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

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Could I please ask the audience if
anyone knows these brands?

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 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

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 Sales & Supply base
outside mature markets will be over 40%
in 3 years in most cases

Source: Accenture Global Operations Survey, 2005 5

 Most important new
emerging markets

Source: Accenture Global Operations Survey, 2005 6

 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 & Downstream Flexibility
Harnessing of Efficiencies and Adaptability

Central
Supplier Transport Plant Transport DC Customers
Warehouse

Innovation & Time-to-Market

Effectiveness

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 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.

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 Global/Regional vs. Local Supply Chains
• There has been increased adoption of Central SC Planning Hubs

“Regional SCP Hubs” Operating Principles;

• Improved service (through inventory and
Company 1 capacity allocation rules based on genuine
Implemented regional market priorities)
SCP with DP in
countries by BU • Improved asset utilization through adequate
capacity planning (plant, DC and transport)
Company 5 • Improved total cost of Ownership through
Implemented regional adequate balancing of trade-offs between cost-
SCP with DP in types and product availability (cost of stockout)
countries (in one
Crossi-BU Hub)
Enablers to other Benefits;
Company 6 • Enable procurement savings via consolidated
Implemented Regional
SCP for long term requirements planning visibility
timeframe and kept short • Foundation for manufacturing and distribution
term SCP in countries
network consolidation.
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 Key Strategic Enablers
• There are a number of key strategic enablers within each objective
Upstream Leverage
& Harnessing of
Efficiencies

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

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

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 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 • New product S&OP (commercialization and industrialization)

Flexibility and
Adaptability • Product complexity management

• Local Market-sensitive product development.

Innovation &
Time-to-Market
Effectiveness
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 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 lead-
time (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?

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 Product characteristics call for specific
Operations Strategy Models (often within
the same industry)

Operations Strategy Industry (examples) Some significant companies

Networks (Global Scale Î Dense Utilities, Refinery, Metals, Chemicals,

Scale) 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 Fashion, Consumer electronics, food,

cycle) 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,..
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 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 Î Dense Scale)
2 Low-Cost Country
Sourcing
3
Rapid Customer Response
IVE
RAT 4

U ST Know-How Clusters
L
IL 5
Supplier Clusters
6
Risk Hedging

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 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%
40% 33%
16% 14% Satisfaction
1% 9% 14% Dissatisfaction
42% 48%

Total cost Quality Delivery Lead times Product

reliability innovation

Source: Accenture Procurement Survey 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 Risk Assessment

- Review of total spend profile - Country risk assessment
- Country Profiling - Industry risk assessment
- Total Cost of Ownership model - Supplier risk assessment

what to source where? What countries to bet on?

Local Procurement Office Supplier Identification

- Organization design - Supply Market Intelligence
- Staffing, Recruiting, Training - Supplier Search
- Integration to global organization Eastern Asia - Qualification/On-site Audits
Eastern
Established Procurement office Europe Short list of qualified suppliers
South and
Central Asia

Africa and
Supplier Development Middle East Sourcing
- Assessment of capability gaps Middle- and South
- Differentiated Bid Strategies
- Quality, 6 Sigma, Lean program America - Fact based Negotiation
- Workshops & Training - Contracting

Capable Suppliers Selected supplier/s

Fulfillment Supplier Integration

- Optimized Logistical Solution - Production process qualification
- Inventory locations - Quality & Delivery assured
- Freight sourcing - Order-to-Delivery process defined

Products delivered to own factories Supplier integrated in Supply Chain

Low Cost Countries
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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?
Focus on high
Locate close to your potential private
suppliers and Where to enterprises but need
consider regional locate the Where to buy? to develop them to
capitals outside main IPO? Success factors to achieve maximum
metropolis Set-Up an IPO in Low gains
Cost Markets

Who to hire? How to market?

Your people and operations need to be Build awareness and credibility,

on par (or even better) with the people implement solid end-to-end Source to
and operations in your customers’ Delivery Process and IT
countries

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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
ƒ Lack of supplier capacity
ƒ Difficult procurement situation in
the global steel market
ƒ Rising raw material prices and
COGS (Cost of Goods Sold)
Results
ƒ 30% total savings (on landed
purchasing price)
ƒ 50% potential savings on
Castings
ƒ 30% potential savings on
Forgings
ƒ 40% potential savings on
Non-Metallic Components
ƒ Development of Operating
Model for sourcing from LCC
suppliers
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 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

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 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 R&D (non core)
(low cost)
Purchasing
Body

Frame
Centralization LCCM LC CoE
Geography
LCCS
Body Parts production
(poor inhouse
Frame
SCM Onshore due to LT methods)
and transport cost
On-shore Chassis
(high cost) Core R&D Manufacturing
Organisation
In house Outsourced
Relative cost level Strategic importance
Low High 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 36%
Regional

Global 16%

Actual +5 years
Source: Internal
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 Operating Models will need to
adapt to market focus

Challenge: Evolving Operating Models to reflect scope of business

3%
Country 19% 10%

16%
Multi-Country 13%

Regional 19% 23%

Multi-regional 36%
45%

Global 16%

Actual In 5 years
Source: Accenture Analysis
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 High Performance opportunities for
our economies in Europe

Drivers for manufacturing

in Europe

• Customer intimacy

• Lead time to customer

Off shore • R&D cooperation

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 Î Play to strengths in R&D, Customer-
Proximity, 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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