Presented by:

Lars Dzedek

Dmitry Antonov

Strategic Logistics Design and Network

Optimization –

Taking Your Supply Chain to the Next Level

© 2016 MHI® Copyright claimed for audiovisual works and sound recordings of seminar sessions. All rights reserved.

2

> 1,000

experts in DHL network

spanning 220 countries

17 years of

professional

consulting

experience

industry expertise

consultants

+ 1000

An independent management consultancy

management and logistics

consulting projects

Bonn, Germany

Singapore

Shanghai, China

Miami, FL

proven methodology

4 offices with local language skills

100

About DHL Consulting

3

Key Guidelines for Creating a Supply Chain Strategy

Insights from a Technology Case Study

Agenda

4

Frequent review of the supply chain strategy required; both internal and

external factors indicate when a strategic review may be required

Changes in Internal Factors

Product diversification

Shortened product lifecycles

Mergers and acquisitions

Geographical expansion

Business strategy

Changes in External Factors

Changing focus and opportunities

in emerging markets

Political and economic changes

Competitors’ innovations and

positioning

Transportation costs and

availability

Customer demand

Supply

Chain

Strategy

Review

5

Different elements of the supply chain can be optimized, from high level

supply chain strategy to network and process design

Alignment

with business

strategy

Differentiation by channel

Customer/Product segmentation

Strategic sourcing

Performance management

Outsourcing strategy

Organizational design and governance principles

Network design

Transport optimization Sales and operations planning

(S&OP)

Demand forecasting

Strategic facility design/ inventory optimization Process optimization

Benchmarking

6

Drive down operational costs and maximize efficiencies (e.g., 5-15% total SC costs)

Improve service level (e.g., 10-20% reduction in lead times)

Support growth (e.g., flexibility in SC setup)

Enhance customer satisfaction and service quality (e.g., product time to market)

Minimize risks

Optimize carbon emissions footprint (e.g., 10-30% CO2 emissions reductions)

Benefits of strategic supply chain re-design go beyond pure costs; quality

and customer satisfaction can also be positively impacted

FIGURES BASED ON DHL CONSULTING BEST PRACTICE

7

SC strategy is a five-step process; it is a continuous effort and should be

reviewed every 3-5 years depending on business needs and changes

Understand business needs/changes

Review every

3-5 years based on

business changes

Gather

data and

assess as-

is setup

Understand

external

market Identify levers

and define SC

strategy

Implement

Internal setup

assessment

• Current SC Strategy

• Structure

• People

• Metrics

• Processes

External setup

assessment

• Mega trends

• Customer needs

• Competitors

(benchmark)

• Technology

• Prioritization of

improvement areas

• Performance mgmt.

• Concept of operations

• Training

• Go-live

• Key drivers

• Objectives

• Trade-offs

• SC strategy objectives and

goals definition

8

Sustainability

How green are logistics operations?

• CO2 efficiency

• Sustainability footprint of the

suppliers

Speed

How long is the order fulfillment cycle

time?

• Increased responsiveness

• Improved stock availability

Flexibility

How flexibly can networks be adapted

to changing market demands?

• Outsourcing of owned facilities and

personnel

• Adaptation of LSP contracts

Reliability

What is the percentage of orders

fulfilled on time and in full?

• Reliable transportation provider

• High stock availability

• Improved E2E visibility & control

Cost Effectiveness

How expensive is the supply chain?

• Direct costs (transport & warehousing)

• Indirect costs (inventory holding, obsolescence, lost sales)

As-is

Desired

Key trade-offs to be considered when defining a supply chain strategy are

cost, speed, reliability, flexibility and sustainability

9

Supply chain evaluation helps identify various improvement levers which

can be optimized to meet strategic business objectives

Transportation

• Direct shipment to high

volume customer/DC

• Migrate to low cost mode

(e.g. AFR to OFR)

• Improve shipment

consolidation

Inventory

• Categorize inventory

based on defined KPI

• Optimize inventory

carrying costs

Operating Model

• Balance logistics

insourcing/outsourcing

decisions

• Evaluate logistics

organizational set up

Network

• DC/Warehouse relocation

based on center of

gravity

• Reverse logistics strategy

• Improve port strategy

(import/export)

