performance through fulfillment mastery

8/9/2019 Performance Through Fulfillment Mastery

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High Performance through Fulfillment

Accenture Research and Insights intoFulfillment Mastery


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ContentsIntroduction

The Gap between the Masters and the Restin Fulfillment Performance

The Capabilities of the Fulfillment Masters

Operational Excellence: How MastersOut-execute the Laggards

On the Journey to High Performance

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05

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Introduction

In a world in which customers

literally can change suppliers at theclick of a mouse, the ability to fill

orders reliably and efficientlyon-

time, at the right place, with the

right merchandise and at efficient

costhas become a hallmark of high-

performance businesses. In short,

superior fulfillment operations count

more than ever.

Yet despite steady advancements

in the technology for capturing and

tracking orders, companies face

increasing business challenges as well

as opportunities. In todays multi-

polar world with numerous centers

of economic might and increasing

volatility, fulfillment capability is

critical to success.

The globalization of supply and

demand.On the demand side,

companies have been relentlessly

seeking new markets for growth, as

well as new sources of talent to help

generate it: innovation, marketing,

sales and so on. At the same time,

these companies have been searching

on the supply side for lower-cost

sources of materials, labor andmanufacturing. Today, the content

of many products has traveled over

numerous independent and far-flung

paths: sourced in multiple locations

around the world, manufactured in

several others, sometimes assembled

in other locales and warehoused

in numerous distribution centers.

While companies with such globally

interconnected supply chains can

efficiently supply the world, the side

effect is a substantial increase in lead

times and transportation costs.

Major fluctuations in key supply

chain cost drivers. The past few

years have seen major fluctuations

in critical supply chain costs: crude

oil prices (a record 27 percent plunge

in the United States in November

2008 alone1), prices of other key

commodities, interest rates (and thus

inventory costs), shipping charges(boat, rail, plane and truck) and

currency valuations, to name a few.

Supply chain forecasting has become a

hazardous game that has reaped havoc

on cost and asset management.

Overall economic volatility. The

global economy has gone from boom

to bust in just two short years.

When will it boom again? Or at a

minimum, when will the bust be over?

Leading economists are not at all in

unison on the economic outlook. A

highly uncertain economy, likely to

operate in fits and starts in 2009, will

place great pressure on companies

to maintain a vice-grip on costs.Forecasting demand and staging

inventory with any level of accuracy

is now an arduous taskeven for the

most adept of supply chain planners.

Escalating customer demands.

Heightened service expectations

and ever-increasing preferences for

customized products and delivery

options have made filling orders more

complex. Not only must the order

have the right quantity of items for

customer X, increasingly customer Xs

items must be configured expressly for

its purposes. Furthermore, declining


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Figure 1. Survey participant demographics

product life cycles and time-to-

market cycles for new products mean

many more products are flowing

through a companys supply chain.

Thus, the chances for disappointing

customers have risen exponentially in

many industries.

Rising pressures for sustainable

business practices. Considered a fringe

movement just a decade ago, the

need for sustainability is now firmly

entrenched and companies can no

longer ignore the activists. This is

in part because many of the activists

are huge customers such as Wal-Mart,

which have seen the light on how

becoming environmentally friendly also

can reduce costs and increase profits.2

The job of reducing a companysnegative environmental impact falls

disproportionately on the supply chain,

especially in how an organization

structures its transportation and

distribution operations.

These forces now make it imperative

for companies to build dynamic

fulfillment capabilitiesones that

enable them to react rapidly to

marketplace changes. Companies

that are first to do so will capture

substantial emerging opportunities and

pull away from the competition.

But what capabilities make a

companys fulfillment operations such

a machine for high performance? And

if a company is able to build such a

capability, what impact can it have on

its performance? In short, is the gain

worth the pain? To answer these and a

number of related questions, Accenture

conducted an extensive survey of 240

major companies around the world in

the second half of 2008 (see Figure 1).Each company answered 70 questions

that explored:

By Geography By Industry By 2007 Revenue

Their fulfillment performance.

The key metrics they used to gauge

that performance.

The maturity of their fulfillment

practices and capabilities.

