Delivering the Customer Promise

Online Retail logistics

November 12th 2013

2

Portland Group (purchased last year by Infosys) is a specialised Supply Chain & procurement

Consulting firm delivering solutions throughout APAC

Who are we?

Efficient

Operations

Accelerating

InnovationBusiness

Transformation

We do this in three ways

• Infosys is a global consulting and IT services

company

• Over 150,000 employees from 89 nationalities

• Operations in 77 cities across 32 countries

• Infosys helps companies derive measurable

business value they’ve always been looking

for from business and IT investments

• Founded in Australia in 1999 to improve

companies’ supply chain and procurement

• Combine strategy consulting rigour and

analytics with real operational experience to

drive benefits to the bottom line

• 230 staff with offices in Sydney, Melbourne,

Brisbane, Perth, Singapore, Auckland and

Pune

Supply Chain

Integrator

Managed

Services / BPOConsulting

We have 3 delivery models

3

Consumer expectations are growing in a very competitive global marketplace

Consumer Expectations

How do I meet

customer demand…

while providing a flexible,

seamless experience across

channels…..

and make a profit?

Retailer’s dilemma

Let me• ‘Know’ the product

• Feel connected

• Buy it, collect it anywhere

• Get it quickly, easily

• Enjoy low cost,

high quality

4

To be able to deliver the customer promise we need to be clear what this is

What Do We Want?

Range / Choice

Convenience

Low Prices

Speedy Delivery

Information /

Comparison

Delivery / Collect

Free Returns

Order Status

5

Increased supply chain complexity is driving up cost to serve – how do we

meet range and service expectations and make a profit?

Retailer’s Dilemma

How do I meet

customer demand…

while providing a flexible,

seamless experience across

channels…..

and make a profit?

Retailer’s dilemma

Let me• ‘Know’ the product

• Feel connected

• Buy it, collect it anywhere

• Get it quickly, easily

• Enjoy low cost,

high quality

Where to start? - Develop the Strategy

The strategic imperatives for the organisation need to be fully understood before

designing a supply chain for the online world

6

DC

Ops

Store

Ops

Supply

Chain

integration

Tactical

Inbound

Transport

Supplier

Mgmt

Operational

IT systems

People/Organisation

Performance Measurement

Sourcing

Strategy

Order Management and Replenishment

Store

Delivery

Cust.

Deliv.

Flow Path

& Network

Design

Strategic Considerations

• Customer Offer- Range- Price positioning- Service options

• Maturity- Start Up- Traditional “bricks”- Pure Play On Line looking to grow

• Geography- Global- Regional / Local

• Sourcing strategy• Further acquisitions

Supply Chain Design Considerations

• Segmented by product / customer• In-house vs. Outsourced• Offshore vs. Onshore• Central vs Local• Existing constraints (leases)• Technology deployment

A

L

I

G

N

M

E

N

T

Enablers

Strategic

7

Before designing the future network it is critical to understand the existing supply chain and its

costs and have a clear view on future requirements

Flow Path and Network Design – Understanding Requirements

III

Supply Chain Flows Financial Baseline ‘As Is’ Supply Chain Supporting Analysis

Suppliers Wholesalers Distributors End Users

BU B

NSW

BU D

VIC

Import

Local

BU A

WA

BU C

QLD

BU B

Sites

BU D

BU Z

External A

Agents and

customers

BU D Public

Customer

BU Z

customers

External B

50%

50%Resellers &

Agents

Network Strategy

Heat Maps747

463

115

43

126

Offsite storage

00 0

00

Freight

92

61 513

13

Fixed Warehousing

1613 3

01

VariableWarehousing

1912 2

Supply Chain Operating

Cost

3

FixedManufacturing

63

33 11

6

2

VariableManufacturing

557

344

9422

9712

BU 4

BU 3

BU 2

BU 1

Growth and Inventory

Assumptions

Growth Assumptions

Inventory

Assumptions

Current Capacity Analysis

Tullamarine Warehouse Throughput and UtilisationCurrent Versus Scenario 1 / 2

Pea

k P

erio

d (J

AN

-MA

R)

Thro

ughp

ut -

Cas

es

(M)10

9

8

7

6

5

4

3

2

1

0

Scenario 2

@ 2016

7.1

92%

Scenario 1

@ 2016

7.0

90%

Baseline

@ Current

8.2

106%

Peak Period (JAN-MAR) Throughput - Cases (M)

