Improving business performance and competitive advantage through the implementation of standards

Transcription

1 IBM Global Business Services January 2011 Thought Leadership White Paper Improving business performance and competitive advantage through the implementation of standards Findings of the Consumer Goods Forum Global Compliance Survey

2 2 Improving business performance and competitive advantage through the implementation of standards Executive summary The industry has invested a considerable amount of money and resources in implementing standards. Is it beneficial? Yes! The consumer goods industry continues to experience an unprecedented amount of change, both in terms of the degree of change as well as its pace. Dynamic evidence of this can be seen in the global supply networks that are the lifeblood of the industry. Because of the demands made by informed and connected consumers, the products themselves are increasingly becoming customized for local markets and micro-segments to deliver innovative lifestyle solutions to end users. The many facets of the industry s complexity will likely continue to increase in the foreseeable future. Companies able to turn this complexity to their advantage through a combination of analytics, collaboration and decisive action will be successful in this environment. In 2006, the Global Commerce Initiative (GCI), now part of the Consumer Goods Forum (CGF), published an outlook report titled 2016, the Future Value Chain, which challenged the consumer goods industry to: Redefine the 2016 value chain by addressing new requirements of the physical flow of goods driven by forces like volatile energy costs and a growing population density. Share information so that trading partners, in their bi-lateral relationship, must more readily and freely share information while embracing the concept that the best way to manage increasing complexity is through transparency. Develop new ways of working together, including sustainable changes in culture, collaborative business planning and new measures and rewards. 1 One core capability that enables collaborative processes is the adoption and utilization of GS1 standards to develop and deliver consistent business results. Each year the Consumer Goods Forum asks its members and partner organizations to participate in a benchmark survey that measures the implementation of GS1 standards and industry utilities as well as the business results they deliver. 2 This year s record-breaking participation showed that 5,624 KPI scorecards and over 2,100 capability assessments were submitted from approximately 5,280 companies across 50 countries. As a result, this across-the-globe data provided informative insights. The growing number of survey participants demonstrated that not only are new companies interested in standards and joining the process, but repeating participants also increased participation across their divisions and geographies year after year.

3 IBM Global Technology Services 3 This year, IBM Global Business Services (GBS) was asked to begin an annual assessment of the scorecard findings. We examined 4,400 key performance indicator scorecards submitted by consumer product companies and observed relationships between the usage of the GS1 standards, technology and business results. As seen in Figure 1, this assessment demonstrated that there are many relationships to improved business results by utilizing standards. 5.2% points savings of distribution costs + 5.9% points increased fill rates 5.8% points reduced out-of-stocks rate + 1.9% points increased invoice accuracy -61 hours reduced lead time An example of this would be a more efficient supply chain through better fill rates, reductions to distribution costs, improved on-shelf availability/reductions in out-of stocks rate and better invoice accuracy among companies implementing the GS1 standards. Companies implementing a larger number of standards, or standards on a higher level, can see even better business results. The potential for impressive cost reduction, revenue growth and supply chain flexibility benefits was confirmed by exploring the survey responses. Despite the clearly demonstrated link between standards and improved performance, there still remains a greater potential for consumer product companies to further embrace standards to create and sustain a competitive advantage. This report summarizes our findings, key insights we derived from them and the compelling benefits that standards implementation can bring. Figure 1. Using GS1 standards for consumer goods companies and associated benefits

