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Leveraging the supply chain to optimize customer and shareholder value
Rodger ReisOctober 2019
PwC | Leveraging the supply chain to optimize customer and shareholder value
Introduction
Executive summary• 10+ years in Supply Chain operations consulting with PRTM & PwC• Helps clients transform business and supply chain operations into strategic
differentiators in order to improve customer experience and drive shareholder value• Completed projects with clients across Retail, Consumer Products, Food &
Beverage, Luxury Goods and ElectronicsRelevant expertise• Designed differentiated Supply Chain strategy to support multi-billion dollar Omni-
Channel retail growth opportunity• Led a Lean Manufacturing and S&OP transformation to drastically reduce order to
lead times and inventory and improve service levels for a luxury goods company• For a global food manufacturer, provided a go-to-market and supply chain strategy
to help the company’s largest division expand their DSD operations into new channels to accelerate growth
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Rodger ReisDirectorConsumer Markets – Operations & Supply Chain practicerodger.reis@pwc.com
PwC | Leveraging the supply chain to optimize customer and shareholder value
About PwC’s supply chain operations practice
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Providing innovative insightsWe “wrote the book” on supply chain strategy.
Setting SC standardsWe developed and introduced the Supply-Chain Operations Reference-model® (SCOR®).
Fostering SC leadershipWe contribute regularly to the supply chain industry and academic publications worldwide.
Practicing what we preachWe conducted more than 2,000 supply chain transformation projects over the last 10 years.
Enabling excellence withunparalleled benchmarksWe are a leading source of Supply Chain benchmarks, with 1,000+ companies in our database (Performance Mgmt. Group, PMG).
Developing partnerships and experience on the leading edge of technologyWe have hands-on experience leveraging technology to drive supply chain transformations.
PwC | Leveraging the supply chain to optimize customer and shareholder value
Agenda for today
• Supply chain fundamentals and key value drivers• Challenges for today’s supply chain leaders• Effective and emerging supply chain optimization strategies• Select case examples• Wrap up and Q&A
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PwC | Leveraging the supply chain to optimize customer and shareholder value
The supply chain is a complex set of business functions responsible for managing the flow of goods from supplier to customer
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Demand planning
Supply planning
Sourcing & Inbound logistics Manufacturing Order fulfillment &
Outbound logistics
Inventory management
Core supply chain functions
Plan
Sour
ce
Mak
e
Del
iver
IT & systems enablement
PwC | Leveraging the supply chain to optimize customer and shareholder value
Optimizing the supply chain is the art and science of balancing service, cost and working capital to maximize customer and shareholder value
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Cost
Working capital
Service
Supply chain levers
Customer value
Shareholder value
Business outcomes
PwC | Leveraging the supply chain to optimize customer and shareholder value
A number of factors are putting new pressures on supply chain management and optimization
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Customer expectations
Fulfillment complexity
Input costs
Economic outlook
• Logistics: Driver shortages & trucking cost • Labor: availability & minimum wage policies
• Buy in store• Pick up in store• Deliver to home
• Broader, more customized product assortments • Shorter lead times (Prime effect)• Inventory visibility
• End of bull market predictions• Lower CEO confidence• Politics & global trade conflicts (China trade war & Brexit)
Omni Channel
PwC | Leveraging the supply chain to optimize customer and shareholder value
However supply chain practices and capabilities continue to evolve to meet these challenges and drive both customer and shareholder value Supply chain optimization strategies
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Omni-channel & Differentiated supply chains
Complexity management
Integrated business planning
Digital supply chain
Network optimization tools
Design purpose-built supply chains to maximize customer experience and fulfillment experience profitably
Configure the supply chain to manage complexity without eroding value
Improve service and streamline operations by better aligning financial, sales and operational plans
Leverage digital capabilities (big data, AI, machine learning, etc.) to improve end-to-end performance
Quantitatively model supply chain network flows to minimize cost and working capital
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2
3
4
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PwC | Leveraging the supply chain to optimize customer and shareholder value
Successful Omni-channel strategies consider both the Customer Experience (Cx) and the Fulfillment Experience (Fx)
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Effective omni-channels operations pair customer focused strategies with
rigorous programs to minimize operational costs
Today’s Retail environment requires cohesive customer and operational strategies to drive a Return on the
consumer experience
Environment(Web and
Store)Store Ops
Marketing
Service
Assortment
Sales andorders
Fulfilment(Store, Online,
HomeDelivery)