Tullamarine Peak Warehouse Utilisation

100%

100%

Utilisation

i.e. Defined

as off-site

storage

tipping point

Annual Throughput

in Cases (M)

28.0

Annual Throughput

in Cases (M)

24.0

Annual Throughput

in Cases (M)

24.8

Service Level Requirements Confirmed

8

For start up organisations a total global Greenfield approach is required however for many

organisations a network already exists and its implications need to be taken into account

Flow Path and Network Design – Optimisation and Business Case Development

Business Case

Network Risk Analysis Sensitivity Analysis Transformation Road Map

Critical RisksMitigated Risk Profile (Exposure)

Likelyhood of occurrence

Imp

ac

t

3

5

8

Area ID Risk Mitigating Actions

HR / IR

1 Extended union consultation

• Residual HR risks that require legal advice, union

engagement and internal

management strategies

2 Staff walkout

3 Staff disengagement

Resourcing 5

Limited procurement expertise / resource

availability to carry out

sourcing and negotiation

events

• Engage specialist resources(included in transition costs)

Benefits Realisation

7Increased operating costs due to ‘additional scope’

• Conduct due diligence to ensure 3PL visibility of all

activities

• Pre-define pricing mechanism

to equitably attribute costing

for ‘new’ activities

8 Poor 3PL performance

• Establish, and manage, 3PL ‘Service Management’

framework and accountability

within client X

Other 14Legal negotiation of terms

and conditions

• Establish Client X preferred legal terms and conditions in

advance of tender and issue

to shortlist

1

2

5

7

7

8

14 14

x

x

Mitigated Implementation Risk

Mitigated service Management Risk

Critical risks above the line

x Residual HR/IR Risk

High

Hig

h

Global Network Scenario Definition

Option A

‘Low RiskRationalisation’

Option B

Distributor Depot Model

Option C

Metro Warehouse (w/ 3PL cross docks)

Incremental

Change

Step

Change

Transformational

Change

Key

Option A

PlantDistributor

89 Locations (22 Closed)Distributor Owned Inventory

• Captive sales

Captive Customers

• Non-captive sales

Non-Captive Customers

Pick Ups

Product FlowClient Y Accountable

InformationFlow

Client X Client Y Stock Holding Locations

Third Party Distributor or Sales Channel Locations

$A

Client Y Enabling Supply Chain Capabilities

Client Y (Central) Ordering Processing

$B

Product Flow3rd Party Accountable

• Non-captive sales continue

through remaining distributor

locations or are ‘migrated’ to

resellers in the area of the

closed depots

Customer Location

• Account customers served

directly through 89 selected

distributor locations

Customer Location

Inventory Visibility

Cost ID Cost Element

$APrimary Freight

Plant to Depot

$BStorage, Handling Other Depot Costs

aka Distributor Agreement Costs

$CSecondary Freight

Depot to customer (captive customer location)

$DStranded Costs

‘Unrealisable’ fixed costs associated with closed depots

Pick Ups

Pump Out Services

Closed Depots(22)

$D

Reseller

$

$

Client Y Incurred Costs

Third Party Costs

$

$

$

$C

Schedule

Key

Option B

Plant‘S Depot’

25 LocationsClient Y owned inventory

Reseller

LocationReseller owned inventory

• Most ‘pick up’ customers are

served through ‘reseller’

channel

• Captive sales

Captive Customers

• Non-captive sales

Non-Captive Customers

Product FlowClient Y Accountable

InformationFlow

Client X Client Y Stock Holding Locations

Third Party Distributor or Sales Channel Locations

Client Y (Central) Ordering Processing

Client Y Enabling Supply Chain Capabilities

DRP and Inventory Management

Transport Routing &Scheduling

$C

Product Flow3rd Party Accountable

Order Tracking

• Non-captive sales are

‘migrated’ to resellers in the

area of the closed depots

Customer Location

• Account customer orders

served directly by Client Y

from ‘S depot’ warehouses

Customer Location

Pick UpsCost ID Cost Element

$APrimary Freight

Plant to S Depot

$B ‘S Depot’ Warehousing Costs

$CSecondary Freight

Depot to customer (captive customer or reseller location)

$DPump Outs

Cost of pump out activities in addition to delivery

$EStranded Costs

‘Unrealisable’ fixed costs associated with closed depots

Pump Out Services

$D

Closed Depots(Up to 111)

