Supply Chain Operating Model design discussion

Outside-in perspective

November 2020

Extract

PwC | Strategy&

Contents

1

2

3

Analysis/ Making the decision

• Key shifts & guiding principles

• Drivers & options for SC Operating Model design

Learning from others/ Best Practices

• Key lessons learned

• CPG & retail examples

Creating a path forward

• Approach

• Configurator and benchmarking

2

November 12, 2020

PwC | Strategy&

Extract

Analysis/ Making the decision

3

November 12, 2020

Strategy&PwC | Strategy&

Extract

PwC | Strategy&

Key shifts cause a rethinking of today’s supply chain operating model and how to make it future ready

FROM TO

Disconnected, partially manual physicalsupply chain based on old channelLogistics

Omni channel setup and smart logistics with automated warehouses, effective TMS, omnichannel order mgmt. etc.

PlanningDisconnected demand and supply planning based on cumbersome alignment processes

Closed loop and integrated planning synchronizes in real-time and integrates supply chain partners

SegmentationOne size fits all supply chain or staticsegmentation by product category or channel

Dynamic SC segmentation to enhance customer centricity and balance service levels, costs and margins

Centralization with focus on cost andefficiency

New digital capabilities and talents bundled in hubs (e.g. for data analytics) enabling efficient deployment

Enablement

Limited transparency across supply chainTransparency &

sustainability

360-degree view of products, supply chains, customers and finance enabling a digital twin of the supply chain

4

Non-exhaustive

November 12, 2020

PwC | Strategy&

Extract

5

The development of Supply Chain Organizations should be based on a clear set of guiding principles

Guiding principles

Clear accountabilities

• Clear and unambiguous accountabilities

• Decision rights reside with only one function

• Reduce complexity and duplication of tasks

Think customer back

• Design processes customer back and reflect local requirements

• Create leverage and synergy for non-key tasks by scaling along similar ‘jobs to be done’ (center of gravity)

• Make deliberate decisions of functional focus vs. value chain (process) focus

Capability focused

• Design around entities that have clear and unique added-value and remove non-added values

• Enhanced pivotal roles acting as driver and leader of key processes

Structure follows strategy

• Investments, resource deployment and capabilities should match geographical and business growth ambitions

Maximum agility and empowerment

• Light layering; maximal spans of control and minimal layers

• No roles should be dedicated purely to “coordination” or “liaison”

• Tight metric system to drive performance

November 12, 2020

PwC | Strategy&

Extract

6

Before designing the future operating model, several key drivers have to be analyzed Drivers for SC Operating Model design

November 12, 2020

4

1

2

3

5

Current and future product portfolio (share of global, regional and local brands)

Current and future time to market (lead times, freshness, shelf life, etc.)

Current and future go-to market channels (B2C, B2B sales, online, distributor, etc.)

Current and future production / supplier network

(requirements, technology dedication, global, regional, local sites)

Current and future geographical presence

6 Current and future regulatory and legal implications (e.g. tax optimized operating models)

7 Current and future sustainability goals (e.g. future real estate requirements, environmental foot print)

PwC | Strategy&

Extract

7

Supply Chain

Enabling

Functions

Supply Chain

Segmentation

Based on the key drivers numerous options and combinations are possibleOptions for SC Operating Model

3

No Segmentation By Categories By Channels

Dynamically by

customer

expectations

Global Regional Cluster Local

Functional

responsibility

E2E planning and

functional execution

Separated demand

& supply

responsibility

Integrated supply

chain responsibility

Global / Regional

Center of

excellence

Global / Regional

Center of scale

On Local or Cluster

levelHybrid

4

Center of

gravity SCM

Supply Chain

Archetypes

1

2

November 12, 2020

PwC | Strategy&

Extract

8

Some companies tend to be more decentral in their supply chain model in response to local flavors and freshness

Center of gravity SCM

November 12, 2020

Global/

Corporate

Regional

(e.g. EMEA)

Cluster (e.g.

GSA)

Local (e.g.

