managing scm complexities
TRANSCRIPT
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Supply ChainComplexity:Managing
Constant ChangeA study of supply chain maturity
by KPMG LLP (UK)
May 2011
kpmg.co.uk
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SUPPLY CHAIN MATURITY SURVEY
Foreword
I supply chain risk isnt keeping you up at night, then it should be. Supply Chain
Directors now ace an unprecedented level o risk. And increasingly, the risks
arent even related to the supply chain itsel.
As you will undoubtedly see rom our research and analysis, supply chain risk is ying
up the corporate agenda. Recent global events have only heightened the anxiety andclarifed minds.
In the midst o all this turbulence, KPMG LLP (UK), the Chartered Institute o Logistics
and Transport and Holman Fenwick Willan LLP came together to talk to Supply Chain
Directors at more than 50 UK companies. We wanted to gain a better understanding o
the issues they were acing and the degree o their supply chain maturity.
As the inaugural issue o an ongoing series, this report sets a clear benchmark or
supply chain organisations across the UK. In subsequent years, we will expand the
survey to include more respondents and a wider variety o industries to create a better
understanding o supply chain maturity.
We would like to thank all o those organisations that participated in this study and
whose candid responses allowed us to deliver a clear and accurate view into the current
state o supply chain maturity across the UK.
We hope this study acts as a clarion call to Supply Chain Directors and corporate
executives to re-examine their supply chain and create more exible and robust
network operations.
Andrew UnderwoodPartner
KPMG LLP
Steve AggChie Executive
Chartered Institute o
Logistics and Transport
Craig NeamePartner
Holman Fenwick Willan LLP
2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Contents
SECTION 1: Executive Summary 1
SECTION 2: Key Findings Supply Chain Risk 3
SECTION 3: Key Findings Speed o Change 6
SECTION 4: Key Findings Sustainability and Environment 7
SECTION 5: Supply Chain Trends 9
SECTION 6: Conclusion 14
SECTION 7: Methodology 15
SECTION 8: Quantitative Analysis 17
SECTION 9: Participants 21
SECTION 10: About the Authors 24
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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1 | Supply Chain Survey
SECTION 1
Executive Summary
Not since the end o the Second World War have
global supply chains been so raught with risk.
In the past year alone, supply chains have seen
unprecedented (and widely unexpected)
disruptions caused by everything rom Icelandic
Volcanoes through to political upheaval in the
Middle East and North Arica.
Today, many Supply Chain Directors continue to
eel the impact o the horrifc earthquake and
tsunami in Japan which suddenly cut o critical
markets and closed down swaths o the global
supply chain. Shockwaves will continue to
reverberate in organisational supply chains or
some time to come.
But other risks are also appearing with increasing
requency: political turmoil, market turbulence,
exchange rate uctuations and pending regulatory
changes all combine to create volatility and
uncertainty that must be identifed and managed.
At the same time, questions o long-term
sustainability and environmental impact are
returning to the market as regulators and
consumers rejoin the battle against carbon
and greenhouse gas (GHG) emissions.
So we talked to Supply Chain Directors at 50
leading UK organisations to see what issues theywere dealing with. Here is what we ound:
The drive for more efcient and interconnectedsupply chains has exposed network operations
to unexpected risks;
Many supply chains are incapableof keepingup with the pace o change underway in the
business world; and
Sustainabilitymeasures will force changesin operating models that will bring additionalcomplexity to the supply chain.
2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 2
Supply Chain Directors at UK corporates also
overwhelmingly pointed to a massive opportunity
or logistics providers: 3PLs and 4PLs that are
able to live up to customer expectations around
innovation, service levels and commerciality can
gain signifcant traction in a market where clients
are becoming increasingly concerned about the
gap between expectations and reality.
We also wanted to gauge the maturity o these
organisations supply chains to understand i
more mature supply chains were better suited
to withstand the risks and changes they aced.
What we ound was both surprising and
inormative. In some cases, preconceived notions
o supply chain maturity were shattered as
organisations that were widely believed to enjoy
advanced maturity reported signifcant limitations
in the development o certain aspects o their
supply chain. Still others displayed much more
advanced supply chain maturity than would be
expected, bucking the norms and extending their
lead against their competitors.
There are already a number o winners separating
themselves rom the market. In particular,
Consumer Packaged Goods companies have
overall progressed the urthest and nowpossess advanced maturity across their supply
chain. In comparison, Retailers who are at the
sharp end o demand have not progressed as
ar in their supply chain maturity. For both the
Retail and Utilities sectors, achieving supply
chain maturity will still require substantial
work and eort.
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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3 | Supply Chain Survey
2011 KPMG LLP, a UK limited liabil ity partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
SECTION 2
Key Findings Supply Chain Risk
With change comes risk. For supply
chain leaders and directors, todays
business environment has certainly
highlighted many of the traditional
risks inherent in the business.
Whats more, it has introduced a
myriad of new risks.
