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Accenture Research and Insights into Fulfillment Mastery

High Performance through Fulfillment

Introduction The Gap between the Masters and the Rest in Fulfillment Performance The Capabilities of the Fulfillment Masters Operational Excellence: How Masters Out-execute the Laggards On the Journey to High Performance 03 05 06 08 13



In a world in which customers literally can change suppliers at the click of a mouse, the ability to fill orders reliably and efficiently—ontime, at the right place, with the right merchandise and at efficient cost—has become a hallmark of highperformance businesses. In short, superior fulfillment operations count more than ever. Yet despite steady advancements in the technology for capturing and tracking orders, companies face increasing business challenges as well as opportunities. In today’s multipolar world with numerous centers of economic might and increasing volatility, fulfillment capability is critical to success. The globalization of supply and demand. On the demand side, companies have been relentlessly seeking new markets for growth, as well as new sources of talent to help generate it: innovation, marketing, sales and so on. At the same time, these companies have been searching

on the supply side for lower-cost sources of materials, labor and manufacturing. Today, the “content” of many products has traveled over numerous independent and far-flung paths: sourced in multiple locations around the world, manufactured in several others, sometimes assembled in other locales and warehoused in numerous distribution centers. While companies with such globally interconnected supply chains can efficiently supply the world, the side effect is a substantial increase in lead times and transportation costs. Major fluctuations in key supply chain cost drivers. The past few years have seen major fluctuations in critical supply chain costs: crude oil prices (a record 27 percent plunge in the United States in November 2008 alone1), prices of other key commodities, interest rates (and thus inventory costs), shipping charges (boat, rail, plane and truck) and currency valuations, to name a few. Supply chain forecasting has become a

hazardous game that has reaped havoc on cost and asset management. Overall economic volatility. The global economy has gone from boom to bust in just two short years. When will it boom again? Or at a minimum, when will the bust be over? Leading economists are not at all in unison on the economic outlook. A highly uncertain economy, likely to operate in fits and starts in 2009, will place great pressure on companies to maintain a vice-grip on costs. Forecasting demand and staging inventory with any level of accuracy is now an arduous task—even for the most adept of supply chain planners. Escalating customer demands. Heightened service expectations and ever-increasing preferences for customized products and delivery options have made filling orders more complex. Not only must the order have the right quantity of items for customer X, increasingly customer X’s items must be configured expressly for its purposes. Furthermore, declining 3

product life cycles and time-tomarket cycles for new products mean many more products are flowing through a company’s supply chain. Thus, the chances for disappointing customers have risen exponentially in many industries. Rising pressures for sustainable business practices. Considered a fringe movement just a decade ago, the need for sustainability is now firmly entrenched and companies can no longer ignore “the activists.” This is in part because many of the activists are huge customers such as Wal-Mart, which have seen the light on how becoming environmentally friendly also can reduce costs and increase profits.2 The job of reducing a company’s negative environmental impact falls disproportionately on the supply chain, especially in how an organization structures its transportation and distribution operations.

These forces now make it imperative for companies to build dynamic fulfillment capabilities—ones that enable them to react rapidly to marketplace changes. Companies that are first to do so will capture substantial emerging opportunities and pull away from the competition. But what capabilities make a company’s fulfillment operations such a machine for high performance? And if a company is able to build such a capability, what impact can it have on its performance? In short, is the gain worth the pain? To answer these and a number of related questions, Accenture conducted an extensive survey of 240 major companies around the world in the second half of 2008 (see Figure 1). Each company answered 70 questions that explored:

• Their fulfillment performance. • The key metrics they used to gauge that performance. • The maturity of their fulfillment practices and capabilities. The rest of this report explores the key findings from this comprehensive survey.

