Gci Capgemini Future Supply Chain 2016 Report

2016FuTure Supply Chain

Serving Consumersin a Sustainable Way

Acknowledgements

The Global Commerce initiative wishes to thank t he following execut ives f or providing their time,

support and valuable insight into the f uture supply chain:

alex Bajorinas, Capgemini Oliver neubert, Freudenberg household product s

Tony Borg, nestlé Ben pivar, Capgemini

Bob Boucher, Colgat e-palmolive Jochen rackebrandt, Kraf t Foods

Mark d’agostino, GS1uS rich rapuano, Black & Decker

luca D’ambrosio, reckit t Benckiser Katrin recke, aiM/eCr europe

Stuart Dickson, GlaxoSmithKline Sabine ritter, Global Commerce initiative

priscilla Donegan, Capgemini audrey rossman, procter & Gamble

Xavier Franco, Johnson & Johnson andreas ruthenschröer, MGl MeTrO Group

Massimo Frediani, nestlé logist ics Gmbh

Geoff Frodsham, loblaw Companies ltd Stephan Sielaff, Symrise

Thierry Gueguen, Groupe Danone Tony Spiliotopoulos, l’Oreal uS

ruediger hagedorn, Global Commerce initiative Tibor Szandtner, Capgemini

loes heinemans, Capgemini Chrys Tarvin, Wal-Mart St ores, inc.

Kees Jacobs, Capgemini ruud van der pluijm, royal ahold

Jeroen Janssen lok, Sara lee int ernational ingeborg Veelenturf, Kellogg europe

pet er Jordan, formerly Kraf t Foods Tony Vendrig, royal ahold

Bill lewis, SCa packaging ard Jan Vethman, Capgemini

luis Montenegro, British american Tobacco Olivier Vidal, l’Oreal

lara Moutin, unilever Jos Visee, philips

as well as other members of the GCi Steering Group who have contributed t o the report, Jesse van

Muylwijck for his cartoons, and the Chicago and netherlands accelerated Solutions environment

(aSe) f acilitation teams from Capgemini f or their support during the aSe events.

Xavier Derycke, Carrefour roland Dachs, Crown europe

Co- Chairmen of the GCI Future Supply Chain Work Team

© Ma y 2 0 0 8 Gl o b al Co mme r ce i n i ti a ti v e, C ap g em i n i . a l l ri g h ts r e se r ve d .

Contents

Foreword 4

executive Summar y 6

1. The Future Challenge 10

2. The past Does not reflect the Future 16

3. a Toolkit for an innovative Future Supply Chain 22

4. a new Model for enhanced Supply Chain Collaboration 32

5. next Steps Toward the Future Supply Chain 44

appendix: Building the Future Supply Chain 48

Future Supply Chain 2016

the big question is: What impact will thesenew parameters have on the design of futuresupply chains?

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Foreword

What do es the current focus on sustainability have The breakthrough change presented in the reportto do w ith 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 pack aged goods industry. All theanswer is “everything.” elements of this change have been brought together

into an integrated architecture for a future supplychain, aimed at a more sustainable broad-basedIncreasing political momentum around issues such assolution for the industry.resource scarcity, climate change, security and new

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 w ith breakthrough solutions. Roland DachsSuch solutions require new thinking, new approaches Vice President, Supply Chainand new collaboration on infrastructures. Crown Europe

Until 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, CO emissions and the permanent

2

rise in transportation costs.

The big question is: What impact w ill these newparameters have on the desig n of future supply chains?

The ambition of this report is to provide relevantthink ing, ideas and examples to help answerthat question.

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Executive Summary

In the conclusion of “2016: The Future Value Chain,” Serving Consumers in a Sustainable Waythe Board of the Global Commerce Initiative (GCI) Current supply chain desig ns 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 (lik e ROI orcore to the competency of Board members and were return on brand equity). In the future, the industryaligned w ith the Board’s strategic direction: must design for additional parameters like CO

2

emissions reduction, reduced energy consumption,° New Ways of Working Togetherbetter traceability and reduced traffic congestion. The° Information Sharingimpact of these new parameters on the current bottom

° The 2016 Future Supply Chain line may not yet be substantial but w ill g row in thecoming years and efficiency improvements will almost

Since 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

play their part to accomplish this change. Consumer° The challenges ahead that will force companies toawareness and demand for new products and serviceschange their operation.will also accelerate the adoption of new practices.° The need for breakthrough change, as the past

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 ofchain and what are the components? To answernew solutions, leading practices, example supplythat question, four key elements must be takenchains and new ways to calculate the impact of theinto account:new parameters on the supply chain.

° Enhanced collaboration, which is essential amongSolution 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 physicalchange to a future model leading to sustainability supply chain innovation. Seven key solution areasand 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, packagingrecycling, returnable assets

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the 2016 Future Sup ply 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.

° Collab orative transport from the collaborative warehou se will deliver to cit y hubs and to regional

consolidation cen tres.

° Warehouse locations on the edge of cities will be reshap ed to function as hub s 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 urb an and non-urban areas will take place

via con solidated deliveries u sing efficient assets.

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4. Demand F luctuation Management: joint planning, New ways to calculate the impact on the supplyexecution and monitoring chain:These calculation models, using the

new parameters, are an essential element of the5. Identification and Labellingfuture supply chain in determining the impact

6. Efficient Assets: alternative forms of energy,of the leading practices and solutions.

efficient/aerodynamic vehicles, sw itching modes,g reen buildings

a new Model for enhanced Collaboration7. Joint Scorecard and Business Plan

Integrating these improvement solutions togetherwith collaboration concepts into a cohesive model

Leading 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 sup ply 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 into° Collaborative city distribution (including homeaccount the main characteristics of the example

delivery and pick-up)supply chains.° Collaborative non-urban distribution (including

home delivery and pick-up)

Many of the trends, issues and changes discussed in this rep ort are

based on the industry supply chain primarily in Western markets. in athe Future Supply Chainreport of this nature it is not possible to envision the future situation in allin emerging Marketsgeographies. 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 don e in established markets. new technology

often leads to leapfrogging developments, skipp ing the evolutionary phase.

a good example is the widely accep ted use of satellite technology in some

developing markets over the more traditional land lines. at the same time,

established markets may b e hamp ered by existing legacy systems.

readers are encouraged to assess what the changes discussed in this

report might mean for both the estab lished as well as the developing

markets across their distribution channels. Geographies, economies and

social groupin gs will always be diverse, but many will be subject to the

trends and changes identified in this report.

