Supply Chain Trends presentation by GRA Supply Chain Consultants www.gra.net.au by Bec Manjra

Supply Chain Trends

From Cost Centre to Competitive Advantage By Shanaka Jayasinghe

2014 Real People. Real World. Real Results.

Find out more about Supply Chain Management at

www.gra.net.au

What are we going to talk about today? •

Supply Chain Trends – – – – –

How is the supply chain changing? Why is it changing? Is it for the better or worse? What can business do in response to these changes?

“Don’t focus on the change, respond to it, whilst focusing on the fundamental objective.”

The Right Rule

•

As long as the Earth keeps spinning, this rule will exist.

Key Message

“Don’t focus on the change, respond to it whilst focusing on the fundamental objective.”

A key trend to set the sceneâ&#x20AC;Ś

The Impact of the Internet on the Supply Chain The internet is a magnificent innovation. It has; • Given the public a voice • Provided access to knowledge and information • Given us email, Facebook, YouTube and Twitter • Built communities

This is what 4.2 billion IP addresses looks like.

The Impact of the Internet on the Supply Chain

Threat of New Entrants

Bargaining Power of Australian Suppliers

Competition

Threat of Substitution

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Bargaining Power of Customers

The Impact of the Internet on the Supply Chain • •

Provides access to new & broader customer channels Reduces requirement for a sales force

Threat of New Entrants

Bargaining Power of Australian Suppliers

Competition

Threat of Substitution

• Dick Smith had a saying, find a competitor, set up shop next door to them and then beat them at their own game. In the process, you take away their customers. Online business is seriously competitive in this regard. You have hundreds if not thousands of next door competitors.

Bargaining Power of Customers

The Impact of the Internet on the Supply Chain

•

Kogan is a new entrant to the online consumer electronics scene, founded in 2006 is now Australia’s biggest online.

•

Revenue = $3million in 2009 and in 2014 is projected to make in upwards of $350million.

The Impact of the Internet on the Supply Chain

Threat of New Entrants

Bargaining Power of Australian Suppliers

Bargaining Power of Customers

Competition

Customers because of the internet now have more flexibility in;

Threat of Substitution

• • • •

shopping hours choice of range visibility on price shorter lead times

The demands on lead times are in some instances unimaginable. Same and next day delivery now is the norm!

The Impact of the Internet on the Supply Chain

CAPABILITY DIFFERENTIATION

CUSTOMER EXPECTATIONS

NEXT INNOVATION

The Impact of the Internet on the Supply Chain

â&#x20AC;˘ Amazon Prime Air drones, the goal of this new delivery system is to get packages into customers' hands in 30 minutes or less using unmanned aerial vehicles.

1. Imagine you order a tool online 2. It immediately sends this information to the nearest distribution centre 3. It is picked in minutes 4. And then it attached itself to this alien like creature which flies this to your doorstep within 30minutes

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The Impact of the Internet on the Supply Chain

Threat of New Entrants

Bargaining Power of Australian Suppliers

Bargaining Power of Customers

Competition

•

By making the overall industry more efﬁcient, the Internet has expanded the size of the markets.

•

Companies have responded by diversifying product ranges, creating new substitution threats.

Threat of Substitution

The Impact of the Internet on the Supply Chain

An explosion of Products has by definition resulted in an increase in available substitute products

â&#x20AC;˘ From milk to the automotive industry we are seeing this. The impact on the supply chain is an explosion in SKU counts over the last decade.

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The Impact of the Internet on the Supply Chain

Reduced barriers to entry

Threat of New Entrants

Introduced new procurement channels Increased customer expectations

Bargaining Power of Australian Suppliers

•

To add to all this, the internet has added additional channels to procurement, this is particularly worrying for wholesaler suppliers as it provides greater access to “leapfrog” these suppliers and go direct to source manufacturing.

Competition

Increased product ranges

Threat of Substitution

Bargaining Power of Customers

The Impact of the Internet on the Supply Chain •

Private label is a form of vertical integration which allows for higher profit margins.

Private label is a major threat to local suppliers. • COLES, in 2012 it drew approximately 20% of its sales from private label products. Industry estimates private label products will account for 40% of the market in five years.

What can we take away from all of this?

1 Competition

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So what happens? •

What happens when there is more competition? To stay in the game, you need to get better!

•

Supply Chains become more complex and CEO’s and CFO’s respond to this complexity by placing greater focus on the supply chain today than ever before.