Indeed, the global nancial crisis and
ensuing economic recession has put
renewed ocus on economic and
regulatory volatility. To mitigate these
risks, they must be identied and
managed on both a part level and a
network level.
And while the risk o supplier ailure has
always been ront and centre, supply
chains are now acing new and
increasingly volatile risks driven by the
state o the global economy. Exchange
rates are turbulent, borrowing costs have
soared, and bankruptcies (both supplier
and customer) have let glaring gaps in
networks.
At the same time, government policies
and regulations have on occasion
dampened demand and added new
complexities to global supply chains.
Old regulations are being enorced with
extreme prejudice and a slew o new
regulations are on the books, bringing
everything rom labour practices to trade
taris into question.
But most o these are what we would
call known risks, challenges that by
and large can be anticipated and
managed. It is the unknown risks that
may pose the greatest challenges or
Supply Chain Directors: Japans
earthquake and tsunami, Middle East
strie, environmental disasters; all o
these have disrupted supply chains
around the world and brought some
UK companies desperately close to
a stand-still.
In this increasingly complex
environment, our survey nds that it
is the organisations with the most
advanced levels o supply chain maturity
that will ultimately rise above their
competitors to gain competitive
advantage and increase revenues.
To be prepared is
hal the victory
Miguel De Cervantes
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Supply Chain Survey | 4
A closer look at legislative risks
Companies with international supply chains must comply with a myriad o international requirements ranging rom anti-corruption to
import and export controls. The legislation includes:
Anti-corruption: The UK Bribery Act
2010 (expected to enter into orce later
this year) and the US Foreign & CorruptPractices Act require companies to
exercise due diligence throughout the
supply chain.
Sanctions: UN, US and EU sanctions
against designated persons and
designated goods (targeted at Iran,
Libya, Cote dIvoire and others) require
companies to consider their business
partners, and other companies within the
supply chain, as well as the nature o the
goods which are supplied, and the means
(and currency) o payment.
Import and export controls: UK Export
Control Act 2002, the EU Dual-Use
Regulation (Council Regulation (EC)1334/2000 (re-cast as EC 428/2009))
and the EU Torture Regulation (Council
Regulation (EC) 1236/2005), EU Import
Control System (ICS), new EU advance
notifcation requirement (as o 1 January
2011), and detailed US legislation.
Cartels: companies need to supervise
their overseas sales teams and agents
to avoid them colluding with competitors
to fx pricing or carve up markets.
Failure to keep abreast o regulatory
changes can have very signifcant
fnancial and criminal consequences(including imprisonment). EU and US
investigations are intrusive and time-
consuming and they can irreparably harm
reputations. In addition, any disruption
to the supply chain will be very costly
and harmul to commercial relationships.
It is thereore essential companies ensure
they are ully advised o all the actors
which can have an impact on their supply
chains, some o which are more obvious
than others.
Source: Holman Fenwick Willan LLP
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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5 | Supply Chain Survey
From our survey, we have identied a
number o strategies that help mature
supply chain organisations to embedthe concept o risk into their strategy.
These include:
Strategic Network Design: Key to
understanding and managing these new
risks is the maintenance o a holistic
supply chain strategy that puts an
emphasis on risk management. For those
with more mature supply chains, strategic
network design allows organisations to
create a well-planned, designed, executed
and optimised network that can quickly
react to change and proactively manage
risk. Strategic network design enables
supply chain leaders to identiy sources o
unacceptable risk and deliver a ramework
or selecting new partners and suppliers.
Understanding the cost o risk:
By developing greater insight into the
potential risks, supply chain leaders canbegin to ascertain the real and potential
impacts o those risks. And by attributing
a hard cost to each risk, organisations can
start to identiy new partners and
geographies that carry less risk (be that
political or economic). In some cases,
higher per unit costs may be preerential
to the unknown cost o risk exposure.
In others, the level o risk may demand
robust contingency plans and new
strategic relationships that share risk
across the supply chain.
Structuring eective contracts and
building strong relationships: Clearly,
those organisations that are able to build
strong and collaborative relationships
with their suppliers and network partners
will also achieve greater insight into their
potential risks. But by paying closeattention to the structuring o contracts,
the more mature supply chains are also
able to urther reduce risk through
dynamic cost and risk sharing agreements.
Structured properly, these encourage
everyone in the supply chain to quickly
identiy potential risks beore they occur
and take appropriate actions to protect
the viability o the network. By the same
token, dynamic contracts can also be
used to encourage service providers to
develop and deliver more innovative
solutions to both manage risk and drive
competitive advantage. However, to date,
many logistics providers have been slow
to innovate and are increasingly being
challenged to remain relevant to their
clients in this regard.
