Mr. Olivier Aba

Oct04

Capacity Building Workshop UN SCM Geneva

slides Olivier Aba 1

Capacity Building Workshop on Trade Facilitation

Implementation: Tools, Techniques & Methodologies

Supply Chain Efficiency & Trade Facilitation

Geneva, October 18th 2004

Olivier Aba

Oct04



Workshop Agenda

1. What is a Supply Chain, “SC”, & Supply Chain Management, “SCM”?

2. Benefits of Supply Chain Management3. E-business & Supply Chain –

opportunities4. E-commerce & Trade Facilitation: how

to improve Supply Chain efficiency & competitiveness?

Oct04



What is a Supply Chain?

Customer wantsdetergent and goes

to Supermarket

Customer wantsdetergent and goes

to SupermarketSupermarketSupermarket

Supermarket or 3rd

party DC

Supermarket or 3rd

party DC

P&G or othermanufacturerP&G or othermanufacturer

PlasticproducerPlastic

producer

Chemicalmanufacturer

(e.g. Oil Company)


(e.g. Oil Company)

TennecopackagingTenneco

packaging

Paper manufacturer

Paper manufacturer

TimberindustryTimber

industry


(e.g. Oil Company)


(e.g. Oil Company)

Source: Chopra & Meindl 2001

Oct04



What is a Supply Chain?

Every company is involved in one or more Supply Chains

A supply chain can be defined as “the sequence of suppliers that contribute to the creation and delivery of a good or service to end customers. This encompasses virtually all aspects of a business—sales processing, production, inventory management, material supply, distribution, procurement, forecasting, and customer service, and several other areas…”

Source :Aglira & al. , 1999

Oct04



Components of a Supply Chain

Demand

& Supply Planning

Sourcing

& Supplier Management

Manufacturing

Storage &

Transportation

Customer

& Order Management

PLAN BUY MAKE MOVE SELLPLAN BUY MAKE MOVE SELL

Oct04



Logistics vs. Supply Chain

Supply Chain is NOT logistics… Supply Chain is MORE THAN logistics

covers the coordination of most activities & flows upstream: • from suppliers to manufacturing

and activities & flows downstream: • from manufacturing to end-customer

Oct04



Logistics Costs in Europe (as a % of revenues)

Source: ELA, Insight to Impact, 1999

1998Transportation: 40%Warehousing: 26%Inventory: 18%Admin: 16%

Oct04



Logistics Costs Worldwide

Source: Bowersox, Closs, Cooper, 2002

Region Country Logistics as % of GDP (1997)

North America Mexico 15.3

USA 10.5

Europe Belgium 11.4

France 12.0

Germany 13.1

Greece 12.6

Spain 14.7

Asia/Pacific China 16.5

India 15.4

South America Brazil 15.0

Oct04



Flows in a Supply Chain?

There are 3 types of flows to consider in a Supply Chain:

Material flows

Financial flows

Information flows

Oct04



What is an Internal Supply Chain?

A company’s “internal” Supply Chain is made of the material, information and financial flows between the company and its direct business partners.

SUPPLIER

MANUFACTURER

CUSTOMER

Material flows

Financial flows

Information flows

Oct04



Integrated or Extended Supply Chain

Need to take into account the supplier’s suppliers and the customer’s customers because they generally have an impact on the overall Supply Chain performance.

Material flows

Financial flows

2nd tier suppliers

1st tier supplier

s

Manufacturer

Wholesaler

Retailer

End-customer

Information flows

Oct04


slides Olivier Aba 12ITC

InboundLogistics

ProductionOutboundLogistics

Marketing& Sales

Service

Purchasing & contractingResearch & development

Human resources management & training

IT systems

PRIMARY VALUE-ADDING ACTIVITIES

Finance, planning, etc.

