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Global Trends in Supply Chain

Achieving High-Performance through effective


Global Operations
Jaume Ferrer
Managing Partner SC Practice Europe

SCM is facing old and new


challenges!

Rising competition at home and in new markets


Increased customer and
Innovation
product complexity
and Time-to-Market
Agility in response
to changing market needs
Continuous improvement
Serving Emerging Markets
is not enough
Rising costs of Raw Materials

Could I please ask the audience if


anyone knows these brands?

Agenda

Introduction

Trends & challenges in Global Operations, Accenture Survey 2005

Key Strategic Enablers of High Performance in SCM

Examples of effective Global Operations models

Key success factors in Low-Cost Country Sourcing &


Manufacturing

Case examples

Conclusions
4

Sales & Supply base


outside mature markets will be over 40%
in 3 years in most cases

Source: Accenture Global Operations Survey, 2005

Most important new


emerging markets

Source: Accenture Global Operations Survey, 2005

Key Strategic Enablers


Companies are rethinking their Supply Chains to achieve trade-offs between
efficiency and adequate market response through a combination of global/regional
consolidation "upstream" and market & customer-focused strategies "downstream

Upstream Leverage &


Harnessing of Efficiencies

Supplier

Transport

Plant

Downstream Flexibility
and Adaptability
Central
Warehouse

Transport

DC

Customers

Innovation & Time-to-Market


Effectiveness

Key Strategic Enablers

There are a number of key strategic enablers within each objective


Upstream Leverage
& Harnessing of
Efficiencies

Global sourcing (including Low-Cost countries)

Supplier collaboration (e.g. design to cost, CPFR)

Global/Regional manufacturing consolidation (including LCC


manufacture and outsourcing)

Fulfilment partnerships (cross BUs/with other companies)

Global/Regional sales & operations planning.

Global/Regional vs. Local Supply Chains

There has been increased adoption of Central SC Planning Hubs


Regional SCP Hubs

Company 1
Implemented regional
SCP with DP in
countries by BU
Company 5
Implemented regional
SCP with DP in
countries (in one
Crossi-BU Hub)
Company 6
Implemented Regional
SCP for long term
timeframe and kept short
term SCP in countries

Operating Principles;
Improved service (through inventory and
capacity allocation rules based on genuine
market priorities)
Improved asset utilization through adequate
capacity planning (plant, DC and transport)
Improved total cost of Ownership through
adequate balancing of trade-offs between costtypes and product availability (cost of stockout)
Enablers to other Benefits;
Enable procurement savings via consolidated
requirements planning visibility
Foundation for manufacturing and distribution
network consolidation.

Key Strategic Enablers

There are a number of key strategic enablers within each objective


Upstream Leverage
& Harnessing of
Efficiencies

Downstream
Flexibility and
Adaptability

Customer collaboration (e.g. demand signal, planning &


replenishment, VMI)
Supplier collaboration (e.g. planning & replenishment, new
product design)
Market/channel specific SC configuration (e.g. food service,
convenience).
Emerging market manufacturing and distribution alliances.

10

Key Strategic Enablers

There are a number of Key Strategic Enablers within each objective


Upstream Leverage
& Harnessing of
Efficiencies
Collaborative product design and introduction to market

Downstream
Flexibility and
Adaptability

New product S&OP (commercialization and industrialization)


Product complexity management
Local Market-sensitive product development.

Innovation &
Time-to-Market
Effectiveness
11

Biggest challenges
in global operations

Source: Accenture Global Operations Survey, 2005

12

Required capabilities for global


operations
Global /Regional Integrated Sales and
Operations Planning
Sourcing and Distribution Network to
deliver quality, at target cost and leadtime (por each product)
Customer and Supplier SC
Collaboration agenda
Global Logistics partnerships
Supplier recruitment, certification and
alignment (metrics, process, IT)
Emerging market sourcing and
distribution strategy

13

Which Operations Model to Adopt?

14

Product characteristics call for specific


Operations Strategy Models (often within
the same industry)
Operations Strategy

Industry (examples)

Networks (Global Scale Dense


Scale)

Utilities, Refinery, Metals, Chemicals,


Telecoms, High turn consumer goods,
Renewable Energy, Financial Entities,
Hotels chains,

Low-cost country sourcing

Textile, Auto/Electronics assembly,


Furniture,

Rapid customer response (Short life


cycle)

Fashion, Consumer electronics, food,


convenience, hotels.

Know-How Clusters

Biotech, Systems Engineering,


Custom-made Industrial Equipment,
Jewelry, Fashion

Supplier Clusters (capacity based)

Industrial equipment, Aeronautical,


Auto-supplier, Automotive, Ship
building manufacturers

Risk Hedging

Supply Constrained materials:


Electronic Equipment, Food,..