4 4 Improving business performance and competitive advantage through the implementation of standards Global Scorecard The global scorecard allows companies to measure their current performance and capabilities using a global standard set of measures. This permits a company to benchmark itself against other groups within the same geography, the world and distribution channel or product category. Performance gaps can be identified and plans put in place to close gaps or even break away from the crowd with the action planning tool. You can also monitor progress against specific actions, as well as long-term goals. The global scorecard is supported by Consumer Goods Forum and hosted by IBM Global Business Services. The survey, analyses and annual report are created and prepared by IBM Global Business Services in cooperation with the Consumer Goods Forum. The tool measures: Standard capability assessment (a qualitative assessment measuring the status of implementation) Demand Supply Enablers (item identification, electronic messages and master data synchronization) Integrators Business measures (quantitative measures such as service levels, inventory, out-of-stocks, lead time, costs, invoice accuracy) Implementation measures (quantitative measures such as the level of implementation for Item and location identification, electronic data interchange (EDI), global data synchronization) Table 1 shows the standards measured and provides an explanation for each. Measure % of consumer units allocated a GTIN % of cases/cartons/inners allocated a GTIN % of pallets/unit loads labeled with SSCC % of shipping or receiving locations that have been allocated a GLN % of orders transacted via EDI % of invoices transacted via EDI % of shipments for which a dispatch advice was transmitted via EDI % of shipments for which a receiving advice was transacted via EDI % of sales with synchronized master data between trading partners via the GS1 GDSN % of SKUs with master data loaded into a GS1-certified data pool % of active SKUs where the master data has been synchronized using the GS1 Global Data Synchronization Network % of GTINs that are catalogued consistently with a GS1 Global Product Classification brick code Explanation The GTIN (Global Trade Identification Number) is a globally unique number to identify trade items (in databases), and is therefore the foundation for global e-commerce. The SSCC (Serial Shipping Container Code) is used throughout the SC as entity identifier for item tracing. The GLN (Global Location Number) is used to identify physical locations. Transmission of orders between organizations by electronic means. Transmission of invoices between organizations by electronic means. Shipments, which are accompanied by an electronic dispatch advice message transmitted by electronic means. Shipments, which are accompanied by an electronic receiving advice message transmitted by electronic means. The GDSN (Global Data Synchronization Network) is an internet-based, interconnected network of interoperable data pools, that enables companies around the globe to exchange accurate, compliant, standardized and synchronized supply chain data with their trading partners using a standardized Global Product Classification. The proportion of manufacturers' SKUs (Stock Keeping Units) whose master data has been loaded into a GS1-certified data pool. SKU (Stock keeping units) where the master data has been synchronized by GDSN Enabler for GDSN Table 1. Standards to be measured

5 IBM Global Technology Services 5 What the global scorecard can do for you The key capabilities of the CGF Scorecard are: Reports as-is status on individual companies, country/ regional and global levels Assesses key process performance relative to peer companies Demonstrates gaps in performance levels Helps to support the business case for improvement projects Provides a report building tool that can be customized according to your specific requirements Helps to measure success Helps to establish priorities. Are you on the bleeding edge or are there advanced practitioners among your trading partners to help you get started? Provides results and effects (business impact and value) of scorecards as demonstrated in the annual report including information across geographic regions and business types Provides on-line action planning tool that gives visibility of agreed actions and progress Allows for the ability of multinational corporations to manage global and regional programs Data is anonymous and is treated as highly confidential Participation in the measurement of section of 2009/2010 was greatly improved, as shown by the extremely higher number of KPI scorecards submitted in comparison to previous years. Submitted scorecards Current survey data submitted from January 1, 2009 through April30, 2010 Figure 2. Number of submitted KPI scorecards Revenue in m $ of survey participants KPIs Standard Capability Assessment KPIs Standard Capability Assessment Although the following charts (Figures 2 and 3) indicate that the total revenue of businesses participating in the global scorecard survey was strong, the final figures for 2009 do exhibit a decline versus those in This was partly due to the fact that four very large CGF member companies only marginally participated in 2009 compared to prior years. Yet the respondents represented a total revenue of 1.8 billion, including 10 percent of the largest global companies listed in the Fortune 500 for Among the CPG companies listed in this Fortune 500, 34 percent participated in the survey. Figure 3. Revenue of submitted scorecards Common identification standards are a vital basic enabler to permit efficient and effective communication about products, including replenishment and business data between trading partners. The greater the number of scorecards submitted, the more relevant the results obtained, so it is critical that as many companies as possible participate.