The myriad o Supply Chain risks to be managed
Intellectual Property Management(IP Risk)
Network Design for Agility(Supplier/Logistics Risk)
Contract Management(Compliance Risk)
Sales and Operations Planning(Supply Risk)
Customer Rationalisation(Proftability Risk)
Revenue Management(Demand Risk)
SUPPLYDEMAND
PRODUCT
Demand Driven Logistics
(Supply Risk)
Supplier Development/Supply Base Monitoring(Capacity Risk)
Social Responsibility(Brand Risk)
Hedging Strategies(Cost Risk)
Source: KPMG LLP (UK) 2011 2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 6
SECTION 3
Key Findings Speed o Change
Whosoeverdesires constantsuccess mustchange hisconduct with
the times
Niccolo Machiavelli
With almost total unanimity, Supply
Chain Directors and corporate
executives are experiencing an
unprecedented rate o change.And
while the recent global nancial crisis
has certainly accelerated the pace,
many o the actors driving this ever
pitch were evident even beore the
credit bubble burst in 2007.
Since the turn o the century, consumer
demand has been increasingly volatile.
The combination o a globalised
marketplace with the rapid adoption o
the internet has created new demands
on companies and their supply chains.
New distribution models and increased
competition rom online rivals have
orced everyone rom manuacturers to
retailers to become more responsive to
the needs o their customers and seek
new levels o fexibility in their supply
chains. At the same time, the traditional
routes to market are quickly changing as
organisations tap into new geographies
and regions to augment supply, drive
down costs and respond to customer
demands.
For its part, the global nancial crisis has
increased the rate o change and added
a new level o complexity to the supplychain. Tighter lending and credit practices
have increased the cost o working
capital and orced Supply Chain Directors
to rethink their inventory levels and
management. And while the crisis
ocially ended in 2008, many supply
chain organisations and service providers
continue to eel the eects o reduced
demand: key suppliers are acing
bankruptcy, credit remains elusive and
industry consolidation is redening
networks and partnerships.
But it is not enough to merely withstand
the pace o change. Leading supply chain
organisations are ocusing on key areas
that will allow them to take advantage o
change in order to build their business
and enhance their revenues. To
paraphrase Machiavelli, supply chain
organisations must change with the
times to ensure ongoing success.
This includes:
Increasing supply chain fexibility:By creating a more fexible supply chain,
many leading organisations are building
their capacity to quickly and seamlessly
respond to sudden market shits. In most
cases, this has involved partnering with
multiple logistics providers who can
in a pinch supplement and augment
existing networks to ensure a consistent
and secure supply o goods and services.
In particular, supply chain leaders will
want to diversiy their supplier and
logistics service provider networks inregions where there is a higher risk o
service interruption.
Customer ocus: At the same time,
Supply Chain Directors will need to
vigilantly monitor customer needs anddemands in order to develop greater
insight into ast-moving trends and
service level expectations. For retailers
and CPG companies (or whom on-shel
availability is paramount), insight into
these trends will result in greater
alignment to customer demand and more
ecient use o shel-space. But across
the board, a stronger ocus on the
customer allows or more eective
demand planning and a reduced cost to
serve, leading to increased margins and
higher protability.
Integrated supply chain: Equally
important is the building o collaborative
supplier relationships that integrate the
supplier networks (including processes,
IT and orecasting) to create a
harmonious and mutually benecial
relationship. In turn, this can lead to
more accurate orecasting, lower levels
o working capital and an ability to quickly
respond to the needs o the business.
And while there continues to bedissatisaction with the ability o many
logistics providers to innovate and oer
more valuable services, some o the
more mature supply chains also
incorporate fexible cost-structures and
dynamic contracts with their suppliers
to encourage risk-sharing and the
development o innovative services.
However, most organisations will need
to rst ocus on integrating their supply
chain planning internally in order to align
to the business marketing and productdevelopment strategies.
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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7 | Supply Chain Survey
SECTION 4
Key Findings Sustainabilityand Environment
The recent economic crisis had a
signicant impact on environmental and
sustainability initiatives. As marginstightened, many supply chain
organisations ound that their green
programmes were becoming increasingly
hard to justiy, especially when viewed
amongst the slew o other competing
business priorities that required unding.
Tightened wallets have also orced many
consumers to de-prioritise environmental
concerns, eectively taking much o the
pressure o o CPG and retail
organisations.
But as the economy rebalances, the
issue o environmental sustainability is
once again gaining traction in the minds
o UK businesses and consumers. In part,
this is a reaction to the expectation o
tighter environmental regulation and the
introduction o carbon pricing schemes
that will have a direct eect on supply
chains particularly those in carbon
intense sectors. However, many
organisations are nding signicant
challenges in designing a fexible and
responsive supply chain that is bothcarbon ecient and environmentally and
economically sustainable.
For most Supply Chain Directors and
leaders, sustainability and the
environment are largely seen asreputational strategies, designed to
dierentiate their services in the minds o
the consumer and clients. But there can
also be signicant bottom line benets
too. For example, as the price o energy
continues to rise, organisations will want
to rely less on carbon-spewing lorries and
airplanes. Reduced packaging is not only
an eective way to manage
environmental impact, but also cuts costs
or materials and shipping. Shorter supply
lines both reduce GHG emissions and the
cost o bringing a product to market.