SU

PP

OR

TA

CTIV

ITIE

SM

arg

inPorter’s Value Chain

Source: ITC, 2002

SupplySupply

Sources:plantsvendorsports

Manufacturers,Regionalwarehouses:stocking points

Field warehouses:stockingpoints

Customers,demandcenters

MaterialProduction/purchase costs

Manufacturing/Inventory &warehousing costsTransportation costs Inventory &

warehousing costs

Transportation costs

Source: Simchi-Levi & al, 2000

Supply Chain

Oct04



SCOR 5 Processes: Overview

Source: Supply Chain council, 2003

Oct04



SCOR 5 Processes (1)

Plan: Processes that balances aggregate demand &

supply to develop a course of action which best meets sourcing, production & delivery requirements

Source: Processes that procure goods and services to

meet planned or actual demand Make:

Processes that transform product to a finished state to meet planned or actual demand


Oct04



SCOR 5 Processes (2)

Deliver: Processes that provide finished goods and

services to meet planned or actual demand, including order management, transportation management, and distribution management

Return: Processes associated with returning or

receiving returned products for any reason. These processes extend into post-delivery customer support.


Oct04



What is Supply Chain Management?

“Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.”

Source: Simchi-Levi & al, 2000

Oct04



Drivers of Supply Chain Performance

Inventory

Transportation

Facilities

InformationSource: Chopra & Meindl 2001

Oct04



Competitive Strategy

Supply Chain Strategy


Drivers

Inventory

Transportation

Facilities Information


Supply Chain Structure

Efficiency Responsiveness

Oct04



Considerations for Supply Chain Drivers

Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Consolidation / Dedicated

Proximity / Flexibility

Information What information is best suited for each objective


Oct04




Inventory: Role of inventory in the Supply Chain:

Anticipation of future demand Production and distribution costs reduction

• economies of scale


Oct04




Transportation: Role of transportation in the Supply

Chain: Transportation moves the product between

different stages in a Supply Chain• Transportation choices impact the responsiveness

and the efficiency of the Supply Chain


Oct04




Facilities: Role of facilities in the Supply Chain:

Where inventory is transformed into another state - manufacturing facility

Where inventory is stored before being shipped - warehousing facility

• Choices such as number of facilities or capacity impact the Supply Chain


Oct04




Information: Role of Information in the Supply Chain:

Serves as the connection between the Supply Chain’s various stages (allows coordination of actions)

Allows daily operations of each stage of the Supply Chain (ex. : a production scheduling system needs information)


Oct04



SC Nokia

Nokia’s frequent & rapid product introduction, major contributors to fast revenue & profit growth are: supported by a very flexible & efficient SC

Nokia has put in place: rapid response manufacturing, quick-ship logistics, global SC web that links Nokia’s suppliers &

plants, supports Vendor Managed Inventories and collaborative planning

Source: Accenture, 2003

Oct04



SC Zara (1)

Global clothing manufacturer/retailer – 44 countries

Focused on time to market, costs, order fulfillment & customer satisfaction

Zara owns 630 retail stores worldwide Store managers send customer

feedback directly to Zara’s in-house designers via handheld devices designers are kept abreast of fast-changing

trends & demands gives Zara vital information on sale of less-

desirable merchandise better managed inventories


Oct04



SC Zara (2)

Zara acquires fabrics in only 4 colors & postpones dyeing & printing until close to manufacturing reducing waste and minimizing need to clear unsold inventories

Zara can deliver new styles in 3 to 6 weeks, compared with up to 5 months for competitors


Oct04



SC Henkel

Multinational manufacturer of consumer & industrial products

Put in place collaborative planning, forecasting & replenishment (CPFR) with Condis, a Spanish supermarket & several packaging suppliers for laundry & home care products

Involves daily interchange for key items, coordinates business planning (combined promotions & collaborative forecasts) & jointly defined & measured key performance indicators.