The rest of this report explores

the key findings from thiscomprehensive survey.


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Figure 2. Maturity of practices and capabilities in key areas are strongly

correlated to superior planning performance

5

We would call the fulfillment

performance of companies across the

industries we surveyed as good but not

great. Survey respondents received a

median 90 percent of orders from their

suppliers on time and in full. In turn,

respondents performance with their

customers was better. They delivered

95 percent of their customers orders

in full and on time, and their days of

supply of finished goods inventory was

a median 15 days.

To be sure, that performance is

admirable. But it trails the 98 percent

OTIF performance of a select number of

companies that we studied. In addition,

the best companies in fulfillment had

50 percent less inventory. All this

suggests the majority have substantial

opportunities for further improvement.

What is holding back the majority

of the 240 companies we surveyedfrom having outstanding fulfillment

performance? By assessing the maturity

of their fulfillment processes, our survey

found a clear cause: While having some

strong competencies, these companies

needed to continue improving a number

of key fulfillment capabilities. Our

survey probed seven core dimensions

of fulfillment strategy and operational

capabilities. We found overall

fulfillment practices fell short of whatthe best companies had achieved. And,

often flexibility was achieved through

manual meansmeaning, lots of phone

calls, faxes, e-mails and other episodes

in which people had to interveneand

on an inconsistent basis.

Such practices were especially evident

at companies operating multiple

distribution channels (the majority of

our respondents). While companies

designed channels for specific customeror product needs, they often fell short

in measuring performance across

multiple supply chains or managing the

network complexity they created. For

instance, most respondents evaluated

material flows infrequently or on ad hoc

basis, and they typically looked at only

isolated portions of those flows.

So at companies that want to take their

fulfillment performance to the next

level, where should managers start?

Which practices and capabilities are

most essential to achieving superior

fulfillment performance? Our researchfindings provide some guidance. To

better understand what leads to

great performance, we compared

survey respondents with top-quartile

performance in cost and customer

service measures to respondents in the

bottom quartile on these metrics. We

refer to top-quartile respondents as the

fulfillment masters and the bottom-

quartile companies as the fulfillment

laggards. We found substantial

differences in their fulfillment efficiency

and effectiveness:

Cost effectiveness measured by

outbound transportation cost, total

transportation costs or total supply

chain costs. Masters median outbound

transportation cost was 2 percent

of total revenue versus laggards 16

percenta 14 point cost advantage.

(The median outbound transportation

cost for all survey respondents was 5

percent of revenue.) Overall, masters

had a 35 percent total supply chain cost

advantage over laggards.

Customer servicemeasured by

on-time, in-full deliveries to customers

across all product lines. In delivering

on-time, in full-orders, masters reported

a median of 98 percent versus 85

percent for the laggards. (The median

OTIF for all 240 respondents was 95

percent.) Suppliers clearly helped the

masters achieve their stellar OTIF rate;

the median OTIF for orders received from

suppliers was 95 percent for masters

versus 82 percent for the laggards.

The masters and the laggards were

distinctly different in their fulfillment

capabilities and performance

(see Figure 2).

The Gap between the Masters and the

Rest in Fulfillment Performance


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Masters demonstrated high levels of

maturity and advanced capabilitiesin every element of fulfillmentfrom

fulfillment strategy (that is, the way

they design and adjust their fulfillment

operations) through operational

excellence (how well they execute

the strategy) and technology (how

effectively they use IT to improve

operations). In comparing masters

and the rest of the survey population

(including the laggards), the biggest

differences in capability maturity

were in fulfillment strategy, inventorymanagement and integrating

technology and data. We explore

in more detail the key differences

between the masters and laggards.

The Capabilities of the Fulfillment Masters

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Figure 3. Masters were more likely to regularly evaluate

the tradeoff between cost to serve and value achieved

Figure 4. Masters are routinely involved in the

R&D process

Fulfillment Strategy: How

Masters Create DynamicFulfillment Operations

One of the key distinctions between

leaders and laggards at fulfillment

was the ability to build dynamic and

responsive supply chainsthat is, ones

that could be adjusted rapidly to meet

changing market conditions (customer

demands, competitive moves, changes

in supplier base, changes in fuel,

interest rates, and other costs of

doing business). Masters designtheir supply chains by continuously

reassessing cost and service factors,

adjusting their fulfillment methods

(especially in capitalizing on

established technology),regularly

reviewing their channels to

customers, being highly selective in

their choice of supply chain partners

(3PLs, etc.) and actively modeling and

managing their carbon footprint.

