Driving towards the supply chain ideal
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1 Driving towards the supply chain ideal Supply chain management Assets & facilities Sourcing Customer Warehousing & distribution Manufacturing GW ref. 9026X031 - version 1.0 Transportation
2 Groenewout Presentation structure Introduction Trade-Off s Business Cases Today s Drivers Conclusions Questions Driving towards the supply chain ideal - V1.0 Page 2
3 Marriage A personal supply chain merger Sourcing Manufacturing Warehousing & distribution Customer Improved customer service & costs? We saved on our rent, but had to agree on moving out some furniture Our parking fee stayed the same, because we kept both cars We combined our savings account, freeing up some cash to spend We shared our meals, reducing our groceries costs & the food we had to throw away And they lived happily ever after Driving towards the supply chain ideal - V1.0 Page 3
4 Groenewout Presentation structure Introduction Trade-Off s Business Cases Today s Drivers Conclusions Questions Driving towards the supply chain ideal - V1.0 Page 4
5 Footprint Optimization objectives Optimized distribution structure Operational cost savings & balance sheet improvements Increased customer service & responsiveness Effective and efficient supply chain organization& procedures Driving towards the supply chain ideal - V1.0 Page 5
6 Optimization is nice but it really boils down to costs line haulage: less line hauls costs decrease fine distribution: more final distribution km s costs increase handling factory WH: factory warehouse as-is no changes handling & storage DC s: increasing economies of scale costs decrease inventory costs: increasing economies of scale, lower working stock, lower safety stock required costs decrease Driving towards the supply chain ideal - V1.0 Page 6
7 You know about the costs, but where do you need to focus Inventory 35% Warehousing & handling 30% Inbound transport 5% Outbound transport 25% Inter-company transport 5% COST DRIVERS EFFECT of CENTRALIZATION IMPACT NET EFFECT Warehousing & handling 30% economies-of-scale -/- 10% -/- 3% Transportation 35% linehaul decrease / fine distribution increase +/- 0% +/- 0% Inventory 35% reduction - consolidation of inventory -/- 60% -/- 21% Driving towards the supply chain ideal - V1.0 Page 7
8 Cash flow is one, but balance sheet improvement is premium! Inventory new = Inventory old Throughput new No. of SKU s new Lead-Time new X X X Throughput old No. of SKU s old Lead-Time old Integral inventory management & transparency Replenishment lead-times Overlap of article codes per individual warehouse Customer lead-times DC reduction from 2 --> 1 from 3 --> 1 from 5 --> 1 from 7 --> 1 from 9 --> 1 Effect on inventory level -/- 30% -/- 43% -/- 56% -/- 62% -/- 67% Regional throughput per warehouse Driving towards the supply chain ideal - V1.0 Page 8
9 You cannot realize savings by only centralizing warehouses! Successful Supply chain optimization requires attention on structure, planning procedures & IT Centralization of warehouses only embeds marginal savings True optimization is to be found in supply chain organization & planning procedures Information Technology is to embed the new organization & procedures in the supply chain Driving towards the supply chain ideal - V1.0 Page 9
10 Groenewout Presentation structure Introduction Trade-Off s Business Cases Today s Drivers Conclusions Questions Driving towards the supply chain ideal - V1.0 Page 10
11 Optimization case Bath- & kitchen products Description One of the worlds leading manufacturers of bath- & kitchen products History of mergers & acquisitions over the last decade Wide variety of individual brands marketed Opportunities + Physically merge the individual supply chains - Maintain individual brands, so no inventory reduction Benefits + Reduce transportation costs through consolidation of shipments to customers + Reduce warehousing costs through reduction of overhead in the logistics operations Driving towards the supply chain ideal - V1.0 Page 11
12 Optimization case High-tech instruments Description A world leading manufacturer in high-tech instruments for life science, laboratory, and industrial applications European structure with commercial operations in every country No European stock visibility & limited inventory focus CO s 200,000 Parts with low inventory turns Opportunities + Store high-value/low-usage inventory upstream in supply chain + Implement uniform part numbering & European stock visibility - Small warehouses that are integrated in commercial offices Benefits + Balance sheet improvement through inventory consolidation + Reduction of financial provisions on inventory Driving towards the supply chain ideal - V1.0 Page 12