And while the path orward may seem
exceedingly complicated and undened,
there are a number o considerations that
supply chain directors should take into
account when designing a sustainable
and environmental supply chain strategy:
Get ahead o the game: At this stage,
there should be little doubt that
regulation is coming. The question or
supply chain leaders should be whetherthey want to innovate at their own pace,
or wait until the situation is do or die
and the methods and approaches are
mandated. For more mature supply
chain organisations, environmental and
sustainability considerations are already
being actored into supply chain planning
by incorporating a level o fexibility to
properly react to changing regulatory
demands.
Taking a holistic view: Supply chain
leaders seeking to reduce their
environmental ootprint are increasinglylooking past the lorries to identiy carbon
reducing measures. In some examples,
the operators o rerigerated warehouses
are nding that by implementing more
energy ecient systems they are able
to cut costs and reduce their
environmental impact. In other cases,
manuacturers are moving packaging
acilities closer to the end-markets to
reduce transport and carbon costs.
Total cost o production: One o the
biggest barriers to building an
environmentally sustainable supply chain
is that costs and impacts are oten
viewed in silos: procurement worries
about supply, distribution ocuses on the
cost o shipping, manuacturing is
concerned about the production cost per
unit. But by taking a total cost o
production perspective, Supply Chain
Directors and leaders will nd that they
are able to gain clarity into the real
environmental impacts o their supply
chain and ultimately work to reducetheir ootprint in the long-term.
2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 8
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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9 | Supply Chain Survey
2011 KPMG LLP, a UK limited liabil ity partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
SECTION 5
Supply Chain Trends
The pace of change is accelerating.
Supply chain operations are
increasingly being impacted by
developments and regulations outsideof the UK. New technologies and
methodologies are quickly changing
the way that many organisations
approach their supply chain planning
and management.
Impact of the Global Financial Crisis
As markets slowly begin to stabilise,
many supply chain and logistics
organisations continue to eel the sharp
impacts o reduced credit, supplier
ailures and sluggish consumer demand.For many organisations, the increasing
cost and scarcity o credit acilities has
led to a sober re-examination o their
working capital and inventory
optimisation in an eort to provide more
nancial fexibility and reduce capital
costs across the organisation.
But as demand evaporated in the wake o
consumer belt-tightening, many UK
businesses quickly ound that they were
unwittingly exposed to risks stemming
rom the potential ailure o their critical
supply chain partners. In response, the
issue o Supply Chain Risk rocketed up
the corporate agenda, orcing supply
chain leaders to either support their
partners nancially or quickly identiy
and source new suppliers and third party
logistics providers to mitigate the risk oailure and establish a more diversied
partner network.
For their part, logistics service providers
continue to struggle to adjust cost
structures and rebuild margins. Those
with either ewer physical assets or an
external source o income have tended
to perorm better than those with more
traditional asset models. But across the
board, logistics service providers have
taken drastic steps in order to remain
viable: routes have been reduced,
shipping and transportation assets
mothballed, and in a number o more
extreme cases providers have ailed
altogether.
The evolution of contract logistics
The contract logistics industry remains in
fux. In part, this is a result o many Third
Party Logistics operators (3PLs) evolving
their business models to provide more
value-added services in an eort to
reinvent themselves as 4PLs and move
urther up the logistics value chain.
However, in our experience, there is a
disparity between operators who have
truly innovated to add value, and those
that see the move to 4PL as a simple
rebranding exercise, oering many o the
same services as in the past. At the sametime, infexible or constrained commercial
arrangements with logistics providers are
also hindering corporates ability to create
a more fexible supply chain.
As a result, many clients have ound
themselves disappointed by the gap
between expectations and reality,
causing a growing number o companies
to re-establish their own in-house
logistics departments. But or those
clients willing to work closely with their
service provider to integrate services and
drive improvements the development o
4PLs has created new opportunities and a
higher level o supply chain fexibility.
Given the characteristically low margins
o the sector, many larger service
providers are growing their international
capacity to mirror the needs o global
clients. In particular, we have seen a
number o 3PLs examining potential
acquisitions in developing markets,
particularly in the so-called BRIC countries(Brazil, Russia, India and China) in order
to meet market demand and gain
competitive advantage.
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Supply Chain Survey | 10
Sea reight rides the tide
The ups and downs o the global economy
have sent shockwaves through the global
sea reight industry. Shipping taris a
bellwether sign o the health o the
industry have been unprecedentedly
volatile. In July 2008 Drewrys regional
container reight rate index or European
imports1 reached a high tide o US$3,169
per 40-oot container, only to sink to just
US$1,071 over the next eight months.
And while prices have almost returned to
pre-recession levels (hitting US$2,716 by
March 2010), shipping providers continue
to lay up vessels and cancel leases to
bring their capacity in line with demandand maintain or return to protability.
In response, a number o specialist
service providers have emerged and
expanded to meet the growing demand
or services related to the management
o surplus vessels. At the same time,
many larger feet owners continue to
manage their surplus vessels in-house,
oten rating them together in close
proximity to major markets to reduce
costs and prepare or an eventualupswing in demand.