Masters were much more likely todesign their distribution channels to

meet specific customer needs and

product characteristics than were

the laggards. Some 70 percent of the

masters designed their channels this

way versus only 30 percent of thelaggards. At the same time, masters

were better at managing the cost and

service of each channel. The majority

of the masters regularly measure

and monitor their cost to serve in

each channel; only the minority of

the laggards did so. Further, half of

the masters regularly evaluate the

tradeoff between cost to serve and

value achieved, compared with only

one-third of the laggards (see Figure

3). In addition, masters were routinelyinvolved in the R&D process to

ensure efficiencies, constraints and

available value-adding activities were

incorporated into product design

(see Figure 4).


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An effective fulfillment strategy is

also one that changes rapidly to meetshifting market conditions. In this

area, the masters outperformed the

laggards as well. Masters rigorously

evaluate their distribution networks

more frequently than quarterlyboth

inbound and outbound product flows

to be in sync with changing market

and geographical demand. These

companies comprehensively review all

the elements of fulfillment.

On their inbound flows, masters payspecial attention to the capabilities of

transportation providers and supplier

locations. As part of their inbound flow

analysis, every one of the masters we

surveyed reviews both transportation

firm capability and supplier locations.

In comparison, less than half of the

laggards evaluate supplier locations,

and only 40 percent scrutinize

transportation providers. Masters

are also more active in monitoring

their inbound flows. Some 43 percentevaluate such flows more than once

a quarter; only 13 percent of the

laggards review them as frequently.

Figure 5. How Masters and Laggards evaluate inbound and outbound flows

Masters furthermore are more rigorous

than laggards in monitoring keyelements of the outbound flow. Some

43 percent of the masters evaluate

outbound flows more than once

every three months, compared with

only 29 percent of the laggards. And,

100 percent of the masters evaluate

customer locations when analyzing

their outbound flow, which was the

case with only half the laggards

(see Figure 5).

The case of a major elevatormanufacturer illustrates the payoff

from possessing sophisticated

capabilities in fulfillment strategy.

To improve operating margins, the

companys North American division

moved US production to Mexico,

which forced a reassessment of its US

distribution network. After evaluating

the network, the company designed a

new supply chain that achieved high

performance at a competitive cost.

The new fulfillment operation cut thecompanys transportation costs alone

by 13 percent, or more than $2 million.

And the company achieved total

fulfillment savings of nearly $5 million

while also doubling the fulfillmentservice levels.

Our survey also found masters were

more likely to use third-party logistics

firms, which increases the flexibility of

their supply chains. Some 80 percent

said their 3PLs boosted flexibility,

while a lower percentage of the

laggards63 percentsaid the same.

Masters were also far more likely to

extensively integrate data with supply

chain partners. Half of them reportedextensive data integration versus only

19 percent of the laggards.


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Operational Excellence: How Masters

Out-execute the Laggards

The masters not only were superior

at fulfillment strategy; they were farbetter than the laggards at executing

their strategy: in capturing customer

orders, managing inventory, operating

their warehouse and distribution

centers, managing reverse logistics,

integrating technology and data

internally and externally, and

measuring supply chain performance

and responding to issues.

Order Capture

In capturing orders, masters have

better visibility into warehouse

inventory and production scheduling

processesreal-time data that provides

a far more precise and accurate

snapshot on current conditions. The

majority of the masters had real-

time data on incoming shipments

and production scheduling, while

only the minority of the laggards

could claim likewise (see Figure 6).

With up-to-the-minute data on

stock levels (including what has

been committed to orders), these

companies are better at production

scheduling and planning future

manufacturing runs. Masters were

also more likely to have data on

inventory availability at their

warehouses; 87 percent had it versus

only 67 percent of the laggards.

