Professional Documents
Culture Documents
KPMG International
kpmg.com/demanddriven
A level of
customer
responsiveness
you could only dream of
Picture the following scene: you’re Data is a massive disrupter. KPMG’s to appropriate individuals, to maintain
outdoors and you hear thunder, and, partnership with motor racing specialist awareness of the value that supply chain
looking up to the sky, you see a large, McLaren (discussed on page 22) takes decisions bring to companies.
gray rain cloud. You take out your the same technology that helps drivers
There is growing evidence that
smartphone and find a website selling make split-second decisions in races
companies adopting demand-driven
umbrellas. Having selected your style and applies it to the supply chain. These
supply chains enjoy increased sales,
and color, you press ‘order’, and a mere principles are already helping world-class
reduced operating expenses and
5 minutes later, a drone is hovering companies anticipate and instantly adapt
improved working capital — by focusing
above you, gently delivering the to changes in customer behavior, stock
on customer experience.
purchase into your arms — just as the availability and transportation.
first raindrops begin to fall. Every company is at its own stage in
Technology may be the enabler,
the journey towards a demand-driven
Such a scenario may seem futuristic, but but it’s customers, and their rising
supply chain 2.0. The examples in this
it’s actually closer than you think. Over expectations, that are the real
paper show how some of the better
the last 2 years, Google has been quietly stimulus behind a demand-driven
practitioners are gaining essential
building a fleet of drones to deliver supply chain 2.0. Having for some
competitive advantage, by recognizing
merchandise bought online. Drones time focused on efficiency and cost,
the holistic, and technologically
will soon be delivering everything from companies are starting to acknowledge
advanced, nature of tomorrow’s
consumer goods in cities to vital medical that the supply chain has one over-riding
supply chains.
supplies in remote areas, bringing priority: keeping customers happy and
unprecedented levels of efficiency creating a better customer experience.
and reliability, especially if deployed at
As this paper shows, there is increasing
scale. At the January 2016 Consumer
evidence of the link between customer
Electronics Show in Las Vegas, Chinese
experience and profitability. However,
drone-maker Ehang went one step
with growth back on the agenda, many
further, unveiling a prototype for the first
supply chains lack the flexibility and
autonomous drone to carry humans.
agility to compete across a networked
3–D printing (featured on page 25) is supply chain.
another recent technology that is turning
Information lies at the heart of an
supply chains inside out. By enabling Erich L. Gampenrieder
effective supply chain: to capture and
mass customization, and shortening Global Head of Operations Advisory
analyze data that feeds decisions such as
the distance between manufacturer and Global Head of Operations Center
what to produce, in what quantity, how
and consumer, 3–D printing can further of Excellence
much to store and when to deliver. Clear,
reduce already low manufacturing costs. KPMG International
strong leadership allocates responsibility
© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Drones will soon
be delivering
everything from
consumer goods
in cities to vital
medical supplies
in remote areas.
How can your supply chain consistently delight your customers? Our experience suggests
that there are five essential building blocks.
1 2 3
Align the supply chain with Enhance visibility and share Instill greater flexibility and
the wider corporate strategy information, to help ensure that agility to adapt to expected and
and integrate it with customer- every player in the supply chain unexpected market events, and
facing functions, with common understands what customers seize opportunities to source
performance metrics and rewards want and can trace the status new materials, arrange logistics,
that focus on fulfilling customer of materials, parts and finished scale up or down, or enter new
needs. Open collaboration with product. Forecasting and demand markets.
suppliers, and in some cases, planning must incorporate
competitors, can real-time data to become more
also boost efficiency accurate and reliable.
and responsiveness.
4 5
Structure the supply chain Address different customer
to address local and global needs and values by
competition and evolving segmenting end-to-end
regulations, such as royalties, supply chains and building the
tax, customs, transfer pricing and foundation to efficiently provide
anti-profit-shifting initiatives. offerings valued by customers.
© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Contents
The future
belongs to the
new customer 6
12
Embracing the
new customer,
demand-driven
supply chain 2.0
An improved
customer
experience
means a better
bottom line
30
32
Upgrade to a
demand-driven
supply chain 2.0
in five steps
© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
The future belongs to the
new
customer
Managing growth and rising expectations
Those brands
with a superior
customer
experience
enjoyed
double the
revenue
growth of the
UK FTSE 100
index between
2010 and 2015.
Customer experience
programs are often seen
as a cost, rather than a
way to build value
Customer experience,
Have unlimited information Embrace the shift in
Informed data transparency, pricing,
at their fingertips buying behavior
customer loyalty, digital
1
CEO Survey 2015: Committing to Digital, Gartner, 2015.
