Don t t Leave Money On The Table. George Swartz. Principal Capgemini s Distribution Practice Lead

Transcription

1 Distributors: Don t t Leave Money On The Table Introducing Your Presenter George Swartz Principal Capgemini s Distribution Practice Lead 2

2 Table of Contents Issues Shaping The Distributor Marketplace Improvement Tactics & Strategies Don t t Leave Money On The Table 3 Agenda Issues Shaping The Distributor Marketplace Improvement Tactics & Strategies Don t t Leave Money On The Table 4

3 4.2 Trillion in Combined Revenue Prolonged Economic Uncertainty Rising Transportation Costs & Capacity Shortages Price Leakage & Erosion Grocery & Food Service Wholesale Distributors Oil, Lubricant & Gas Products Distributors Pharmaceutical Wholesalers Industrial Products Distributors Motor Vehicle/Motor Vehicle Parts Wholesale Distributors Electrical & Electronics Wholesalers Misc. Durable Goods Wholesale Distributors Other Consumer Products Wholesale Distributors Computer Equipment/Software Wholesale Distributors Agricultural Products Wholesale Distributors Commercial Equipment & Supplies Wholesale Distributors Metal Service Centers Apparel & Piece Goods Wholesale Distributors Building Material & Construction Wholesale Distributors Beer, Wine & Liquor Distributors Chemicals & Plastics Wholesale Distributors Janitorial, Specialty Chemical & Safety Products Distributors Hardware, HVAC & Plumbing Equipment/Supplies Wholesalers Paper Merchants & Office Products Wholesalers Furniture & Home Furniture Wholesale Distributors Inefficient Warehousing & Distribution Networks Inventory Planning, Management & Control Rising Sourcing, Supply & Procurement Costs 5 Prolonged Economic Uncertainty Source CBS News 6

4 Rising Transport Costs & Capacity Shortages Still Tighter Capacity Expected in the Truckload Market - June 30, 2011 Truckload Rates Continue to Rise - August 08, Inefficient Distribution Networks 8

5 Inventory, Inventory, Inventory Global Warehouse Company Expects Inventory Growth Prologis, upswing in production, trade and inventories translating into nearly 400 million square feet of positive absorption Trade is almost 2% above its pre-crisis peak, fueled by rising consumption and record levels of exported goods, Prologis said.. Imports in the first half of 2011 were up more than 7% In the first two quarters of 2011, inventories were up 3.4% over the same period last year 9 Rising Sourcing, Supply & Procurement Costs Case-In-Point: Food Prices and Finished Food Products are not keeping pace with the rising cost of Raw Material Price Increases Similar results are being seen in Industrial Products Categories 10

6 Price Leakage & Erosion Price Leaks Can Come In Many Forms & Erode Margins If Not Managed Properly Trade Promotions/Allowances Volume/Quantity Discounts Freight Misallocation / Margin Game Payment Term Discounts (Both Ways) Small Order Fees & Order Size Discounts Cash Discounts Year-End Rebates Off-Invoice Promos Co-Op Advertising Web Order Discounts Consignment Re-Stocking Fees Returns 2 Difficult Programs to Manage Trade Promotions Administrative Nightmare Thresholds Cannibalizes Sales Creates SRM Issues Rebates Ties up Cash to Stay In-Trust Significant Administrative Component B to B Rebates Feature High Compliance Consumer Rebates Have Lower Compliance Impact Often Goes Unmeasured 11 Issues Shaping The Distributor Marketplace Suppliers Raw Materials Packaging Supplies Finished Goods Consumer & Industrial Products Manufacturers (CP, IP) Wholesaler- Distributors Retailers & Retail Channel Customers & Consumers CP & IP Distribution Retail Distribution Multi-Channel options for Customers to acquire products Inventory Deployment across the Value Chain Sourcing & Procurement at multiple points across the Value Chain Transportation Management challenges between every node of the Value Chain Warehousing & Distribution throughout the Value Chain Customer Service & Order Management Technical Support & Field Service Challenges Deal-Buys, Forward Buying, Alternative Source Analysis Product Introductions, Trade Promotions, Store Promotions, Seasonality Market erosion due to shifting formats (Deep Discount, Clubs, Drug Stores, C-Stores, etc ) Direct-Store Deliveries, Store-Ready Pallets, Mixed Product Pallets, Small / Frequent Orders Multi-Temp Delivery Requirements Frozen, Chilled & Dry Shelf Life, Perishable Products, Spoilage and Damage Special Commodity Transportation Costs Capacity, Fuel Prices, Directional Freight Loading Allowances that are not in-synch with rising transportation costs Supply Disruptions caused by world events, natural disasters and weather issues Balancing In-Stock & Service with Inventory Investment 12