(Note: masters and laggards did not

differ significantly in possessing

data on allocated inventory andlead times.) Superior visibility on

warehouse inventory and shipments

improves inventory allocation.

Masters real-time tracking of

inventory in transit allows them

to make the right changes inproduction plans.

Masters were far more likely to use

advanced planning options when

capturing orders (see Figure 7).

About three-quarters integrated

order allocation with production

scheduling versus only 42 percent

of the laggards. The leaders at

fulfillment were more likely to

change their production plans

based on real-time data from orderallocations. And, masters more

often allocate inventory at the last

possible moment, meaning they can

direct inventory more accurately based

on recent demand patterns. Masters

furthermore are better at balancing

customer service levels with safety

stocks, a key tradeoff in determining

replenishment strategy. Two-thirds

of the masters said they balance this

tradeoff, which was more than twice

the percentage of laggards.


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Masters are slightly better than

laggards at having critical informationwhen capturing orders. They process

orders having data available on raw

materials, order optimization, product

promotion activities and cross-selling

opportunities. The main factors that

influence the masters order-capture

decisions are availability of raw

materials, cost and lead times. Some 20

percent of masters and 15 percent of

laggards said their orders were based

on these three items. And at the time

they take an order, 36 percent of themasters and 29 percent of the laggards

can see promotional data and inventory

availability on the items customers

want to purchase. That enables them to

ensure customers have the most recent

prices and more accurate information

on delivery, which are crucial to

maintaining customer satisfaction.

In addition to having access to such

data when capturing customer orders,

a higher percentage of masters (albeitstill a small share) have their orderingsystems extensively integrated withother major enterprise systems in

their organizations. In our survey,

27 percent of the masters said their

order management systems werefully integrated with other corporate

systems, which was the case with only

18 percent of the laggards. Companies

that integrate their order-processing

systems this way can boost fulfillment

significantly. For example, a major

telecommunications company wanted

to change its manually intensive

order-acquisition system, integrating

it with other systems to increase the

volume of orders it can access, reduce

the number of problem orders (forexample, order-entry errors), cut order

processing costs and improve data

reporting and analysis. The company

built an integrated order-management

system that receives orders directly

from an online portal. Today, the

systemnot peoplequalifies and

processes each online order, which

saves considerable time and labor. But

the new system does more. Because

it is integrated with the companyscustomer relationship management

system, sales and marketing now get

detailed, up-to-the-minute data on

which customers are buying which

products. In addition, the systems links

to the companys service assurancesystem enables management to flag

troubled orders instantly. And finally,

the new ordering systems link to the

companys billing system eliminates

one more throw-it-over-the-wall

procedure, which means invoices go

out faster and more accurately and the

company gets paid faster. All of this

has reduced end-to-end order-cycle

times and boosted order accuracy. That,

in turn, has increased order volume

while at the same time cutting order-processing costs.

Figure 6. Data available at order capture

Figure 7. Masters were far more likely to use advanced

planning options when capturing orders


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Inventory Management

Inventory management capabilities

of masters and laggards differ

considerably. Unlike laggards, masters

build flexibility into each stage of the

extended supply chain. That enables

them to optimize inventory across the

entire chain. As a result, they operate

with 50 percent less inventory across

their supply chain.

Masters are far more likely than

laggards to continually evaluatetheir inventory levels against orders;

87 percent of masters did so versus

56 percent of the laggards. Masters

are also far much more likely to

structure contracts with transportation

providers to respond rapidly to

spikes in demand. Nearly two-thirds

(62 percent) of masters negotiated

mean-to-peak capacity flexibility

in their transportation contracts; in

contrast, only about one-quarter (26

percent) of the laggards did so. By

having access to transport capacity

at a prenegotiated rate and lead time,

masters can control fulfillment costs.

Warehouse and Transport

Operations

The ability to take highly efficient

approaches to managing warehouses

and transportation for getting goods

in and out of them is another hallmark

of companies that have mastered

fulfillment. Masters have flexible

networks of warehouses and transport

operations. Making these networks

perform are centralized transport

planning and the software that enables

it. A slightly higher percentage ofmasters (80 percent) use warehouse

management systems (WMS) than do

laggards (70 percent). WMS and hand-

scanning technology drive warehouse

and transport efficiency. Masters do

not go overboard with technology; they

adopt proven technologies and apply

them selectively to areas of greatest

return in their fulfillment operations.