For UK organisations, the benets o
volatile shipping rates have been
somewhat tempered by a corresponding
reduction in sea routes and limited access
to requent and reliable shipping services.
Those with fexible supply chains, however,
may nd this to be a benecial time to
optimise network inventory in order to
take advantage o lower shipping rates.
Air reight takes o
While air reight prices and Freight Tonne
Kilometres (FTKs) met some short-term
sotness during the economic crisis, the
medium and long-term prospects or air
reight remain very positive. Demand and
supply conditions seemed to stabilise at
the start o 2011, with emerging markets
(particularly in Asia) driving much o this
growth. Air reight volumes between
China and Europe and China and
America are expected to increase by a
compounded rate o between ve to ten
percent or the oreseeable uture and
some estimates suggest that the number
o aircrat servicing Asia will increase
ve-old over the next 15 years.
Much o this increased volume is related
to the development o intra-Asian trade
and reight movements, but equally
important is the adoption o more
conventional supply chain disciplines
(such as Lean) in the emerging markets
o China and India. In part, this is being
driven by higher wage costs and tighter
labour controls in parts o Asia, but it is
also a direct response to the demands
o European and American clients to
integrate planning and supply strategies
to reduce standing inventory and release
working capital.
1. Drewry Freight Rate Index, Drewry Shipping 2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.Consultants Limited
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11 | Supply Chain Survey
Road haulage consolidates to grow
The UK Haulage industry is currently
thought to be worth around 60 billion in
turnover per annum, with some 415,000
HGVs registered (not including oreignregistered vehicles). The sector is
predicted to see turnover growth rates o
up to 40 percent between now and 2015,
but this will not apply across the board
and will actually reduce across most o
the EU. Many smaller players will either
be pushed out o the market or orced to
consolidate in order to compete, meet
customer demands, and deal with the
threat rom oreign operators. At the
same time, there will be opportunities
or expansion in India and China or thoseoperators with the scope and scale to
invest and deal with the specic market
circumstances in those countries.
However, over the next 12-18 months,
there will be signicant cost challenges
to this market particularly when it
comes to uel.
Regulation creates complexities
In the UK and around the world, national
and regional governments have been
stepping up regulatory reorm on a
number o important ronts. Facingtightened regulatory environments,
most nancial institutions have become
substantially more cautious in their
lending decisions and are increasingly
broadening their risk reviews to include
actors related to an organisations
potential supply chain exposure.
At the same time, regulators in the EU
and US are clamping down on instances
o bribery and corruption, creating new
risks or global organisations entering intointernational mergers and acquisitions.
Indeed, in the US alone, the Department
o Justice has persecuted more bribery
and corruption charges in the past two
years than in the entire preceding two
decades. With equal relish, authorities
are actively pursuing regulations to stamp
out money-laundering and the nancing
o terrorism through the Authorised
Economic Operator (AEO) regime. For the
larger 3PLs and corporations with the
ability to comply with AEO certicationrules, the regime may well deliver greater
eciencies and competitive advantage in
the long-term versus their smaller or less
fexible competitors.
And while the nancial crisis seems to
have eectively de-prioritised green
initiatives amongst logistics service
providers and retail organisation,
regulatory pressures (such as theexpansion o the EU Emissions Trading
Scheme and the spectre o Carbon Pricing
regimes) will continue to signicantly
impact activities, particularly in carbon
intensive sectors. As a result, a number
o service providers are considering the
benets o relocating their operations
outside o the EU boundary. However, in
our opinion, those organisations that are
able to successully reduce emissions
(especially GHG) stand to gain a
signicant competitive advantage indistinguishing their services or both
clients and consumers.
2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 12
...a number o service
providers are considering
the benets o relocating
their operations outside othe EU boundary
Technology aids agility
Nowhere is the pace o change more
incessant than in the development and
deployment o new technologies. In
particular, IT applications that provideincreased visibility into orecasting,
inventory levels and supply chain risks
are being adopted into supply chain
organisations in an eort to manage
volatility and create greater fexibility in
the supply chain.
In the more developed markets o the EU
and US, the use o technology to enhance
automation and drive down labour costs
continues to gain traction, slightly less
so in developing countries where lowerwage costs reinorce traditional labour-
intensive methods.
But it is the technologies that are only
now emerging that oer some o the
greatest advantages to corporations
and service providers: mobile devices
and RFID tags hold the promise o
unprecedented insight into supply chain
optimisation; cloud computing extends
the value o shared services and
cooperative planning initiatives; some
pundits even suggest that 3D printing
will make oshore and small-batch
manuacturing a thing o the past.
Over the short-term, technology trends in
supply chain management will generally
ollow the commercial priorities o the
business, or example creating a
welcome market or RFID in countereit-prone industries such as the
Pharmaceuticals.