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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 k ey 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 w ays of work ing will require a number of initial next steps, driven bytog ether 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 stak eholders (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 technolog y) 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%, reduce

° Evaluate the implementation and share learnings.lead time by 40% and lower CO emissions per pallet2

to the order of 25%, while also improving on-shelfThe following pages provide insight into theavailability. This does not include additional energ ydevelopment of a future supply chain that willcost savings stemming from more efficient assets suchreact to and help satisfy tomorrow’s consumers in aas green buildings and fuel-efficient/aerodynamic andsustainable way. (Note that further details of leadingjumbo trucks.practices, example supply chains, calculation models,the integrated model and a glo ssary of terms can beThese benefits and others are expected to befound in the separate, freestanding Appendi x thatachievable when all the elements of the futureaccompanies this report.)supply chain are in place. The future supply chain is

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” rep ort and project, including the freestanding

appendix, can be found at w ww.gci-net.org and

www.capgemini.com.

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10

The Future Challenge

a view of the drivers of change and their

impact on the future supply chain.

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Are 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.”

F T T W i F s co rce s an d re nd s h aT il l m pac T Th e uT ur e up p ly h ai n

Sustainability andNew markets and a new the scarcity of

Driving the value chaineconomic balance natural resources

Economic Ecological

Consumer Behaviour

Managingcomplexity Redesigning

thr ough supply chainstransparency

Regulator y Demographic

NewTechnologies

New rules, Graying andnew 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. How ever, 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.

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1. T hE FuT urE ChallEngE

external Forces Driving Change Ecological tre nds: 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 w ill likely remainvolatile and supplies will continue to dwindle.Economi c trend s: new markets and a new economi c

balance.Brazil, Russia, India, China, Africa andKorea will be major markets to consider in the coming Demographic tre nds: graying and urbanisation.Theyears. Each of these markets will evolve much more future w ill be dramatically changed by shiftingquickly, compared with the parallel changes that demographics, such as the g raying of Westernoccurred in North America and Western Europe. countries and the increase in urban population. ForThere w ill 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/200_/may/10_.html1

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The coming years will see a new era forindustry collaboration, which will becomean important factor for future success.

New technology trend s: 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), and will2

by consumers and shoppers (in home, in stores, require other delivery mechanisms besides theon-the-go) will grow rapidly. stores, including, for example, neighbourho od

distribution and home delivery.

Regulator y tre nds: 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 Infor mation flow: managing complexity throughThere will also be key industry trends that w ill 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 w ill be an important foundationtake place, at least to some degree. to help companies anticipate dynamic consumer

demands. Collaboration should focus on areas ofcommon interest, without affecting the competitiveConsumer behaviour: driving the value chain.positioning of companies.Consumers and shoppers will continue to become

more demanding and empowered. In fact, they

“Future Consumer: how Shopper needs and Behaviour Will Impact Tomorrow’s Value Chain,” Capgemini.2

1_

1. T hE FuT urE ChallEngE

Conclusion: chain management capabilities. New types of supplyCritical Changes need to be Made chain managers will look not only at efficiency, butTrue collaborati on 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 w ill become an important factor for future management capabilities should be changed in ordersuccess. In many cases, this w ill 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 sk ills and tools. Education prog rammes 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 w ill impact and driveappropriate reg ulations. 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 w ill require new supply chain that will be necessary in order to moveways of working, new to ol sets and thus new supply toward 2016.

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1_

The Past Does notreflect the Future

individuals, companies and nations must move to adopt

more sustainable supply chains, begin to measure against

a new set of sustainability Kpis and report progress on

their reduction.

1_


Today 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 truck loads 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. 3

alone is estimated at €200 million per quarter. Theindustry’s infrastructure remains complex. Energ y 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 flow s.

° This requires re-evaluation of the physical layoutof the supply chain and improved mechanisms to

These issues have changed little in the past 10synchronise production with actual demand.

years, yet real solutions have not been found and° Real-time, flexible and standardised informationimplemented. It’s clear that the current way of

sharing along the value chain is foundational forworking is not sufficient and that the industry mustthis, with consumer-driven demand data as thetake a new approach.starting point.

° Home shopping and neighbourhood distributionwill emerge in co-existence with the evolvedstore-oriented supply chain.

e v c 2016vo l v i ng al ue h a in o F

F o r p ur po se s o f th e f ut ure su p pl y ch a in pro j ec t, m an u fac tu rin g is tr ea te d as a bl ac k bo x , al th o ug h ce rt ain l y m an uf ac tur in g w i ll a ls o fa ce e xi st in g a nd3

n e w ch al l en g es o ve r th e ne xt d e ca de , in cl u di n g i ssu e s su ch as e th ic al s ou rc in g a nd fai r tra d e.

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2. ThE PaST DoES noT rEFlECT ThE FuTurE

Current Kpis Sustainability Kpisnew Kpis for the availability to consumer (percent energy consumptionFuture Sup ply Chain in-stock) CO emissions (greenhouse gases)

2

Cost reduction Traf fic congestion

Financial Kpis Water consump tion

° return on investment (rOi) Security compliance

° Gross Margin return on “X” infrastructure simplification

(GMrOX)

° return on brand equity

° inventory

Traceability

new 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 CO e missionsare measured in tonnes of CO . Forsupply chain efficiency, they do not adequately 2 2

transportation, the amount of CO emitted is directlyaddress supply chain sustainability. For this purpose, 2

attributed to weight, mode and distance travelled. Foradditional KPIs such as energy consumption, CO warehouse and store locations, the amount of CO

2emissions, traffic congestion and infrastructure 2

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 w ill address the current and futuresustainability issues as well as on-shelf availabilityand business cost.

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Future supply chains will have to demonstratetheir reliability even in larger and complexcollaborative modes.

Increasingly, governments are mak ing commitments Security compliancewill also be a key fo cus inand legislation to drive reduction in CO emissions. the coming years. Recovery action plans both for

2For 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.

Traffi c congestionis a new measure that is beingused by various governments and regulatory bodies Lastly,infrastr ucture 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 reg ions. 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 toolk it forweight and limited time slots for replenishment. mak ing the desired changes to the supply chain.

Water consumptionwill be a big issue in the future.Access to drinking water will become increasinglyscarce and environmental changes w ill occur asa result. Governments and non-governmentalorganisations have implemented awarenessprogrammes and policies to address the growingconcern.