Oct04



The “Best” Supply Chains

“They are not just fast & cost effective.They are also:

Agile Adaptable and they ensure that their companies’

interests stay aligned.” Hau L. Lee, Harvard Business Review, October

2004

Oct04



Supply Chain & SCM Benefits

Reduction of SC costs non-transport costs transport costs

Lower inventories Improved delivery time Improvement in service quality

Oct04



SC Champions: Service vs. Costs

Oct04



SC Champions – Costs & Performance

Oct04



The e-Business

e-Business is a collection of business models and processes motivated by Internet technology, and focusing on improving the extended enterprise performance: e-commerce is part of e-Business Internet technology is the driver of the business

change The focus is on the extended enterprise:

• Intra-organizational • Business to Consumer (B2C)• Business to Business (B2B)

Oct04



e-Business and e-Commerce

e-Commerce definition: Is often referred to as “buying and

selling using the Internet” e-Business definition:

The transformation of key business processes through the use of Internet technologies (IBM)

Oct04



Barriers to e-Business Adoption

For customers:A large proportion of

current non-Internet users• Look at your country

The poor understanding of the benefits

For companies: No tangible benefitsNot relevant to the businessTechnology costs too high

and difficult to understandConcern about fraudConcern about

confidentiality

Oct04



Introducing B2B and B2C

Business Consumer

Business B2Bwww.dell.com

B2Cwww.amazon.co

m

Consumer

C2Bwww.priceline.co

m

C2Cwww.ebay.com

Oct04



e-Business Environment

Supplier Customer

Local Environnent

Local CompetitorsIntermediates,Channels

Global Environment

Technologies,innovationused by global competitors

Country specific, economic factor,legal constraints, cultural factor

International, economic factors,Legal constraints, cultural factors

SocietyPublic opinionMediaMoral…

Environment today has more influence & impact

Look at the top 100 companiesfrom 50 years ago, less than a quarter of them remain in the top 100, many have ceased to exist.

organization

Technologies

Oct04



e-Business Processes

In this context, e-Business specifically refers: to “the planning and execution of

the front-end and back-end operations

in a chain using the Internet”

ManufacturerSupplier RetailersWholesalers Customer

Pro

du

ct

Oct04



B2B & B2C Transactions

Supplier

Intermediaries,

channels

organization

Technologies

Retail

Channel

Consumercustomers

Organization orbusinesscustomers Technologies

B2C

B2B

Oct04



Disintermediation or “cutting out the middle man”

Don’t kill your traditional sales channels but help them in new way of sales

Producer

Wholesaler

Retailer

Consumer

Oct04



e-Business & the Supply Chain

Very broad impact of e-business on the Supply Chain: upstream: sourcing, procurement inbound & outbound logistics: links & use of

third parties downstream: ordering, warehousing &

distribution…

Oct04



The Role of e-Business in a Supply Chain

Supply Chain transactions which can be performed over the Internet: Providing information across the Supply

Chain Negotiating prices and contracts with

customers and suppliers Allowing customers to place orders Allowing customers to track orders Filling and delivering orders to customers Receiving payment from customers

Oct04



e-Business Opportunities & SC

Reduce facility costs Eliminate retail/distributor sites

Reduce inventory costs Apply the risk-pooling concept

• Centralized stocking• Postponement of product differentiation

Use dynamic pricing strategies to improve SC performance


Oct04



e-Business Opportunities & SC

Supply Chain Visibility:Reduction in the “Bullwhip Effect”

• Reduction in inventory• Improved service level• Better utilization of resources

Improve Supply Chain performance• Provide key performance measures• Identify and alert when violations occur• Allow planning based on global supply chain data


Oct04



Potential Revenue Opportunities from e-

Business & SC Direct sales to customers 24 hour access for order placement Information aggregation Information sharing in supply chain Flexibility on pricing and promotion Price and service discrimination Faster time to market Efficient funds transfer - reduce working

capital


Oct04



Potential Cost Opportunities from e-Business & SC

Direct customer contact for manufacturers Coordination in the supply chain Customer participation Postpone product differentiation to after

order is placed Downloadable product (software) Reduce facility costs Geographical centralization and resulting

reduction in inventories


Oct04



Potential Cost Disadvantages of e-business

Increased transportation cost due to inventory aggregation

Increased handling cost if customer participation is reduced

Large initial investment in information infrastructure

Oct04



Fromages.com

Founded in 1997 Sale of French cheeses overseas:

USA: 70%, Europe: 15%, Asia: 15% Reseller, not a producer No inventory Key elements: quality & logistics 65% of costs: cheese, packaging, express delivery 85% of orders delivered in 24 hrs… Average sale: 70/80 euros Selling price includes transportation costs Partnerships:

Cheese producer & ripener in Loire-Atlantique Shipper – FedEx

Sales (2003): estim - 1 M euros – profitable since 2000

Oct04



Aquarelle.com (1)

Founded in 1997 Online sale of flower bouquets in France,

Europe, USA, Japan, South Korea & Venezuela 20 theme bouquets, as per the season Craft work & Just in Time Flowers purchases: 80% from Netherlands Centralized flower assembly north of Paris 25 assembly florists Customer can « see » what he is purchasing Key success factors: availabiliyt, freshness,

leadtime & quality

Oct04



Aquarelle.com (2)

Downstream logistics critical: transport, delivery, & followup:Paris deliveries– E-likoDelivereies in France - Chronopost

Specific packaging designed & used for the flower bouquets

Delivery fee added on customer bill: 9 euros Investment in information systems: 4 M euros –

online purchasing system for suppliers, supply chain mangement & order management application

Local partnerships Sales (2003) : about 8 M euros – profitable since

2002

Oct04



ChateauOnline (1)

Founded in 1998 50 people Sales:

50% France – 50% export: Germany, UK, Belgium, Netherlands, Italy, Switzerland, Luxemburg

70% of sales made with existing customers Stakes: customer retention, develop sales, improve

quality of service, reduce operating costs Approach: Emphasis on processes & use of information

systems Focus on the customer relationship management - CRM

integrated with information system Continuous process improvements & integrated inventory

management• Automated E-mail for customer order acknowledgment• Customer order status available on the site• Handling of customer problems & anomalies – workflow

process between call-center, sales, logistics & accounting

Oct04



ChateauOnline (2)

2000 products from 15 different countries Deliveries in France: 5/10 days, overseas: 7/24 days. Logistics platform (2000 m2) handled by Easydis

(Casino subsidiary) 800 references, 85 000 bottles

Transportation towards end customer handled by UPS

Alliance in 2003 with Henri Maire. Maire is responsible for logistics: wine storage, order preparation & delivery

Average sale: 200 euros

Oct04



ChateauOnline (3)

European leader of online wine sales

Honored many times as the best e-commerce website

Sales (2003) estim – 10 M euros – profitable since end 2003

Oct04



ChateauOnline Supply Chain

Sales

forecasting & Purchases

planning

Purchases

& Supplier Management

Storage

Transport &

delivery

Order handling

& payment

PLAN BUY MOVE SELLPLAN BUY MOVE SELL

Professional Buyers,buying direct in France & overseas

UpstreamLogistics withpartners.Storage &platform

Online ordermanagement.Promotions,coupons…Secured payment.

Outside partners.TransportationCost billedto customers.95% of deliverieswithin leadtime.

Information systems

Oct04



LeShop.ch First on-line supermarket in Switzerland Created in 1998 75 people Sales: 15.2 M CHF in 2003; 27 M CHF in 2004 (planned) 16 000 regular customers Average basket: CHF 193 vs 34 in a supermarket > 50% market share Strategic alliance with Migros in September 2003 &

with a common & new online website in January 2004: find Migros as well major brand articles offer an excellent price/quality ratio

Major items sold: Fruits & vegetables (bananas, carots, apples…) Delicatessen (chicken, ham)

Oct04



LeShop.ch Supply Chain

Suppliers

Logistics Center

La Poste

Suppliers

Suppliers

La Poste

La Poste

CUSTOMERS

Oct04



Logistics (1)

« Ordered today, delivered tommorow” Distribution center in Bremgarten (close to

Zurich) 7000 m2

6 000 products – 80% fresh products 300/450 orders/day Delivery cost billed to customer: CHF 12/delivery Specific packaging: delivery box returned &

isotherm for fresh produce Transportation in refrigerated trucks from the

LeShop.ch logisitics center to the Swiss Post distribution centers

Goods delivered by Expresspost at the address given at order time, directly at the customer door