Many o the more mature supply chains
have recognised the opportunities o
updated technology and implemented
new supply chain sotware and ERP
systems. But as they amend and tweak
their operations, most are not realising
the ull value o their changes by
realigning their business plans
accordingly. And given that ERP businesscases are generally predicated on supply
chain savings, Supply Chain Directors
will no doubt benet rom paying close
attention to how their changes impact
their business case.
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 14
SECTION 6
Conclusion
There is no doubt that global supply
chains are in a state o fux. Massive
change and upheaval, increased risk and
new sustainability considerations have
coalesced to push supply chain high onto
the corporate boardroom agenda.
This survey and related analysis clearly
demonstrates that those organisations
with mature supply chain approaches are
inherently better suited to meet and
respond to these complexities and
challenges. And while a small number o
organisations have achieved advanced
maturity (particularly in the CPG sector),
others still have considerable work ahead
o them.
Underlying all o this data, however, three
main themes seemed to resonate across
the country:
The drive or more ecient andinterconnected supply chains has
exposed network operations tounexpected risks;
Many supply chains are incapable okeeping up with the pace o change
underway in the business world; and
Sustainability measures will orcechanges in operating models that will
bring additional complexity to the
supply chain.
So what is the right path to maturity?
The answer is unique to each organisation
and ully depends on where they are
today, and where their organisation
wants to be in the uture.
One thing is certain, however: supply
chain maturity is an ever-changing
destination. The pace o change is not
likely to slow any time soon and new
and unoreseen risks and considerations
will undoubtedly arise. Indeed, even as
organisations work to nalise their
supply chain plans, new challenges
and complexities will surely present
themselves. For supply chain leaders,
the need or fexibility is obvious.
That is why we believe it is critically
important to create and maintain a clear
and consistent benchmark o supply
chain maturity that can act as a guide
or industry participants by setting
milestones along the path to maturity.
By sharing our combined experience andinsight, we also hope to provide best
practices and share key insights to help
Supply Chain Directors and executives to
maximise the value o their supply chain.
On behal o KPMG LLP (UK), the
Chartered Institute o Logistics and
Transport, and Holman Fenwick Willan
LLP, we encourage you to leverage these
ndings within your organisation to
create robust supply chain strategies,
deliver fexibility into the organisation
and gain greater visibility into your
competitive position. We would also be
delighted to meet with you in person to
ascertain your current level o supply
chain maturity and begin the complex
task o charting your supply chain
strategy or the uture.
For more inormation, please contact any
o the authors listed on the back o this
publication, or your local KPMG member
rm oce.
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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15 | Supply Chain Survey
2011 KPMG LLP, a UK limited liabil ity partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
SECTION 7
Methodology
Between January 2010 and January 2011,
the supply chain proessionals at KPMG
in the UK conducted a series o in-person
interviews with Supply Chain Directors
(or their equivalent) at more than 50
companies across the UK.
Respondents represented a broad
cross-section o industries and
sectors including Consumer Packaged
Goods, Retail, Diversied Industries,
Logistics Providers, Utilities and
Telecommunications.
Participating organisations were rated or
their relative level o maturity across six
key supply chain areas:
Supply Chain Strategy;
Suppler Relationship Management
(SRM);
Working Capital and Inventory
Optimisation;
Logistics and Distribution;
Customer Relationship Management
(CRM); and
Supply Chain Perormance andFinancial Management.
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Supply Chain Survey | 16
In each case, responses were analysed
and categorised into our segments:
Advanced
Maturity Level Score (percent) Characteristics
75% - 100% > A ully integrated supply chain
> Strategic partnerships with suppliers and customers
> Collaborative stakeholder programmes
> Realisation o synergies such as integrated reporting and IT
Intermediate 50% - 74% > Cross-unctional supply chain integration
> Culture o continuous improvement ocused on improved efciencies and reduced waste
> Reduced data entry and duplication
Secondary 25% - 49% > Planning recognises the unctional interdependencies and impacts
> Operational perormance is monitored and reported
> Roles and responsibilities are clearly documented
Primary 0% - 24% > Supply chain outlook shaped within unctional silos
> Independent operations ocused on expediency
> Adversarial relationships internally and externally
Responses were aggregated and
compared across sectors to identiy key
issues and challenges that impact the
successul and ecient operations o
supply chain organisations across the
country. Analysis o the ndings was
conducted by supply chain proessionalsat KPMG LLP (UK), industry leaders at the
Chartered Institute o Logistics and
Transport, and international logistics
lawyers at Holman Fenwick Willan LLP.
The study is the rst o a regular series
ocused on creating a baseline o
maturity levels or supply chain
organisations. Future editions will include
progress reports and sector updates that
identiy trends and best practices across
the country.
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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2011 KPMG LLP, a UK limited liabil ity partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Across the responding sectors, the
Consumer Packaged Goods industry
clearly stands out as the sector leader
and is the only group with an advanced
maturity rating overall. O particular note
are high levels o maturity within the CPG
sector in the logistics and distribution
category as well as supplier relationship
management.
