Copyright © 2008 Accenture All Rights Reserved.

Changing the Game with Your Customers – A Supply Chain Strategy in Action

ECR Asia Pacific Conference 2008, Thailand

Jeffrey Russell, Accenture / Metta Siramongkholkarn, L’Oreal

2Copyright © 2008 Accenture All Rights Reserved.

- Every Day Great Execution - Getting the basics right in terms of people process, systems, organisation and data. Cost optimisation through rationalisation of the cost base

- Performance Optimization - Focus on service levels by raising the performance bar, fine-tuning the overall model and collaboration with the extended supply chain.

- Game Changing Supply Chain -

Supply chain differentiation based on customer / consumer behaviour and value to drive top-line growth

Supply Chain Performance Journey

Val

ue

In order to drive Consumer Products companies performance to the next level, many are adopting a ‘Game Changing Supply Chain’ strategy

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Effective supply chain strategies form the basis of competitive advantage and increase shareholder value

Developing differentiated channel value propositions

Improving the ability to meet customer needs and buying behaviour

Reducing total cost to serve as the level of service provided is varied between channel segments

Aligning operations and sales and marketing in the way they treat customers

Enabling the organisation to structure resources around segments, e.g. options to outsource customer service activities for selected segments vs retain in-house

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Typical benefits achieved in FMCG companies through customer aligned supply chains

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Historically, FMCG companies have developed a ‘one size fits all’ supply chain that is designed to achieve cost efficiency

Market Segmentation

Su

pp

ly C

hai

n 1

.0

Supply Replenishment

Strategies

SupplySourcingOptions

NetworkOptimisation

Product Segmentation

& PortfolioManagement

FulfilmentOperations

CustomerSegmentation

Demand Profiling& Forecasting

Strategy Supply Chain Strategy

SupplyAlignment

DemandGeneration

FoundationCost to serve

Sales & Operations Planning

PerformanceMetrics

LeadershipBehavioursCulture

Capabilities- Process- Organisation- Talent- Technology

PLMRisk Management

-- Accenture’s SC Customer Alignment Framework --

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Accenture’s Customer Alignment Framework provides the structure and rigor to design ‘fit for purpose’ supply chains for differentiated customer/product segments

Sup

ply

Cha

in 2

.0 Supply Chain 3

ProductSegmentation

+ PortfolioManagement

MarketSegmentation

CustomerSegmentation

Demand Profiling

& Forecasting

SupplyReplenishment

Strategies

SupplySourcingOptions

NetworkOptimisation

FulfilmentOperations

Supply Chain 2

ProductSegmentation

+ PortfolioManagement

MarketSegmentation

CustomerSegmentation

Demand Profiling

& Forecasting

SupplyReplenishment

Strategies

SupplySourcingOptions

NetworkOptimisation

FulfilmentOperations

Strategy

Foundation

Supply Chain Strategy

SupplyAlignment

DemandGeneration

Business Strategy

Supply Chain 1

Market Segmentation

ProductSegmentation

& PortfolioManagement

CustomerSegmentation

Demand Profiling

& Forecasting

SupplyReplenishment

Strategies

SupplySourcingOptions

NetworkOptimisation

FulfilmentOperations

Cost to serve

Sales & Operations Planning

PerformanceMetrics

LeadershipBehavioursCulture

Capabilities- Process- Organisation- Talent- Technology

PLMRisk Management

Su

pp

ly C

hai

n 1

.0

7

Example Supply Chain Re-design “fit for purpose”

Copyright © 2008 Accenture All Rights Reserved.

SC Manager

Customer Care

Sourcing / Procurement

Physical distribution

Segment 1

Segment 2

Segment 3

Segment 1

Segment 2

Segment 3

Segment 1

Segment 2

Segment 3

SC Manager

Segment 1

SC Manager

Segment 2

SC Manager

Segment 3

Customer Care

Sourcing / Procurement

Physical distribution

Customer Care

Sourcing / Procurement

Physical distribution

Customer Care

Sourcing / Procurement

Physical distribution

Challenges : - multi-skills Supply Chain Managers

- Limit increase of headcounts

6 – 12 Months

8

Benefits after 1 Year

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• Privileged Relation 1 Point of contact between Supply Chain manager (supplier / retailer)

• 100% focus on Service level : Gain 10% in average over 12 months

• Tailor-made Service (especially for Mass Market retailers)

• Team/talent development : Create succession Plan

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Different supply chain models are more appropriate depending on the demand predictability and the nature of the customer relationship

Tight

Loose

Cu

sto

mer

Re

lati

on

sh

ip

High LowDemand Predictability

Segment 1

Segment 2

Segment 3

Segment 4

Lean Agile

Transactional‘Base Model’

Flex

ible

Collaborative

Agile

JointPlanning

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Potential service offerings for strategic customer group

Potential service offerings to Customer Group: Tier 1 strategic importance Low relative demand variability Demanding behaviour

Trade termsTrade termsEfficient Assortment / RangingGrowth IncentivesProduct Discount - case dealsCheckout DisplayPromotional Display

FulfilmentFulfilmentWeekend deliveriesAdvance shipment notificationBackhaulEx factory gate / NDCCross dockingDirect store deliveryDrop trailer

Operational IntegrationOperational IntegrationCategory Management

Cash ManagementCash ManagementStandard (prompt) paymentAccelerated paymentElectronic payment

Order to CashOrder to CashWeb orderingField sales callPhone / faxEDIWeekend orderingShort lead timeEDI invoiceEFTe-POD

CRMCRMNominated logistics contact

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Differentiation between the stable and variable components of demand is a key step to determine fulfillment setup – managing volumes differently balances service levels and cost to serve

Fulfil through a ‘lean’ supply chain configuration:

• Maximum capacity• Lowest cost• Long lead time

Identify what parts of the business are variable and truly complex:

• Variable demand• Promotions• Premium products• Low visibility customers

Fulfil through a more flexible supply chain:

• Local sourcing and / or finishing• Short lead times• Variable configurations

- Demand Types - - Fulfilment setup -

Identify what parts of the business can be treated as fundamentally stable:

• Stable, predictable demand• Commoditised or mass market products• Collaborative customers

Stable= 59%

= 41%

Stable orders Variable orders

Dem

andi

ng

/ E

ffici

ent

Cus

tom

ers

Col

labo

rativ

e C

usto

mer

sCollaborative = 53%

Lean = 27% Agile = 20%

Thailand indicative SC alignment

Stable orders Variable orders

Dem

andi

ng

/ E

ffici

ent

Cus

tom

ers

Col

labo

rativ

e C

usto

mer

sCollaborative = 53%

Lean = 27% Agile = 20%

Thailand indicative SC alignmentThailand 2006 - indicative stable / variable split

Stable (58%)

Variable (42%)

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Ca

se

s

ord

ere

d

Stable (60%)

Variable (40%)

Customer C1 Indicative stable / variable splitCustomer C1 Indicative SC alignment

12Copyright © 2008 Accenture All Rights Reserved.

- Every Day Great Execution - Getting the basics right in terms of people process, systems, organisation and data. Cost optimisation through rationalisation of the cost base

- Performance Optimization - Focus on service levels by raising the performance bar, fine-tuning the overall model and collaboration with the extended supply chain.

- Game Changing Supply Chain -

Supply chain differentiation based on customer / consumer behaviour and value to drive top-line growth

Supply Chain Performance Journey

Val

ue

So in summary, consumer goods companies need to change the game while continuing to deliver everyday execution