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Driving value from the Supply Chain: Best practices to deliver results
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CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
L.E.K. Consulting is a leading global strategy consulting firm
Overview
Established in 1983 in London
Clients include 25% of the largest 200 companies globally, as well as innovative start-ups and leading private equity firms
Areas of expertise:Strategy & PlanningM&A ServicesMarketing and SalesOperationsOrganization
Worldwide over 1,000 professionals, led by 100+ Partners in 22 offices
Global Network
Note: * Alliance
Tokyo
San Francisco
LondonMunich
Milan
Mumbai
Beijing
Shanghai
Singapore
MelbourneAuckland
Bangkok
Chicago ParisBoston
New York
Sydney
New Delhi
Wroclaw
Los Angeles
Sao Paulo*
Country Coverage
North AmericaU.S.Canada
South AmericaArgentinaBrazil
Western EuropeAustriaBeneluxDenmarkFinlandFranceGermanyGreece
Eastern EuropeCzech RepublicPolandPortugalRomania
Middle EastIsraelKuwait
AsiaJapanChinaThailandKorea
AustraliaAustralia
Mexico
ChileColombia
IrelandItalyNorwaySpainSwedenSwitzerlandU.K.
RussiaTurkeyHungaryUkraine
Saudi ArabiaJordan
TaiwanIndiaSingaporeHong-Kong
New Zealand
1
Seoul
Chennai
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
2
Offices and consulting professionals in China’s major urban markets
Wide and deep network of resources in PRC, Hong Kong, and Taiwan
Seamless worldwide practice with 22 global offices and additional affiliates
China practice established in 1998 with offices in Shanghai and Beijing
Experienced professional staff
- 4 partners with decades of consulting experience in Asia and in China
- 65+ bilingual and bicultural professionals drawn from leading Chinese and global universities
Focused on providing firms with the insight and solutions to succeed in China’s complex business environment
Clients include multinational companies in and outside of China, Chinese companies, private equity firms, and government entities
Background Greater China Network
Beijing
Shanghai
In China, L.E.K.’s capabilities and experience support our clients as they grow their business or prepare for major investments
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
From Supply Chain
To Demand Chain
Into the Boardroom
3
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Is Your Supply Chain Disconnected from Corporate Strategy?
4
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
A Golden Opportunity Missed
5
Japanese Imports
Reagonomics/ Thatcherism
Long Range Planning
Corporate Takeovers
Decentralized Business Governance
Corporate Agenda (circa 1980)
TQM (Total Quality Management)
SPC (Statistical Process Control)
JIT (Just in Time)
MRP II (Materials Requirement Planning)
Six Sigma
Supply Chain Agenda (circa 1980)
● Elevate the Message● Align with Corporate Strategy● Holistic / Inclusive Delivery
Message / content irrelevant to
corporate issues
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Another Golden Opportunity Missed
6
Y2K
Dot Com
“e”
China / Emerging Markets
EVA (Economic Value Added)
Corporate Agenda (circa 1990)
VMI (Vendor Managed Inventory)
3-PL (Third Party Logistics)
Strategic Sourcing
“e”
ERP (Enterprise Resource Planning)
Supply Chain Agenda (circa 1990)
● Translate to Shareholder Value● Move from a Cost to Revenue Focus● Consider the current market
environment (competition)
Delivered the right message but wrong language
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Is Your Supply Chain Misaligned with the Corporate Agenda?