$E

$

$

Client Y Incurred Costs

Third Party Costs

Pick Ups$

$

Schedule

$B

$A

Key

Option C

• Captive sales

Captive Customers

• Non-captive sales

Non-Captive Customers

Product FlowClient Y Accountable

InformationFlow

Client X Client Y Stock Holding Locations

Third Party Distributor or Sales Channel Locations

Client Y Enabling Supply Chain CapabilitiesProduct Flow

3rd Party Accountable

Plant

‘S Warehouse’ 7 Locations

3PL OperatedClient Y owned inventory

Reseller LocationReseller owned inventory

• All ‘pick up’ customers are

served through ‘reseller’

channel

$A

Client Y (Central) Ordering Processing

DRP and Inventory Management

Transport Routing &Scheduling

$B

$C

Order Tracking

• Non-captive sales are served

through ‘reseller’ channels

Customer Location

• Account customer orders

served directly by Client Y

from ‘S warehouses’

Customer Location

Pick Ups

Cost ID Cost Element

$APrimary Freight

Plant to S Depot

$B ‘S Warehouse’ Warehousing Costs

$CSecondary Freight

Depot to customer (captive customer or reseller location)

Including transition through 3PL cross dock facilities

$DPump Outs

Cost of pump out activities in addition to delivery

$EStranded Costs

‘Unrealisable’ fixed costs associated with closed depots

Pump Out Services

$D

3PL

Cross Dock

Closed Depots(111)

$E

$

$

Client Y Incurred Costs

Third Party Costs

$

$

48 HRS

48 HRS

Weekly

9

Many “Bricks and Mortar” retailers start servicing online customers from existing stores until

enough scale is reached to fulfil from existing or purpose built DC’s

Flow Path and Network Design – Store Pick vs DC

10

Both organisations are developing networks to minimise delivery lead times

Amazon Vs. Walmart1

1. Source – Forbes.com

• 2012

- $443.9 Bn

- Growth 5.9%

- 10,000 stores

- ~150 DC’s (US)

- 27 Countries

• Walmart.com

- Launched 2000, separate entity

- Web sales $7.7Bn

• Strategy

- Omni-Channel

- Combine stores, DC’s and new facilities –“Next generation fulfillment network”

- $430M investment in technology

• 2012

- $61 Bn

- Growth 27.1%

- 35 Million SKU’s

- 90 fulfillment centres, and counting….

• Strategy

- Locating fulfillment centres to support same day delivery for the majority of its customers

- Moving away from very large facilities operating out of low cost states

- Move into grocery with AmazonFresh

- Increasing global physical footprint

11

For many organisations there will be an evolution as on line penetration

grows………

On Line Evolution

SINGLE CHANNEL

MULTI-CHANNEL

CROSS-CHANNEL

OMNI-CHANNEL

Legacy

• Customer experience

single type of touch point –

often “bricks and mortar”

• Retailers have single type

of touch point

Reality

• Customer sees multiple

touch points acting

independently

• Retailers operate channels

in functional and technical

silos

Aspiration

• Customer sees multiple

touch points as part of the

same brand

• Retailers have ‘single view

of customer’ but operate in

functional silos

Nirvana

• Customers experience a

brand, not a channel within

a brand

• Retailers leverage ‘single

view of customer’ in

coordinated and strategic

ways to improve customer

experience

Va

lue

De

live

ry

Complexity & Investment

12

A multiplicity of customer order channels and fulfilment options requires an integrated IT

solution to provide supply chain visibility and lowest cost of operation

Supply Chain Integration – Omni Channel

PLAN SOURCE STORE DISTRIBUTE SELL FULFILL RETURN

Call centreSales Catalog Sales

Omni Channel

Hub

Stores

Local

DC

S

U

P

P

L

YD

E

M

A

N

D

Suppliers/Vendors

Drop ship vendors

Unified

Customer

Experience

Stores

Call centreSales

WebSales

Single view of Inventory across

fulfillment channels

Unified view Geographically disparate

SuppliersSingle view of Item, price

and master dataUnified view of Geographically disparate

customers across channels and brands

Single view of orders

across channels

Global

DC

13

Wrap

DC

Ops

Store

Ops

Supply Chain

integration

Tactical

Inbound

Transport

Supplier

Mgmt

Operational

IT systems

People/Organisation

Performance Measurement

Sourcing

Strategy

Order Management and Replenishment

Store Delivery Cust.

Deliv.

Flow Path &

Network Design

Enablers

Strategic

Understand your customer

Develop your “promise”

Design your supply chain

Align operations

Invest in people & technology

Measure your success

Do not stand still! - Thank you