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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, Decemb er 1997. This treaty was signed by 36 industrial

countries in 1997 in Kyoto, Japan, and called for all ind ustrialised nations

to reduce their collective emissions of greenhouse gases by 5.2% versus

1990 levels. The goal was to lower average emissions of CO and five other2

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 Disclo sure project (CDp). The CDp is an indep endent not-4

for-profit organisation aiming to create a lasting relationship among

sharehold ers, purchasers and corporations regarding the implications for

sharehold er value and commercial operations presented by climate change.

increasingly, focus is shif ting 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 in corporate climate change into supply chain decisions.

eu Directive o n renewable en erg y, January 2008. On January 23, 2008 the

european Commission put forth an integrated propo sal for climate action.

This includes a directive that sets an overall binding target for the european

union of 20% renewab le energy by 2020 and a 10% minimum target for the

market share of biofuels by 2020, to be observed by all member states.

ww w. c d pro j ec t. n e t_

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22

a Toolkit for anInnovative FutureSupply Chain

Solution areas, leading practices, example supply

chains and calculation models are the tools needed

to build an innovative future supply chain model.

23


Tak ing 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 thepractices are integrated into the model to show consumer in the store.how they help address the solutions areas.

An example is in-store visibility. R FID technology° Application to example supply chains: Simplifiedcan be used to enable real-time insight into inventory,supply chains are used to demonstrate how thewith alerts via computer when supplies are runningmodel work s.low or when theft is detected. Another example is° New ways to calculate the impact on the supplyshelf-ready products, which arrive as a merchandisechain: These include both macro-level and microunit that is easy to identify, easy to open and cancalculation models.easily be put on the shelf. Shelf-ready products aim toimprove shelf replenishment and enhance visibility.

This section looks at each of these components.However, it is important to note that the components

Shopper interaction is another in-store logisticsdo not stand alone; they interact with each other. Atsolution and requires improved availability ofthe same time, they are not set in stone. Individualconsumer data for both the manufacturer and retailer.companies can “play” with the elements and applyPOS data should be available and used to build athem to their own specific situation. The resultsdata warehouse, which provides analysis and reportsprovide a realistic picture of a company’s own supplythat fit to the KPIs of the manufacturer and retailer.chain and offer insight into which solutions will beShopper interaction may involve the use of mobileimportant in the future and the potential benefits.devices such as electronic labelling, mobile paymentsand mobile device marketing, and in-store kiosks and

Solution areas and leading practicesnarrowcasting to present information designed to

All of the solution areas focus on physical supplystimulate purchases.

chain innovation. Examples of real-world leadingpractices help illustrate the achievable benefits in each

2. Collaborative Physical Logi stics.This solution areasolution area. Applying these solutions and leadingis defined as the sharing of physical infrastructurepractices to example supply chains will help identifysuch as warehouse storage and transportation vehiclespotential improvement opportunities.in order to simplify the overall physical footprint,and to consolidate flows to improve service and

The follow ing 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. R everse Log istics: product recycling, packaging between manufacturers, between retailers, and

recycling, returnable assets between manufacturers and retailers and possibly athird-party logistics provider to share transport; it4. Demand F luctuation Management: joint planning,involves sharing load planning and truck capacity.execution and monitoring

° Shared physical infrastructures: Manufacturers,5. Identification and Labellingretailers and possibly third-party logisticsproviders collaborate to share warehouses anddistribution centres for activities such as storinggoods or cross-docking.

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3. a ToolkIT For an InnoVaTIVE FuTurE SuPPly ChaIn

T T Fh e o o lk iT F o r T h e uT ure

° Shared information: Sharing information to These solutions can benefit from efficient assetmanage flows among manufacturers, retailers and solutions, for example green buildings and more fuel-third-party log istics providers in order to combine efficient transport.deliveries from more than one source towardsmultiple stores via a warehouse or distribution 3. Reve rse Logistics.This is defined as logisticscentre. 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, packag ingto help companies in the supply chain reduce the reuse and pack aging 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 mak es it po ssible to tag alltransport efforts will be measured in fewer and pallets with one type of tag, such as an R FID chip.friendlier miles.

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a g : s a , kpi , l pT a l an ce o l u Tio n re a s s e ad i ng r acT ice s

Soluti on areas Kpis l eading pra ctices

Company leading practice

in-Store logistics • • • • Schuitema i m p l em e n ti n g rF i D o n cr a te s w i th

r e a d y -to -c o o k v e g e ta b l e s. Sa l e s h a v e

i n c r ea s ed b y 1 0% t o 12 % .

Collaborative • • • • • Carrefour, a mu l t i -p l a y er a p p r o a ch h a s r e su l t ed i n

physical logistics Bénédicta, b en e f i ts s u ch a s a 3 4 % i n c r ea s e i n a v er a g e

d e l i v e r y f re q u e n c y a n d a 11 5% i n c re a se i nnutrimaine,a v e ra g e l o a d p e r d e l i v er y .lustucru,

FM logistics

eCr europe e C r e u r o p e ’ s s u st ai n a b l e tr a n sp o r t p ro j e c t

i s d e si g n e d to h e l p co mp a n i e s r ed u ce th e

e n v i r o n me n ta l i mp a c t o f tr a n sp o r ta ti o n .

reve rse logistics • • hp, Braun/ T o g e th er th e co mp a n i e s fo u n d ed t h e

e u r o p e a n re c yc l i n g p l a tf o rm to e n co u r a g e aGillette, Sony,c o mp e t i ti v e ma r ke t f o r W as te e l e ct ri c a l a n delectr oluxe l e c tr o n i c e q u i p me n t ( We e e ), w h i ch i s

e x p ec te d t o r e d u ce c o sts b y mo re th an 5 0 %.

