ECR Europe Conference
Stockholm 30 May 2006




   Demand Driven Supply Chains:
     New Models of Leadership and Technolo...
Introductions

• Cranfield School of Management
   – A graduate school with excellence in:
      • Degree programmes: MBA;...
Objectives



• Give a ‘networked world’ context to your knowledge
  of contemporary supply chains.
• Underline the leader...
Agenda




• Context
  –   The Rise of the Networked World
  –   Demand Driven Supply Chains
  –   Leaderships and Periphe...
Agenda




• Context
  –   The Rise of the Networked World
  –   Demand Driven Supply Chains
  –   Leaderships and Periphe...
Context – The Rise of the
   Networked World
The Rise of the Networked World


• Rise of regional political blocks
• Outsourcing of manufacturing and business
  proces...
Demand Driven Supply
      Chains
Demand Driven Supply Chains

   Mean/Average Score on 10 Point Scale for Importance/Performance, All Industries

         ...
Demand Driven Supply Chains
    How long does it take your organization to detect changes in
    true (or actual, customer...
Days of Inventory




                                                                          100
                      ...
Forrester (Bullwhip Effect)




 ‘000s

250


200
                                                                        ...
Leaderships and Peripheral
          Vision
Keep your eye on the ball




In business, you need to keep your eye on the ball

• Watch the following movie of a basketb...
Keep your eye on the ball




                            slide 15
Events on the Periphery

Supply Side                                Demand Side
• Land Rover                              ...
Circles of Influence and Concern




                                                             Circle of



           ...
Leadership for Demand Driven Supply Chains




  • Managing self: the                                                    P...
Technology Enabled
Networked Convergence
The Coming IT Based Revolution?

              Technological                             Installation                     ...
The Journey Towards Networked Convergence


 3rd Party Logistics Service Providers
                                       ...
Summary
Summary - The Power of Peripheral Vision


• The human eye has evolved to enable
  us to respond rapidly to threats
  loca...
Agenda




• Context
  –   The Rise of the Networked World
  –   Demand Driven Supply Chains
  –   Leaderships and Periphe...
DDSC Readiness - Assessment Exercise




Q1. DDSC Performance

• How long does it take your supply chain to sense and
  re...
DDSC Readiness - Assessment Exercise

Q2. DDSC Readiness

• Q2.1 How closely can your supply chain meet your customer’s
  ...
DDSC Readiness - Assessment Table




           High

  Q2.1
  Meet
customer
  needs
           Low




                 ...
DDSC Readiness - Assessment Table




           High   Incumbent                Leader

  Q2.1
  Meet
customer
  needs
  ...
DDSC Readiness - Discussion Points




• Pair-up with someone in the same situation

• Discuss:
   – What are the attribut...
Scenario 1. Cycle of birth and death




           High     Incumbent                 Leader

  Q2.1
  Meet
customer
  ne...
Scenario 2. Cycle of innovation




           High                               Leader

  Q2.1
  Meet
customer
  needs
 ...
DDSC Readiness – Summary Points




• The ability to sense and respond to changes in end
  customer demand is critical
   ...
Agenda




• Context
  –   The Rise of the Networked World
  –   Demand Driven Supply Chains
  –   Leaderships and Periphe...
DDSC: what we know already


• DDSC companies are know to:
   – Begin their thinking with the customer
   – Have a clear m...
Back to our Circles of Influence and Concern again




                                                            Circle ...
DDCS Leadership: From Concept to Practice




Results from 2 case studies:

• Fast moving health & beauty line
   – Gillet...
FMCG supply chain




• Focus:
  – a ‘fast moving consumer good’, i.e. a manufacturer’s highest
    sale line to biggest c...
End-to-end Big Picture




                         slide 38
End-to-end Big Picture
                                               Sales (daily)
                Checkout


           ...
Supply Chain Map



            Store



                         Plan
     Retailer RDC

     Retailer NDC         &S
   ...
Findings




• Total lead time of 9 ½ weeks (over 2 months!)

