Grab ‘n Go: Session 14Agilitet i Supply chainHvad driver omkostningerne?12. Oktober 2016 #deloittegng

About Deloitte Supply Chain Management

© 2016 Deloitte 2

Asia Pacific

260

MEA

100

North America

1.200

Latin America

120

Europe

750

XX Number of local Deloitte SCM professionals

Deloitte SCM functions*

Supply chain strategy

Product development

Supply Chain planning

Sourcing & Procurement

Manufacturing Strategy &

Operations

Logistics & Distribution

Sustainability

Supply Chain Analytics

Note: Deloitte’s definition of Supply Chain covers the full range of operations from product idea to delivery and returns management

The Deloitte Supply Chain network consists of a large group of professionals and

focuses on multiple service offerings

Supply Chain Management

challenges

3© 2016 Deloitte

Any successful supply chain reaches its target on one of the four key factors,

without making compromises on any of the others

Main objectives of Supply Chains

© 2016 Deloitte 4

At a reasonable price

With limited supply

chain risk

And in compliance with

regulations

Customer satisfaction Customer satisfaction is, or should be, at the core of each organisation’s focus. It is defined as:

• Timely delivery according to lead-time request,

• at a quality rate that’s within the requirements

• And with a service level at par

The cost of the Supply Chain network forms a major part of the organisation’s spend. Cost

components include inbound logistics, production, warehouse operations (e.g. pick/pack and

storage activities), intercompany freight, outbound freight and returns handling

Supply chain risk expresses itself as a result of demand and supply volatility. It exposes

organisations to increased financial risks and potential loss of revenue

Compliancy with environmental, tax and customs regulations is a firm requirement of authorities.

Supply chains needs to be compliant with the local and global regulations.

Expectations for more on-time deliveries and shorter lead-times increase the need

for a responsive supply chain

Customer satisfaction

© 2016 Deloitte 5

2012

97%

2010

93%

95%

2008

95%

1999

90%

79%

85%

93%

2005

91%

2002

90%

On time delivery to warehouse On-time delivery to buyer

2011

68%

33%

6%

2013

7%

42%

72%

2012

5%

34%

2010

26%

0%

24%

4%

59%56%

2008

55%

61%

2009

25%

0%

Offering same

day delivery

Offering Saturday

delivery

Offering next

day delivery

On time delivery percentages Offered and expected lead- times

Up to 10% of the sales revenue of organisations represents the spend on

outbound logistics and distribution activities

Margin pressure on logistics and distribution

© 2016 Deloitte 6

0,5%

1,3%

1,0%

0,9%

1,0%

0,4%

Process /

Chemicals

High Tech /

Telecom

3,0%

Life sciences 2,1%

3,2%

2,9%

1,9%

3,0%

Discrete

manufacturing

Consumer

products

Automotive

25th percentile median 75th percentile

1,8%

1,0%

2,0%

High Tech /

Telecom

0,5%

Process /

Chemicals

5,0%

Life sciences

6,5%

2,4%

4,0%Discrete

manufacturing

0,5%

0,6%

2,1%

Consumer

products

Automotive 2,5%

Warehousing cost (incl. pick/pack): percentage of total sales revenue (%) Outbound freight logistics cost (freight, duties and customs): percentage

of total sales revenue (%)

1,0%

0,7%

0,8%

0,5%

0,6%

1,0%

1,0%

1,2%

1,3%

0,5%

0,7%

1,9%

25th percentile median 75th percentile

Source: Deloitte benchmarking database

Both executive surveys and empirical evidence show that risk management is a

key topic as it brings major performance impacts and opportunities

Impact of Supply Chain Risks

© 2016 Deloitte 7

85%... of companies had experienced at least one supply chain

disruption in the last 12 months 1

In the year of a supply chain disruption announcement, a

firm’s operating income declines 39% relative to its peer

group 339%

Supply chain risk is top of mind in the boardroom …

… as it has a significant impact on business performance

Due to product recalls associated with a manufacturing

quality failure, a major global CPG company lost 27% of its

brand value in 6 months in 2010427%

81% ... of companies explicitly manage strategic risks 2

94%... recently changed their approach to strategic risk

management 2

To comply with new labelling requirements flexibility in distribution setup can be

utilised

Compliancy with regulations

© 2016 Deloitte 8

As-is

To-be

Produce StockLabel Ship

Produce Stock Label Ship

Requirement on labelling of goods

• A regulatory framework for the classification and labelling of substances and mixtures in the EU is

being implemented progressively

• Main Logistics & Distribution consequence: Hazard warning sentences need to be in the language of

final customer and warehousing intermediaries

What is driving the need for

adaptive supply chains?

