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Leveraging the supply chain to optimize customer and shareholder value

Rodger ReisOctober 2019

PwC | Leveraging the supply chain to optimize customer and shareholder value

Introduction

Executive summary• 10+ years in Supply Chain operations consulting with PRTM & PwC• Helps clients transform business and supply chain operations into strategic

differentiators in order to improve customer experience and drive shareholder value• Completed projects with clients across Retail, Consumer Products, Food &

Beverage, Luxury Goods and ElectronicsRelevant expertise• Designed differentiated Supply Chain strategy to support multi-billion dollar Omni-

Channel retail growth opportunity• Led a Lean Manufacturing and S&OP transformation to drastically reduce order to

lead times and inventory and improve service levels for a luxury goods company• For a global food manufacturer, provided a go-to-market and supply chain strategy

to help the company’s largest division expand their DSD operations into new channels to accelerate growth

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Rodger ReisDirectorConsumer Markets – Operations & Supply Chain [email protected]

mailto:[email protected]


About PwC’s supply chain operations practice

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Providing innovative insightsWe “wrote the book” on supply chain strategy.

Setting SC standardsWe developed and introduced the Supply-Chain Operations Reference-model® (SCOR®).

Fostering SC leadershipWe contribute regularly to the supply chain industry and academic publications worldwide.

Practicing what we preachWe conducted more than 2,000 supply chain transformation projects over the last 10 years.

Enabling excellence withunparalleled benchmarksWe are a leading source of Supply Chain benchmarks, with 1,000+ companies in our database (Performance Mgmt. Group, PMG).

Developing partnerships and experience on the leading edge of technologyWe have hands-on experience leveraging technology to drive supply chain transformations.

http://www.worldtrademag.com/CDA/BNPHomePage/1,3476,,00.html

http://www.my-esm.com/;jsessionid=J0RVWLGSEGTIWQSNDBCSKHY

http://www.sdcexec.com/

http://www.fortune.com/fortune

http://www.industryweek.com/


Agenda for today

• Supply chain fundamentals and key value drivers• Challenges for today’s supply chain leaders• Effective and emerging supply chain optimization strategies• Select case examples• Wrap up and Q&A

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The supply chain is a complex set of business functions responsible for managing the flow of goods from supplier to customer

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Demand planning

Supply planning

Sourcing & Inbound logistics Manufacturing Order fulfillment &

Outbound logistics

Inventory management

Core supply chain functions

Plan

Sour

ce

Mak

e

Del

iver

IT & systems enablement


Optimizing the supply chain is the art and science of balancing service, cost and working capital to maximize customer and shareholder value

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Cost

Working capital

Service

Supply chain levers

Customer value

Shareholder value

Business outcomes


A number of factors are putting new pressures on supply chain management and optimization

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Customer expectations

Fulfillment complexity

Input costs

Economic outlook

• Logistics: Driver shortages & trucking cost • Labor: availability & minimum wage policies

• Buy in store• Pick up in store• Deliver to home

• Broader, more customized product assortments • Shorter lead times (Prime effect)• Inventory visibility

• End of bull market predictions• Lower CEO confidence• Politics & global trade conflicts (China trade war & Brexit)

Omni Channel


However supply chain practices and capabilities continue to evolve to meet these challenges and drive both customer and shareholder value Supply chain optimization strategies

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Omni-channel & Differentiated supply chains

Complexity management

Integrated business planning

Digital supply chain

Network optimization tools

Design purpose-built supply chains to maximize customer experience and fulfillment experience profitably

Configure the supply chain to manage complexity without eroding value

Improve service and streamline operations by better aligning financial, sales and operational plans

Leverage digital capabilities (big data, AI, machine learning, etc.) to improve end-to-end performance

Quantitatively model supply chain network flows to minimize cost and working capital

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2

3

4

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Successful Omni-channel strategies consider both the Customer Experience (Cx) and the Fulfillment Experience (Fx)

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Effective omni-channels operations pair customer focused strategies with

rigorous programs to minimize operational costs

Today’s Retail environment requires cohesive customer and operational strategies to drive a Return on the

consumer experience

Environment(Web and

Store)Store Ops

Marketing

Service

Assortment

Sales andorders

Fulfilment(Store, Online,

HomeDelivery)