Scope of the project deep dive

on following pages

Area Typical Levers Area Typical Levers

10

Key Guidelines for Creating a Supply Chain Strategy

Insights from a Technology Case Study

Agenda

11

Goal for a global technology company was to define a best-fit SC

model to distribute consumer electronics products in the US

Product Groups Objective

• Define best-fit SC model to distribute consumer

electronics products in the US

– Minimize order-to-delivery cycle times

– Increase availability of products in demand period

– Minimize total cost

Project SC Scope Project SC Scope

Manufacturing/

Packaging

International

Distribution Warehousing

Domestic

Distribution

End-to-end SC

Geography

USA and Canada

Notebook Tablets Desktop

Sector Operational Challenges

• High distribution costs

• Increasingly demanding lead times from

customers

• Low forecasting accuracy

• High returns volume and limited control over

return flows

Strategic Challenges

• No clear strategic direction on the SC

and missing ideas on how to improve

• Unknown total cost of

end-to-end SC

• Lack of transparency on pain points

Technology

12

Today’s case will highlight three steps of the SC strategy process: as-is

and external market assessment, levers identification & strategy definition

Understand business needs/changes

Project Steps

Gather

data and

assess as-

is setup

Understand

external

market Identify levers

and define SC

strategy

Implement

1

2

3

4

5

Project duration estimate

13

During data gathering, key things to consider are data quality, analysis

demand, level of detail, and alignment needs

Information Required

Products

and demand

Keep in

mind…

Cost

Logistic

information

• Products categories

• Customer demand

(volumes)

• Future growth forecast

• Transportation flows

• DC locations, profiles,

capacity and utilization

• Ongoing initiatives and

planned changes in Supply

Chain

• Direct

• Indirect

• Quality of data should be good:

– Data should be accurate

– Data should be complete

– Data source should be

standardized

• Clarity on the required analysis

and availability of data to support

analysis

• Knowledge of level of detail

required for analysis

• Alignment of bottom up operational

data with the top down view of P&L

data

Data quality is a key factor for project success

Key Success Factors

14

Project Example

West

DC

East

DC

Replenishment Direct

distribution

China

Production

As-is understanding covers two main areas: SC mapping and cost baseline;

outcomes are transparency on as-is setup, key costs, total costs, pain points

Areas

Provide transparency on as-is setup, key cost drivers and total costs and identify potential pain points

• Break down the business in

product groups (aggregate)

• Map the physical flow

• Capture information

• Identify constraints and

bottlenecks

Supply

Chain

Mapping

• Map end-to-end costs

– Direct costs

– Indirect

• Analyze key cost drivers and

hidden costs

• Identify potential issues

Cost

Baseline

Main costs: transportation, inventory

and loss of value

Warehousing

52%

Administration 2%

9%

Transportation

2%

100%

Loss of Value

1% Penalties

Total

Inventory Costs

34%

Dire

ct

Ind

ire

ct

15

Notebooks

Tablets

Desktops

OFR

Direct

(by AFR)

Replenishment SC Modal As-Is Finding

• Direct model has lowest cost per unit

• Savings opportunity when switching to

direct AFR

• High indirect costs for AFR

• Lowest cost per unit in direct model

• Cost improvement when switching to

direct AFR

• OFR has high direct costs

• OFR is the optimal cost scenario

• High AFR cost

• Indirect costs are high due to value loss

Products

Savings opportunities in AFR direct; desktops shipped primarily by OFR,

notebooks and tablets by AFR

84%

16%

58%

42%

31%

69%

Direct Costs Indirect Costs

81%

19% 66%

34% 72%

28%

88%

12% 76%

24%

48%

52%

Primary Mode (>90%)

Percentage of as-is Unit Cost

AFR

16

Benchmarking study provided insights into logistics strategy and

maturity/performance of major consumer electronic competitors’ SC setup

Results Key takeaways

Forecasting Accuracy

Long Haul Strategy

Production Strategy

Manufacturing Location • More than 90% of manufacturing is in China

• Many customers are evaluating near sourcing opportunities in Mexico

• Most technology companies manufacture to stock

• Limited high value customized products are made to order (e.g. for US Government)