2
Winning in the Age of the Customer, Forrester, 2015.
3
Global CEO Outlook 2015. The Growth Imperative in a More Competitive Environment, KPMG International, 2015.
4
To Stand Still Is To Fall Behind; 2015 Global Consumer Executive Top of Mind Survey, KPMG International, 2015.
5
A New Era of Experience Branding; Customer Experience Excellence Centre 2015 UK Analysis,
KPMG/Nunwood, 2015.
6
To Stand Still Is To Fall Behind; 2015 Global Consumer Executive Top of Mind Survey, KPMG
International, 2015.
7
2016 Global Manufacturing Outlook, KPMG International.
8
Retailers Bet Big on Retooling Their Supply Chains for E-commerce, Wall Street Journal, 28 January 2016.
Consumer perspective
Top priorities for chief executives
45%
The most critical
Expansion or top-line growth
issue for consumer
40%
and retail companies
Percentage who said it was critically important
is top-line growth
35% Talent/HR Consumer trust
Data and
analytics Consumer health and wellness
Food and product safety
Only 28 percent place
30%
Regulatory compliance a priority on supply
Supply chain and operations chain operations,
25% Social and environmental responsibility which could limit their
omnichannel strategy and technology growth ambitions
Data security and privacy
20%
15%
10%
5%
0
5% 10% 15% 20% 25% 30% 35% 40% 45%
9
Global CEO Outlook 2015. The Growth Imperative in a More Competitive Environment, KPMG International, 2015.
10
To Stand Still Is To Fall Behind; 2015 Global Consumer Executive Top of Mind Survey, KPMG International, 2015.
11
Omnichannel Retail Survey 2016, KPMG International.
Customer
expectations
12
Forrester research, 2015.
13.
Net Promoter, NPS and the NPS-related emoticons are registered service marks, and Net Promoter Score and
Net Promoter System are service marks of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.
14
Measuring Customer Experience, How To Develop and Execute the Most Profitable Customer Experience
Strategies, Philipp Klaus, 2014, ISBN 978-1-137-37546-9.
15
Winning the New Digital Consumer with Hyper-relevance, Cisco 2015.
Why do
so many
supply chain
initiatives
focus primarily
on cost
reduction and
efficiency —
rather than
on customer
experience
metrics?
structure themselves
to address complex
competitive and
regulatory environments
To what extent For which part What lead time How quickly can What percentage
does your end- of your product/ percentage does you identify and of low/middle/high
to-end supply service portfolio it take for demand respond to a volatile product
chain function do you have changes to reach potential supply movements
as one virtual visibility of your second-tier continuity issue? are driven by
organization, total demand and suppliers? actual demand
with everyone supply picture at or by forecasted
working on any point in time, demand?
aligned objectives, and does this
measured by visibility extend
synchronized beyond your first-
metrics and tier partners? To
using shared what percentage
information? does this visibility
extend beyond
your first-tier
partners?
1. Sharing the 2. The all-seeing 3. Outrunning the 4. Facing local and 5. Acknowledging
vision: aligning eye: improving pack: instilling global realities: differences:
the supply supply chain flexibility and organizing for addressing
chain with the visibility agility success customer
business segments
Senior manufacturing executives are and factories unable to meet orders for are consistent with strategic objectives.
certainly aiming for this goal. When alternative items, resulting in lost sales In this way, organizations can connect
asked about their top operational opportunities. multiple tiers of the supply chain in the
priorities between 2016 and 2018, same, cloud-based network and receive,
Real transformation involves full
“aligning supply chain to corporate and respond, instantly to signals from
integration of sales, production,
strategy” is ranked equal first.17 customers.
inventory, sourcing, product
There is some way to go. Sales development and finance/budgeting, A shared understanding of ‘value’
teams, desperate to please retailers, with harmonized business processes means that each function and every
often demand and dictate excessive and technology, to enable fast, employee is working towards a
inventory levels — without actually responsive manufacturing and logistics common goal of satisfying customers.
holding responsibility for stock and capabilities. Performance metrics should be less
working capital. The consequence? about productivity and efficiency,
Control towers act as a hub to capture
Unnecessarily high levels of one type and more about improving customer
and use supply chain data, to enhance
of product gathering dust on shelves, satisfaction, experience and value.
visibility and to ensure that decisions
set of customer- There was no clear owner for metrics, which were often determined at
local country level. Consequently, a fifth of all metrics were not aligned with
oriented goals. overall operations objectives, leading to conflicting goals: Some parts of
the business were more oriented towards sales volume, others towards
margins and others again favored customer satisfaction metrics.