Leading class Cx strategies addresses the whole customer journey and aligns
operations to delivery against the customer promise
RoXReturn on
Experience
CxCustomer Experience
Enabling the shopping experience
FxFulfillment Experience
Fulfilling the customer promise
Omni-channel & Differentiated supply chains1
PwC | Leveraging the supply chain to optimize customer and shareholder value
Omni-channel client case – Building differentiated supply chains to enable improved Fx without eroding margins
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Client situationA leading big box retailer was experiencing margin erosion and customer satisfaction challenges resulting from immature Omni-Channel supply chain capabilities
Solution Develop a set of differentiated supply chains purpose built to serve the needs of each channel at the optimal cost
In-store
Optimize store replenishment frequency
to minimize excess inventory
BOPUS
Develop solutions to enable store to operate as fulfillment warehouse
Home Delivery
Enable dedicated delivery network infrastructure to
free up store capacity and increase last mile efficiencies
Parcel
Stand up automated direct fulfillment centers
to increase service consistency and minimize cost
Omni-channel & Differentiated supply chains1
PwC | Leveraging the supply chain to optimize customer and shareholder value
As assortments and SKUs under management increase, companies must leverage complexity management to maintain margins
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SKU Rationalization & LiquidationRemove low-turning and unproductive SKUs from the assortment
Network ConfigurationConfigure the supply chain network to support ‘C’ SKUs at higher levels of productivity
Product LifecycleEnable processes to proactively assess SKU productivity throughout lifecycle
Pros: Often considered ‘quick fix’ to
capacity or working capital challenges from SKU ‘long tail’
Cons: Risk unhappy customers Potential inventory write off Root causes may not be addressed
Pros: Maintains availability of specialized
items at reduced cost
Cons: Network changes may take time to
implement
Pros: Begins to address and manage
root cause
Cons: Change hurdle can be significant
Complexity management2
PwC | Leveraging the supply chain to optimize customer and shareholder value
Complexity Management Client Case – Centralizing ‘C’ SKUs to minimize footprint, inventory and labor cost
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Complexity management2
SituationLeverage multiple complexity management strategies to reduce working capital, labor and facility cost
SKU Rationalization & ConsolidationCull the very bottom 2k SKUs that sell less than one item per month and at less than $50 per item
Network ConfigurationCentralize C SKUs in one facility to reduce facility cost and working capital & add focused automation for A vs. C SKU operations
Product LifecycleCreate regular reviews of portfolio and define ‘hurdle’ conditions to assess SKU productivity
% of Sales Quantity
0 15,000
60
10,0005,000
100
20,0000
20
40
80
# of SKUs
15%
80%
5%
A (Top 80% of Sales Aty)B (Middle 5-15% of Sales Aty)C (Bottom 5% of Sales Qty)
Client SituationA large consumer-focused distributor maintained an assortment of roughly 18k SKUs stocked in 13 facilities nationwide. Though most SKUs were low productivity ‘C’ SKUs driving excess working capital, facility and labor cost
PwC | Leveraging the supply chain to optimize customer and shareholder value
Finance, commercial and operational plans are often mis-aligned, driving margin erosion from missed service and increased cost & working capital
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Integrated business planning3
Finance
• Sales focused • Often optimistic• Customer
accountability
• Cost focused• Often constrained• Customer and
shareholder accountable
• Profitability focused• Shareholder accountability
Planning constituents Typical misalignment & resulting impacts
Sales and operational plans not linked to financial plans
Forecast or promotion changes within lead times
Lack of information to make the ‘right’ trade-off decisions
• Not enough product• Too much product (inventory)• Expensive corrective actions
(e.g., expedited logistics)
PwC | Leveraging the supply chain to optimize customer and shareholder value
Integrated Business Planning helps coordinate the enterprise to align on the ‘one plan’ that best balances customer and shareholder value
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5 Step IBP Process cycle
1 Review and define any changes to product portfolio
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3
4
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Commercial teams inform the ‘Unconstrained’ demand plan
Supply Chain teams inform supply positions and potential constraints
Combined teams reconcile demand with supply
Any significant trade-offs or other decisions resolved by C-suite
MetricsResources
Gap analysis
Step #2Commercial
review
Unconstrained demand plan
Supply, demand, and inventory plan
Prioritized risks and opportunities presented
for mitigation
Reconciliation between top-down
financial plan to bottom-up
operational plan
Step #5
Step #1
Step #3
Step #4
Step #4Integrated
reconciliation
Step #3Supply review
Step #1Product portfolio review
Step #5Management
businessreview
‘One Plan’
Integrated business planning3
PwC | Leveraging the supply chain to optimize customer and shareholder value
Data integration, automation, and business systems
Analytics and prescriptive supply chain data lakeExternal data(e.g., weather, social listening)
Wholesalers and stores