By Geography

By Industry

By 2007 Revenue

Figure 1. Survey participant demographics


The Gap between the Masters and the Rest in Fulfillment Performance
We would call the fulfillment performance of companies across the industries we surveyed as good but not great. Survey respondents received a median 90 percent of orders from their suppliers on time and in full. In turn, respondents’ performance with their customers was better. They delivered 95 percent of their customers’ orders in full and on time, and their days of supply of finished goods inventory was a median 15 days. To be sure, that performance is admirable. But it trails the 98 percent OTIF performance of a select number of companies that we studied. In addition, the best companies in fulfillment had 50 percent less inventory. All this suggests the majority have substantial opportunities for further improvement. What is holding back the majority of the 240 companies we surveyed from having outstanding fulfillment performance? By assessing the maturity of their fulfillment processes, our survey found a clear cause: While having some strong competencies, these companies needed to continue improving a number of key fulfillment capabilities. Our survey probed seven core dimensions of fulfillment strategy and operational capabilities. We found overall fulfillment practices fell short of what the best companies had achieved. And, often flexibility was achieved through manual means—meaning, lots of phone calls, faxes, e-mails and other episodes in which people had to intervene—and on an inconsistent basis. Such practices were especially evident at companies operating multiple distribution channels (the majority of our respondents). While companies designed channels for specific customer or product needs, they often fell short in measuring performance across multiple supply chains or managing the network complexity they created. For instance, most respondents evaluated material flows infrequently or on ad hoc basis, and they typically looked at only isolated portions of those flows. So at companies that want to take their fulfillment performance to the next level, where should managers start? Which practices and capabilities are most essential to achieving superior fulfillment performance? Our research findings provide some guidance. To better understand what leads to great performance, we compared survey respondents with top-quartile performance in cost and customer service measures to respondents in the bottom quartile on these metrics. We refer to top-quartile respondents as the “fulfillment masters” and the bottomquartile companies as the “fulfillment laggards.” We found substantial differences in their fulfillment efficiency and effectiveness: • Cost effectiveness —measured by outbound transportation cost, total transportation costs or total supply chain costs. Masters’ median outbound transportation cost was 2 percent of total revenue versus laggards’ 16 percent—a 14 point cost advantage. (The median outbound transportation cost for all survey respondents was 5 percent of revenue.) Overall, masters had a 35 percent total supply chain cost advantage over laggards. • Customer service—measured by on-time, in-full deliveries to customers across all product lines. In delivering on-time, in full-orders, masters reported a median of 98 percent versus 85 percent for the laggards. (The median OTIF for all 240 respondents was 95 percent.) Suppliers clearly helped the masters achieve their stellar OTIF rate; the median OTIF for orders received from suppliers was 95 percent for masters versus 82 percent for the laggards. The masters and the laggards were distinctly different in their fulfillment capabilities and performance (see Figure 2).

Figure 2. Maturity of practices and capabilities in key areas are strongly correlated to superior planning performance 5

The Capabilities of the Fulfillment Masters

Figure 3. Masters were more likely to regularly evaluate the tradeoff between cost to serve and value achieved Masters demonstrated high levels of maturity and advanced capabilities in every element of fulfillment—from fulfillment strategy (that is, the way they design and adjust their fulfillment operations) through operational excellence (how well they execute the strategy) and technology (how effectively they use IT to improve operations). In comparing masters and the rest of the survey population (including the laggards), the biggest differences in capability maturity were in fulfillment strategy, inventory management and integrating technology and data. We explore in more detail the key differences between the masters and laggards.

Figure 4. Masters are routinely involved in the R&D process masters designed their channels this way versus only 30 percent of the laggards. At the same time, masters were better at managing the cost and service of each channel. The majority of the masters regularly measure and monitor their cost to serve in each channel; only the minority of the laggards did so. Further, half of the masters regularly evaluate the tradeoff between cost to serve and value achieved, compared with only one-third of the laggards (see Figure 3). In addition, masters were routinely involved in the R&D process to ensure efficiencies, constraints and available value-adding activities were incorporated into product design (see Figure 4).

Fulfillment Strategy: How Masters Create Dynamic Fulfillment Operations
One of the key distinctions between leaders and laggards at fulfillment was the ability to build dynamic and responsive supply chains—that is, ones that could be adjusted rapidly to meet changing market conditions (customer demands, competitive moves, changes in supplier base, changes in fuel, interest rates, and other costs of doing business). Masters design their supply chains by continuously reassessing cost and service factors, adjusting their fulfillment methods (especially in capitalizing on established technology),regularly reviewing their channels to customers, being highly selective in their choice of supply chain partners (3PLs, etc.) and actively modeling and managing their carbon footprint. Masters were much more likely to design their distribution channels to meet specific customer needs and product characteristics than were the laggards. Some 70 percent of the