6 6 Improving business performance and competitive advantage through the implementation of standards Key insight results Companies utilizing standards can see a flexible supply chain and improvements in costs and revenue. The importance of common data The consumer product industry is highly competitive, fastmoving and rapidly changing. With margins under constant pressure, the globally integrated consumer goods enterprise needs something powerful to withstand the increasing complexity to gain a competitive advantage. The consolidation and integration of quickly accessed and accurate data sources is the key for the information-based company of tomorrow. Well over 2,500 chief information officers (CIO) from leading organizations around the globe have highlighted the importance of information and analytics for making faster decisions by taking action to optimize processes for more predictable outcomes in the IBM 2009 Global CIO study. 2 Analytics can help your business to: Efficiently access large volumes of information Improve the timeliness and accuracy of plans and forecasts Translate vast troves of structured and unstructured data into valuable business insights Aid in rethinking business processes and providing better control to companies via improved transparency Measure and monitor performance and benefits CP industry: Highly competitive To overcome Fast-moving complexity and gain competitive advantage Rapidly changing Margins under pressure Increasingly complex More than 2,500 CIOs focus on Analytics* Business intelligence and analytics 83% Virtualization 76%% Risk management and compliance 71%% Customer and partner collaboration 68%% Mobility solutions 68%% Self-service portals 66%% Application harmonization Business process management Service-oriented architecture/web services Unified communications 64%% 64%% 61%% 60%% Note: CIOs were asked to select all applicable answers to the questions, What kind of visionary plans do you have for enhanced competitiveness? Business Analytics Consolidated data Quickly accessible to be analyzed Powerful insights Using standards is the key for all activities Figure 4. Visionary plans for enhancing competitiveness for the chief information officer

7 IBM Global Technology Services 7 Standards are a prerequisite; thus data standards drive data quality which in turn, drives data sharing which can ultimately drive better business results. Consumer products companies are preparing to share data In the global scorecard survey, the Enablers score of the participants for global data synchronization/data quality has improved to values 3.1 and 3.3 (on a scale from 0=Nothing planned to 4=Fully implemented) for manufacturers, retailers and wholesalers, respectively. This means that the average company is already in the implementation phase. A practical illustration Industry heavyweights are using standards extensively because of the benefits that they are experiencing. As an example, Wal-Mart and other apparel retailers recently announced an initiative to put sophisticated RFID tags in all their clothing throughout their stores which is the largest of such adoptions worldwide. Wal-Mart expects significant savings from this initiative. Beyond more efficient recalls, loss prevention and a better inventory oversight, RFID tags could help eliminate checkout lines. 3 In 2007, a similar pilot at American Apparel Inc. found that stores with RFID technology saw sales rise up to 14.3 percent. 3 On November 1st, 2010, a group of leading retailers, manufacturers, suppliers, industry associations, technology providers and academics introduced a broad-based initiative to guide the adoption of RFID in retail. They believe it will foster innovation, improve business efficiency and lead to a better consumer shopping experience. According to research done by the University of Arkansas, the technology has delivered compelling benefits to the retail industry, such as an inventory accuracy rate of more than 95 percent up from an average of 62 percent and an out-of-stock reduction of up to 50 percent. 4 The scorecard results indicate that companies are just starting to use the electronic product code (RFID); however, those who are in roll-out or full implementation phase for categories like apparel show better business results, such as a 15 percent reduced out-of-stocks rate.

8 8 Improving business performance and competitive advantage through the implementation of standards Development of the standards Manufacturers Retailers & Wholesalers IM01 % of consumer units allocated a GTIN IM02 % of cases/cartons/inners allocated a GTIN IM04 % of pallets/unit loads labeled with SSCC IM05 % of shipping or receiving locations that have been allocated a GLN a GLN IM06 % of orders transacted via EDI IM07 % of invoices transacted via EDI IM08 % of shipments for which a dispatch advice was transmitted via EDI IM09 % of shipments for which a receiving advice was transacted via via EDI EDI IM10 % of sales with synchronized master data between trading partners via the GS1 Global Data Synchronization Network IM11 % of sales with master data loaded into a GS1-certified data pool pool (%) (%) ** IM12 % of active SKUs where the master data has been synchronized using the GS1 Global Data Synchronization Network IM13 % of GTINs that are catalogued consistently with a GS1 Global Global Product Classification brick brick code code ** insufficient data available to produce a benchmark, n<5 Figure 5. Three-year results for implementation measures worldwide (revenue-weighted averages) We observed a positive upward trend in almost all of the standards. As a result, companies are continuously improving their standard implementation levels, which indicate that they can see the benefits. These findings can be supported by the fact that a panel sub-sample (companies who have participated in all surveys) showed a reasonable increase trend over the past several years.

