates farms Remote Example Endcap/gondola Coffee Local pick-up Promotional Discontinuous co-operation Supply Chain E end material of farmersSource: Global Commerce Initiative, Capgemini Beverages. The Vegetables. The main beverages supply characteristics of the chain is characterised vegetables supply by relatively high chain are local and inventory costs and global sourcing,opportunities to reduce transport and fuel costs. Also, short cycle timethere is improvement potential regarding the (the product should reach the market as quickly ascollaboration on both forecasting and logistics (either possible), the critical importance of product qualityupstream from the raw material suppliers and and freshness, seasonality of some vegetables, and flowmanufacturers or downstream from manufacturers characterised by many miles from source to consumer.and retailers or among manufacturer competitors).This is also the case for data exchange, which still Suitable solutions to be applied include the useinvolves a lot of manual handling. of standardised totes to reduce handling, sharing infrastructures (possibilities of bulk being turnedSuitable solutions to apply include shared warehouses; into consumer-ready units), differentiated supplypooling opportunities run by logistics service chain networks (intermediate pre-processingproviders; shared transport with other manufacturers; centres, including consolidation, value-added pre-the use of mixed, efficient and aerodynamic transport process), reducing touches after the initial farm ormodes like (jumbo) trucks, rails and barges; and pre-production, efficient assets like solar-poweredreducing the number of stocking locations and new refrigerated trucks and solar panels on the roof, and ainvestments in assets, like green warehouses. There “green index” on scorecards.is also significant potential in full informationtransparency through data exchange (point-of-sale), Coffee. The coffee supplyboth upstream and downstream. chain includes opportunities regarding the inventory stay at warehouses. Coffee is a high-value product, collaboration among manufacturers could be improved, and there are definitely opportunities for more involvement of logistics service providers. Overall, the chain consists of a number of steps. 29
Future Supply Chain 2016Suitable solutions to apply in this supply chain In the calculation models used in the futureinclude collaborative physical logistics (such as supply chain research, the following parametersshared warehouses between coffee manufacturers are considered:and between different kinds of manufacturers, and ° Supply chain cost reduction (mainly on handling,the involvement of logistics service providers in storage and transport)warehouses and transport). In addition, packaging can ° CO2 emissions (greenhouse gases)be done closer to the consumer. Better informationon fluctuation management and promotions will ° Traffic congestionimprove forecasting. POS data needs to be available to ° Infrastructure simplificationimprove replenishment (regular as well as promotions).Improvements also can be made regarding the use of The impact of these parameters on the bottom lineefficient assets like green warehouses. can always be expressed in terms of multiplying a cost driver and a volume driver. For instance, the impactNew Ways to Calculate the of transport on the bottom line can be expressed inImpact on the Supply Chain terms of the cost per kilometre for the particular typeFinally, calculation models are an essential tool for of transport multiplied by the number of kilometresthe future supply chain to determine the impact of travelled. Reductions can either be made by reducingthe leading practices and solutions. As the industry the cost driver (cheaper transport) or by reducing thetries to improve several parameters in the supply volume driver (fewer kilometres through fuller truckschain, how can it compare solutions that may have or redesign of the network).conflicting impact on, for example, CO2 emissionsversus supply chain costs? This section examines the While working through the different calculationgeneral characteristics of such calculation models. models, it was found that the relative impact of theseThe separate, freestanding Appendix provides more parameters on the bottom line was not equal. Fordetail on actual examples of such calculations. parameters that already represent a large percentage of the bottom-line costs (like handling and transport), changes to these factors have substantial impact on the bottom line. For other parameters, the impact is (not yet) as big.I mpact on the Bottom Line Parameter Cost Factor Cost Driver Volume Driver Impact on Bottom Line Supply Chain Handling $ manhours # transfers, etc. High Cost Reduction Storage $/m2/day # storage points, Medium (depending Transport $/km storage time on value of goods) # kilometres High CO2 Emissions CO2 taxation $/kg CO2 # kilometres Relatively low (modality dependence) Traffic Congestion Delays Manhours lost # vehicles delayed, Medium Delayed replenishment/ storage of m2/day out-of-stocks Infrastructure Duplication Duplication of costs # storage points/ High Simplification in the supply chain # of separate chainsSource: Global Commerce Initiative, Capgemini30
3. a toolkit for an innovative future supply chainFive calculations are available in the Appendix, A different (and often forgotten) viewpoint is thebut the main conclusions are shared here as an amount of CO2 emissions caused by consumers whointroduction to what the total future supply chain drive by car to the store. Research shows that, forshould look like: example, over 60 % of the total CO2 emissions for the transportation and storage of 1 kg of apples fromCollaborative city replenishment involves concepts New Zealand to a UK consumer’s home is causedwhere the replenishment of products for several by consumers who use their cars for shopping trips.6retailers into an urban area is consolidated at transfer Home delivery can improve this significantly (perhapspoints at the boundary of that urban area. The total reducing the “last mile” CO2 emissions by half).impact on CO2 emissions and congestion can beimproved relatively easily, but typically at the cost of It is evident that these models should also beintroducing extra handling. Future solutions in this considered in relation to collaborative cityarea therefore need to link closely with upstream replenishment to stores, and where possible sharestorage and transfer choices, in order to avoid a similar infrastructure.introducing unnecessary handling. At the same time,congestion charges will tip the balance in favour of Lead-time reduction looks at various ways in whichcollaborative city replenishment. the total lead time of the product can be reduced. Infrastructure simplification is an importantCollaborative warehouse and distribution looks ingredient for this; taking away unnecessary storageat opportunities for manufacturers to consolidate points can have a big impact on inventory costs, butwarehouse operations and transport from production also on the chain responsiveness (and therefore shelfto the retailer transfer point. It is clear that the availability of the product). However, taking awaycombination of warehousing and distribution can one storage point usually complicates the operationhelp provide the desired benefits. Only looking at of the more upstream storage point. For instance,consolidated transport can lead to extra handling and cross-docking at a retailer distribution centre (insteadinfrastructure complication (instead of simplification). of keeping stock) typically requires the manufacturerCollaborative warehousing also offers CO2 and cost to deliver store orders instead of consolidatedbenefits through deploying greener buildings and replenishment orders.