9© 2016 Deloitte

Proper alignment of the supply chain network to the product life cycle is required in

order to continue to have a cost-effective supply chain

Aligning supply with demand

© 2016 Deloitte 10

Network capacity

Development &

Introduction

Growth Maturity Declining Commoditized

Sales

Time

Regular product cycle

Successful product

Product failure

Translating the various influences on your supply chain into pragmatic tasks for

your organisation

Main objectives of Supply Chains

© 2016 Deloitte 11

At a reasonable price

With limited supply

chain risk

And in compliance with

regulations

Customer satisfactionWe need to be able to adapt to whatever

our customers want

However, we should utilise our assets to

the best extend

Without exposing ourselves to too much

risk

And we should be complying with changing

regulations

• Prioritize: Predict what is upcoming and

act on the right things

• Scale: Set capacity utilisation targets

and find the right mix of cost vs. stock-

out risk

• Prepare: Manage resilience and

contingency planning

• Comply: Being able to adapt if needed

How to apply agile management

12© 2016 Deloitte

Three interesting questions arise when thinking about Agile management of

Supply Chains based on its definition

Agile

© 2016 Deloitte 13

“Agile management, or agile process management, or

simply agile refers to an iterative, incremental method of

managing the design and build activities of engineering,

information technology and other business areas that aim

to provide new product or service development in a highly

flexible and interactive manner”

Iterative: Is Supply Chain design an iterative process? Incremental: So each time we do something, it has to be

better than the previous time?

Flexible and interactive: How can a network setup be

flexible and interactive if I am working with large (CAPEX)

investments?

1 2

3

Multiple aspects in the overall strategy as well as external factors can lead to the

need for continuous network setup review

1. Iterative Supply Chain design

© 2016 Deloitte 14

Business model changes

Erosion

Mergers & Acquisitions

Expansion and increased complexity

Introduction of 3PL / outsourcing opportunities

Changes in technology or organization

Direct store delivery to customer central warehouse or

door-to-door delivery

Sustainability and Corporate Social Responsibility

Mergers and acquisitions (e.g. integrating new

companies)

Partly rationalization of supply chain networks

New plants, new warehouses, new customers

Shifts in customer base

Competition / delivery standards

Changes in customer expectations

Shift in costs (e.g. fuel cost)

(De)centralisation of operations planning

New products and new markets

New geographies

Supplier changes

Change in packaging mix

Competitive dynamics change

The traditional way of network redesign is event driven and results in a reactive

network setup linked market demand

1. Iterative Supply Chain design

© 2016 Deloitte 15

Market demand

Reactive design

We have overcapacity

We can’t deliver!Network adjustment

Network adjustment

Deloitte recognizes that Supply Chain Design and Optimisation is becoming the

R&D division of the logistics function and needs more continuous focus

1. Iterative Supply Chain design

© 2016 Deloitte 16

Past Present Future

Centre of Excellence

Supply Chain Network Design

One-off projects

Supply Chain Network Redesign

• Exception-based monitoring of current network and identification of possible

challenges

• Continuous focus on network fit for purpose with a view on the short / medium / long

term

• Fuels strategic decision making whilst maintaining tactical optimums

• Develops a deep understanding of supply chain network dynamics

• Bends on a pragmatic and proven approach leveraging developed models

• Network redesign executed to investigate whether the current supply chain network is still fit

to serve the business

• Often done as a one-off exercise each 3-5 years (depending on the definition of mid-term per

industry)

• Requires starting from scratch and significant effort to ensure a qualitative project is delivered.