Germany)

BeverageCosmetics / household Fashion Food

1

Trendtowards regional

Illustrative

PwC | Strategy&

Extract

9

Separated demand and supply responsibility Integrated supply chain responsibility

Four generic Supply Chain archetypes are existing in theCPG industry

Supply Chain archetypes for Consumer Goods companies

OTC: Order-to-Cash; DTF: Demand-to-Fulfil; PTD: Produce-to-Demand; PTP: Purchase-to-Pay

November 12, 2020

9

Functional responsibility

Warehouse

E2E planning and functional execution

CPG SupplyChain

Architypes

PTP PTD OTCDTF

Sales

Plan&

Deliver

Plan

FulfilMake

PTP PTD OTCDTF

Sales

Plan&

Deliver

Plan

Fulfil

PTP PTD OTCDTF

Plan & Deliver

numerous derivates possible (e.g. VMI)

Plan

Fulfil

Make

PTP PTD OTCDTF

Plan & Deliver

Plan

Fulfil

Make

A B

C D

2

Illustrative

Make

PwC | Strategy&

Extract

PwC | Strategy&

Differentiated supply chain brings significant benefits in terms of customer service, cost, inventory and sustainability

Supply Chain Segmentation benefits

10

3

• Driving more volume and value through key channels by being more responsive

• Supporting innovation and opportunistic business

• Anticipating and driving value through advanced supply chain offerings

• Segmenting complexity and getting good at handling it

• Extracting benefits from stability where it exists

• Focusing overhead attention where it’s needed

• Avoiding discounts, write-offs, reverse flow costs

• Releasing working capital from stable flows

• Avoiding short shelf live losses for volatile flows

• Increasing basis for customer preference

• Becoming easier to do business with

Growth

Profit

Cash-flow

Customer

Satisfaction

November 12, 2020

Extract

PwC | Strategy&

November 12, 2020

11

Dynamic segmentation based on customer expectations and product characteristics enables highest flexibility in your SC

Dynamic segmentation – overview

Supply side – segmented by product category

Demand side– segmented by customer

channel

Integrated planning on volume and financial level (tactical and operational planning)

Portfolio & NPI

implementation

Operational

sourcing & contract

manufacturing

Manufacturing

Supply planning

Portfolio & assortment planning

(incl. NPI)

MRP MPSCapacity

planning

Transport &

warehouse mgmt.

Order mgmt. &

customer service

Order fulfilment planning

Distribution Inventory Demand

• Provide configurable/tailored

offering to customers –

managed through modular E2E

supply chain segments

• Highly customer centric

enabling differentiated

customer interaction models

(e.g. differentiated OTIF)

• Decoupling of front-end and

back-end SC activities

Decoupling

3

Characteristics

Extract

PwC | Strategy&

Functions can be centralized into center of excellence (CoE) or center of scale (CoS) resulting in different benefits

Decision criteria and benefits

12

CoS• Routine, rules-based, highly

repetitive and transactional

processes

• Performed for multiple functions

• Significant transaction volumes

CoE• Specialized processes requiring

expertise in specific disciplines

• Demand from business is based

on portfolio/program

• Highly advisory in nature

Transfor-

mation Value

Improved Decision Making

Capital Investment & Tax Implications

Forecast accuracy & Productivity

Process Cost Efficiency

Speed of Implementation and Quality Loops

Improved Service Delivery

Compliance And Control

Scalability

Overhead Cost Efficiency

Which

functions to

centralize as

CoE or CoS?

4

November 12, 2020

Extract

PwC | Strategy&

Global Regional Cluster Local Example recommendation

Develop

Supply chain strategy and organization

Decide globally, set-up CoESC network design

…

Source

Strategic procurement in-/direct material Decide globally, set-up CoE

Operational procurementDecide regionally, set-up CoS

…

Plan

S&OP/Long-term pl.Decide globally / regionally as CoE, consolidate at global level

Demand planning/sensing/shaping

…

Make

Production logistics/Call offsSet-up plans for regional distribution

Production execution/VAS

…

Deliver

Order ManagementDecide regionally as CoS

Customer Service

Warehouse managementExecute on cluster / locally

…

Optimize

Supply chain performance Decide globally as CoE

Customer collaboration Execute regionally / locally close to BU

…

Enable

Training/up-skilling/HR Decide globally as CoE

Master Data Dynamic segmentation by category on supply side and by channel on demand side…

Large CPG and manufacturing companies have been reorganizing its functions to be more centrally focused

Decision criteria

13

As-Is To-BeTendency towards more centralized set-up

Reduced number of planning sites significantly to only a few centers globally

Has consolidated large majority of its indirect and direct sourcing functions in GBS and established CoEs

Global center spanning full SCM with local logistics execution

Example4

November 12, 2020

Extract

Learning from others/ Best Practices

14

November 12, 2020

PwC | Strategy&

Extract

PwC | Strategy&

Key lessons learned from successful players in the field Summary

• Generally, most companies adjust their operating model on a regular basis, with more fundamental

shifts occurring every 5-8 years in an attempt to continuously improve

• CPGs are organized in various forms of matrices to encourage constructive tension, with some more

category/brand-led (P&G, L'Oréal, Pepsi, Nestlé) some more geography-led (Unilever, Reckitt