7
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
How to Achieve Success in the Boardroom
8
Fully connected and aligned
Profitability (Top-line growth)
Security
Corporate Accountability
Mergers and Acquisitions
Raw Material Costs
Global Uncertainty
Corporate Agenda (Today)
Capabilities
Security / Privacy
Sarbanes - Oxley
Global
Customer Expectations
Visibility
Lean & agile
Supply Chain Agenda (Today)
Align to holistic corporate priorities/issues Focus on how objectives are supported
before communicating “how it works” Use audience’s language & sequence
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Supply / Demand Chain Boardroom Qualifications
Technology
Capabilities
Process
Lean & Agility
Visibility
Functional
Sales and Marketing
Mergers and Acquisitions
Business
Financial
Technical
Risk Management
Executive
9
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
— Charles Darwin
10
We now know he was referring to supply chain
Change is the only constant in evolution
CONFIDENTIAL
DRAFT
Supply chain is frequently highlighted on recent studies and articles
In 2010 alone, economic losses across the globe resulting from natural and man-made disasters reached $222 billion
Over 70% of survey respondents say the risks to their supply chains have increased over the past five years. Over 85% said they had suffered at least one supply chain disruption during 2011
80% of large organizations will face a crisis of at least 10 days every four to five years. Of those affected, over 70% will close or suffer a significant long-term impact
A well-known insurance company recently revealed that more than half of the claims it received from the Japanese earthquake and tsunami came as a result of supply chain disruption that was not caused by physical damage
In 2011, while 92% of survey respondents had reviewed their supply chain operations, just 12% expected to make significant changes
Investors are becoming increasingly interested in the actions that companies are taking to mitigate risk as supply chains are getting more complex
11
Driving value from the Supply Chain: best practices to deliver results
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Many organizations have spent years streamlining operations
Re-engineering processes, integrating with partners
Implementing enterprise systems
Moving production to low-cost, offshore locations
12
They have done all of this in an attempt to improve the services they provide to customers at a more competitive cost
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
New risks of creating a global supply chain
Terrorism
Piracy
Currency Fluctuation
Government Instability
Labor Strikes
Quality Considerations
Energy Cost
Transportation Problems
Natural Disasters
Supply Chain Complexity
13
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Many corporations have tremendous risk hidden in their supply chain
Technology dependence - Have we become too dependent on technology?- “How do I turn on the TV?”
Workforce management and oversight- The people controlling the dials and millions of dollars of decision making
have never stepped on a warehouse floor
Preparing for and adapting to industry evolution- As margins shrink, supply chain becomes more visible. “Are we ready and
able to respond?”
14
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
What about China? Six myths of the China Supply Chain
Despite Weak Links, the Supply Chain is Effective
China’s Workforce is Increasingly Skilled
Rethink How You Forge Strategic Partnerships
Despite Rising Wages, Manufacturing is Still a Good Bet
Optimize Production at Home, Replicate Abroad
Understand the Real Currency of Business
1
2
3
4
5
6
15
Capitalizing on Market Opportunities in China
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Despite Rising Wages, Manufacturing is Still a Good Bet1
16
150
Product Cost Index by Country (2016F)*Index U.S. 2010 = 100
125
100
75
50
25
0Romania
93
Bulgaria
86
Mexico
94
Brazil
128
Vietnam
85
Thailand
91
129
Germany
136
US
109
China
98
Sri Lanka
83
Malaysia
85
Indone-sia
82
India
94
Switzer-land
Material
Overhead
Labor
Transportation
Inventory
Duty
China US Germany Switzer-land India Indone-
sia Malaysia SriLanka Thailand Vietnam Brazil Mexico Bulgaria Romania
2.5 1.5 1.2 0.5 1.7 1.4 1.5 1.3 1.5 1.2 2.2 1.5 1.4 2.0
CAGR% (2010-16F)Asia Latin America Eastern Europe
Source: EIU, World Bank, searates.com, freght-calculator.com, L.E.K. analysis
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
China’s Workforce is Increasingly Skilled
17
Note: * GDP at PPP takes the relative cost of living and the inflation rates of countries into account Source: The World Bank, EIU, L.E.K. analysis
0.75
0.60
0.45
0.30
0.15
0.00
-0.15
USA
Germany
Romania
Mexico
Brazil
Vietnam
Bulgaria
GDP at PPP, per worker* (2005-15F)U.S. Dollars1.50
1.35
Thailand
Sri Lanka
Malaysia
Indonesia
India
China
15F14F13F
1.20
1.05
0.90
12F11E10090807062005
CAGR%(05-10) (10-15F)