Masters were three times more

likely than laggards (33 percent

compared to 11 percent) to have

a centralized international team

conduct transportation planning,

Figure 8. Use of postponement strategies and

make-to-order

This also helps them maintain high

service levels during times of highdemand. By also using postponement

in inventory management to a greater

degree than laggards, masters are

able to control inventory costs and

maintain a dynamic supply chain by

being predominantly a make-to-

order operation (see Figure 8).

Our survey revealed masters were on

par with the rest of the companies in

the extent to which they have visibility

into their own inventory. And, mastersand laggards were no different in

having data on finished goods and

in-transit inventories. However,

nearly half the masters had inventory

visibility for the extended supply

chainthat is, into the inventories

of the suppliers and customers. Only

about one- third of the laggards could

say the same (see Figure 9). Thus,

when it comes to managing inventory,

it would be fair to say that mastershad a better view of the big picture.

10

Figure 9. Visibility to inventory information

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rather than have it done at a

continental/regional or country level.Why? Planning transportation at a

global level enables a company to

leverage larger purchasing discounts,

standardize contracts, create common

transportation processes and systems,

reduce headcount and coordinate

intercountry distribution. All of these

elements reduce costs by improving the

utilization and efficiency of transport

operations. In addition, planning

transportation at an international

level requires using transportation

management systems or to work with

providers that have TMS and strong

data integration capabilities.

Another area separating masters and

laggards in fulfillment performance

was the ability to reroute during

shipment. A much higher percentage

of masters than laggards (63 percent

versus 38 percent) could manually

reroute transport while a product wasin shipment.

Reverse Logistics

Reverse logistics is another area

in which masters are more likely

to excel. More than twice as many

masters (77 percent) feed product

return data to their companies

product development function

than do laggards (only 32 percent).

Having detailed information on

why customers are rejecting their

purchases is crucial to companies

that want to rapidly fix faulty product

designs and manufacturing processes.Masters appear to place more

emphasis on getting unvarnished

information on their product returns.

More than twice as many masters

manage returns in house than do

laggards (see Figure 10).

Technology and Data

IntegrationThe aggressive use of established

technology to integrate fulfillment

processes and systems is another

capability that separates masters

and laggards in fulfillment. Nearly

half (43 percent) of the masters said

the fulfillment systems were fully

integrated versus a scant 4 percent of

the laggards. Why are masters much

more technology savvy in fulfillment?

They are much more likely to usein-depth business cases to justify IT

investments. Furthermore, they were

much more likely to track the return

on that investment (71 percent of the

masters monitor the return on their

IT spending versus just 45 percent of

the laggards). Its not that masters

spend more on IT in fulfillment; in

fact, on average they spend less than

laggards. Its that they are much

more likely to know whatand what

notto automate.

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Ability to Measure and

RespondFinally, masters differ from laggards

in their ability to measure the health

of fulfillment operations (costs,

cycle times, customer complaints,

etc.) and respond to performance

problems. Some 80 percent of

masters use information technology

to proactively reschedule activities;

only 59 percent of the laggards do

this. A slightly higher percentage of

masters (83 percent versus 75 percentof laggards) reduced operating costs

by gathering and analyzing real-time

data, while 71 percent of the masters

said such data helped them cut labor

(versus 62 percent of the laggards).

The sophisticated collection and

use of data generated by fulfillment

operations is a major reason why

masters have a 35 percent total

supply chain cost advantage over the

laggards. Such data provides real-time

visibility into warehouse inventory

and production scheduling. Masters

have operational visibility across

their supply chain through extensive

track and trace, and they are better

at leveraging their data to reducevariable costs.