Supplier ProductionWarehouse Distribution site
Procurement Smart warehousing Smart logistics
Customer
Customer access and order management
Integrated logistics planning and execution (control tower)
Transparency and visibility (including product inventory and logistics)
Smart factory
Digital supply chain framework
Control tower
The future supply chain will be digitally connected to enable greater visibility, efficiency and responsiveness
Digital supply chain4
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PwC | Leveraging the supply chain to optimize customer and shareholder value
Machine learning-based forecastingSmart Algorithms leveraging Machine learning best pick optimal forecast models that can learn from planner inputs
Advanced order management and fulfillmentLow touch, demand-driven, interactive order mgmt. and automated fulfillment
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Transparency to SC costs and profitabilityAbility to model cost-to-serve across E2E nodes of the supply chain
Advanced demand sensing algorithmsAnalysis of a multiple data points including consumption history, impact of events, and external sources for improved sensing integrated into demand planning
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Inventory performance managementOptimizing internal and external customer service levels with visibility to raw , WIP and FG inventory
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Fully integrated supplier collaborationDigital interaction and preference specific mgmt of suppliers, co-manufacturers, and internal partners
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Capacity visibilityNear real time view of aggregate capacity across the network of plants and DCs to model demand shaping
E2E product flow transparencyTrack and Trace visibility to help identify areas down to a single point of failure, including source of supply
Logistics transparency, including near real time visibilityInbound and outbound shipment including LTL and FTL fully integrated to planning
Demand/Supply BalancingAbility to model near real-time demand and supply balancing scenarios that permeates across E2E SC
Advanced S&OP/S&OEFaster S&OP executed within two weeks or less with planning in daily buckets
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Digital capabilities are rapidly expanding, enabling the connected supply chain of the future
Digital supply chain4
Key capabilities of the future
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76
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PwC | Leveraging the supply chain to optimize customer and shareholder value
Supply chain network optimization tools can inform current network inefficiencies and enable long term infrastructure planning
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Network optimization tools5
Supply chain network modelling overview & Applications
Supply Chain network modeling uses powerful
software & analytical tools to create a virtual view of the
supply chain
Visualize current state network• Data visualization will highlight key opportunities for improvement,
such as lane redundancies, service area coverage gaps, and at risk markets
Scenario modeling• Run various scenarios to assess tradeoffs between strategically
defined levers• Enables sensitivity analysis to project network capacity based on
growth projections
Inventory optimization• Model target inventory levels across the network by facility and product
type based on key parameters and constraints• Understand regulatory effects on the inventory levels of key
product types
PwC | Leveraging the supply chain to optimize customer and shareholder value
Network Optimization Client Case – Network optimization to improve network and transportation efficiency
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Network optimization tools5
Network modeling
Approach: Modeled the client's 29 distribution centers and ran scenarios to identify optimal locations considering demand, operating efficiency, and costResult: Reduced DC footprint by half while maintaining service levels
Benchmarking
Approach: Benchmarked transportation rates and contracts, determining opportunities were not commercially driven but network, process, and organizationally drivenResult: Resourced transportation and imposed compliance policies
Baseline network
Optimized network solution
SituationLeverage network modeling and logistics benchmarking to define the optimal network footprint and target cost model
Client situationWithin a four-year period, the client experienced a 45 percent increase in transportation and distribution costs. Its distribution network was large and inefficient with inadequate supply chain processes
PwC | Leveraging the supply chain to optimize customer and shareholder value
Wrap up – Key takeaways from today
Supply chains are under pressure from multiple angles, putting customer and shareholder value at risk
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What questions do you have about supply chain optimization?
Digitization and data are enabling greater planning, visibility and connectedness, allowing for more effective supply chain management
Optimization strategies can be leveraged to address these challenges, enabling the supply chain to improve cost, working capital and service performance
Every supply chain is different and optimization strategies must be applied considering key enterprise factors such as maturity, ability to change, investment resources and urgency
pwc.com
Thank you
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