10.5 8.4
4.6 4.8
3.0 4.2
2.62.4 3.81.9 3.4
2.1 2.7
2.3 2.2
1.2 1.10.1 1.6
0.3 0.7
3.7
6.1 6.4
7.0 5.6
2
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Despite Weak Links, the Supply Chain is Effective
18
Weak links Antiquated information
technology (IT) systems and operational procedures
Potential upside/ solutions
Better understand the supply chains of their Chinese counterparts
Cloud technology will provide more room to improve supply chain efficiency
Source: L.E.K. analysis
3
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Optimize Production at Home, Replicate Abroad
Manufacturers tend to increase specification standards by as much as 20-30% for outsourced suppliers vs. in-house suppliers in Asia
19
Current Situation
Key Actions Manufacturers need to ensure they review the
expectations that they place on Chinese supply chains to ensure that they are reasonable and fair
Source: L.E.K. analysis
4
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Rethink How You Forge Strategic Partnerships
20
Local hiring
In-person business meeting
Partnering with supply chain expert firms
Finding various types of partners
Strong strategic partnership
Multiple local relationship
Collaborative relationship
Source: L.E.K. analysis
5
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Understand the Real Currency of Business
In China, local distributors can be strong partners
Distributors’ margins can be significant in China due to the business model
Chinese companies may value very different things as their international counterparts
21
Mul
ti-le
vel d
istr
ibut
ion
mod
el
Plat
form
mod
el
Hospitals
L1 dealer
Manufacturer
L2 dealer
Hospitals
Platform
Manufacturer
Dealer(Non inventory
holding)
Different distribution models for MedTech companies
Source: L.E.K. analysis
6
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
22
Routine
Bus
ines
s Im
pact
Supply Power
Bottleneck
Leverage Strategic
Case Studies
22
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Spending on marketing services accounted for almost 30% of the companies worldwide spending on materials and services
5 “C” level executives estimated that advertising agency spend was less than $30 million
Preliminary analysis showed the company spent almost 70% of the $135 million (i.e., $95 million) in worldwide marketing services on advertising agencies
By taking a process view of a typical advertising agency, we are trying to understand if opportunity exists for cost reduction
Unbundling the various functions performed by the agencies we were able to identify specific opportunities
Therefore, companies became more concerned with agency accountability, agency profitability and advertising effectiveness
23
Executive estimate:
$30 million
Analysis result:
$95 million
costreduction
opportunity
Advertising spend analysis
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Companies have become more demanding in driving value from their advertising agencies
Outsourcing global media planning and buying resulting in lower transaction costs and greater buying leverage
Negotiate a lower rate for media planning and buying or move to a $/hour rate
Negotiate overall rate reductions based on an explicit longer term contract
Compensation based on value added (pay for performance)
Hire experts that specialize in advertising agency negotiations
Technological advancements - desktop publishing of print advertising
— Examples of Cost Reduction Methods—
24
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
Routine
Bus
ines
s Im
pact
Supply Power
Bottleneck
Leverage Strategic
Case Studies
25
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Supplier 6
Ahold’s Sourcing Challenge
● Dispersed spend across six retail banners ● Limited insight into true NFR spend
− Stored within multiple incompatible financial systems− Over 300 unmanaged categories − Specifications not clearly documented
● 45% of NFR spend was service related● Lacked standard sourcing approach ● Supplier base in excess of 60,000 suppliers ● No structured supplier qualification or performance rating systems
26
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
Routine
Bus
ines
s Im
pact
Supply Power
Bottleneck
Leverage Strategic
Case Studies
27
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
● Suppliers are also customers
● Lack of focus on aggregation
● Non-compliance
● Everyone can get a better deal
● Insufficient spend in many categories
Solution
Case Study – Key Client Issues
28
Outsourced
Aggregation upgraded skills
Brought BackIn-house
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
Routine
Bus
ines
s Im
pact
Supply Power
Bottleneck
Leverage Strategic
Case Studies
29
CONFIDENTIAL
DRAFT Driving value from the Supply Chain: best practices to deliver results
Examples of completed initiatives
MarketingCircular Printing . . . . . . . . . . . . . . Commercial Printing. . . . . . . . . . .In-Store Music Service . . . . . . . . .