Increasingly, many companies are

measuring their energy costs, a

huge component of total supply

chain expenses. A leading postal

service company needed to cut

energy consumption by an order of

magnitude. But it needed a solution

that provided results that could be

measured and verified. The company

conducted holistic facility controlanalysis and implemented changes

to optimize energy use. It also

instituted automatic fault detection

and diagnostics systems, including

condition-based and preventive

maintenance. This capability enabled

the company to sense equipment

failures and trigger an appropriate

response, cutting down significantly

on the need for reprocessing and

its associated energy consumption.The result: a 30 percent reduction

in energy use and reduced

carbon footprint. The companys

comprehensive energy management

system has had a quick payback. Asimportant, it has reduced the amount

of business disruption that the old

processes induced.

Figure 10. Reverse logistics practices of masters versus laggards


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Through our research on high

performance and our client work,

Accenture has found that fulfillmentmasters excel in creating and

managing a highly flexible supply

chain. Such a supply chain allows

them to differentiate themselves

competitively and react quickly

and appropriately to the volatile

environment. These companies possess

five overarching fulfillment traits:

They design their distribution

channels to accommodate varying

customer needs and productcharacteristics.

They regularly and rigorously

evaluate their networks of inbound and

outbound flows to respond to changes

in market and geographical demand.

They have flexible networks with

centralized, international transport

planning.They use established technology to

enable their operations and emphasize

systems integration.

They use real-time fulfillment

information to proactively maintain

customer service.

Companies that demonstrate these

traits achieve significantly lower

cost and better service than their

competitors. They do so by buildingdistinctive capabilities within

fulfillment strategy, order capture,

inventory management, warehousing

and transport and returns. They

enable these processes with real-time

data, appropriate technology and

measurement.

On the Journey to High Performance

In short, in todays volatile global

economy, masters possess the flexible

and responsive fulfillment capabilitiesthat have become critical to creating

a high-performance business in the

emerging multi-polar world.

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1 Trade Deficit Narrows Amid

Restrained Demand, J. Bater, The WallStreet Journal, January 13, 2009.

2Wal-Marts Environmental ReportCard, Claudia Deutsch, The New YorkTimes, November 16, 2007.

Special acknowledgement and

thanks are due to followingpeople for the effort and timethey invested in the preparationof this report: Jonathan Wright,Rup Banerjee, John Calder, BrooksBentz, Mike Engoian, Fred Hajjar,Ruchir Gupta, Varadaraj Shanbhag,Derek Jones, Scott Egler.

Notes

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Contacts

Jonathan Wright

Mike Engoian

Chris Coldrick

Ron Ash

Fred Hajjar

Sergio Nogueira

Jacobo de Silva

Iain Prince

Matthew Pyne

Brooks Bentz

Bill Frey

London, United [email protected]

Cleveland, United States

[email protected]

Sydney, Australia

[email protected]

Cleveland, United [email protected]

Boston, United States

[email protected]

London, United Kingdom

[email protected]

Madrid, [email protected]

Manchester, United Kingdom

[email protected]

Boston, United States

[email protected]

Boston, United [email protected]

Cleveland, United States

[email protected]

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Copyright 2009 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered

are trademarks of Accenture.

About Accenture Supply Chain ManagementAbout AccentureThe Accenture Supply Chain

Management service line works

with clients across a broad range of

industries to develop and execute

operational strategies that enable

profitable growth in new and existingmarkets. Committed to helping clients

achieve high performance through

supply chain mastery, we combine

global industry expertise and skills in

supply chain strategy, sourcing and

procurement, supply chain planning,

manufacturing and design, fulfillment,

and service management to help

organizations transform their supply

chain capabilities.

Accenture is a global management

consulting, technology services

and outsourcing company.

Combining unparalleled experience,

comprehensive capabilities across

all industries and business functions,and extensive research on the worlds

most successful companies, Accenture

collaborates with clients to help them

become high-performance businesses

and governments. With more than

181,000 people serving clients in over

120 countries, the company generated

net revenues of US$23.39 billion for

the fiscal year ended Aug. 31, 2008.

Its home page is www.accenture.com.

We collaborate with clients to

implement innovative consulting

and outsourcing solutions that align

operating models to support business

strategies, optimize global operations,

enable profitable product launches,and enhance the skills and capabilities

of the supply chain workforce.

For more information, visit

www.accenture.com/supplychain.

performance through fulfillment mastery

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