Benckiser, Heineken) and others more function-led (Mondelēz)

• However, all companies have defined a clear center of gravity across their organization; functions are

only duplicated where necessary

• CPGs have realigned their operating model in the past years (Unilever, P&G, Heineken, Mondelēz) to

optimize scale (“more global”) and to increase local market responsiveness (“more local”)

• There is no single optimum model – a spectrum of options exist, varying with factors like company

strategy, heritage and culture, market position, scale (globally and in-market) and channel mix

15

November 12, 2020

Extract

PwC | Strategy&

How other companies are applying these good practicesBest practice examples

Global FMCG and pharma company

Value Chain and centre of Excellence

• E2E Supply Chain organisation including a global Supply Chain centre of excellence (CoE) and a CoE for strategic procurement

• Core supply chain activities clustered in value chains

• Country clusters for execution and customer services

1 Global consumer goods company

Process-driven operating model

• Strong customer orientation• E2E process-driven Supply

Chain organisation including clear roles and responsibilities

• Mapping of organisation and process view to secure E2E accountability and steering

2

Home furnishing retailer

Centralized supply chain with strong SC communities

• Set up of central CoE with strong analytics capabilities

• Implementation of proactive demand sensing and auto replenishment

• Central steering of capability roadmap / connected portfolio

• Strong involvement of users during development through SC communities

4

Multinational specialty consumer

goods companyMultinational SC organisation

• Single global product supply responsibility, with category-dedicated organizational set-up

• Mature GBS enables GBUs and regions across multiple functions

• Highly tax optimized model

3

Regional steering SCM responsibilities

Global consumer goods company –

Unilever

• Supply chain is managed regionally; strategy on global level; demand planning on local level; with category-specific SCs being installed

• Regional CEO is country CEO of biggest country (double roles installed)

6Global beverage & food manufacturer

Central planning hubs supporting local markets

• Set up of 5 central planning hubs supporting local markets

• Streamlining expertise and capabilities centrally

• Innovations enabled by cross-functional CoEs

• Customer excellence and agility through local customer teams

5

16

November 12, 2020

Extract

Creating a path forward• How to make it happen

• How to create a case for change

November 12, 2020

17PwC | Strategy&

Extract

18

Designing and implementing a tailored operating model can be approached in 4 stepsSuggested approach and next steps

September 15, 2020

Strategy&’s SC

Ops model

configurator

Diagnose Design Pilot ImplementI II III IV

• Identify strategy &

opportunities

• Choose initial options from

configurator

• Detail and validate feasibility

of options

• Prioritize options and design

target operating model design

• Select pilot based on defined

strategy and prioritized

options, e.g. geographic

region, supply chain function

etc.

• Measure and realize first

successes fast

• Secure organization’s

engagement and buy-in

• Adapt and make

improvements to target design

• Identify customizations of

design for specific regions /

functions

• Roll out and stabilize

Change management

Engage Plan for Change Enable Change Scale Change

• Detailed as-is capturing and

structural diagnosis of current

organization, e.g.:

Center of gravity

Organization core &

business alignment

Roles & responsibilities

HC baselining

Spans and layers

What is your future time to market

(lead times, freshness, shelf life, etc.)?

Up to 1 week

Generate Results

18PwC | Strategy&

Extract

PwC | Strategy&

We invented the Supply Chain Management concept and developed proprietary SC benchmarking based on SCOR®

19

We invented the Supply Chain

Management concept and

developed our proprietary SC

benchmarking based on SCOR®

Our thought leadership is well

recognized across all areas within

Operations

We are a recognized, global leader

in Operations Consulting

• Strategy& invented the term “Supply Chain Management” more than 30 years ago

• Strategy& (PRTM) developed and introduced the Supply Chain Operations Reference model (SCOR®) to the public domain

• Through our subsidiary, The Performance Measurement Group (PMG), we regularly conduct leading Supply Chain management benchmarks

Exemplary analyst recognitions

Supply Chain Management

Consulting Services

IDC MarketScape Leader

Supply Chain Strategy & Planning

Consulting

ALM Intelligence Leader

Operations Digital Strategy

Consulting Services

IDC MarketScape Leader

Supply Chain Management

Consulting IDC ALM Intelligence

Leader

Differentiated

Supply Chains

Enterprise-wide operations

excellence

Connected and autonomous

supply chain ecosystems

Innovation & development

excellence

Competitive

manufacturing

Sustainable supply chain

management

Plan

DeliverMakeSource

PwC Strategy& capabilities: Overview

November 12, 2020