Hired ServicesArmored Car . . . . . . . . . . . . . . . . .Floor Care Services . . . . . . . . . . . .Locksmiths. . . . . . . . . . . . . . . . . . .Third Party Check Collection . . . . . Pest Control . . . . . . . . . . . . . . . . . .Parking Lot Sweeping . . . . . . . . . .Security Guard Services . . . . . . . . Window Washing . . . . . . . . . . . . . .Commercial Debt Collection . . . . . Recruiting . . . . . . . . . . . . . . . . . . . .Waste Removal . . . . . . . . . . . . . . .
Travel/MeetingsAir . . . . . . . . . . . . . . . . . . . . . . . . . . Meeting - Group Travel . . . . . . . . .
Savings %
49%34%63%
21%11%34%
35%*17%22%
5%15%
22%*17%
7%
3%**16%
Logistics & DistributionFleet Graphics . . . . . . . . . . . . . . . .Distribution Labels. . . . . . . . . . . . . .Helium . . . . . . . . . . . . . . . . . . . . . . Plastic Totes . . . . . . . . . . . . . . . . . .Batteries . . . . . . . . . . . . . . . . . . . . .
ConstructionLight Fixtures . . . . . . . . . . . . . . . . Skylights . . . . . . . . . . . . . . . . . . . . . Elevators . . . . . . . . . . . . . . . . . . . . .Elevator Maintenance . . . . . . . . . . .TPO Membrane Roofing . . . . . . . . . Switch Gear . . . . . . . . . . . . . . . . . . .
Store EquipmentFront-End Check Stands . . . . . . . . .Coolers & Freezers . . . . . . . . . . . . .Bakery Cases . . . . . . . . . . . . . . . . . .Evaporator Coils & Condensers . . . .
40%30%37%21%27%
24%33%25%39%12%
3%
25%14%31%10%
Savings %IT/TelecomHandhelds . . . . . . . . . . . . . . . . . Wireless . . . . . . . . . . . . . . . . . . . KII Telecommunications . . . . . . .Enterprise Storage Server . . . . . IVR System . . . . . . . . . . . . . . . . .
Store SuppliesScale Sheets . . . . . . . . . . . . . . .Chicken Containers . . . . . . . . . . Store Apparel . . . . . . . . . . . . . . .Produce Bags . . . . . . . . . . . . . . .Dome Lids . . . . . . . . . . . . . . . . . .Departmental Bags . . . . . . . . . . .Salad Bowls . . . . . . . . . . . . . . . . .Fruit & Veggie Trays . . . . . . . . . .
Office Products/ServicesToner . . . . . . . . . . . . . . . . . . . . . . Copy Paper . . . . . . . . . . . . . . . . . Office Supplies . . . . . . . . . . . . . .
23%15%
8%20%11%
40%22%50%11%
5%17%18%
5%
20%10%20%
Savings %
30
Note: * of revenue; ** of incremental
CONFIDENTIAL
Driving value from the Supply Chain: best practices to deliver resultsDRAFT
THANK YOU!
31
Michel BrekelmansPartner & Managing Director
L.E.K. Consulting LimitedFloor 34, CITIC Square1168 Nanjing Road WestShanghai 200041China
T: 86.21.6122 3900F: 86.21.6122.3988
LEK.COM