7 ecommerce, B2B, B2C, Multi-Channel Channel 15% Increase in On-Line Sales in 1 Day, 1.2b 7.4 % Increase in Mobile Device Sales in 1 Day Majority of Shipments are UPS or FedEx 32.6b in On-Line Retail Spending During 2010 Holiday Season 12% Increase over 2009 If Trends Continue, 2011 Could Deliver Over 37b On- Line Retail Sales What Will 2012 Bring & How Will Distributors Respond? 13 Not Just Retail Customers On-Line Sales Include Internet, Catalog & Phone Sales, All of Which Result in Small Orders & Individual Shipments Source: U.S. Census Bureau 14

8 Emerging Replenishment Models Demand Driven Enterprise Shelf Connected Supply Chain Scan-Based Replenishment Future Value Chain Trends Increased Urbanization Aging Population Increasing Spread of Wealth Increased Impact of Increase in Consumer Consumer Technology Service Demands Adoption Increased Importance of Health and Wellbeing Growing Consumer Concern about Sustainability Shifting of Economic Power Scarcity of Natural Resources Increase in Regulatory Pressure Rapid Adoption of Supply Chain Technology Capabilities Impact of Next- Generation Information Technologies

9 Agenda Issues Shaping The Distributor Marketplace Improvement Tactics & Strategies Don t t Leave Money On The Table 17 Transportation Tactics & Opportunities 5% - 25% Transportation Savings and benefits come from several sources Linehaul Fleet Routing & Optimization Dedicated Contract Carrier Program Leveraged Rates Tariff Discounts Backhaul Rates Lane Simplification Infrastructure Dedicated Fleet & Owned Fleet Asset Utilization Core Carrier Structure (Inbound & Outbound) Inbound Terms Conversion Mode Shifting Air to Parcel Parcel to LTL LTL to TL TL to Intermodal Intermodal to Rail Air to Ocean LCL LCL to FCL Freight Payment Restructured Payment Terms Paper to EFT Conversion InSourcing of Freight Payment Incentives for On- Time & Early Payment Shipment Planning Zone-Skipping Nose Loading Pup Loading Order Consolidation Dynamic Routing Pool Distribution Round-Trip & Backhaul Planning Administration Leveraged Personnel Leveraged Decision Support Technology Simplified & Standardized Forms, Metrics & Reporting Customs Clearance & Freight Forwarding Shipment Management Carrier/Rate Optimization Lane Balancing Trailer Pool & Capacity Management Timely Tendering & Dispatch Assessorial Management Communication Paperless Environment EDI Standards Shared VAN Reduced Phone, Fax & Carrier Carrier Freight Document Prep & Regulatory Acquisition Retention Payment Generation Compliance Load Tracking, Line Assessorial Planning Direct Insurance Tracing, & Haul Charges & Tendering Labor & Claims Communication Carrier Negotiations LTL Retailer 35% Mass merchant 24% Plastics company 15% Mode Shifting Chemical producer 35% Mass merchant 25% Inbound Strategies Utility company 15% Retailer 18% Total Transportation Cost TL Chemical producer 7% Paper company 6% Food Manufacturer 27% Rail Chemical producer 12% Utility company 74% Food Distributor 32% Consumer Goods 16% Pharmaceutical Co. 12% Paper company 25% Parcel Medical supply 25% 18