The approach
Using a top-down approach, management sought to fully align all
business functions and support end-to-end supply chain goals. Their aim
was to establish one set of key executive level metrics, and then create
Crucially, leaders should be
consistent management and operational level metrics to be used across the
accountable — and rewarded — for
organization.
achieving high scores on important
metrics that impact customer The main supply chain objectives were defined as:
experience. These could include
1. Increase asset utilization by raising utilization of underperforming assets
critical measures such as customer
order cycle time, order/inventory 2. Improve operating margin by reducing product cost
accuracy, percentage of orders shipped
3. Improve customer service through faster and more reliable order-to-
complete and on time, delivery
delivery
reliability and delivery capability. Other,
more direct ‘experience’ indicators 4. Reduce total capital expenditure by cutting capital investment as
include Net Promoter ScoreSM (NPS),18 percentage of revenue
Customer Effort Score (CES), Word of
5. Minimize risk by establishing reliable sources of product supply
Mouth Index (WoMI) and Customer
Satisfaction (Csat). A total of 14 KPIs are now used to manage operations performance at the
executive level, with three essential performance areas to be measured,
identified as: customer service quality; working capital effectiveness
(managing inventory and backlog levels); and operational effectiveness
(efficient utilization of manufacturing assets). These three metrics should
drive profitability and executive decision-making, with senior management
assessed and rewarded on meeting targets.
The results
The company now has a common approach to measurement worldwide,
which is closely aligned with strategic objectives. This should help improve
customer service, working capital management and overall operational
effectiveness.
Key takeaways
— Nothing focuses the mind more than consistent measurement and
associated rewards.
— Your performance metrics must be in line with corporate objectives.
18
Net Promoter, NPS and the NPS-related emoticons Erich L. Gampenrieder
are registered service marks, and Net Promoter Score
Global Head of Operations Advisory and Global Head of Operations
and Net Promoter System are service marks of Bain
& Company, Inc., Satmetrix Systems, Inc. and Fred Center of Excellence, KPMG International
Reichheld.
Doctorpreneurs, Many Bright Inventions Come Out of the NHS. Too Few Are Exploited, The Economist, 4 July 2015.
20
The result
The client has been able to improve fill rates by 10%, reduce the
planning cycle time by 80%, better align operations with anticipated
demand and consumption at the shelf, and move to more
streamlined and fact-based global decision-making.
Key takeaway
— To be truly demand-driven, a supply chain needs to
seamlessly integrate customer expectations into its
fulfillment model.
Rob Barrett
Principal
Customer and Operations
KPMG in the US
Mark Levy
Managing Director
Customer and Operations
KPMG in the US
21
2016 Global Manufacturing Outlook, KPMG International.
22
ibid.
23
Pinnacle Health Sets New Record for Treating Heart Attacks, The Sentinel, cumberlink.com, 21 August 2011.
24
Modern Manufacturing: 4 Ways Data Is Transforming the Industry, Tableau, 2016.
Product Product
Purchase Receive
research support
25
2016 Global Manufacturing Outlook, KPMG International.
26
In Retail, Insight Is Currency and Context Is King, Cisco blogs, 12 January 2015.
27
How Technology Is Revolutionizing the Retail Customer Experience, Patrick Van Hull, SCM World, 12 April 2016.
The challenge
This leading global business, with world-
renowned brands, is dependent on extensive
promotional activity across a wide range of
outlets. This often leads to variances between
forecast and actual demand, inventory in the
wrong place, and a costly, manually intensive
process where stock is frequently rushed to sites.
The approach
The result
Key takeaway
28
Three-quarters of Manufacturers Have No Supply Chain Chief, Supply Management, 22 February 2016.
The challenge
The approach
The result
Key takeaway
— A maximum of three to five supply chain archetypes
help companies to reduce supply chain complexity
support top-line growth, reduce cost of goods
manufactured (COGM) and cost of sales (COS),
improve overall supply chain performance and serve
clients with standard and premium services.
Erich L. Gampenrieder
Global Head of Operations Advisory and
Global Head of Operations Center of Excellence
KPMG International
capital. Buffer**
Transportation
— Improved fill rates and reduced out-
Planning
of-stocks drive increased revenue
and recoverable sales. Planning Buffer**
— With greater certainty over demand,
organizations can carry less stock. Promotional
demand
— Better visibility of supply and Sales* Promotional
demand
demand should lead to fewer Sales
disruptions to supplies.