9 IBM Global Technology Services 9 Cost, revenue and a flexible supply chain As seen in Figure 6, the top-right quadrant represents organizations with 6-10 standards implemented that have an average minimum implementation level of 51percent. Companies in this group reported lower distribution costs in comparison to their peers with fewer standards adopted and lower average implementation levels. Industry leaders (companies that have implemented at least six standards at an average implementation level of above 50 percent manufacturer as well as retailer and wholesaler) profit from reduced distribution costs. Industry leader, companies (in dark blue quadrant) which have implemented at least 6 standards at an average implementation level of above 50% - manufacturer as well as retailer and wholesaler - profit from reduced distribution costs. Efficiency Time saving Cost reduction Improved supply chain operations Improved visibility Increased understanding of retailers needs and become preferred collaboration partner Increased sales Supplier Service Level GTIN on consumer units GTIN on cases/cartons/inners Store Service Level SSCC EDI for orders EDI despatch advise Sales with syn master data Annual Revenue Growth Rate Roll out and full implementation of Trading partner performance standards (E401) Competitive advantage Customer satisfaction Improved client relationship Improved customer satisfaction Better information availability Out of stocks GTIN on cases/cartons/inners SSCC EDI for orders EDI for despatch advice Improved quality Improved data quality Fewer invoice-disputes Invoice accuracy EDI for invoices (manufacturers) Sustainability Improved Image & Brand Less Waste Optimized usage of resources Better overview of inventory Distribution costs GTIN on consumer units GTIN on cases/cartons/inners EDI for orders Sales with synchronized master data via GDSN Order to delivery cycle time GTIN on consumer units GTIN on cases/cartons/inners Average implementation level of standards implemented 100% 1% 50% 51% Distribution costs: 11.4% Industry leaders Distribution costs: 6.5% Number of standards implemented Figure 6. Distribution costs and the usage of standards -43% Figure 7 illustrates that there are many beneficial relationships between the usage of standards and business measures. Figure 7. Competitive advantage chart As shown in Figure 8, the out-of-stock rate (the extent to which the product is available when the consumer wants to buy it) is much lower among companies who have implemented the Serial Shipping Container Code (SSCC) standard or used EDI for orders. Both actions could lead to better serve consumers who benefit from fewer out-of-stocks and earlier access to new products. It is essential that consumer value and satisfaction are met to maintain shopper loyalty, not only for the brands, but also to the retail store in order to increase sales and category profitability. On-Shelf/POS out-of-stocks with the use of SSCC No Implementation of SSCC Implementation of SSCC Difference: -52% 3,8% 7,8% Figure 8. Lower out-of-stock rate with the use of SSCC

10 10 Improving business performance and competitive advantage through the implementation of standards Figure 9 illustrates that companies utilizing synchronized master data for sales on a higher level between trading partners with Global Data Synchronization Network (GDSN) showed reduced distribution costs. The GDSN is an internet-based, interconnected network of interoperable data pools that enables companies around the globe to exchange accurate, compliant, standardized and synchronized supply chain data with their trading partners using a standardized Global Product Classification. Using GDSN for sales 1-50% Using GDSN for sales >50% Distribution costs with of GDSN for sales Difference: -44% 5,0% 8,9% We observed many examples indicating that the higher the implementation levels, the greater the potential for savings and improvements. As seen in Figure 10, additional incremental benefits are available as companies drive implementation levels even higher. Hence, companies using more than one measure at the same time are seeing even better results. Suppliers Service Level/Fill rate with Consumer units allocated a GTIN Invoice accuracy with EDI for invoices Suppliers Service Level/Fill rate with GTIN on case/carton/inners level Distribution costs with EDI for orders Distribution costs with GTIN on case/carton/inners level Distribution costs with GTIN on case/carton/inners level and GDSN Distribution costs with GTIN on case/carton/inners level and GLN 1 50% % implementation implementation level level 91.6% 95.3% 93.1% 10.6% 12.5% 94.3% 97.2% 94.3% 5.4% 7.7% 5.1% 4.8% Delta +2.7% +1.5% +1.2% - 5.2% - 4.7% Figure 9. Lower distribution costs with the use of data synchronization Figure 10. Example for improved business results after boosting the implementation level Companies using EDI for orders or GTIN (Global Trade Identification Number) on cases/cartons/inners level on a higher average implementation level, survey results showed lower distribution costs.