10 Warehousing Tactics & Opportunities Potential Savings Targets 15% - 20% Headcount Savings 20% - 35% Space Utilization Improvements 10% - 15% Operating Cost Reductions Putaway Receiving Replenishment Productivity Tracking Order Tracking and Picking Inventory Lot Control Quality Tactics & Best Practices Smallest Space Shortest Path /Shortest time Reduced product touches Wave Picking & Forward Pick Separate Partial-Pick Areas Slotting by Volume & Velocity Material Handling Solutions Adequate Staging Space Flow-Thru or U-Flow facility Dedicated Receiving & Shipping Doors Shift Segregated Activities Closed Loop Inventory Control 19 Distribution Network Tactics & Opportunities Goals of the Distribution Network Analysis Job 1 is to maintain existing customer service levels, and if possible and feasible, improve them Identify and remove existing supply chain stress points Enhance profitability through reduced operating expenses Facilitate Planned Growth and Expansion Areas of Consideration Number of facilities necessary to support current and future volumes Location, mission and service area for each facility Inventory stocking policies and requirements for each facility Estimated space requirements to support facility mission Total logistics cost impacts associated with the new network Transportation (inbound and outbound) Direct and indirect distribution center operating costs Capital investment Relocation / severance costs Impacts on total delivery cycle time (inbound and outbound) associated with the new network Effect of volumes (e.g. forecasted growth, industry changes, strategic partnerships and new acquisitions) on supply chain performance 20

11 Inventory Tactics & Opportunities Profitability If inventories are too low, customer service suffers and revenues decline It is not unusual for a company to have both too much and too little inventory. This occurs when inventory is invested in the wrong items 0 Inventory Impact on Profitability Inventory The width of the profitable region varies by industry. Manufacturers tend to be much less sensitive. When inventories are too high, excess carrying charges are incurred. Also, inventories tie up working capital which could be more profitably used elsewhere, and are exposed to shrinkage Too little inventory can starve revenues, too much leads to costs which poison profits Operating Cost Reduction Terminating leases for unnecessary storage facilities Elimination of operating costs for unnecessary storage facilities Improved receiving and material handling efficiencies Inventory Reduction Inventory right-sizing often yields 10-40% reduction Inventory consolidation reduces safety stock, by the square root of n rule Disposition of slow-moving and obsolete inventory Procurement Cost Reduction Typical savings range from 3-10% of spend Improved volume leverage and fact-based negotiation Value engineering; product rationalization Fixed Asset Reduction Closing and disposition of unnecessary storage facilities 21 Price Realization Tactics & Opportunities Overall Objective Capture money left on the table through price leaks or under-optimized prices Move Distributors toward a value based pricing approach Approach Data driven approach to identify pricing outliers from historical pricing data Utilize value based pricing strategy to identify the best price for each transaction Pricing Architecture for the Best Price On Every Transaction *Fundamental Price Drivers Product Price Sensitivity Customer Price Sensitivity Market Price Sensitivity Customer Sensitivity Product Sensitivity Secondary Price Drivers Order Size *Implementation of fundamental price drivers are typically Competitive Situation worth 2%-4% in margin lift. That is 2-4 million for every Geographical Location 100 million in affected revenue. Etc 22

12 6 Sourcing/Procurement Tactics & Opportunities Price Most procurement professionals target price. There are numerous leverage points to enhance the negotiation of the final transaction price. Administrative & Process costs Waste must be removed from all aspects of the supply chain by focusing on administrative activities and business processes. Supplier cost structure Volume leverage Material/service bundling Rebate management Performance, incentive structure Gain sharing Guaranteed reductions Total Cost of Ownership Consolidated invoicing eprocurement Purchase order processing Receiving Stockless inventory Integrated material/service planning Performance reporting Payables Quality control Usage costs The way in which materials and services are used represents one of the largest potential sources to reduce the total cost of ownership. Product design Product specifications Standardization Extended life products Functional equivalents End product cost Service disaggregation Customer end product variation Transportation Scrap/recycling Mix shifting Elimination 23 Size of The Prize Typical Distribution Spend Transportation: 10% - 25% of Sales Typical Savings Potential (Based on results achieved with actual Distribution based clients) 5% - 10% Freight expense reduction Network Costs: 2% - 5% of Sales 3% - 5% Warehousing expense reduction 10% - 15% Transportation expense reduction Inventory Carrying Costs: 1% - 20% of Sales 15% - 20% Working capital reduction In a 800M Company, logistics savings represent 6M - 50M to the bottom line, or points in profit improvement! Inventory Reduction Operations Improvements, Reduced Infrastructure Transportation Savings 24

13 Distributors: Don t t Leave Money On The Table