Demand • • • • • Scotts S co tts ’ u se o f c o n su m e r- d ri v e n

r e p l e n i sh m en t h a s l e d to i mp r o v ed f i l l r a te sFluctuation( 98 % ), i n - sto ck s e r vi c e ( 95 % ), i n v en t o r y t u r n sMa nage menta n d o r d e r f o r ec a st .

philips p h il i p s ’ Co l l a b o r a ti v e p la n n i n g , F o r e ca s ti n g

a n d r ep l en i s h me n t p r o g r a mme s w i th s e ve r al

c u st o me r s h a v e c re a te d a co n s u me r -d r i v en

s u p p l y ch a i n , r es u l ti n g i n a n i n cr e a se i n

f o re c a st a c cu r a cy to a b o v e 8 0 % , a r e d u c ti o n

i n s to c k l e ve l s i n t h e s u p p l y ch a i n b y mo r e

t h an 3 0 % , a n d an i n c r ea s e i n o n -sh el f

a v a il a b i l i t y t o a b o u t 9 5% , d r i v i n g sa l e s a n d

c o n s u me r s at i sf ac ti o n i n t h e p r o c e ss .

identifica ti on & • • • • • • GS1 T h e GS 1 S y ste m o f St an d ar d s p ro v i d e s a

labe lling w o r l d -w i d e o p e n st an d ar d , su p p o r te d b y

p u b li s h ed g u i d e l i n e s an d p r e ci se a ll o c a ti o n

r u l e s. l ea d i n g p r ac ti c es i n c l u d e G T i n, G ln,

S SC C a n d D a ta Ba r.

effi cie nt assets • • • • • • Macy’s M ac y ’s an d S u n p o we r Co r p o r a ti o n ’ s so l a r a n d

e n e rg y e ffi c i en c y i n i ti a ti ve h as r e d u ce d en er g y

c o n s u mp ti o n b y a b o u t 4 0 % .

Metro T h ro u g h th e i n te g r at i o n o f e ur O- 5 tr u c ks in to

i t s d i str i b u ti o n n e tw o r k, MGl M e tro d e c re a se d

C O em is si o n s b y 25 % b e t we e n 2 0 0 3 a n d 2 0 0 6.2

i t is ai m i n g fo r an 8 4 % re d u c ti o n b y 2 0 0 9.

Joint Scoreca rd & • • • • Wal-Mart i m p l em e n ti n g a p a cka g i n g s co r e ca r d fo r

s u p p l i e r s i s W al - Ma r t’ s n e x t s te p i n mo v i n gBusiness plant o wa rd a ch i e v i n g a 5 % r e d u cti o n i n p a ck ag i n g

b y 2 0 13 .

S o ur ce: g l ob a l C om m e rce I n iti at ive , C ap ge m i ni

2_


4. 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-winning concept of5

models transcend traditional approaches to retailer- procurement log istics—a collaborative approachsupplier integration and collaboration. across all categories and store formats (food,

non-food, apparel, DIY and consumer electronics)that is consolidating f lows and warehouses—MetroVertical solutions include promotion/introductionalready stated in 2002 positive environmental effectscalendars and supply/demand capacities to alignand “conservative” savings on the order of €150introductions and promotions. An additionalmillion per year through higher fill rates and lowersolution is collaboration on execution, thatwaiting times.is, joint supply/demand anticipation based

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 truck s into its distribution network, MGL Metrojoint, real-time access to results of introductions decreased CO emissions by 25% between 2003 and

2

and promotions, based on secure systems. 2006. It is aiming for an 84% reduction by 2009. Theuse of GPS modules, traffic monitoring, planningsystems and well-trained staff has delivered major5. Identification and Labelling through the use ofefficiencies and improved asset utilisation, producingbarcodes and R FID tags. Identification is aboutsome 40,000 additional driving hours per year fromproviding all partners in the value chain with thethe same assets.ability to use the same standardised mechanism to

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 w ill 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 work ing

collaboratively; and quantitative tools, which includebusiness metrics aimed at measuring the impact6. Effici ent Assets.This solution area encompassesof collaboration.efforts by companies to modify existing or design new

equipment or buildings, to enhance their productivityand reduce their environmental impact. The accompanying table (“At a Glance: Solution

Areas, KPIs, Leading Practices”) provides anoverview of the solution areas and the related KPIsTransportation solutions include more efficient and/oras well as examples of existing leading practices. Theaerodynamic and jumbo vehicles; utilising alternativedetails of the leading practices can be found in theor multiple modes of transportation; and switchingseparate, freestanding Appendix that accompaniesto different transport modes. Solutions involvingthis report.buildings include the adoption of a “green” building

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 energ y on-site, and most likely will usegrid power generated from renewable energy sources.

Mg l M et ro, D e ut sch e r l og i sti kp re is , 2 0 0 2 ; M g l Me tro , E Co P e rf or m an ce a wa rd , 2 0 0 _._

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understand and reinvent Follow ing 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, reg ularcan be applied. A distinction is made among reg ular 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 leng thtable (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 CO

2

emissions and energy consumption.

Some illustrative solutions for this example supplychain include shipping larger volumes or cross-s c sup pl y h ain T rucT ur e

docking, sharing transport to stores, efficientand aerodynamic vehicles (especially for cityreplenishment) and shared warehousing on combinedcategories using “g reen” facilities.

Remote sour cing/White Goods (large householdproduction

Loc al sourcing/ appliances).The mainproduction

characteristics of the whitegoods supply chain includelong lead time from source to

shopper, yet sometimes the product lifecycles can beshort; inventory levels could be improved, especiallyat retailers (many retailers hold inventory even thoughDistr ibutionit needs to be delivered); stocking locations could bereduced; significant physical distribution and reverselogistics; collaboration and integration with otherparties could be improved; home delivery could bemore flexible; and opportunities exist involvingstandardisation of products.

Urban final mile

Non-urban final mileExamples of suitable solutions to apply include theuse of point-of-sale data for production planning,collaboration on fulfilment between manufacturerand retailer, improved forecasting and inventorymanagement and SKU rationalisation, sharedwarehouses and standardisation of productcomponents.

2_


k c e s ce y h ar ac Te ri sT ic s o F x am p le up pl y h a in s

produc t Group Final Mile retail Distribution production Sourcing

example CollaborativeCereals Store, urban regular

Supply Chain a replenishment warehouse Continuous remote and local

exampleWhite Goods home

Supply Chain B delivered Seasonal rever se logistics Shor t product lifecycle remote

example highlyBever ages Store promotional Direct store

Supply Chain C delivery continuous local bottler

example Small localVegetables Store,

Supply Chain D non-ur ban Seasonal Cross-dock, cr ates farms local

remoteexample

Coffee local pick-up promotional endcap/gondola co-operationSupply Chain e end material Discontinuous

of farmer s

S o u rce : gl o b al C o m me rc e I n it ia ti ve, C ap g em i n i

Beverages.The Vegetables.The mainbeverages supply characteristics of thechain is characterised vegetables supplyby relatively high chain are local andinventory 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 quick ly 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 network s (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 lik e (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 stayat warehouses. Coffee is ahigh-value product,collaboration among

manufacturers could be improved, and there aredefinitely opportunities for more involvement oflogistics service providers. Overall, the chain consistsof a number of steps.