Figure 5. How Masters and Laggards evaluate inbound and outbound flows An effective fulfillment strategy is also one that changes rapidly to meet shifting market conditions. In this area, the masters outperformed the laggards as well. Masters rigorously evaluate their distribution networks more frequently than quarterly—both inbound and outbound product flows— to be in sync with changing market and geographical demand. These companies comprehensively review all the elements of fulfillment. On their inbound flows, masters pay special attention to the capabilities of transportation providers and supplier locations. As part of their inbound flow analysis, every one of the masters we surveyed reviews both transportation firm capability and supplier locations. In comparison, less than half of the laggards evaluate supplier locations, and only 40 percent scrutinize transportation providers. Masters are also more active in monitoring their inbound flows. Some 43 percent evaluate such flows more than once a quarter; only 13 percent of the laggards review them as frequently. Masters furthermore are more rigorous than laggards in monitoring key elements of the outbound flow. Some 43 percent of the masters evaluate outbound flows more than once every three months, compared with only 29 percent of the laggards. And, 100 percent of the masters evaluate customer locations when analyzing their outbound flow, which was the case with only half the laggards (see Figure 5). The case of a major elevator manufacturer illustrates the payoff from possessing sophisticated capabilities in fulfillment strategy. To improve operating margins, the company’s North American division moved US production to Mexico, which forced a reassessment of its US distribution network. After evaluating the network, the company designed a new supply chain that achieved high performance at a competitive cost. The new fulfillment operation cut the company’s transportation costs alone by 13 percent, or more than $2 million. And the company achieved total fulfillment savings of nearly $5 million while also doubling the fulfillment service levels. Our survey also found masters were more likely to use third-party logistics firms, which increases the flexibility of their supply chains. Some 80 percent said their 3PLs boosted flexibility, while a lower percentage of the laggards—63 percent—said the same. Masters were also far more likely to extensively integrate data with supply chain partners. Half of them reported extensive data integration versus only 19 percent of the laggards.


Operational Excellence: How Masters Out-execute the Laggards

The masters not only were superior at fulfillment strategy; they were far better than the laggards at executing their strategy: in capturing customer orders, managing inventory, operating their warehouse and distribution centers, managing reverse logistics, integrating technology and data internally and externally, and measuring supply chain performance and responding to issues.

Order Capture
In capturing orders, masters have better visibility into warehouse inventory and production scheduling processes—real-time data that provides a far more precise and accurate snapshot on current conditions. The majority of the masters had realtime data on incoming shipments and production scheduling, while only the minority of the laggards could claim likewise (see Figure 6). With up-to-the-minute data on stock levels (including what has been committed to orders), these companies are better at production scheduling and planning future manufacturing runs. Masters were also more likely to have data on inventory availability at their warehouses; 87 percent had it versus only 67 percent of the laggards. (Note: masters and laggards did not differ significantly in possessing data on allocated inventory and lead times.) Superior visibility on warehouse inventory and shipments improves inventory allocation. Masters’ real-time tracking of

inventory in transit allows them to make the right changes in production plans. Masters were far more likely to use advanced planning options when capturing orders (see Figure 7). About three-quarters integrated order allocation with production scheduling versus only 42 percent of the laggards. The leaders at fulfillment were more likely to change their production plans based on real-time data from order allocations. And, masters more often allocate inventory at the last possible moment, meaning they can direct inventory more accurately based on recent demand patterns. Masters furthermore are better at balancing customer service levels with safety stocks, a key tradeoff in determining replenishment strategy. Two-thirds of the masters said they balance this tradeoff, which was more than twice the percentage of laggards.


Figure 6. Data available at order capture Masters are slightly better than laggards at having critical information when capturing orders. They process orders having data available on raw materials, order optimization, product promotion activities and cross-selling opportunities. The main factors that influence the masters’ order-capture decisions are availability of raw materials, cost and lead times. Some 20 percent of masters and 15 percent of laggards said their orders were based on these three items. And at the time they take an order, 36 percent of the masters and 29 percent of the laggards can see promotional data and inventory availability on the items customers want to purchase. That enables them to ensure customers have the most recent prices and more accurate information on delivery, which are crucial to maintaining customer satisfaction. In addition to having access to such data when capturing customer orders, a higher percentage of masters (albeit still a small share) have their ordering systems extensively integrated with other major enterprise systems in their organizations. In our survey,