11 IBM Global Technology Services 11 Challenge your company There can be benefits observed when standards are implemented why then, are they not being implemented by more companies? Companies who have implemented standards have exhibited higher performance results compared to those who have not done so. Boosting the implementation level demonstrated greater results versus doing it on a lower level. Continuing to implement standards can mean ongoing improvement. We close this report by posing several key questions: Many large companies already use standards extensively. Correlations between standards and business results identified in this report are independent of company size. Collaboration allows industry leaders to share experiences and contribute to improving their business process. Why is your smaller company missing out on such a great opportunity to collaborate with them and gain advantage? Retailers and wholesalers implement standards at a higher level than manufacturers do. Results show wide implementation of product identification standards revealing a high potential for manufacturers. As a manufacturer, why not implement standards at a higher level? Companies dealing with fresh and perishable food show a shorter lead time than those without fresh food all the more reason to utilize standards to remain competitive and profit from shorter lead times. Why not take the opportunity to profit from shorter lead times? There are many GCI companies among the industry leaders who firmly believe in the use of standards. Although 2008/2009 was a challenging period, survey results did reveal a reasonable revenue growth rate of 2 percent. What factors are preventing your company from matching or exceeding the implementation rates of your peers and therefore gaining the same competitive advantage these companies are achieving? Significant discrepancies can exist in the implementation levels across comparable different geographical regions. What concrete steps can you take to drive standards implementation levels higher locally and globally? The results are clear: Standards are invaluable and can be the basis of your ability to gain an edge over the competition. For more information For additional insights about the global scorecard, visit where you can view case studies, conference presentations and reports and detailed results of the GCI 2010 Compliance Survey: asp For further information please contact Rüdiger Hagedorn from Consumer Goods Forum (r.hagedorn@theconsumergoodsforum. com) or David McCarty from IBM (mccartyd@us.ibm.com).

12 IBM welcomes the opportunity to discuss your specific standards implementation needs. Leveraging extensive experience in the consumer goods industry, IBM Global Business Services provides consulting services to Consumer Goods Forum on the subject of developing and using capability scorecards. Please contact your IBM marketing representative, or visit the following website: About the Consumer Goods Forum The Consumer Goods Forum is a global, parity-based industry network, driven by its members. It brings together the CEOs and senior management of over 650 retailers, manufacturers, service providers and other stakeholders across 70 countries and reflects the diversity of the industry in geography, size, product category and format. Forum member companies have combined sales of EUR 2.1 trillion. The Forum was created in June 2009 by the merger of CIES - The Food Business Forum, the Global Commerce Initiative (GCI) and the Global CEO Forum. The Consumer Goods Forum is governed by its Board of Directors, which includes 50 manufacturer and retailer CEOs and chairmen. The Forum provides a unique global platform for knowledge exchange and initiatives around five strategic priorities emerging trends, sustainability, safety and health, operational excellence and Knowledge Sharing and people development which are central to the advancement of today s consumer goods industry. The Forum s vision is: Better lives through better business. To fulfill this, its members have given the Forum a mandate to develop common positions on key strategic and operational issues affecting the consumer goods business, with a strong focus on non competitive process improvement. The Forum s success is driven by the active participation of the key players in the sector, who together develop and lead the implementation of best practices along the value chain. Copyright IBM Corporation 2011 IBM Global Services Route 100 Somers, NY U.S.A. Produced in the United States of America January 2011 All Rights Reserved IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol ( or ), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the web at Copyright and trademark information at ibm.com/legal/copytrade. shtml Other company, product and service names may be trademarks or service marks of others , the Future Value Chain, CGF and CapGemini, ciesnet.com/pfiles/publications/2016_future_value_chain_gci_report ohne.pdf 2 IBM 2009 Global CIO study 3 SB html 4 Press_Release_Item-Level_RFID_FINAL.pdf Please Recycle With its headquarters in Paris and its regional offices in Washington, D.C., and Tokyo, the CGF serves its members throughout the world. BCE USEN-00