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Suitable solutions to apply in this supply chain In the calculation models used in the futureinclude collaborative physical logistics (such as supply chain research, the follow ing parametersshared warehouses between coffee manufacturers are considered:and between different k inds 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, pack aging can ° CO emissions (greenhouse gases)be done closer to the consumer. Better information 2

° Traffic congestionon fluctuation management and promotions w ill° Infrastructure simplificationimprove forecasting. POS data needs to be available to

improve 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 impactof transport on the bottom line can be expressed innew Ways to Calculate theterms of the cost per kilometre for the particular typeimpact on the Supply Chainof transport multiplied by the number of k ilometresFinally, calculation models are an essential to ol fortravelled. Reductions can either be made by reducingthe future supply chain to determine the impact ofthe cost driver (cheaper transport) or by reducing thethe leading practices and solutions. As the industryvolume driver (fewer k ilometres through fuller truckstries to improve several parameters in the supplyor redesign of the network).chain, how can it compare solutions that may have

conflicting impact on, for example, CO emissions2

versus supply chain costs? This section examines the While work ing 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 onthe bottom line. For other parameters, the impact is(not yet) as big.

i B lm pac T o n Th e o T To m in e

parameter Cost Fa ctor Cost Driver Volume Driver impact on Bottom li ne

Supply Cha in handling $ manhours # transfers, etc. high

Cost reduction Storage $/m2/day # storage points, Medium (dependingstorage time on value of goods)Transpor t $/km

# kilometres high

CO emissions CO taxation $/kg CO # kilometres relatively low2 2 2

(modality dependence)

traffic Congestion Delays Manhours lost # vehicles delayed, Mediumstorage of m2/dayDelayed replenishment/

out-of-stocks

infrastructure Duplication Duplication of costs # storage points/ highSimplification in the supply chain # of separate chains

S o ur ce: g l ob a l C om m e rce I n iti at ive , C ap ge m i ni

30


Five calculations are available in the Appendix, A different (and often forgotten) viewpoint is thebut the main conclusions are shared here as an amount of CO emissions caused by consumers who

2

introduction 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 CO emissions for

2

the transportation and storage of 1 kg of apples fromNew Zealand to a UK consumer’s home is causedCollaborative city re plenishmentinvolves conceptsby consumers who use their cars for shopping trips.where the replenishment of products for several 6

Home delivery can improve this significantly (perhapsretailers into an urban area is consolidated at transferreducing the “last mile” CO emissions by half).points at the boundary of that urban area. The total

2

impact on CO emissions and congestion can be2

improved 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 w ill 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 di str ibutionlooks ingredient for this; tak ing 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-dock ing at a retailer distribution centre (insteadinfrastructure complication (instead of simplification). of keeping stock) typically requires the manufacturerCollaborative warehousing also offers CO and cost to deliver store orders instead of consolidated

2

benefits through deploying greener buildings and replenishment orders.(transport) assets. An alternative combination ofcollaborative city replenishment and collaborative CO e missions reduction through local sourcingwarehouses is distribution centre collaboration for 2

considers the trade-offs for remote sourcing betweenretailers. The agg regation of transport and storage for lower production cost and higher transport cost andseveral retailers can have similar benefits as the model CO emissions. It quick ly shows that CO taxationfor collaborative warehousing. 2 2

needs to be quite severe to motivate more localsourcing. However, a combination of higher energy

Neighbourhood deliveryconsiders improvements in the prices and CO emission taxation could tip that2

delivery 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 futuresupply chain.

“l e an an d g re e n, d oi n g m o re w i th l es s, ” D av id S im o n s an d r ob e rt M aso n , E Cr J ou rn a l, V ol . 3, n o . 1 ._

31


32

a new Model forEnhanced SupplyChain Collaboration

integrating improvement solutions and collaboration

concepts into a cohesive model will provide the future

supply chain architecture necessary to bring new

efficiency and cost reduction to the industry.

33


Can 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 CO emissions, traffic congestion, only one way in which the concepts can work together.

2

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 follow ing four collaboration concepts are at theso lutions 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 o utlined in the earlier supply chain“2016” report.

2. Collaborative warehousing

3. Collaborative city distribution, including homeWhy should you care? Well, what if you could reducedelivery 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° CO emissions per pallet exist, the key to their broader implementation

2

across the industry w ill be improved collaboration.Improving such collaboration demands new waysExtensive analysis found that the KPIs for transportof working together in the physical supply chain, acosts, handling costs, total truck kilometres, COframework for which has been developed by GCI2

emissions and lead time could all be improvedand is being addressed by a separate work team.substantially in this integrated model, and this does

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.

3_

_. a nEW MoDEl For EnhanCED SuPPly ChaI n CollaBoraTI on

the 2016 Future Sup ply 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.

° Collab orative transport from the collaborative warehou se will deliver to cit y hubs and to regional

consolidation cen tres.

° Warehouse locations on the edge of cities will be reshap ed to function as hub s 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 urb an and non-urban areas will take place

via con solidated deliveries u sing efficient assets.

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1. infor mation Sharing – Driving the Collaborative Supply Chain

Supply 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 (correctidentification prevents mistakes and rework):Information about the actual status of items in the

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

° GLN

3_


Other master data relating to locations such as node A repositioning of warehouses is likely to be requiredlocation and lead time between nodes must also be to improve the new supply chain KPIs. This will beshared and aligned. important in order to shorten the chain and increase

flexibility in allocating inventory to demand.