Competition

Supply Chains become more complex

Supply Chains adapt and become more complex Take a basic supermarket supply chain to begin withâ&#x20AC;Ś

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Supply Chains adapt and become more complex

Globalisation • increasing the lead times of certain products • operating in various currencies • complex procurement process

Supply Chains adapt and become more complex

Globalisation

Channel Diversification • greater access to markets, • lead time variability

Supply Chains adapt and become more complex Becomes a very complex system! Globalisation

Channel Diversification Increasing Customer Expectations

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Complexity does not change to goal… No matter what the trend or change, the notion of the 5 rights is fundamental and unchanged. Trends implies change, reaction, disruption. But the fundamentals will be the same.

Globalisation

Channel Diversification

Increasing Customer Expectations

“Don’t focus on the change, respond to it whilst focusing on the fundamental objective.”

Case Studies â&#x20AC;&#x201C; Responding to complexity, find your supply chain competitive advantage

CEO’s & CFO’s are turning to the supply chain for answers

CEO’s & CFO’s are turning to the supply chain for answers • If we consider generating shareholder value to be the goal, this graphic highlights how the supply chain has a direct impact via Sales Revenue, Costs, Working Capital and Physical Capital. • What I would encourage everyone to do is look at your supply chain in relation to these levers and find your competitive advantage. • Sales Revenue – Depends on the supply chain delivering product availability, think service level • Costs – Everything from inventory to warehousing to transport, the supply chain is core business and as a result, typical 60-70% of company costs exist within the supply chain. This provides massive opportunity.

• Working Capital – Get inventory management right, you’ll get this right. Cash flow is critical to business success. • Physical Capital – Make the most of the assets you have, design your supply chain effectively so you can leverage asset utilisation through centralisation and economies of scale.

Strategic alignment of business & supply chain objectives

Business Strategy

What, Where, When, How much and Why?

Customer Value Proposition

Supply Chain Strategy

Customer Offer, Service Level, Product Range, Services Offered

•

Structure & Flow, Insource/Outsource, Centralisation, Service/Cost/Capacity

Zara’s business strategy is to offer cutting edge fashion at affordable prices by following fashion and identifying which styles are “in”, and quickly getting these latest styles into stores.

• Zara has developed a highly responsive supply chain that enables delivery of new fashion as soon as trends emerge. o o

Moved away from contract off-shore manufacturers, regionalised network Small and frequent shipments keep product inventories fresh and scarce—compelling customers to frequent the store in search of what’s new and to buy now…because it will be gone tomorrow.

Dell & Compaq

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Dell Computer Return on Assets (ROA) – Return on Assets (ROA) = asset turnover x profit margin • Dell ROA was 16 % • Compaq ROA was 3% – both had similar gross margins ~21% • Dell had inventory turns of ~80 per annum • Compaq had inventory turns of ~20 per annum Source: The Financial Advantages of the Lean Supply Chain • Holding excess inventory comes with cost. Not just in write downs and depreciation, but also overhead in carrying cost (could be 25% of COGS) and also opportunity cost. Inventory is cash!

Information hoarding  Information sharing and visibility • Too many companies are supply-chain introverts. That is, too many companies fail to adequately recognise that the supply chain extends far forward to customers, and back, to suppliers and their suppliers. Less than 10% of companies go outside their four walls to track the performance of supply-chain activities at their vendors, logistics providers, distributors, and customers. • What Coles & Woolworths are doing – information sharing via web portals.

Pro’s vs. Con’s for the Supplier? •

need to know how to leverage what you’re given • expectations are higher • more visibility/consistency 31

Amazon vs. Borders

Share Price peaked late 2013 at $407

• Amazon uses few distribution centres and the E-commerce strategy allows Amazon to centralise the stocks. Inventory centralisation pays off most for expensive, slow moving products with high demand variability • Warehouse facilities are strategically important to the company. Amazon makes facility locations decision based on distance to demand areas and tax implications. • Amazon ships order using common carriers so they can obtain economy of scale.

Amazon is relentless.

There are two constants – Change and the “5 Right Rule”

What did we talk about today?

“Don’t focus on the change, respond to it whilst focusing on the fundamental objective.”

Supply Chain Leaders step up… From back-office to strategic leader Then…

General Electric’s well-known boss Jack Welch once famously said that “engineers who can’t add, operators who can’t run their equipment, and accountants who can’t foot numbers become supply and purchasing professionals.” Jack Welch at the time was simply reflecting on the common perception veiling Supply Chains, that it is a back office function. Now… In 2012 the highest paid CEO in the world was a man with a Supply Chain Background. Tim Cook, CEO of Apple has a total compensation package of approx. $378 million

Find out more about Supply Chain Management at

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