Leading class Cx strategies addresses the whole customer journey and aligns

operations to delivery against the customer promise

RoXReturn on

Experience

CxCustomer Experience

Enabling the shopping experience

FxFulfillment Experience

Fulfilling the customer promise

Omni-channel & Differentiated supply chains1


Omni-channel client case – Building differentiated supply chains to enable improved Fx without eroding margins

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Client situationA leading big box retailer was experiencing margin erosion and customer satisfaction challenges resulting from immature Omni-Channel supply chain capabilities

Solution Develop a set of differentiated supply chains purpose built to serve the needs of each channel at the optimal cost

In-store

Optimize store replenishment frequency

to minimize excess inventory

BOPUS

Develop solutions to enable store to operate as fulfillment warehouse

Home Delivery

Enable dedicated delivery network infrastructure to

free up store capacity and increase last mile efficiencies

Parcel

Stand up automated direct fulfillment centers

to increase service consistency and minimize cost

Omni-channel & Differentiated supply chains1


As assortments and SKUs under management increase, companies must leverage complexity management to maintain margins

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SKU Rationalization & LiquidationRemove low-turning and unproductive SKUs from the assortment

Network ConfigurationConfigure the supply chain network to support ‘C’ SKUs at higher levels of productivity

Product LifecycleEnable processes to proactively assess SKU productivity throughout lifecycle

Pros: Often considered ‘quick fix’ to

capacity or working capital challenges from SKU ‘long tail’

Cons: Risk unhappy customers Potential inventory write off Root causes may not be addressed

Pros: Maintains availability of specialized

items at reduced cost

Cons: Network changes may take time to

implement

Pros: Begins to address and manage

root cause

Cons: Change hurdle can be significant

Complexity management2


Complexity Management Client Case – Centralizing ‘C’ SKUs to minimize footprint, inventory and labor cost

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Complexity management2

SituationLeverage multiple complexity management strategies to reduce working capital, labor and facility cost

SKU Rationalization & ConsolidationCull the very bottom 2k SKUs that sell less than one item per month and at less than $50 per item

Network ConfigurationCentralize C SKUs in one facility to reduce facility cost and working capital & add focused automation for A vs. C SKU operations

Product LifecycleCreate regular reviews of portfolio and define ‘hurdle’ conditions to assess SKU productivity

% of Sales Quantity

0 15,000

60

10,0005,000

100

20,0000

20

40

80

# of SKUs

15%

80%

5%

A (Top 80% of Sales Aty)B (Middle 5-15% of Sales Aty)C (Bottom 5% of Sales Qty)

Client SituationA large consumer-focused distributor maintained an assortment of roughly 18k SKUs stocked in 13 facilities nationwide. Though most SKUs were low productivity ‘C’ SKUs driving excess working capital, facility and labor cost


Finance, commercial and operational plans are often mis-aligned, driving margin erosion from missed service and increased cost & working capital

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Integrated business planning3

Finance

• Sales focused • Often optimistic• Customer

accountability

• Cost focused• Often constrained• Customer and

shareholder accountable

• Profitability focused• Shareholder accountability

Planning constituents Typical misalignment & resulting impacts

Sales and operational plans not linked to financial plans

Forecast or promotion changes within lead times

Lack of information to make the ‘right’ trade-off decisions

• Not enough product• Too much product (inventory)• Expensive corrective actions

(e.g., expedited logistics)


Integrated Business Planning helps coordinate the enterprise to align on the ‘one plan’ that best balances customer and shareholder value

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5 Step IBP Process cycle

1 Review and define any changes to product portfolio

2

3

4

5

Commercial teams inform the ‘Unconstrained’ demand plan

Supply Chain teams inform supply positions and potential constraints

Combined teams reconcile demand with supply

Any significant trade-offs or other decisions resolved by C-suite

MetricsResources

Gap analysis

Step #2Commercial

review

Unconstrained demand plan

Supply, demand, and inventory plan

Prioritized risks and opportunities presented

for mitigation

Reconciliation between top-down

financial plan to bottom-up

operational plan

Step #5

Step #1

Step #3

Step #4

Step #4Integrated

reconciliation

Step #3Supply review

Step #1Product portfolio review

Step #5Management

businessreview

‘One Plan’