Matching the study average overall, the
Diversied Industries sector (comprising
o manuacturers, distributors and service
organisations) scores highly in CRM and
cost perormance measurement, but
given the relative degree o separationbetween this sector and the end-
consumer the Diversied Industries
group tends to lag behind the CPG group,
particularly in CRM, SRM and logistics.
Retail organisations tend to put higher
levels o attention on cost perormance
measurement and logistics. With an
almost single-minded ocus on
maintaining service levels (i.e. product
availability), retail respondents as a group
achieved weak scores in inventory and
working capital management, preerring
instead to put downward cost pressures
SECTION 8
Quantitative Analysis
20
30
40
50
60
70
80
90
Maximum Average Median Minimum
Utilities
Retail
Study Average
CPG
Logisitcs
DI
Supply Chain Maturity by Sector
Source: KPMG LLP (UK) 2011
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Supply Chain Survey | 18
on their CPG and logistics partners to
achieve lower costs and sustainable
availability. However, looking ahead,retailers expect to seek out new
opportunities or reducing stock on hand
such as leveraging Vendor Managed
Inventory approaches or having suppliers
hold critical stocks urther down the
supply chain.
And while Utilities returned the lowest
scores in all areas except Supply Chain
Strategy, this is largely refective o their
disproportionate ocus on security o
supply and saety considerations that
outweigh many o the benchmarks that
are central to supply chain maturity in
other sectors.
For logistics providers, however,
respondents across the board
overwhelmingly pointed to a massive
opportunity: 3PLs and 4PLs that are able
to live up to customer expectations
around innovation, service levels and
commerciality can gain signicant traction
in a market where clients are becoming
increasingly concerned about the gapbetween expectations and reality.
20
30
40
50
60
70
80
90
Supply Chain
Strategy
SRM Working
CapitalLogistics &
Distribution
CRM Performance
Management
Utilities
Retail
Study Average
CPG
Logisitcs
DI
Average Supply Chain Maturity score by category
Source: KPMG LLP (UK) 2011
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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19 | Supply Chain Survey
Category: Supply Chain Strategy
Utilities and CPG respondents tended
to score higher than the study average.
Specically, Utilities scored highly in CSR
and network design, while CPG achievedhigh scores in strategy and measurement.
It should be noted that while service
delivery is critical to both the utilities
tended to be governed by public service
considerations, whereas CPG companies
are largely motivated in this category by
commercial orces, namely trends and
consumer behaviour.
Category: Supplier Relationship
Management
CPG respondents take a signicant leadacross all SRM subcategories, particularly
in the management o their supplier base.
In large part, this is an outcome o their
need to work closely with their suppliers
to eectively deliver their retail customer
requirements. And while retailers
themselves are largely thought to enjoy
strong supplier relationships, our data
suggests that in the context o supply
chain maturity they trend well below
their counterparts in the CPG and
Logistics sectors. Indeed, retail
respondents saw the lowest scores
across the entire study group in the
collaboration and inormation sharing
subcategory.
Category:Working capital and
inventory management
Somewhat perplexingly, all sectors
reported a weaker ocus on working
capital and inventory management.While many UK organisations are actively
looking at their working capital across
their Accounts Payable, Receivables and
inventory unctions, additional ocus must
be placed on taking out the associated
logistics costs as well. However, CPG
and Logistics providers are particularly
ocused on achieving the right balance o
supply and demand in order to eectively
and quickly respond to changing customer
needs. And while the Retail and Utilities
sectors tended to see low maturity
scores in inventory management,
this is again related to their need to
hold enough buer stock to support
fuctuations in demand, and may fuctuate
as these sectors move towards Vendor
Managed Inventory.
Category: Logistics and Distribution
When it comes to the maturity o the
Logistics and Distribution unction, the
CPG and Logistics sectors once again
rise to the top. Almost all CPG survey
respondents demonstrated a strong
mix o in-house and outsourced logistics
unctions, which has allowed many CPG
organisations to retain overall
accountability and control o their supply
chain. And while this may leave much o
the legwork to their logistics service
providers, it is clear rom the data that
the Logistics sector has also achieved
advanced maturity in this category overall.
It is worth noting that given the
proclivity or the Utilities sector to ully
outsource their logistics unction most
Utilities respondents did not comment on
their maturity in this category and have
thereore been excluded.
Category: Customer Relationship
Management
Once again, the Logistics and CPG
sectors have demonstrated a high level
o customer relationship management
maturity that is indicative o an advanced
supply chain. However, or almost all
survey respondents across the board,
the creation and management o a CRM
strategy ranked ar higher than the actual
measurement o perormance. Above
average CRM maturity was also evident in
the Diversied Industries, refecting their
need to respond to customer demands
and trends.
2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 20
...cost visibility maturity
remained low across all
sectors, in contrast to the
reported condence in CRMcustomer protability...