13 Groenewout Presentation structure Introduction Trade-Off s Business Cases Today s Drivers Conclusions Questions Driving towards the supply chain ideal - V1.0 Page 13
14 Today s drivers require flexible solutions! Traditional supply chain approach is over; product - market combinations (PMC) drive the supply network solution Supply chain driver Characteristics -product market combinations - -examples- SC concept 2-4 hours delivery On site de-central storage Customer requirements / Business Risks 24 hours delivery De-central storage hours delivery Central storage Transport High costs De-central storage/hub Inventory Low value, high volume High value, low volume, SKU overlap Slow movers, critical De-central storage Central storage On site de-central storage Europe is not homogenous from a legislative, logistics and costs perspective There is no truly PAN-European service provider available for (fine) distribution. Strategic partnerships are formed to achieve European coverage Driving towards the supply chain ideal - V1.0 Page 14
15 Low volume, high value, long delivery time High volume, low value, short delivery time CENTRALIZED Suppliers / factories DECENTRALIZED Suppliers / factories DC UK GE IT DC s UK GE IT Markets - countries UK GE IT Markets - countries Driving towards the supply chain ideal - V1.0 Page 15
16 Low volume, high value, long delivery time High volume, low value, short delivery time CENTRALIIZED Suppliers / factories OPTIMAL Supply chain is a MIXED structure: Diverse customer requirements drive different routes to market for different products DECENTRALIIZED Suppliers / factories DC UK GE IT DC s UK GE IT Markets - countries UK GE IT Markets - countries Driving towards the supply chain ideal - V1.0 Page 16
17 What characterizes an effective, responsive supply chain? Suppliers / factories DC s Product - Channel combinations Market Full European awareness THINK Global / MANAGE European / ACT Local: - DC s mainly outsourced and set-up varies per product channel combination - Stock management per product channel - International trunking - local distribution - Service is customized Driving towards the supply chain ideal - V1.0 Page 17
18 Groenewout Presentation structure Introduction Trade-Off s Business Cases Today s Drivers Conclusions Questions Driving towards the supply chain ideal - V1.0 Page 18
19 Optimization The true story for you? To optimize our supply chains we need to focus on inventory management & related best practices to prevent the focus on physical distribution in itself Dare to challenge your business constraints, as they limit your window of opportunity Supply chain redesign embeds high investments and transition complexity. However do not stop here, define it as your prerequisite for opportunities on actual operational savings Harvesting the opportunities requires full management attention and focus on the supply chain planning practices and - organization Driving towards the supply chain ideal - V1.0 Page 19
20 Optimization Critical Success Elements Supply chain structure The supply chain footprint (number & locations of warehouses) is the basis from which actual improvements can be initiated Supply chain business processes & supporting systems The tools and procedures as a prerequisite to make realization of the optimization possible Implementation & operational execution Executed by people following procedures enforced by systems using the optimal supply chain footprint Driving towards the supply chain ideal - V1.0 Page 20
21 Groenewout Presentation structure Introduction Trade-Off s Business Cases Today s Drivers Conclusions Questions Driving towards the supply chain ideal - V1.0 Page 21
22 Groenewout Our profile Groenewout is an international, independent firm providing a comprehensive range of professional consulting services and transition support focused on business improvements related to supply chains and logistics across all industries. Supply chain management Assets & facilities Sourcing Manufacturing Warehousing & distribution Customer Transportation Driving towards the supply chain ideal - V1.0 Page 22
23 M A K I N G SU P P L Y CH A I N S YO U R CO M P E T I T I V E A D V A N T A G E!
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