Integrated business planning3


Data integration, automation, and business systems

Analytics and prescriptive supply chain data lakeExternal data(e.g., weather, social listening)

Wholesalers and stores

Supplier ProductionWarehouse Distribution site

Procurement Smart warehousing Smart logistics

Customer

Customer access and order management

Integrated logistics planning and execution (control tower)

Transparency and visibility (including product inventory and logistics)

Smart factory

Digital supply chain framework

Control tower

The future supply chain will be digitally connected to enable greater visibility, efficiency and responsiveness

Digital supply chain4

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Machine learning-based forecastingSmart Algorithms leveraging Machine learning best pick optimal forecast models that can learn from planner inputs

Advanced order management and fulfillmentLow touch, demand-driven, interactive order mgmt. and automated fulfillment

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Transparency to SC costs and profitabilityAbility to model cost-to-serve across E2E nodes of the supply chain

Advanced demand sensing algorithmsAnalysis of a multiple data points including consumption history, impact of events, and external sources for improved sensing integrated into demand planning

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Inventory performance managementOptimizing internal and external customer service levels with visibility to raw , WIP and FG inventory

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Fully integrated supplier collaborationDigital interaction and preference specific mgmt of suppliers, co-manufacturers, and internal partners

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Capacity visibilityNear real time view of aggregate capacity across the network of plants and DCs to model demand shaping

E2E product flow transparencyTrack and Trace visibility to help identify areas down to a single point of failure, including source of supply

Logistics transparency, including near real time visibilityInbound and outbound shipment including LTL and FTL fully integrated to planning

Demand/Supply BalancingAbility to model near real-time demand and supply balancing scenarios that permeates across E2E SC

Advanced S&OP/S&OEFaster S&OP executed within two weeks or less with planning in daily buckets

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Digital capabilities are rapidly expanding, enabling the connected supply chain of the future

Digital supply chain4

Key capabilities of the future

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76

5

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Supply chain network optimization tools can inform current network inefficiencies and enable long term infrastructure planning

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Network optimization tools5

Supply chain network modelling overview & Applications

Supply Chain network modeling uses powerful

software & analytical tools to create a virtual view of the

supply chain

Visualize current state network• Data visualization will highlight key opportunities for improvement,

such as lane redundancies, service area coverage gaps, and at risk markets

Scenario modeling• Run various scenarios to assess tradeoffs between strategically

defined levers• Enables sensitivity analysis to project network capacity based on

growth projections

Inventory optimization• Model target inventory levels across the network by facility and product

type based on key parameters and constraints• Understand regulatory effects on the inventory levels of key

product types


Network Optimization Client Case – Network optimization to improve network and transportation efficiency

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Network optimization tools5

Network modeling

Approach: Modeled the client's 29 distribution centers and ran scenarios to identify optimal locations considering demand, operating efficiency, and costResult: Reduced DC footprint by half while maintaining service levels

Benchmarking

Approach: Benchmarked transportation rates and contracts, determining opportunities were not commercially driven but network, process, and organizationally drivenResult: Resourced transportation and imposed compliance policies

Baseline network

Optimized network solution

SituationLeverage network modeling and logistics benchmarking to define the optimal network footprint and target cost model

Client situationWithin a four-year period, the client experienced a 45 percent increase in transportation and distribution costs. Its distribution network was large and inefficient with inadequate supply chain processes


Wrap up – Key takeaways from today

Supply chains are under pressure from multiple angles, putting customer and shareholder value at risk

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What questions do you have about supply chain optimization?

Digitization and data are enabling greater planning, visibility and connectedness, allowing for more effective supply chain management

Optimization strategies can be leveraged to address these challenges, enabling the supply chain to improve cost, working capital and service performance

Every supply chain is different and optimization strategies must be applied considering key enterprise factors such as maturity, ability to change, investment resources and urgency

pwc.com

Thank you

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