Figure 7. Masters were far more likely to use advanced planning options when capturing orders 27 percent of the masters said their order management systems were fully integrated with other corporate systems, which was the case with only 18 percent of the laggards. Companies that integrate their order-processing systems this way can boost fulfillment significantly. For example, a major telecommunications company wanted to change its manually intensive order-acquisition system, integrating it with other systems to increase the volume of orders it can access, reduce the number of problem orders (for example, order-entry errors), cut order processing costs and improve data reporting and analysis. The company built an integrated order-management system that receives orders directly from an online portal. Today, the system—not people—qualifies and processes each online order, which saves considerable time and labor. But the new system does more. Because it is integrated with the company’s customer relationship management system, sales and marketing now get detailed, up-to-the-minute data on which customers are buying which products. In addition, the systems’ links to the company’s service assurance system enables management to flag troubled orders instantly. And finally, the new ordering system’s link to the company’s billing system eliminates one more “throw-it-over-the-wall” procedure, which means invoices go out faster and more accurately and the company gets paid faster. All of this has reduced end-to-end order-cycle times and boosted order accuracy. That, in turn, has increased order volume while at the same time cutting orderprocessing costs.


Figure 8. Use of postponement strategies and make-to-order

Figure 9. Visibility to inventory information

Inventory Management
Inventory management capabilities of masters and laggards differ considerably. Unlike laggards, masters build flexibility into each stage of the extended supply chain. That enables them to optimize inventory across the entire chain. As a result, they operate with 50 percent less inventory across their supply chain. Masters are far more likely than laggards to continually evaluate their inventory levels against orders; 87 percent of masters did so versus 56 percent of the laggards. Masters are also far much more likely to structure contracts with transportation providers to respond rapidly to spikes in demand. Nearly two-thirds (62 percent) of masters negotiated “mean-to-peak” capacity flexibility in their transportation contracts; in contrast, only about one-quarter (26 percent) of the laggards did so. By having access to transport capacity at a prenegotiated rate and lead time, masters can control fulfillment costs.

This also helps them maintain high service levels during times of high demand. By also using postponement in inventory management to a greater degree than laggards, masters are able to control inventory costs and maintain a dynamic supply chain by being predominantly a “make-toorder” operation (see Figure 8). Our survey revealed masters were on par with the rest of the companies in the extent to which they have visibility into their own inventory. And, masters and laggards were no different in having data on finished goods and in-transit inventories. However, nearly half the masters had inventory visibility for the extended supply chain—that is, into the inventories of the suppliers and customers. Only about one- third of the laggards could say the same (see Figure 9). Thus, when it comes to managing inventory, it would be fair to say that masters had a better view of the “big picture.”

Warehouse and Transport Operations
The ability to take highly efficient approaches to managing warehouses and transportation for getting goods in and out of them is another hallmark of companies that have mastered fulfillment. Masters have flexible networks of warehouses and transport operations. Making these networks perform are centralized transport planning and the software that enables it. A slightly higher percentage of masters (80 percent) use warehouse management systems (WMS) than do laggards (70 percent). WMS and handscanning technology drive warehouse and transport efficiency. Masters do not go overboard with technology; they adopt proven technologies and apply them selectively to areas of greatest return in their fulfillment operations. Masters were three times more likely than laggards (33 percent compared to 11 percent) to have a centralized international team conduct transportation planning,


rather than have it done at a continental/regional or country level. Why? Planning transportation at a global level enables a company to leverage larger purchasing discounts, standardize contracts, create common transportation processes and systems, reduce headcount and coordinate intercountry distribution. All of these elements reduce costs by improving the utilization and efficiency of transport operations. In addition, planning transportation at an international level requires using transportation management systems or to work with providers that have TMS and strong data integration capabilities. Another area separating masters and laggards in fulfillment performance was the ability to reroute during shipment. A much higher percentage of masters than laggards (63 percent versus 38 percent) could manually reroute transport while a product was in shipment.

Reverse Logistics
Reverse logistics is another area in which masters are more likely to excel. More than twice as many masters (77 percent) feed product return data to their companies’ product development function than do laggards (only 32 percent). Having detailed information on why customers are rejecting their purchases is crucial to companies that want to rapidly fix faulty product designs and manufacturing processes. Masters appear to place more emphasis on getting unvarnished information on their product returns. More than twice as many masters manage returns in house than do laggards (see Figure 10).