Imp

orta

nce / v

alu

e

Making incremental steps, will need a continuous monitoring of network

performance both in operational and financial aspects

2. Incremental: Having the right view on data

© 2016 Deloitte 17

Operational

monitoring

Financial budgeting

and cost controlling

• Extensive KPI dashboards

• Lean performance boards

• Balanced score cards

• Personal performance targets

Traditional way of monitoring incremental change

• Monthly reports

• Ad-hoc analysis

• Budgeting and budget meetings

• Activity based costing

In a cost-controlling way, a high-level comparison between budget and actuals can

be made, but no fact-based explanation of operational variances is available

2. Incremental: Having the right view on data

© 2016 Deloitte 18

Actual cost

Overhead

Sales volume

increase

Budget in

absolute

amount

Scrap rateCurrency impactTransport distance intercompany

DC efficiencyFuel price

Volume

corrected

budget

WH efficiency

Transport distance to customer

Unexplained variance

© 2016 Deloitte

The common approach works from creating the right set of data which supports in

process assessment and relates to cost impact

2. Incremental: Having the right view on data

A B C D EMap the process

Allocate P&L cost

items€ € € € €

Analyse operational

performance

xx per

hourYy km zz …. ….

© 2016 Deloitte

Continuous measurement of operational performance, linked with financial

accounts opens up for analysing the root causes…

2. Incremental: Having the right view on data

Operational

performance

measurements

Monthly financial

statements

Operational metrics that

are true cost drivers. E.g.:

• Transport distance

• Fuel price

• Warehouse pick rate

• Production performance

• Scrap rate

Comparison of activity

performance and cost

Profit and loss statements

used in periodical

budgeting process in the

finance department

Linking operational performance to

the financial accounts on a process

group level opens up the

opportunity for root-cause analysis

of financial performance

This is real business intelligence,

as here your data will teach you

something about your company

… which might reveal the specific areas in your business that have been over or

underperforming and will enable you to focus on making incremental steps

2. Incremental: Having the right view on data

© 2016 Deloitte 21

Actual cost

Overhead

Sales volume

increase

Budget in

absolute

amount

Scrap rateCurrency impactTransport distance intercompany

DC efficiencyFuel price

Volume

corrected

budget

WH efficiency

Transport distance to customer

The common data foundation is a key element in all levels of decision making and

should drive which initiatives to be picked up in what priority

2. Incremental: Having the right view on data

© 2016 Deloitte 22

Common data

foundation

Strategic

(6+ months)

Operational

(1 week to 1 month)

Tactical

(1-6 months)

• ‘Where to be located’

• ‘Where to invest in capacity’

• ‘Where to rationalise’

• ‘How to utilise capacity the best’

• ‘Which order to fulfil from where’

• ‘What is the optimal batch size’

• ‘Which product should we

produce next’

The rise of exponential technologies has created the foundation of the fourth

industrial revolution – Industry 4.0

3. Flexible and interactive

Exponential technology change… …disrupting supply chains across all industries

Power Generation

Industrialization

Electric Automation

Late 18th century

Start of the 20th century

1970s to 2000s

Steam engines and hydraulic

power drive improved

productivity and enabled

industrialization

Advances in computing and

the internet allow for information

to be captured and transferred

more quickly than ever before

Electricity and assembly lines

paved the way for mass

manufacturing, improved

infrastructure, and advances in

financing and credit markets

Execution of

connected products,

customers, and

supply chain and

operations - driven by

a vast network of cyber-

physical systems

4th Industrial Revolution

Digital Supply Networks

With the increased availability of data, we need to be even more conscious of what

data to use and which type of analytics to apply

3. Flexible and interactive: From reactive to pro-active

© 2016 Deloitte 24

Analytical Sophistication

Added V

alu

e

Visual data exploration

PredictiveModelling

Simulation &Optimization

Segmentation

KPI reporting

Operationalreporting

Business User Statistical Expert

The question: Can we use visual data

exploration and segmentation flexibly and

interactively to support us in management

decisions?

An organisation that excels in anticipating and managing exceptions with full focus

will succeed in delivering highest service at lowest cost

3. Flexible and interactive: Exception based management

© 2016 Deloitte 25

Focus on all cases Sort out the extra-ordinary Full-focus on exceptions

Focus on business-as-usual

Business-as-usual

Exception

Today’s reality The task at hand The future potential

Summary

26© 2016 Deloitte

Iterative: Supply chain design should be a continuous business

consideration

Incremental: Monitoring the incremental improvements in

your supply chain is ideally done by linking operational and

financial performance

Flexible and interactive: Working increasingly exception

based will enable to focus you on what matters and where

most adaptivity is needed

1 2

3

Rick van der VegteManager, Strategy and Operations

ridervegte@deloitte.dk

6. September 2016 #deloittegng