To prevent out-of-stocks, demand-signal data, likePOS sales data, Internet shopping sales data and Standardisation of data is critical to make thisother mobile-sourced shopping data, must be shared possible, so this concept relies heavily on improvedin a standard and timely manner. This principle also data sharing. Not all products can be put into oneapplies to information about item location, quantity warehouse, of course, and different collaborativeand status. warehouses will need to be designed for different

categories, preferably aligning themselves ondownstream distribution networks.Events in the supply chain, such as new product

launches and promotions, disrupt the regular flowof goods. The free flow of data and associated Collaborative warehousing should improveinformation is essential if the industry is to properly several KPIs:manage these events and achieve high levels of product ° Capacity utilisation of the total warehouseavailability when and where consumers want it. ° Transport optimisation through shared delivery

from the warehouse2. Collaborative Warehousing

° CO and energy reduction through the use ofCollaborative warehousing, with concepts that go 2

the latest technologies (such as energy-efficientfar beyond the warehouse collaborations that existbuildings and fuel-efficient trucks)today, is a core component of the future supply chain

architecture. The key element is that both retailersTo succeed, this concept will require high levels ofand manufacturers must be part of such collaborativetrust and commitment among manufacturers, retailerswarehouse concepts; they should not just encompassand log istics service providers, but it is a crucial enablerwarehouse sharing by manufacturers alone.for realising integrated sustainability improvements.

For example, collaborative warehouses in carefullyselected locations will collect (possibly combined)shipments from a number of manufacturers, and fromthere combined shipments will be made to distributeto one or more retailers covering different modes oftransport ownership, formats and channels (via newurban and non-urban distribution models; see laterdiscussion). This implies that store pick ing can bedone from the shared warehouse.

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3. Collaborative Cit y Distribution

The future supply chain architecture anticipates new For the first category, changes in the efficiency andcollaborative models for city distribution that need emissions of the trucks could be sufficient, but theto be applied in urban infrastructures. For transport other two categories can be consolidated outside theinto urban areas, congestion and CO emissions city in city hubs and be brought into the city with

2are the main challenges that need to be addressed. alternative modes of transportation (like streetcars orSharing infrastructure for delivery into urban areas is electric vehicles).therefore designed to limit the amount of (polluting)trucks going into the city. In addition, to address the expected growth in

home delivery and therefore parcels coming intoMerging the different streams that go into the city urban areas, alternative models for home deliveryonto one infrastructure will be a big step forward. and neighbourhood distribution should mergeThe key element will be so-called “city hubs” with a with the urban replenishment mo del. This impliescollaborative cro ss-dock operation. consolidation of different delivery streams (different

products based on different orders from differentonline ordering facilities, all for the same shopper)The final solution w ill be applied differently pervia city hubs.shipment category:

° Full truck loads for store replenishmentNew neighbourhood distribution models will have° Less-than-full truck loads for smaller-storepick-up points or drop-off boxes to enable efficientreplenishmentdelivery of the parcel stream in a consolidated way.

° Parcels, including home delivery needs Consumers will be given the choice to either havetheir online-ordered goods delivered at home,or to collect them at specific pick-up points ordrop-off boxes. In both cases consumers will causeconsiderably lower CO emissions, compared with

2

using their cars to go shopping.

3_


This collaborative concept should impact the new Ways of Working togetherfollow ing KPIs: The common theme for all the future supply

chain scenarios is collaboration. But just identifying° Traffic congestionthe benefits of collaboration is not enough to make° CO emissions and energy reductionit happen.2

° Infrastructure simplification

There are numerous stakeholders across the physical4. Collaborative non-urban Distribution supply chain and in order to change the chain, itFor non-urban areas, the challenges, and therefore the is important to not only have a shared perspectivesolutions, are slightly different. The longer distances of what needs to be done, but also to consider theto the final store or home are such that transport individual perspectives and unique challenges facingoptimisation is the main objective. Full truck loads each stakeholder:from collaborative warehouses can be moved in the

° Consumers and shoppers increasingly valuemost efficient way to the remote area, possibly usingsustainability aspects in their choices. But they arealternative modes of transport like trains. 7

less w illing to pay extra for it. Consumers want tobe better informed about the sustainability impact

A regional consolidation centre can have a similar of their shopping choices (including, for example,function as the city hubs, consolidating the store about the CO emissions involved in using theirorders from various collaborative warehouses into 2

car to go shopping).dedicated store replenishment routes. At the same

° Retailersare motivated to serve shoppers in thetime, these consolidation centres are needed tomost optimal way, in order to be profitable andmerge the long-distance streams with the localachieve sustainable growth. Retailers welcomeproduct streams to create efficient replenishmentcollaboration and standardisation, but only ifinto the stores.this does not impact their ability to differentiatethemselves towards shoppers.

Just as with urban replenishment, parcels and° The ambition of manufacturers and suppliers ishome delivery models should be considered

to manufacture, market and supply the productsin conjunction with the store replenishmentthat consumers need and want in a cost-efficientmodels. These flows could also be cross-dockedmanner. They are motivated to improve theat similar consolidation centres to improvesustainability of their supply chain, but theirthe fill rate for the final-mile routes.ability to achieve substantial improvementsrequires close (and standardised) collaborationAgain, as with city distribution, the key w ill bewith retailers and shoppers.consolidation of delivery streams (different products

° Logistics service providers facilitate thebased on different orders from different onlinedistribution process from supplier to consumer.ordering facilities, all for the same shopper) via theseThey are motivated to become a proactive partnerconsolidation centres. There w ill be a convergencein the consumer goods business for mutualbetween home shopping and neighbourhoodsustainable growth, but this requires longer-termdistribution via pick-up points. Consumers w ill becontracts and common processes and data standards.given the choice to either have their online-ordered

goods delivered at home, or to collect them at specificpick-up points or drop-off boxes, which in both caseswill reduce the CO emissions that they currently

2

cause by driving to stores.

This collaborative concept should primarily impactthe following KPIs:

° CO emissions and energy reduction2

° Infrastructure simplification

“F u tu re C o ns um e r: h ow S ho p p e r n e e d s an d B eh av io u r Wi l l I m pa ct To m o rro w ’s V a lu e C h ain , ” C ap g em i ni ._

3_


Company cultures, KPIs and capabilities inside many the Benefits of an integrated Modelorganisations could be showstoppers for moving It seems obvious that the industry will benefit fromcollaborative initiatives forward in any serious each of these collaboration concepts, on top of thefashion. The biggest challenge is “how to prepare our individual improvements that companies can achievepeople for the new world of collaboration.” There are by implementing innovative solutions (as suggesteda number of people-related changes that will need to in the previous chapter). But what w ill be the realtake place, including: synergetic value of bringing this all together into a

true industry solution?° incentives and measures. This includes sharedsuccess measures across financial, operational

To illustrate how this could work, the differentand consumer-based dimensions (KPIs) thatcalculation models have been combined into onedrive outcomes throughout the value chain andintegrated model. This model compares a typicalg reater overall value for retailers, manufacturerscurrent situation with a future situation, whichand consumers. A critical success factor will becombines the collaborative concepts of collaborativesenior management involvement to align internalwarehousing, information sharing, lead-timemetrics to support these KPIs. Metrics that arereduction, shared transport to urban areas and sharedtransparent and visible across both organisationstransport to non-urban areas.w ill be imperative.