• Touch time of 14.4 hours = 0.9%

• Value adding time of 33...
Project Review

• Achievements:
   – Visibility of end-to-end supply chain
   – Used time as a key measure of supply chain...
Fresh Produce case study




• Focus:
   – high selling, own brand fresh bagged salad
• Scope:
   –   Large grocery retail...
Supply Chain Big Picture
                               Sales (daily)
             Checkout



                           ...
Time Based Process Map

                                             Day 1         Day 2                  Day 3           ...
Project Review

• Findings:
   – Total lead time of 68 hours (2.8 days)
   – Activity time of 14 hours (20% of total)
   –...
DDSC: Implications for
 Shareholder Value
Impact of DDSC on Shareholder Value


• Business success is determined by enhanced or
  accelerated cash flow

• Enhancing...
DDSC leaders enjoy:



  • Study format:
       – Comparative evaluation of a peer group of consumer product
         comp...
Benchmarking finds leaders …

    Demand driven supply chain leaders …

                  … deliver 20%        Leaders    ...
Demand Driven Supply Chains:
New Models of Leadership and Technology




• The demand driven supply chain:
   – Key contri...
Demand Driven Supply Chains:
New Models of Leadership and Technology




Four ideas for you to take away:

1. Rediscover y...
We welcome your thoughts, get in touch:



           Dr Paul Chapman                                Dr Andrew White
    C...
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Demand Driven Supply Chains:

  1. 1. ECR Europe Conference Stockholm 30 May 2006 Demand Driven Supply Chains: New Models of Leadership and Technology Dr Paul Chapman Dr Andrew White In association with
  2. 2. Introductions • Cranfield School of Management – A graduate school with excellence in: • Degree programmes: MBA; MSc; PhD • Executive development • Research, particularly applied research – Home to the Agile Supply Chain Research Club • An academic–practitioner collaboration researching customer responsiveness • Said Business School, University of Oxford – The highest standards of academic rigor with a practical understanding of business and wealth creation. • AMR Research – Advisory services and peer networking opportunities to supply chain and technology professionals in manufacturing and retail sectors. – Thought leaders behind Demand Driven Supply Network (DDSN) slide 2
  3. 3. Objectives • Give a ‘networked world’ context to your knowledge of contemporary supply chains. • Underline the leadership characteristics required to deliver and sustain a demand driven supply chain. • Benchmark your organisation’s demand driven competency. • Demonstrate the methods that will place you on the journey towards being customer focussed and demand driven. • Show the contribution of the demand driven supply chain to increased shareholder value. slide 3
  4. 4. Agenda • Context – The Rise of the Networked World – Demand Driven Supply Chains – Leaderships and Peripheral Vision – Technology Enabled Networked Convergence Organisation • DDSC Readiness Assessment Exercise – Your Opportunity to Benchmark • Delivering Results – Case studies from non-food and fresh categories – DDSC: implications for shareholder value slide 4
  5. 5. Agenda • Context – The Rise of the Networked World – Demand Driven Supply Chains – Leaderships and Peripheral Vision – Technology Enabled Networked Convergence Organisation • DDSC Readiness Assessment Exercise – Your Opportunity to Benchmark • Delivering Results – Case studies from non-food and fresh categories – DDSC: implications for shareholder value slide 5
  6. 6. Context – The Rise of the Networked World
  7. 7. The Rise of the Networked World • Rise of regional political blocks • Outsourcing of manufacturing and business processes • Eating Chilean strawberries across Europe in January • Growth in world trade (exports from Western Europe rose by 17.5 per cent to €3.02 trillion in 2003, and imports rose by 19 per cent to €3.05 trillion). • Commercial and social technological integration • There has been a five-fold increase in air travel over the last 30 years and freight traffic at UK airports has doubled since 1990. • Shocks, discontinuities and terrorism slide 7
  8. 8. Demand Driven Supply Chains
  9. 9. Demand Driven Supply Chains Mean/Average Score on 10 Point Scale for Importance/Performance, All Industries Understand and managing 8.4 customer/end-user demand 6.9 Optimizing overall internal supply 7.6 chain costs 6.1 Improving and optimizing product 7.0 introduction and launch 5.8 Managing and optimizing an 6.9 extended supply network 6.0 Managing a global supplier base 6.4 5.8 Implementing pull-based 6.3 replenishment 5.6 Importance Understanding and implementing sense and respond technologies 5.6 Performance like RFID for Item-Level tracking 5.1 High Low/Poor Source: AMR Research (2006) slide 9
  10. 10. Demand Driven Supply Chains How long does it take your organization to detect changes in true (or actual, customer/consumer) demand? % Responses 4-5 weeks 19% Over half (56%) of companies take 2 3-4 weeks 24% weeks or longer to sense changes in actual demand 2 weeks 13% 1-2 weeks 18% Days 16% Daily 10% Source: AMR Research (2006) slide 10
  11. 11. Days of Inventory 100 120 20 40 60 80 0 Raw material Source: Holweg (2002) Bought-out Parts Average Minimum Maximum In-house built Parts Pre-Assembly WIP Assembly WIP Supplier First Tier Finished Components Collaboration or Clobberation? Inbound Transit Inbound Logistics On-site Part (VM) Vehicle Vehicle Production WIP Manufacturers Loading & Dispatch Logistics Outbound Outbound Transit Marketplace & Retail Distribution C ustomer slide 11
  12. 12. Forrester (Bullwhip Effect) ‘000s 250 200 Demand Amplification: 150 Reduce or Eliminate • Enable Stockless Ops • Improve Availability 100 • Reduce Cost 50 True Variation In Demand 0 43 34 20 22 24 28 10 12 14 16 18 26 30 32 36 38 39 41 45 47 49 51 53 6 8 4 2 Week No. Total RDC Stock EPOS Supplier Shipment slide 12
  13. 13. Leaderships and Peripheral Vision
  14. 14. Keep your eye on the ball In business, you need to keep your eye on the ball • Watch the following movie of a basketball game • Focus only on the team in white t-shirts • Count the number of catches and bounces Remember, keep your eye on the ball! slide 14