Oct04



Logistics (2)

Own logistics center (not outsourced) 30 people Products stored as per the nature of goods,

process sequence, & items turnover Specifics:

customer requests items in small quantities, not full boxes or palets

need for different temperature storage areas: from -18 to + 20 degrees centigrades

need for maximum handling care: fruits & vegetables, bottles…

Order handling: 33 minutes on average Order cost: CHF 24 95% of orders delivered as per customer order

Oct04



LeShop.ch: challenges

Increase the amount fo the average basket & frequency of purchases

Increase the margin Increase the efficiency of the order

handling Reduce distribtuion & delivery costs

Oct04



SC Collaboration

Information flows

Suppliers - Manufacturers - Distributors - Retailers - Customers

ProcessesOrganizational

structuresEnabling

technologies

Source, INSEAD, 2002

Material flows

Financial flows

Oct04



Supply Chain Trends (1)

Focused towards customers: move from push - by firm to pull - by

customer more “personalized” logistics chain to take into account

need for global coherence, thus rationalization…

global process allowing for reactivity…

Oct04




Integration & synchronization of the logistic network: demand driven sharing of demand data between

customers & suppliers integration of incompatible information

systems set up of appropriate production flexibility

for the firms & its partners permanent synchronization efforts between

internal & external logistic chain

Oct04




Partnership strategy on the way up: move from risk reduction approach to

balanced relationship focus on core competencies, brand,

customers, new product introduction outsourcing of “non-strategic activities”,

such as delivery, transport, storage

Oct04



SC Transformations

From functions to processes From profit to performance From products to customers From inventory to information From transactions to relationships

Source: Christopher, 1998

Oct04



The SC of the Future

Changes Leading toFrom functions to processes

Integral management of materials & goods flow

From profit to performance

Focus on key performance drivers of profit

From products to customers

Focus on markets & creation of customer value

From inventory to information

Demand based replenishment & quick response systems

From transactions to relationships

SC partnerships

Source: Christopher, 1998

Oct04



Supply Chain SCM is more than just technology & information

systems SC is vital especially for e-commerce SC implies a process and transversal approach

across functions One of the key drivers is information Emphasis is placed on collaboration &

coordination Requires substantial investment in information

systems Agility & adaptability Integrated SC and SCM require major

organizational transformations The human dimension remains essential:

People & change management Partnerships management

Oct04



Example: Supply Chains in Tunisia

Analysis of Supply Chains in 5 export related sectors: Garement Automotive components Dates Olive Oil Arts & craft e-commerce

The selected companies are considered as « best in class » in Tunisia

Source: MKC, 2003

Oct04



Tunisia SC case studies (1)

Sector StatusProduct Sourcing

Target Market

Garement SME Local International Local

Garement ME Local InternationalLocal/international

Garement Large Off-shore International International

Automotive components

Off-shore International International

Dates Local Local International

Olive Oil Local Local International

E-commerce craft

Local Local International

Source: MKC, 2003

Oct04



Tunisia SC Case studies (2)

The analysis clearly identified functional & structural weaknesses that have a major impact on the SC costs

Oct04



SC Costs Non-transport costs

ordering & admin costs load/unload inventory carrying cost storage cost losses/damages stock outs emergency shipment costs

Transport costs truck airfreight ship

Oct04



Tunisia SC Case Studies SC performance (1)

SectorIncoterm

sSC costs as % of sales

SC costs as % of Value

Added

Garement SME EXW 17 47

Garement ME EWW 14 37

Garement Large

CIF 13 25


CIF 18 25

Dates CIF 24 53

Olive Oil CIF 14 26

E-commerce craft

CIF 26 80

Non transport costs: 9.7 %

Source: MKC, 2003

Oct04



Tunisia SC case studies SC Performance (2)

SectorIncoterm



Added



Garement Large

CIF 13 25


CIF 18 25

Dates CIF 24 53

Olive Oil CIF 14 26

E-commerce craft

CIF 26 80


Source: MKC, 2003

Oct04



Tunisia SC Case Studies SC Performance (3)