— Process automation reduces CoGS CoGS
operating expenses, allowing buyer/
Forecasted
planners to manage by exception.
demand Actual
demand
One study by Gartner found that
organizations with integrated, demand-
driven supply chains grow revenue faster,
achieve more than 15 percent higher Traditional Demand- Traditional Demand- Traditional Demand-
‘perfect’ order rates and reduce inventory model driven model driven model driven
levels by as much as one-third. 29
Sales levels Expenses levels Inventory levels
In another KPMG study, companies with
real-time access to data on physical and
financial flows were far more likely to be *Lift from out-of-stock forecast accuracy improvements resulting in recoverable sales.
in the top industry quartile for revenue **Safety stock adjustment for uncertainty/information latency.
growth and margin. 30
Orchestrated
‘optimized
Collaborative collaborative
'outside-in view’ network’
Anticipating
‘cross-business
supply chain’ Integrated
Reactive ‘end-to-end supply
‘silo mentality’ chain processes and
organization’
Commit to the customer experience supply chain decision, and help to and customer experience. By regularly
A supply chain can only deliver its full communicate the supply chain story questioning and discussing overall
value when the entire organization to a broad variety of stakeholders. As strategic objectives, and what drives
is oriented towards delivering an mentioned earlier, a lack of congruence value (margin, customer metrics,
exceptional customer experience. This is can cause barriers, due to conflicting market share, etc.), companies
as much about philosophy as it is about goals, with management in different can foster a culture of continuous
process and is likely to involve a wider functions measured and rewarded for improvement and harmony.
cultural change. different types of targets. Therefore,
KPIs for different groups should be
Focus on value
shared and complementary, including
A value-based management approach
metrics such as timely order periods
can build a foundation for each
Develop a digital strategy manufacturer. Other digital media such volumes, anticipate disruptions,
Cloud-based software, increasingly as social media can help to gauge the manage inventory levels and simulate
via mobile devices, can accelerate volume and types of customer demand. the outcomes of potential responses to
the speed of data transfer across the different scenarios.
Utilize the power of data and
supply chain, enabling customer-facing
analytics
partners to link transactions to inventory
Analytics can inform segmentation,
reports (updating systems in minutes)
help predict customer needs, forecast
and, ultimately, all the way back to the
Become more flexible Develop agility the classic business model into a more
By anticipating future market changes, Businesses that recognize the collaborative, virtual organization that
and taking appropriate steps, increasing pace of change build more can scale up or down faster, tap into
companies can be better prepared for flexible business models that can adapt. innovation from a wide range of sources
either shocks or opportunities. This will likely mean a deconstruction of and bring new ideas to market swiftly.
Establish cross-functional of the supply chain are communicating and business expert communities,
governance with each other and making decisions preferably located in centers of
As companies climb the supply chain in the best interests of the wider excellence. These groups and
maturity curve, cross-functional organization. Robust governance individuals will oversee supply chain
governance becomes vital to ensure requires global and regional process decisions and demand harmonization.
that decision-makers in different parts owners, process communities
Through data analysis and one-to-one findings are combined with cost- Also, the alignment of internal and
research, find out exactly what matters to-serve data, companies can meet external stakeholders on services,
to customers, and what trade-offs they the demands of each segment cost- processes and actions, to efficiently
are prepared to make. When these effectively. deliver customer satisfaction is key.
Driven by Demand
Transforming Your Supply Chain
© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Contacts
Erich L. Gampenrieder Robert Barrett Mark Levy
Global Head of Operations Advisory and Principal Managing Director
Global Head of Operations Center of Customer and Operations Customer and Operations
Excellence KPMG in the US KPMG in the US
KPMG International E: rhbarrett@kpmg.com E: marklevy@kpmg.com
E: egampenrieder@kpmg.com
Contributors
Belgium UK US
Jos Joos John Leech Julio Hernandez
Director, Operations Advisory UK Head of Automotive Global Head of Customer Center
KPMG in Belgium KPMG in the UK of Excellence
E: josjoos@kpmg.com E: john.leech@kpmg.co.uk KPMG in the US
E: juliojhernandez@kpmg.com
Bart Peetermans Scott Parker
Senior Advisor, Operations Advisory Global Lead Partner and Leader Mark Toon
KPMG in Belgium of KPMG’s Strategic Alliance with Chief Executive Officer and
E: bpeetermans@kpmg.com McLaren Board Member
KPMG in the UK KPMG Capital
Netherlands E: scott.parker@kpmg.co.uk E: mtoon@kpmg.com
Roger van den Heuvel
Head of Strategy, Customer &
Operations
KPMG in the Netherlands
E: vandenheuvel.roger@kpmg.nl
Additional contact
Canada
Alana Mohan
Global Marketing Manager
KPMG in Canada
E: aamohan@kpmg.ca
kpmg.com/demanddriven
kpmg.com/socialmedia kpmg.com/app
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with
KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other
member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Designed by Evalueserve.
Publication name: Demand-driven supply chain 2.0
Publication number: 133357-G
Publication date: April 2016