Some significant companies

15

European industry has a portfolio of alternative


choices. Off-shoring is an option in some activities
and industries as part of a wider operations foot-print

OFF-SHORING

ON-SHORE
1

Networks (Global Dense Scale)


2

Low-Cost Country
Sourcing
3

VE
I
AT
R
ST
U
L
IL

Rapid Customer Response

Know-How Clusters

Supplier Clusters
6

Risk Hedging

16

Balancing cost &


service is a key issue
Satisfaction with results achieved through low-cost
country sourcing program
(share of respondents in percent, neutral positions not shown)

86%

1%

Total cost

40%

33%

9%

14%

Quality

Source: Accenture Procurement Survey

Delivery
reliability

16%

14%

Satisfaction
Dissatisfaction

42%

48%

Lead times

Product
innovation

17

In any case Low-Cost Sourcing and Manufacturing requires an


integrated approach going beyond procurement and into
supplier development and integrated logistics
Category Assessment
- Review of total spend profile
- Country Profiling
- Total Cost of Ownership model

Risk Assessment
- Country risk assessment
- Industry risk assessment
- Supplier risk assessment

what to source where?

What countries to bet on?

Local Procurement Office


- Organization design
- Staffing, Recruiting, Training
- Integration to global organization

Eastern Asia
Eastern
Europe

Established Procurement office

Supplier Identification
- Supply Market Intelligence
- Supplier Search
- Qualification/On-site Audits
Short list of qualified suppliers

South and
Central Asia

Supplier Development
- Assessment of capability gaps
- Quality, 6 Sigma, Lean program
- Workshops & Training

Africa and
Middle East
Middle- and South
America

Sourcing
- Differentiated Bid Strategies
- Fact based Negotiation
- Contracting

Capable Suppliers

Selected supplier/s

Fulfillment
- Optimized Logistical Solution
- Inventory locations
- Freight sourcing

Low Cost Countries

Products delivered to own factories

Supplier Integration
- Production process qualification
- Quality & Delivery assured
- Order-to-Delivery process defined
Supplier integrated in Supply Chain
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Lessons learned when setting up an


International Procurement Office (IPO) in
low cost markets
Focus on components with high
manual labor input and low or little raw
material dependence
What to buy?
Locate close to your
suppliers and
consider regional
capitals outside main
metropolis

Where to
locate the
IPO?

Where to buy?

Success factors to
Set-Up an IPO in Low
Cost Markets

Who to hire?
Your people and operations need to be
on par (or even better) with the people
and operations in your customers
countries

Focus on high
potential private
enterprises but need
to develop them to
achieve maximum
gains

How to market?
Build awareness and credibility,
implement solid end-to-end Source to
Delivery Process and IT

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Example:
Zara
Product development cycle time is 3-4
weeks (industry average 9 months)
NPI to stores every 2-3 weeks
> 14.000 SKUs per year launched
Two different operations models
Short life cycle fashions = On-Shore
Quick Response Design-to-Supply Model
Basic products = Off- or Near-Shore low
cost suppliers

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Example: European Construction


Equipment Manufacturer
Challenges
Lack of supplier capacity
Difficult procurement situation in
the global steel market
Rising raw material prices and
COGS (Cost of Goods Sold)

Results
30% total savings (on landed
purchasing price)
50% potential savings on
Castings
30% potential savings on
Forgings
40% potential savings on
Non-Metallic Components
Development of Operating
Model for sourcing from LCC
suppliers
21

Example:
Nokia
World #1, 14% ROA
Frequent product introductions
Global supply chain with high flexibility
and efficiency
Global supply web
Rapid response manufacturing
Regional set-up
Quick ship logistics

22

Global operations case example:


Manufacturing company
Changing industrial structure to improve efficiency and
reduce cost while keeping full control over core operations
SPECIFIC CASE (SIMPLIFIED)

Near-shore
(low cost)

R&D (non core)


Purchasing

Body
Frame

Centralization LCCM LC CoE

Geography

LCCS
Body
Frame
SCM

On-shore
(high cost)

Parts production
(poor inhouse
Onshore due to LT methods)

and transport cost

Chassis
Core R&D Manufacturing

In house

Outsourced

Relative cost level


Low

High

Organisation

Strategic importance
Low

High

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Organizational structures are not


always aligned with market needs
Geography Organization
Country

19%

Multi-country

13%

Regional

19%

Multi
Regional

36%

Global

16%
Actual

Source: Internal

+5 years
24

Operating Models will need to


adapt to market focus
Challenge: Evolving Operating Models to reflect scope of business
3%
Country

19%

Multi-Country

13%

Regional

19%

Multi-regional

36%

10%
16%
23%

45%
Global

16%
Actual

Source: Accenture Analysis

In 5 years
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High Performance opportunities for


our economies in Europe
Drivers for manufacturing
in Europe
Customer intimacy
Lead time to customer
R&D cooperation

Off shore
production

Supply chain complexity


Production
in Europe

Automation

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Conclusions

Right Operations Model is Required before off-shoring is decided


(Selective) Off-shoring is clearly an opportunity
Meeting market growth and operations challenges require a
holistic end-to-end strategy
European potential Play to strengths in R&D, CustomerProximity, Product Complexity
A global operations model requires new capabilities
Internal and external collaboration needs are enhanced by Global
Operations
Industry-specific R&D and manufacturing partnerships with joint
agendas between private & public sector
Mental & Cultural Shift!
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Questions or Comments

Thank you
very much!
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