  15. 15. Keep your eye on the ball slide 15
  16. 16. Events on the Periphery Supply Side Demand Side • Land Rover • Cisco • Business failure of UPF • Announced a $2.2billion write- Thompson, the chassis supplier down on obsolete inventory in for Land Rover, put the 2001 as a result of failure to production of the vehicles at risk. react to a downturn in demand KPMG threatened to halt supply quickly enough. unless Land Rover made an immediate up-front payment of between £35 million and £45 million. • Seagate • Ericsson • Missed the market for 3.5 inch • At the end of 2000, Ericsson disk drives because it was too announced a $2.34 billion loss in focused on its existing customers its mobile phone division. This (desktop pc manufacturers) and was the result of a small fire at a not the emerging market for chipmaking plant owned by Laptops. Philips NV. Nokia however, mitigated the effects of the fire by responding to the situation before Philips had even contacted them. They were able to meet production goals, and increase market share from 27% to 30%. slide 16
  17. 17. Circles of Influence and Concern Circle of Circle of Circle of Circle of Concern influence influence Concern Delivering shareholder Delivering shareholder What are the levers that I value to my organisation value to my own, my can use to increase my customers’ and my circle of influence? suppliers’ organisations slide 17
  18. 18. Leadership for Demand Driven Supply Chains • Managing self: the Partners reflective mind-set n • Managing organizations: Re tio the analytic mind-set n lat Inf isa tio ion or • Managing context: the on ma ma worldly mind-set hr sh for Business tio nc ips In • Managing relationships: n Performance Sy the collaborative mind-set • Managing change: the action mind-set Information Processes People Roles Source: After Gosling and Mintzberg (2003) slide 18
  19. 19. Technology Enabled Networked Convergence
  20. 20. The Coming IT Based Revolution? Technological Installation Deployment GREAT revolution and Turning Point SURGE Core Country ERUPTION FRENZY SYNERGY MATURITY The Industrial Panic Canal 1797 1825 1st Revolution 1771 Mania 1819 Britain 1793 1810 Age of Steam Railway Panic 1836 mania 1847 1857 1866 1873 2nd and railways Britain (spreading 1829 to continent and USA) Revolutions 1848 Age of Electricity and 1890 Heavy Engineering The “Great Argentina 1903 1907 1920* 3rd USA and Germany 1875 Depression” (Baring) USA US overtake Britain 1893 ‘Rich man’s panic’ Age of Oil, Automobiles 1960 1974* 1920* 1929 4th and Mass Production 1908 US stock 1930s And WWII “Oil Crises” USA (spreading to Europe) mania Age of Information 1987 1997 1974* 1989 Asia 5th and Telecoms USA (spreading 1971 “Oil Crises” Collapse 2000 ? 20?? to Europe and Asia) 2nd World NASDAQ Big-bang Crash Source: Technological Revolutions and Financial Capital, The slide 20 Dynamics of Bubbles and Golden Ages, by Carlota Perez
  21. 21. The Journey Towards Networked Convergence 3rd Party Logistics Service Providers Integration Service Providers Money Materials RAW MATERIALS Information THE CUSTOMER Relationships Banks Application Vendors TradeStream Middleware Vendors slide 21
  22. 22. Summary
  23. 23. Summary - The Power of Peripheral Vision • The human eye has evolved to enable us to respond rapidly to threats located in our periphery. • The eye’s retina has substantially more rods, which are used for peripheral vision, than cones that focus on a narrower field. • Supply Chain Leaders need to learn from this and dedicate more resources to activities on the periphery. • Leadership in Demand Driven Supply Chains requires a different mindset that is able to deploy resources in innovative ways to integrate the end customer with retailers, intermediaries and suppliers. slide 23
  24. 24. Agenda • Context – The Rise of the Networked World – Demand Driven Supply Chains – Leaderships and Peripheral Vision – Technology Enabled Networked Convergence Organisation • DDSC Readiness Assessment Exercise – Your Opportunity to Benchmark • Delivering Results – Case studies from non-food and fresh categories – DDSC: implications for shareholder value slide 24
  25. 25. DDSC Readiness - Assessment Exercise Q1. DDSC Performance • How long does it take your supply chain to sense and respond to changes in end-customer demand? 1. Very high (days or less) 2. High (a week) 3. Low (a few weeks) 4. Very low (months) slide 25
  26. 26. DDSC Readiness - Assessment Exercise Q2. DDSC Readiness • Q2.1 How closely can your supply chain meet your customer’s need for responsiveness? • 1. Very high • 2. High • 3. Low • 4. Very low • Q2.2 What is your ability to improve your demand driven performance? – Knowledge of what to do? • 1. Very high • 2. High • 3. Low • 4. Very low – Ability to deliver change? • 1. Very high • 2. High • 3. Low • 4. Very low slide 26