(transport) assets. An alternative combination ofcollaborative city replenishment and collaborative CO2 emissions reduction through local sourcingwarehouses is distribution centre collaboration for considers the trade-offs for remote sourcing betweenretailers. The aggregation of transport and storage for lower production cost and higher transport cost andseveral retailers can have similar benefits as the model CO2 emissions. It quickly shows that CO2 taxationfor collaborative warehousing. needs to be quite severe to motivate more local sourcing. However, a combination of higher energyNeighbourhood delivery considers improvements in the prices and CO2 emission taxation could tip thatdelivery of goods to the final consumer, either coming balance in the future.from online ordering or the home delivery of productsordered in a store (such as white goods). The solution From this discussion of the different improvementscan be sought in consolidating these streams at it is apparent that the future supply chain should beconsolidation centres at the boundary of the city and considered as an integrated architecture comprisedthen delivering everything in efficient urban delivery of these various concepts. The next chapter doesroutes or through neighbourhood pick-up points. exactly that; it shows how the components can be put together into one cohesive architecture for the future supply chain. “Lean and Green, doing more with less,” David Simons and Robert Mason, ECR Journal, Vol. 3, No. 1.6 31
A New Model forEnhanced SupplyChain CollaborationIntegrating improvement solutions and collaborationconcepts into a cohesive model will provide the futuresupply chain architecture necessary to bring newefficiency and cost reduction to the industry. 33
Future Supply Chain 2016Can the industry afford to limit itself to just The model includes a number of differentimplementing incremental improvements by collaboration concepts that can be pulled together intoindividual companies? The answer is clearly “no.” a cohesive collaboration model, which serves as theVigorous step changes are needed to significantly new architecture. It is important to note that this isimprove CO2 emissions, traffic congestion, only one way in which the concepts can work together.infrastructure simplification and supply chain costs, Different regions, different markets, differentwhile at the same time reducing out-of-stocks. companies will have to assess how these concepts should be combined to realise the maximum effect.The future supply chain architecture requires astructural change combining individual improvement The following four collaboration concepts are at thesolutions and integrated collaboration concepts. heart of the overall future supply chain architecture:This new integrated model represents the tangible 1. Information sharing – driving the collaborativeexpression of the vision outlined in the earlier supply chain“2016” report. 2. Collaborative warehousing 3. Collaborative city distribution, including homeWhy should you care? Well, what if you could reduce delivery and pick-upthe following by more than 20%: 4. Collaborative non-urban distribution, including° Transport costs per pallet home delivery and pick-up° Handling costs per pallet° Lead time While individual examples of these concepts already° CO2 emissions per pallet exist, the key to their broader implementation across the industry will be improved collaboration.Extensive analysis found that the KPIs for transport Improving such collaboration demands new wayscosts, handling costs, total truck kilometres, CO2 of working together in the physical supply chain, aemissions and lead time could all be improved framework for which has been developed by GCIsubstantially in this integrated model, and this does and is being addressed by a separate work team.not take into account additional energy cost savingsstemming from more efficient assets such as greenbuildings and fuel-efficient/aerodynamic trucks.The previous section set forth the toolkit that will berequired for the future supply chain. Collaborationwill be the key to bringing – and holding – togetherall the elements into a new model or architecture.34
4. A New Model for Enhanced Supply Chain CollaborationThe 2016 Future Supply Chain Characteristics of the 2016 Future Supply Chain ° The future model will be based on multi-partner information sharing among key stakeholders: consumers (the originators of the demand signal, either from home or from a store), suppliers, manufacturers, logistics service providers and retailers. ° After production the products will be shipped to collaborative warehouses in which multiple manufacturers store their products. ° Collaborative transport from the collaborative warehouse will deliver to city hubs and to regional consolidation centres. ° Warehouse locations on the edge of cities will be reshaped to function as hubs where cross-docking will take place for final distribution. ° Non-urban areas will have regional consolidation centres in which products will be cross-docked for final distribution. ° Final distribution to stores, pick-up points and homes in urban and non-urban areas will take place via consolidated deliveries using efficient assets. 35
Future Supply Chain 20161. Information Sharing – Driving the Collaborative Supply ChainSupply chain collaboration can only be effective Sharing of standardised data (based on the use ofwith sufficient information transparency. This is GS1 keys and transaction message standards) is theparticularly important for collaborative approaches to cornerstone for this. There is essential “master data”improve on-shelf availability (OSA). that should be shared in standard format to correctly identify products throughout the supply chain (correctInformation about the actual status of items in the identification prevents mistakes and rework):supply chain, at any moment, is essential to correctly ° Product Identification (GTIN)co-ordinate all the combined logistics streams in the ° Attributesoverall 2016 future supply chain architecture. ° Classification information ° GLN36