° Capabilities. A competency model for newThe model for the current situation (facing page)skills and k nowledge for the “new ways” w ill beconsiders eight manufacturers delivering equalrequired to support the agreed-upon competencies.amounts of products per day to four differentCompanies should consider executing this jointly.retailers. In the existing situation (as is), these eight° Organisational resources and design. Clearmanufacturers each have their own warehouseroles and responsibilities for key people must beand the four retailers each have their ow n regionaldefined, particularly the role of a team leader ordistribution centre (R DC). Delivery to the four“relationship manager.”urban stores and four non-urban stores is done byeach retailer from its RDC using different urban andnon-urban routes.

_0


a -i ss s i TuaT io n

Retailer Distribution Centre Urban Stores

M a nu f ac tu re r A W ar e ho u s e A

1

M a n u fac tu r er B War e h o u se B

M a n u fac tu r er C War e h o u se C

2

M a nu f ac tu re r D W ar e ho u s e D

Non-Urban Stores

M a n u fa ctu r er E Wa re h o u se E

3

M a n u fa ctu r e r F Wa re h o u se F

M an u f ac tu re r G W ar eh o u s e G

4

M a nu f ac tu re r H W ar e ho u s e H

Characteristics of as-is Situation

° Stakeholders are manufacturers and retailers.

° Consumers and stores are located in b oth urban and non-urban areas.

° each manufacturer has its own warehouse.

° each retailer has its own distribution centre.

° The manufacturer ship s its products to each of the four distribution centres.

° a retailer ships the products from its distribution centre to each of its stores.

° no physical supply chain collaboration takes place among manufacturers, among retailers, and between

manufacturers and retailers.

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all kPIs for transport costs, handling costs,total truck kilometres, emissions and leadtime could be improved substantially in thisintegrated model.

In the new model (facing page), the eight An example run from the model indicates thatmanufacturers are arranged into two groups of all KPIs for transport costs, handling costs, totalfour, each running a collaborative warehouse. From truck kilometres, emissions and lead time could bethese collaborative warehouses, store-picked orders improved substantially in this integrated model:are shipped in fuller truck loads to either a city ° Almost 40% reduction in transport costs per pallethub or a regional consolidation centre, where the ° 20% reduction in handling costs per palletdifferent streams are efficiently merged into store

° 25% cut in total truck kilometres travelledreplenishment routes.° 25% reduction in CO emissions per pallet

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°In the case of urban replenishment, alternative 40% cut in lead timetransport is used into the city, reducing not only thetotal number of city k ilometres, but also reducing the At the same time, it is important to note that this willCO emissions per city kilometre. In the case of non- not negatively impact customer-availability parameters.

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urban replenishment, stores of different retailers areconsolidated into more efficient store replenishment, In addition, it should be noted that one of thesuch as one route per village or municipality. important underlying assumptions in this model is

that store orders can be assembled in the collaborativeFrom this description, it should be clear that to warehouse and consolidated at the city hub orrealise this to-be model, all the collaborative concepts consolidation centre. This means that the retailerdiscussed previously are needed. distribution centre can be bypassed. The transition

model to this future state may not be easy. As long asThe result of the combination of these concepts some portion of the store orders are still assembledprovides an indication that these models can indeed in the RDC, it cannot be taken out of the picture.reinforce each other and create a synergetic effect However, the part of the assortment that is picked at(an overview of the detailed parameters that are used the collaborative warehouse can be cro ss-docked at orin these calculation models can be found in “flown through” the R DC, and this should still havethe separate, freestanding Appendix.) a positive impact on the lead time of the chain.

The model clearly shows that integrating thecollaboration concepts can generate significantimprovements, with clear benefits for our society, forthe industry, for individual companies, and ultimatelyfor consumers and shoppers.

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T -B s i mo e iT uaTi o n n Te g r aTe d o de l

Urban Stores

M a n u fa ctu r er A

M a n u fa ctu r e r B

Co l l ab o r a ti veCity Hub

Wa re h o u se

M a n u fa ctu r e r C

M a n u fa ctu r er D

Non-Urban Stores

M an u fa ct ur e r E

M an u fa c tu re r F

RegionalCo l l ab o r a ti ve Consolidation

Wa re h o u seCentre

M a n u fac tu r er G

M a n u fa ctu r er H

Characteristics of to-Be integrated Model

° Stakeholders are manufacturers and retailers.

° The manufacturers have a collaborative warehouse, possibly run by a logistics service provider. in this

example four manufacturers share a warehou se.

° The retailers do not have their individual distribution centres anymore; products will be cross-do cked by

either a city hub for urban areas, or by a regional consolidation centre for non-urban stores.

° Transport from the city hub/regional consolidation centre will be shared and goes to the stores of the

different retailers. Full truckloads will be realised more easily.

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next StepsToward the FutureSupply Chain

Feasibility studies and collaborative supply chain

scenario pilots are among the critical next steps that

must be taken to ensure that the future supply chain

reacts to and satisfies tomorrow’s consumers.

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The road toward the 2016 future supply chain Call to actionarchitecture will be paved with a combination Implementing the proposed new model w ill not be anof individual improvements by companies and easy task given the legacy of existing infrastructurescollaborative initiatives by groups of retailers, and established processes. Companies will run pilotmanufacturers, suppliers and other companies in projects (see sidebar, “Future Collaborative Supplythe value chain (such as log istics service providers). Chain Scenario Pilots”). A GCI Project Team will

be established composed of companies involved toco-ordinate and surface issues relevant to the wholeWhile individual company improvements will beproject and the community.implemented based on assessments of the added value

of certain solutions in their specific situations, thatThe main objectives of the project team will include:will not be enough for collaborative initiatives. These

collaborative initiatives need industry leadership in ° Providing support for an implementation teamorder to move forward. composed of companies actively using solutions

proposed in this report.The realisation of the collaborative concepts that ° Capturing, identifying and resolving potentialcomprise the 2016 future supply chain architecture implementation issues.will require a number of initial next steps, driven by ° Enabling and driving the measurement of progressindustry leaders. Action must be started in one or

of the implementation introducing one or moremore of the following areas:

new items in the Global Scorecard.° Information sharing – driving the collaborative ° Organising regular (yearly) follow-up meetings of

supply chaininvolved parties to maintain and develop the future

° Collaborative warehousing supply chain model.° Collaborative city distribution (including home ° Providing for a permanent platform for the

delivery and pick-up) exchange of implementation experience (web° Collaborative non-urban distribution (including presence, etc.)

home delivery and pick-up)

° New ways of working together in the physical The GCI Future Supply Chain 2016 team w illsupply chain (including management of required continue to encourage the establishment of newinvestments, capabilities, organisational resources projects to drive a sustainable supply chain for theand design, incentives and measures, social retail and consumer goods industry.regulations like working hours, etc.)