• Forecasting accuracy generally low in industry (<50% accurate)

• Should not rely on it to plan supply chain strategy

• 80% of laptops & tablets use AFR for long haul

• Only low value older laptops & tablets shipped by OFR

Benchmarked entire product life cycle

17

7 Initiatives Identified For Optimization

Based on the as-is understanding and benchmarking study, seven

savings opportunities were identified

Tactical opportunities

Quick wins

Strategic opportunities

Deep-Dive

As-is U

nd

ers

tand

ing

In

du

str

y B

en

ch

ma

rkin

g

• Indirect cost are ~42% of logistics cost and

is mostly driven by loss of product value

• Notebook costs are ~63% of logistics cost

and shows highest optimization potential

• Desktop and tablet SC are optimized with

limited scope for improvement

• Trend is on increasing control and visibility

on returns; focus is on reselling return item

fast before product losses value

• Growing inclination towards increasing

manufacturing footprint in LATAM for

high value products

• Focus is on customizing supply chain by

product category and its requirements

Use of 45‘ OFR containers

FTZ at DHL general purpose zones

Warehousing footprint optimization

Returns pick-up on dock

Direct distribution of tablets from CN

Notebook postponement

Nearshoring notebooks

4

5

6

7

1

2

3

18

Manufacturing AFR DC Retailer DC

Manufacturing AFR Retailer DC

Stocking tablets in China/Direct Delivery

Recommendation

• Stocking tablets in China instead of US

• Shipping tablets directly to US customer DCs

through gateways

• Pursuing minimum inventory stockpile possible

Future Setup

Analysis

based on:

• Cost

• Volumes

• Service

levels

• Feasibility

In order to reduce direct costs by minimizing stockpile in the US

recommendation to increase direct distribution of tablets from China

Manufacturing AFR Customer DC Retailer

DC

Replenishment (>90% of volumes)

Current Setup

Description

• Tablets are produced in China and

shipped via AFR to US

• High costs of finish goods inventory

(FGI)

• Tablets have high value loss due to

FGI action and retailer markdowns in

fourth month of cycle

19

6 months 9 months 12 months 3 months

All initiatives implemented within 12 months, phased to allow for

resourcing and external constraints

Notebook postponement

Direct distribution of tablets from CN

Nearshoring notebooks

1

2

3

Strategic

Tactical FTZ at DHL general purpose zones

Use of 45‘ OFR containers

Warehousing footprint optimization

4

5

6

Quickly win Returns pick-

up on dock 7

All initiatives were:

• Implementable within a year

• Actionable

• Could be phased as required

20

This updated SC strategy resulted in 6% total SC cost reduction; additional

benefits of improved service levels, transparency and standardization

6%

To-Be Total

SC Cost

94%

Annualized Savings Baseline Total

SC Cost

100%

Financial

Benefits

Non-

Financial

Benefits

Impact of

new SC

Strategy • 5–15% reduced cycle time

• Full transparency on supply chain flows and

costs

• Reduction in complexity of the current supply

chain and processes standardization

21

Key Takeaways

• Regularly review SC strategy and determine need to update/redesign

based on changes inside or outside your firm

• Engage “right” high level stakeholders from early on (e.g., CFO, CPO)

• Ensure that the SC strategy is linked to your firm’s overall strategy and

that it helps achieve larger corporate objectives & customer needs

• Plan in enough time to get a good view on the as-is setup incl. SC

mapping and main KPIs; be clear on “what” you want to analyze

• Hold meetings with key stakeholders to e.g. discuss results of as-is

analysis, prioritize improvement areas and start jointly “brainstorming” on

solution ideas

• When designing new SC strategy, leverage both quick wins and long

term improvement opportunities

• Design a clear and realistic implementation plan; ensure sufficient

resources to implement

22

For More Information:

Speaker email: Lars.Dzedek@dhl.com

Website: www.dhl-consulting.com

Speaker #2 email: Dmitry.Antonov@dhl.com

Or visit MODEX 2016 Booth 2318