Best Practice in Supply Chain Management and the Media Industry

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1 Best Practice in Supply Chain Management and the Media Industry Professor Alan Braithwaite Chairman, LCP Consulting LCP Consulting Ltd, The Stables, Ashlyns Hall, Chesham Road, Berkhamsted, HP4 2ST UK Tel: +44 (0) Fax: +44 (0)

LCP Consulting Ltd, The Stables, Ashlyns Hall, Chesham Road,

2 Synopsis The entertainment industry is facing a major shift in distribution channel and at the same time is consolidating into larger groupings. This is is a classic response to changes in market dynamics that other sectors have already entered. This presentation will explain the critical supply chain success factors for the industry as it makes painful changes. It will make comparisons with the supply chain changes that have, and are, taking place in other similar industries. These parallels will be used to point to the supply chain imperatives for the industry in the next 2 to 5 years. 2

This presentation will explain the critical supply chain success factors for the industry as it makes painful changes.

3 But first a word on LCP Consulting.... Delivering for over 20 years - Unlocking significant value through customer driven supply chain innovation Two largest companies in the world Fifteen of the UK s major retailers Major fmcg involvement Blue-chip clients across all sectors IMC accredited and MCA elected Specific experience in media production, distribution, wholesale and retail Books, magazines, & music Focus on joining up the supply chain with real demand LCP have provided powerful insights in short time frames to help us focus our efforts Phil Streatfield, Entertainment UK 3

Fifteen of the UK s major retailers Major fmcg involvement Blue-chip clients across all sectors IMC accredited and MCA elected Specific experience

4 Consulting <> Training <> Resourcing <> Research We are ambitious for our many blue chip clients transformed the supply chain of a UK retailer 20m pa benefit strategically redefined the global repair and service business for manufacturer 40% reduction inventory, 10% business cost reduction re-designed and re-negotiated logistics contract 30% savings delivered global executive training programme for global carrier supplied Supply Chain Director for major retailer interim then in role market positioning research and direction for an automotive business LCP brings to ASDA/Walmart a wealth of expertise. Their specialist analytical techniques, retail supply chain knowledge great long term relationship, David Gibbons, ASDA/Walmart 4

global executive training programme for global carrier supplied Supply Chain Director for major retailer interim then in role market positioning research and direction for an

5 My role - answer some key questions Why is supply chain the last untapped source of business value? How have other industries applied it? What it means for the media and entertainment industry? What you should do to start to embrace the ideas? 5

6 Competition! Either you eat lunch, or you are lunch Archie Norman ASDA Wal*Mart 6

7 Many industries have leveraged their experience curve Cost per tonne A high volume low margin world Real costs have fallen by > 50% Cumulative tonnage How much further is there to go? Are we into a step change? 7

Real costs have fallen by > 50% Cumulative tonnage

8 Distribution is ever more crucial In 50 years between 1870 and 1920 the cost of distributing necessities and luxuries has nearly trebled, while production costs have gone down by one-fifth... What we are saving in production we are losing in distribution. Ralph Borsodi The Distribution Age

necessities and luxuries has nearly trebled, while production costs have

9 .... In future, it will be supply chains that compete not companies Professor Martin Christopher Cranfield and LCP Consulting 9

10 Why? because there is hidden waste at the supply chain interfaces Required capacity Manufacturer Manufacturing Distribution Hubs Distribution Local Distribution / Wholesaling Outlets Customer 180% 100% 40% Waste! Waste! Waste! Waste! = margin, markdowns, returns, overproduction, opportunity costs 10

Distribution / Wholesaling Outlets Customer 180% 100% 40% Waste!

11 Think of it like a big un-synchronised gear box Cost and / or Service Failure 11

12 Synchronisation is about relationships and processes To manage upstream and downstream relationships with suppliers and customers in order to create enhanced value in the final market place at less cost to the supply chain as a whole. SCM is the integration of key business processes from end user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders. [The International Center for Competitive Excellence, 1994] [The Global Supply Chain Forum, 1998] 12

SCM is the integration of key business processes from end user through original suppliers, that provides products, services, and

13 The value potential Supply chain improvements can be worth: 2% to 4% of revenue on the bottom line 30% to 60% improvement in profitability 100% gain in ROCE but don t be fooled that it is easy! 13

14 My role - answer some key questions Why is supply chain the last untapped source of business value? How have other industries applied it? What it means for the media and entertainment industry? What you should do to start to embrace the ideas? 14