  27. 27. DDSC Readiness - Assessment Table High Q2.1 Meet customer needs Low Low High Q 2.2 Ability to Improve slide 27
  28. 28. DDSC Readiness - Assessment Table High Incumbent Leader Q2.1 Meet customer needs Low Laggard Challenger Low High Q 2.2 Ability to Improve slide 28
  29. 29. DDSC Readiness - Discussion Points • Pair-up with someone in the same situation • Discuss: – What are the attributes of DDSC leaders? – What do you need to do to close the gap on DDSC leaders? slide 29
  30. 30. Scenario 1. Cycle of birth and death High Incumbent Leader Q2.1 Meet customer needs Low Laggard Challenger Low High Q 2.2 Ability to Improve slide 30
  31. 31. Scenario 2. Cycle of innovation High Leader Q2.1 Meet customer needs Low Low High Q 2.2 Ability to Improve slide 31
  32. 32. DDSC Readiness – Summary Points • The ability to sense and respond to changes in end customer demand is critical – Gather measures • Knowledge of what to do next: – Where to spend your technology budget – Determine the organisational structures • Ability to deliver: – Leadership – End-to-end process management slide 32
  33. 33. Agenda • Context – The Rise of the Networked World – Demand Driven Supply Chains – Leaderships and Peripheral Vision – Technology Enabled Networked Convergence Organisation • DDSC Readiness Assessment Exercise – Your Opportunity to Benchmark • Delivering Results – Case studies from non-food and fresh categories – DDSC: implications for shareholder value slide 33
  34. 34. DDSC: what we know already • DDSC companies are know to: – Begin their thinking with the customer – Have a clear market understanding – Improve availability and minimise discounting by selling more goods at ‘first price – right price’. – Control inventory costs by getting goods to the right place at the right time. • Inspiring examples: – Dell (personal computers) • sale + assembly + delivery to your door = 5 days – Zara (fashion apparel) • sale + design + manufacture + distribute + merchandise = 1 week – 7-eleven Japan (bread) • Sale + manufacture + distribute + merchandise = 12 hours • However few companies are in this league. slide 34
  35. 35. Back to our Circles of Influence and Concern again Circle of Circle of Circle of Circle of Concern influence influence Concern Delivering shareholder Delivering shareholder What are the levers that I value to my organisation value to my own, my can use to increase my customers and my circle of influence? suppliers organisations slide 35
  36. 36. DDCS Leadership: From Concept to Practice Results from 2 case studies: • Fast moving health & beauty line – Gillette Series Gel purchased at Boots the Chemist • High volume fresh line – Own-brand bagged salad purchased at Sainsbury’s slide 36
  37. 37. FMCG supply chain • Focus: – a ‘fast moving consumer good’, i.e. a manufacturer’s highest sale line to biggest customer account • Scope: – Large mass-merchandise retailer – Manufacturer of branded H&B product – First tier supplier slide 37
  38. 38. End-to-end Big Picture slide 38
  39. 39. End-to-end Big Picture Sales (daily) Checkout stock level (weekly) Demand shelf Ordering forecast Back stock 4 week forecast Delivery (daily) (updated weekly) Store order (daily) Regional DC Delivery (daily) Retailer National DC Delivery (daily) Order (daily) Plan DC transport Order Manufacturer DC available stock (daily) Planning head office Allocate (daily) DC quarantine Sales Sales Production (weekly) (weekly) (weekly) Schedule Factory Global Supply Demand Production (weekly) Planning Planning planning Forecast Forecast Factory inbound (weekly) (monthly) warehouse Deliver Can supplier Order (weekly) slide 39
  40. 40. Supply Chain Map Store Plan Retailer RDC Retailer NDC &S ourc er liv De Manufacturer DC e & Manufacturing Ctr. ake M Supplier 0 1 2 3 4 5 6 7 8 9 10 11 Time / weeks slide 40
  41. 41. Findings • Total lead time of 9 ½ weeks (over 2 months!) • Touch time of 14.4 hours = 0.9% • Value adding time of 33 minutes = 0.03% slide 41
  42. 42. Project Review • Achievements: – Visibility of end-to-end supply chain – Used time as a key measure of supply chain performance. • Opportunities uncovered: – Develop a collaborative stock holding policy between manufacturer and retailer; – Improve visibility of demand up the supply chain; – Reduce or eliminate batching of information; • Actions arising: – De-stock the retail stores, reducing inventory and releasing stockroom space to use as additional sales floor – Transform lean manufacturing from push to pull – Targeting 50% inventory reduction across supply chain • Aiming for: – Reduced out-of-stock and increased sales – Reduce supply chain costs for manufacturer and retailer slide 42