Technology and Data Integration
The aggressive use of established technology to integrate fulfillment processes and systems is another capability that separates masters and laggards in fulfillment. Nearly half (43 percent) of the masters said the fulfillment systems were fully integrated versus a scant 4 percent of the laggards. Why are masters much more technology savvy in fulfillment? They are much more likely to use in-depth business cases to justify IT investments. Furthermore, they were much more likely to track the return on that investment (71 percent of the masters monitor the return on their IT spending versus just 45 percent of the laggards). It’s not that masters spend more on IT in fulfillment; in fact, on average they spend less than laggards. It’s that they are much more likely to know what—and what not—to automate.


Figure 10. Reverse logistics practices of masters versus laggards

Ability to Measure and Respond
Finally, masters differ from laggards in their ability to measure the health of fulfillment operations (costs, cycle times, customer complaints, etc.) and respond to performance problems. Some 80 percent of masters use information technology to proactively reschedule activities; only 59 percent of the laggards do this. A slightly higher percentage of masters (83 percent versus 75 percent of laggards) reduced operating costs by gathering and analyzing real-time data, while 71 percent of the masters said such data helped them cut labor (versus 62 percent of the laggards). The sophisticated collection and use of data generated by fulfillment operations is a major reason why masters have a 35 percent total supply chain cost advantage over the laggards. Such data provides real-time visibility into warehouse inventory and production scheduling. Masters have operational visibility across their supply chain through extensive

track and trace, and they are better at leveraging their data to reduce variable costs. Increasingly, many companies are measuring their energy costs, a huge component of total supply chain expenses. A leading postal service company needed to cut energy consumption by an order of magnitude. But it needed a solution that provided results that could be measured and verified. The company conducted holistic facility control analysis and implemented changes to optimize energy use. It also instituted automatic fault detection and diagnostics systems, including condition-based and preventive maintenance. This capability enabled the company to sense equipment failures and trigger an appropriate response, cutting down significantly on the need for reprocessing and its associated energy consumption. The result: a 30 percent reduction in energy use and reduced carbon footprint. The company’s

comprehensive energy management system has had a quick payback. As important, it has reduced the amount of business disruption that the old processes induced.


On the Journey to High Performance
Through our research on high performance and our client work, Accenture has found that fulfillment masters excel in creating and managing a highly flexible supply chain. Such a supply chain allows them to differentiate themselves competitively and react quickly and appropriately to the volatile environment. These companies possess five overarching fulfillment traits: • They design their distribution channels to accommodate varying customer needs and product characteristics. • They regularly and rigorously evaluate their networks of inbound and outbound flows to respond to changes in market and geographical demand. • They have flexible networks with centralized, international transport planning. • They use established technology to enable their operations and emphasize systems integration. • They use real-time fulfillment information to proactively maintain customer service. Companies that demonstrate these traits achieve significantly lower cost and better service than their competitors. They do so by building distinctive capabilities within fulfillment strategy, order capture, inventory management, warehousing and transport and returns. They enable these processes with real-time data, appropriate technology and measurement. In short, in today’s volatile global economy, masters possess the flexible and responsive fulfillment capabilities that have become critical to creating a high-performance business in the emerging multi-polar world.


1 “Trade Deficit Narrows Amid Restrained Demand,” J. Bater, The Wall Street Journal, January 13, 2009. 2 “Wal-Mart’s Environmental Report

Card,” Claudia Deutsch, The New York Times, November 16, 2007.

Special acknowledgement and thanks are due to following people for the effort and time they invested in the preparation of this report: Jonathan Wright, Rup Banerjee, John Calder, Brooks Bentz, Mike Engoian, Fred Hajjar, Ruchir Gupta, Varadaraj Shanbhag, Derek Jones, Scott Egler.


Jonathan Wright London, United Kingdom Mike Engoian Cleveland, United States Chris Coldrick Sydney, Australia Ron Ash Cleveland, United States Fred Hajjar Boston, United States Sergio Nogueira London, United Kingdom Jacobo de Silva Madrid, Spain Iain Prince Manchester, United Kingdom Matthew Pyne Boston, United States Brooks Bentz Boston, United States Bill Frey Cleveland, United States


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