15 Supply chain excellence and market leadership are strongly correlated Zara Nokia Dell Wal Mart Cisco Systems Tesco 15

16 In distribution we centralised to stay competitive...but this is playing out % of Supplies through Retailer s Distribution Centres: UK Supermarket Chains 100% % of Revenue % of Sales ASDA Tesco Co-op Waitrose Safeway Sainsbury Source: A Braithwaite & Prof A McKinnon Shanghai Retail Forum % of Products / Customers 100% A Class B Class C Class Competitive strategy has been about picking off the Pareto curve and cutting out the middleman 16

% of Sales 100 90 80 70 60 50 40 30 20 10 0 1980 2000 ASDA Tesco Co-op Waitrose Safeway Sainsbury Source: A Braithwaite

17 Leaders statements on the supply chain We see an enormous opportunity in virtual thinking - creating flexible partnership relationships across the supply chain. By deploying the CPFR across our supply chain, we will realize benefits in reduced inventory costs, increased service levels, improved sales and better consumer value. Procter & Gamble - Chairman Aug 02 Liberalisation of trade has enhanced margins through more efficient supply chains Unilever Sept 02 My mission is to make the supply chain better, faster, simpler and closer to customers and suppliers Nestle UK Supply Chain Director March

By deploying the CPFR across our supply chain, we will realize benefits in reduced inventory costs, increased service levels, improved sales and better

18 Who is the Big Kahuna in the chain? 18

19 My role - answer some key questions Why is supply chain the last untapped source of business value? How have other industries applied it? What it means for the media and entertainment industry? What you should do to start to embrace the ideas? 19

20 Media moving to structural decline with major changes in product and channel mix 20

21 The Publisher is the Big Kahuna... benefits and costs fall between the commercial parties Manufacturing Distribution Hubs Local Distribution / Wholesaling Outlets Increase sales through better availability Increase net sales through better availability Lower run on costs Due to less waste Margin pressure from dealing direct with multiples Some costs changes which might be positive or negative depending on network Reduced costs through better handling to shelf Reduced costs through less waste, double handling and lower admin Higher margins through direct negotiation with supplier Increased costs due to extra work and investment In systems etc Benefits On Costs 21

22 My role - answer some key questions Why is supply chain the last untapped source of business value? How have other industries applied it? What it means for the media and entertainment industry? What you should do to start to embrace the ideas? 22

23 Actions for the media industry Think collaboration! Analyse and share! Segment the range and corresponding processes! Know your costs! but it starts with the Big Kahuna who may now be motivated in an ex-growth world 23

24 Mapping the end to end chain.. a case example Supplier Manufacturer Distribution Retail Depot Retail Store Time scale non linear to compress picture Key process events and time of interactions LCP Consulting Ltd all rights reserved Grey shaded area shows cost build up Stock, movement and processing events 24

25 25 Collaboratively answer the key questions... What? Where? How? Sort to store for some retailers at hub and hold stock for replenishment Reduced work load at wholesale - less sorting returns and admin Some direct delivery to retail RDCs as required... and who invests? Who pays? How do they get a return? What is the impact on the total business? Finishing, packing and Printers Picking - Hubs with stock Wholesale Retail Depots x 80 RDCs Retailers

26 Defining what will be best using Cost-to-Serve to quantify causes and drivers Defining the end-to-end process chain for customers and products identifies the margin destroyers Supplier Performance Analysis Inventory Analysis Manufacturing Performance Analysis Forecast Accuracy Analysis Inventory Analysis Lead Time Analysis Order & Demand Analysis Raw Materials Inventory Manufacturing Finished Goods Inventory Customer Supply Chain Cost-to-Serve Analysis 26

27 Cost-to-Serve approach - the ability to segment identify, define and connect the critical cost curves through a cost driver model supply costs vs. volume supply frequency expected rate of use customer order characteristics Unit cost Inventory holding Inventory holding costs Fulfilment costs Batch size Manufacturing cycle Rate of sale Order size data analysis on actual performance financial data from P&L Cost-to-Serve Model End-to-end Cost-to-serve analysis 27

28 Collaborate or die!?... to unlock supply chain value 28

Enhancing Customer Value through Supply Chain Excellence

Enhancing Customer Value through Supply Chain Excellence Picture Source: http://www.regalzonophon ecom/ep's%20&%20lp's% e.com/ep 20-%20TRLPS21%20- %20New%20Frontier%20- %20New%20York%20Staff %20Band.htm