  43. 43. Fresh Produce case study • Focus: – high selling, own brand fresh bagged salad • Scope: – Large grocery retailer – Logistics service provider – Salad packer – Farmer slide 43
  44. 44. Supply Chain Big Picture Sales (daily) Checkout stock level (weekly) Demand shelf Ordering forecast Back stock 4 week forecast (updated weekly) Plan and Deliver (daily) Retailer DC Store order (daily) #2 source Deliver (daily) Retailer DC #1 Deliver Order (daily) Deliver (daily) Plan Sales data 3PL DC supplier (daily) (weekly) Deliver (daily) Order (daily) Production Prepare Forecast n Prod . plan Planning Make Forecast (weekly) Harvest Forecast slide 44
  45. 45. Time Based Process Map Day 1 Day 2 Day 3 Day 4 Forecast Sale Plan and source Update of sales data & generate order Prepare (based on forecast) Make Send order to supplier Prepare (based on order) Pack, wrap, store (based on forecast) Deliver Pack, wrap, store (based on order) Dispatch 3PL DC Dispatch Retailer DC #1 operations Dispatch Retailer DC #2 operations Pick, hold Dispatch Store Receive products in store Put salads on shelf 0 10 20 30 40 50 60 70 80 Elapsed Time / hours slide 45
  46. 46. Project Review • Findings: – Total lead time of 68 hours (2.8 days) – Activity time of 14 hours (20% of total) – Value adding time of 1.3 hours (2% of total) • Achievements were to identify: – How much total cycle time is spent creating value for the customer. – Opportunities for improving supply chain performance, specifically the reduction of total cycle time by one day. • Action Plan: – Schedule production using consumer demand – Use logistics as a competitive advantage – Take holistic view of the supply chain and not individual processes – Focus on reduction of the lead time above improving forecast – Work closer with suppliers and share information slide 46
  47. 47. DDSC: Implications for Shareholder Value
  48. 48. Impact of DDSC on Shareholder Value • Business success is determined by enhanced or accelerated cash flow • Enhancing cash flow: – Sell at first price to improve margins – Only make what will sell to improve return on capital – Reduce inventory to recycle working capital efficiently • Accelerating cash flow: – Rapid introduction of desirable new products to recover R&D investment – Perfect order + perfect invoice to shorten the cash-to-cash cycle slide 48
  49. 49. DDSC leaders enjoy: • Study format: – Comparative evaluation of a peer group of consumer product companies – Assessment of: • Enabling practices, capabilities and technology • Operational performance metrics • Key Finding: Demand driven supply chains deliver superior financial performance: – 60% better profit margins – 65% better earnings per share – 200%-300% better return on assets Source: AMR Benchmark Analytix slide 49
  50. 50. Benchmarking finds leaders … Demand driven supply chain leaders … … deliver 20% Leaders 90% more perfect orders… Laggards 68% …hold a third less Leaders 54 Days inventory… Laggards 72 Days …and have lower costs Leaders 21% equal to 5% of revenue Laggards 26% Source: AMR Benchmark Analytix slide 50
  51. 51. Demand Driven Supply Chains: New Models of Leadership and Technology • The demand driven supply chain: – Key contributor to increased shareholder value. – Converts the threats of a ‘networked world’ into opportunities • Leadership is essential: – develop / deliver / sustain • The journey towards being customer focussed and demand driven starts with a simple question: “Why did we forget about the customer”? • Make realisation of DDSC the key criteria for allocating your technology budget. slide 51
  52. 52. Demand Driven Supply Chains: New Models of Leadership and Technology Four ideas for you to take away: 1. Rediscover your affection for consumers. Put them first in your heart and your thoughts. 2. Develop the new leadership capabilities and mindsets necessary to thrive in a networked world. 3. Find out how consumer demand influences your supply chain - walk the walk. 4. Make enabling the demand driven supply chain the criteria for IS spending. slide 52
  53. 53. We welcome your thoughts, get in touch: Dr Paul Chapman Dr Andrew White Cranfield School of Management Saïd Business School Cranfield University University of Oxford United Kingdom United Kingdom Tel +44 1234 751122 Tel +44 1865 422500 paul.chapman@cranfield.ac.uk Andrew.white@sbs.ox.ac.uk www.cranfield.ac.uk/som www.sbs.ox.ac.uk Beth Barling AMR Research United Kingdom Tel +44 20 8822 6781 BBarling@amrresearch.com www.amrresearch.com slide 53

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