SectorIncoterm



Added



Garement Large

CIF 13 25


CIF 18 25

Dates CIF 24 53

Olive Oil CIF 14 26

E-commerce craft

CIF 26 80


Source: MKC, 2003

Oct04




SectorIncoterm



Added


Garement ME EXW 14 37

Garement Large

CIF 13 25


CIF 18 25

Dates CIF 24 53

Olive Oil CIF 14 26

E-commerce craft

CIF 26 80Non transport costs: 10.3 %

Source: MKC, 2003

Oct04




SectorIncoterm



Added


Garement ME EXW 14 37

Garement Large

CIF 13 25


CIF 18 25

Dates CIF 24 53

Olive Oil CIF 14 26

E-commerce craft

CIF 26 80

Non transport costs: 8 %

Source: MKC, 2003

Oct04




SectorIncoterm



Added



Garement Large

CIF 13 25


CIF 18 25

Dates CIF 24 53

Olive Oil CIF 14 26

E-commerce craft

CIF 26 80


Source: MKC, 2003

Oct04



Supply Chain Cycle Time (in days)

Product TunaCoffee

Garments

Potatoes

Garments

Okra

Yemen to

Germany

Yemen to

Japan

Egypt to USA

Egypt to Germany

Jordan to USA

Jordan to UK

Ordering process, sourcing & manufacturing

2.47 114 65 16 57 3.67

Goods preparation

.29 7 2 1 1 .08

Transportation up to final destination

2.20 31 27 12 21 .71

Total # of days

4.96 152 15.4 29 87 4.46Source: Delvin & Yee World Bank, 2002

Oct04



Supply Chain Costs

Product TunaCoffee

Garments

Potatoes

Garments

Okra

Yemen to

Germany

Yemen to

Japan

Egypt to USA

Egypt to Germany

Jordan to USA

Jordan to UK

Non Transport SC costs in %

38 76 20 41 12 11

Transport costs in %

62 24 80 59 88 89

Main modes of transportation used

truck & air

truck & ship

truck & air

truck & ship

truck & airtruck & air

SC costs as % of landed price

54.9 7.2 15.4 26 6.7 48Source: Delvin & Yee World Bank, 2002

Oct04



Tunisia SC analysis: First Findings

Lack of coherence in the practices of the parties involved in the export process

Lack of links & access to international markets

Costly & inequitable border control process Insufficient intermodal transfer

infrastructure Not harmonized processes & documents Deficiencies in road transport &

multimodal transport underdeveloped Lack of institutional coordination

Source: MKC, 2003

Oct04



Implications for Trade Facilitation & Policy Decision

Makers Most companies have the same

objectives: Improve response time Reduce inventory Reduce costs:

• transport costs• non-transport costs

Oct04



Food for thought…

Supply Chain is a critical element of the companies as well as country’s performance in any economy…

What can be done to improve the global logistics & SC performance of companies & of the country?

Oct04



Questions for Policy Decision Makers… (1)

What is the state of the Supply Chain & Trade Facilitation in your country? How does it serve domestic as well as foreign trade actors (import & export)?

What is the impact of the logistical system in the performance of the domestic economy & foreign trade? What are the hurdles & obstacles to an improved performance?

Can the performance of import and export companies be improved significantly? How?

Oct04



Questions for Policy Decision Makers… (2)

What are the plans to improve the links & interrelationships within the SC & Trade Facilitation?

In what way can the current regulatory environment be amended to allow for a development of the SC? Note that Supply Chain & Trade Facilitation are related to transversal processes, linking many different sectors & actors and thus under no direct control by any government institution…

Oct04



Implications for Trade Facilitation & Policy Decision

Makers Information Flow:

Telecom infrastructure Basic skills & access to IT technology & PC’s Access to & development of use of Internet

Inventory: Port, road infrastructure Efficiency & dependability in admin procedures

Transport & dependable logistics: Port, road infrastructure Skills & knowledge (import/export/logistics) Coordination Management of information flow

Regulatory environment: Responsive & efficient Work by exception – customs Listen to “customers”

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