The actions should be structured as follows:

° Establish buy-in on the vision by a select groupof key stakeholders (such as leading retailers andmanufacturers, mayors of big cities).

° Check the concept’s business case with theinvolvement of all key stakeholders.

° Pilot the concept (or possibly leverage and enhanceexisting pilots).

° Evaluate the implementation and share learnings.

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_. nExT STEPS ToWarD ThE FuTurE SuPPly ChaIn

embarking on specific future collaborative supply chain pilots will be one of theFuture Co llaborative critical next steps that the industry and individual companies must focus on toSupply Chain help realise the future supply chain scenarios. examples of such pilots includeScenario pilots

the following:

Sharing of information. Sharing of information about product movements along

the supply chain is an essential part of the following collaborative pro cesses.

Collaborative warehousing. The first priority for effective collaborative

warehousing is to set up p ilots and check their business case: The results should

be reviewed, and a go/no-go decision made about a pilot approach. a collaborative

warehousing pilot wo uld be an enormous undertaking so commitment at the top

level and alignment across the board would be imperative.

Collaborative warehousing will happen b ecause of good collaboration among

manufacturers, among retailers and between them b oth. new ways of working will

include collaborative order handling and standardised deliveries.

Collaborative tran sport. The first step towards implementation of collaborative

transport is to set up pilots. Following that those existing pilots should be leveraged

on a wider basis.

City replenishment/non-urban replenishment/home delivery. The first step towards

effective implementation of “last mile” replenishment (to city stores, local stores

and home delivery via shared facilities) is to further detail the vision and to conduct

feasibility studies. Based on this, companies should align with local city authorities.

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appendix: Building the Future Supply Chain

Developing the future supply chain required time, Using this input, the project team ran a second,insight and input from a wide range of industry two-day workshop in Capgemini’s ASE in Chicagoplayers, including retailers, consumer products in the U.S. Companies participating in this sessionmanufacturers, industry standards organisations and consisted of British American Tobacco, Black &technology companies. Decker, Carrefour, Colgate-Palmolive, Crown

Europe, Freudenberg Household Products, GroupDanone, Johnson & Johnson, Kraft Foods, LoblawThe working group gathered initially in Capgemini’sCompanies Ltd., L’Oreal, Nestlé, Philips, Pro cterAccelerated Solutions Environment (ASE) in& Gamble, R eck itt Benckiser, Royal Ahold, SCA,Utrecht, the Netherlands, for an intensive two-daySymrise and Unilever. Also participating were GCI,workshop. Participating companies consisted ofGS1US and Capgemini.Carrefour, Crown Europe, Freudenberg Household

Products, GlaxoSmithKline, Kellogg Europe,L’Oreal, Nestlé, Philips, Reck itt Benckiser, Royal To develop potential collaboration concepts, theAhold, Sara Lee International and Unilever. Also workshop group identified and built out the toolkitparticipating were representatives from AIM/ECR for the future supply chain consisting of solutionEurope, GCI, GS1US and Capgemini. areas, leading practices, existing supply chain

examples and calculation models.

The objectives of this session included:The results of both workshops, as well as numerous° Confirming and extending the KPIs that theadditional meetings, provided the input for this report.group had earlier set.

° Formulating a set of solutions that met the KPIs.

° Designing a draft version of the future supplychain architecture.

° Crafting an agreed timeline and approach for thefinal architecture and accompanying report.

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about the Global Commerce initiative (GCi) about Capgemini and the CollaborativeBusiness experience

The Global Commerce Initiative (GCI) was Capgemini, one of the world’s foremost providers ofestablished in October 1999 as a voluntary platform. Consulting, Technolog y and Outsourcing services,Its mission is to lead global value chain collaboration has a unique way of working w ith its clients, calledthrough the identification of business needs and the the Collaborative Business Experience. Backed byimplementation of best practices and standards to over three decades of industry and service experience,serve consumers better, faster and at less cost. the Collaborative Business Experience is designed

to help our clients achieve better, faster, moresustainable results through seamless access to ourIt is a network created by the member companies andnetwork of world-leading technology partners andsponsors to simplify global commerce and link thecollaboration-focussed methods and tools. Throughvalue chains to improve consumer value.commitment to mutual success and the achievementof tangible value, we help businesses implementGCI operates through an Executive Board composedgrowth strategies, leverage technology, and thriveof senior representatives of more than 45 companiesthrough the power of collaboration. Capgeminidrawn equally from manufacturing and retailingemploys approximately 83,500 people worldw ide andthat do business across continents or via globalreported 2007 global revenues of 8.7 billion euros.supply chains. It works closely w ith eight partner

organisations – the regional ECR Initiatives andMore information about individual service lines, officesVICS, four trade associations (AIM, CIES, GM Aand research is available at w ww.capgemini.com.and F MI) and the standards organisations GS1

and GS1US – representing more than 1 millioncompanies in the world. For additional information please contact:

For more information about the Global Commerce Kees JacobsInitiative and questions raised by this report, Capgeminiplease contact: +31 6 53 292 832

[email protected]

Sabine RitterGlobal Commerce Initiative (GCI) Ard Jan Vethman+49 221 947 14 423 [email protected] +31 6 533 94 872

[email protected]

Ruediger HagedornGlobal Commerce Initiative (GCI) Brian Girouard+49 221 947 14 444 [email protected] +1 952 212 0417

[email protected]

or visit our website at w ww.gci-net.org.

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Designing the 2016 Physical Supply Chain

“We can’t solve problems by usingthe same kind of thinking we used

when we created them.”

— Commonly attributed to Albert Einstein

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Gci Capgemini Future Supply Chain 2016 Report