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Copyright © 2008 Accenture All Rights Reserved. Changing the Game with Your Customers – A Supply Chain Strategy in Action ECR Asia Pacific Conference 2008, Thailand Jeffrey Russell, Accenture / Metta Siramongkholkarn, L’Oreal
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2 Copyright © 2008 Accenture All Rights Reserved. - Every Day Great Execution - Getting the basics right in terms of people process, systems, organisation and data. Cost optimisation through rationalisation of the cost base - Performance Optimization - Focus on service levels by raising the performance bar, fine-tuning the overall model and collaboration with the extended supply chain. - Game Changing Supply Chain - Supply chain differentiation based on customer / consumer behaviour and value to drive top- line growth Supply Chain Performance Journey Value In order to drive Consumer Products companies performance to the next level, many are adopting a ‘Game Changing Supply Chain’ strategy
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3 Copyright © 2008 Accenture All Rights Reserved. Effective supply chain strategies form the basis of competitive advantage and increase shareholder value Developing differentiated channel value propositions Improving the ability to meet customer needs and buying behaviour Reducing total cost to serve as the level of service provided is varied between channel segments Aligning operations and sales and marketing in the way they treat customers Enabling the organisation to structure resources around segments, e.g. options to outsource customer service activities for selected segments vs retain in-house
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4 Copyright © 2008 Accenture All Rights Reserved. Typical benefits achieved in FMCG companies through customer aligned supply chains
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5 Copyright © 2008 Accenture All Rights Reserved. Historically, FMCG companies have developed a ‘one size fits all’ supply chain that is designed to achieve cost efficiency Market Segmentation Supply Chain 1.0 Supply Replenishment Strategies Supply Sourcing Options Network Optimisation Product Segmentation & Portfolio Management Fulfilment Operations Customer Segmentation Demand Profiling & Forecasting Strategy Supply Chain Strategy Supply Alignment Demand Generation Foundation Cost to serve Sales & Operations Planning Performance Metrics Leadership Behaviours Culture Capabilities -Process -Organisation -Talent -Technology PLM Risk Management -- Accenture’s SC Customer Alignment Framework --
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6 Copyright © 2008 Accenture All Rights Reserved. Accenture’s Customer Alignment Framework provides the structure and rigor to design ‘fit for purpose’ supply chains for differentiated customer/product segments Supply Chain 2.0 Supply Chain 3 Product Segmentation + Portfolio Management Market Segmentation Customer Segmentation Demand Profiling & Forecasting Supply Replenishment Strategies Supply Sourcing Options Network Optimisation Fulfilment Operations Supply Chain 2 Product Segmentation + Portfolio Management Market Segmentation Customer Segmentation Demand Profiling & Forecasting Supply Replenishment Strategies Supply Sourcing Options Network Optimisation Fulfilment Operations Strategy Foundation Supply Chain Strategy Supply Alignment Demand Generation Business Strategy Supply Chain 1 Market Segmentation Product Segmentation & Portfolio Management Customer Segmentation Demand Profiling & Forecasting Supply Replenishment Strategies Supply Sourcing Options Network Optimisation Fulfilment Operations Cost to serve Sales & Operations Planning Performance Metrics Leadership Behaviours Culture Capabilities -Process -Organisation -Talent -Technology PLM Risk Management Supply Chain 1.0
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7 Example Supply Chain Re-design “fit for purpose” Copyright © 2008 Accenture All Rights Reserved. SC Manager Customer Care Sourcing / Procurement Physical distribution Segment 1 Segment 2 Segment 3 Segment 1 Segment 2 Segment 3 Segment 1 Segment 2 Segment 3 SC Manager Segment 1 SC Manager Segment 2 SC Manager Segment 3 Customer Care Sourcing / Procurement Physical distribution Customer Care Sourcing / Procurement Physical distribution Customer Care Sourcing / Procurement Physical distribution Challenges : - multi-skills Supply Chain Managers - Limit increase of headcounts 6 – 12 Months
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8 Benefits after 1 Year Copyright © 2008 Accenture All Rights Reserved. Privileged Relation 1 Point of contact between Supply Chain manager (supplier / retailer) 100% focus on Service level : Gain 10% in average over 12 months Tailor-made Service (especially for Mass Market retailers) Team/talent development : Create succession Plan
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9 Copyright © 2008 Accenture All Rights Reserved. Different supply chain models are more appropriate depending on the demand predictability and the nature of the customer relationship Tight Loose Customer Relationship HighLowDemand Predictability Segment 1 Segment 2 Segment 3 Segment 4 Lean Agile Transactional ‘Base Model’ Flexible Collaborative Agile Joint Planning
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10 Copyright © 2008 Accenture All Rights Reserved. Potential service offerings for strategic customer group Potential service offerings to Customer Group: Tier 1 strategic importance Low relative demand variability Demanding behaviour Trade terms Efficient Assortment / Ranging Growth Incentives Product Discount - case deals Checkout Display Promotional DisplayFulfilment Weekend deliveries Advance shipment notification Backhaul Ex factory gate / NDC Cross docking Direct store delivery Drop trailer Operational Integration Category Management Cash Management Standard (prompt) payment Accelerated payment Electronic payment Order to Cash Web ordering Field sales call Phone / fax EDI Weekend ordering Short lead time EDI invoice EFT e-PODCRM Nominated logistics contact
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11 Copyright © 2008 Accenture All Rights Reserved. Differentiation between the stable and variable components of demand is a key step to determine fulfillment setup – managing volumes differently balances service levels and cost to serve Fulfil through a ‘lean’ supply chain configuration: Maximum capacity Lowest cost Long lead time Identify what parts of the business are variable and truly complex: Variable demand Promotions Premium products Low visibility customers Fulfil through a more flexible supply chain: Local sourcing and / or finishing Short lead times Variable configurations - Demand Types -- Fulfilment setup - Identify what parts of the business can be treated as fundamentally stable: Stable, predictable demand Commoditised or mass market products Collaborative customers Stable = 59% = 41% Stable (60%) Variable (40%) Customer C1 Indicative stable / variable split Customer C1 Indicative SC alignment
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12 Copyright © 2008 Accenture All Rights Reserved. - Every Day Great Execution - Getting the basics right in terms of people process, systems, organisation and data. Cost optimisation through rationalisation of the cost base - Performance Optimization - Focus on service levels by raising the performance bar, fine-tuning the overall model and collaboration with the extended supply chain. - Game Changing Supply Chain - Supply chain differentiation based on customer / consumer behaviour and value to drive top- line growth Supply Chain Performance Journey Value So in summary, consumer goods companies need to change the game while continuing to deliver everyday execution
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