Category: Perormance Management
and Reward
The Diversied Industries group reported
the highest level o maturity in the use o
supply chain cost visibility and cost toserve approaches. And while the CPG
respondents demonstrated a strong lead
in the maturity o their continuous
improvement and supply chain nancial
perormance measurement, cost visibility
maturity remained low across all sectors,
which stands in contrast to the reported
condence in CRM customer protability
and the actual cost visibility through the
respective supply chains.
2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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21 | Supply Chain Survey
SECTION 9
Participants
This study and related analysis is based on
the insight and experience o Supply
Chain Directors at many o the UKsleading organisations. The authors o this
study would like to recognise and thank all
o those who participated, including:
2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Fraser Maclean
Operations Director
AJG
Simon Rigby
Head o Supply Chain
Comet
Trevor Ashworth
Director o Supply Chain
Co-Op
Chris Lovatt
Supply Chain Director
EON
Paul Fitzpatrick
Supply Chain Manager
GDC Group Ltd
Dave Howorth
Supply Chain Director, UK & Ireland
General Mills UK
Keith Allison
Operations Director
Homedics
Nigel Reynolds
Head o Logistics and CommunitySupport
HSNCI
Peter Surtees
Director, European Supply Chain
Kimberly Clark
M&S Food
Oliver Burgess
Supply Director
MILA
Mark Whalley
Head o Distribution
Music Sales
Tony Borg
VP Supply Chain
Nestle Group
Ian Smith
Chie Executive Ofcer
Night Freight
Clare Davies
Head o Sales
Norbert Dentressangle
Simon Ranner
Supply Chain Director
One Stop
Richard Slater
Logistics and Development Director
Palmer & Harvey
Andrew Smith
Head o Procurement Vehicles,
Assets, Logistics
Royal Mail
Deepak Pandya
Supply Chain DirectorScotts Miracle Grow
Mars
Ian McLeod
Director Purchasing and Supply (Interim)
Severn Trent Water
Paul Burns
Supply Chain DirectorTarmac
John Burdett
VP Operations Planning
Tata Global Beverages
Jeremy Hawkins
Head o Operations
Treasury Wines EMA
Jonathan Downes, OBE
Supply Projects Director
UK Grocery, Associated British Foods
Colin Davis
Director o Supply Chain & Commercial
United Utilities
Dan Curran
Head o Supply Chain
World Duty Free
Jeremy Davidson
Deputy Managing Director
Yusen Logistics Europe
Muller UK
McDonalds
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2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Supply Chain Survey | 24
SECTION 10
About the Authors
About KPMG
KPMG LLP, a UK limited liability
partnership, is a subsidiary o KPMG
Europe LLP and operates rom 22
oces across the UK with nearly 11,000
partners and sta. The UK rm recorded
a turnover o 1.6 billion in the year ended
September 2010. KPMG is a global
network o proessional rms providing
Audit, Tax, and Advisory services. We
operate in 150 countries and have more
than 138,000 proessionals working in
member rms around the world. The
independent member rms o the KPMG
network are aliated with KPMG
International Cooperative (KPMG
International), a Swiss entity. KPMG
International provides no client services.
About The Chartered Institute o
Logistics and transport
The Chartered Institute o Logistics and
Transport in the UK CILT (UK) is an
independent proessional body or
individuals associated with logistics,
supply chains and all transport. It aims
to be the ocus or proessional
excellence and the development o
the most modern techniques in logistics
and transport and encourage the
adoption o policies, which are both
ecient and sustainable. Membership
o CILT is represented in more than 30
countries across the world. Its 33,000
members benet rom career enhancing
benets that save them time and money,
keep them inormed and ensure their
career development.
About Holman Fenwick Willan LLP
Holman Fenwick Willan is a global law
rm advising businesses engaged in
all aspects o international commerce.
With oces in Europe, the Middle East
and Asia Pacic, we have built a
reputation worldwide or excellence
and innovation and have ocused the
development o our capabilities and
the growth o our expertise in a limited
number o sectors, including logistics.
Our logistics team has in-depth
knowledge o the international
conventions applicable to ocean, road,
rail and air carriage and also o the
standard conditions commonly used to
govern logistics services. We specialise
in drating and negotiating best in class
agreements or the procurement and
provision o logistics services, as well as
advising on the ull range o corporate/M&A transactions and handling all
manner o insured and commercial
disputes arising out o logistics
operations, including supply chain
risk management.
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Contact us
Julian Thomas
Partner, Global Head o Supply Chain
KPMG LLP
+ 44 (0) 20 7694 3401
Andrew Underwood
Partner, UK Head o Supply Chain
KPMG LLP (UK)
+44 (0) 121 232 [email protected]
Iain Prince
Director, Supply Chain
KPMG LLP (UK)
+44 (0) 117 905 4257
Barbara Anderson
Senior Manager, Supply Chain
KPMG LLP (UK)
+44 (0) 20 7694 3314
www.kpmg.co.uk
The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual
or entity. Although we endeavour to provide accurate and timely inormation, there can be no guarantee that such inormationis accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation
without appropriate proessional advice ater a thorough examination o the particular situation.
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