Supply chain excellence

Identify your weakest link

Ivica Perica, DeloitteDirektor u Odjelu poslovnog

savjetovanja

Ivica PericaDirektor

Odjel poslovnog savjetovanja

Tel: +385 (1) 2351 900

Mob: +385 (91) 67 78 091

E-mail: iperica@deloitteCE.com

Among top

operations

consulting provider

worldwide

Source:

“Kennedy Consulting

Research and

Advisory*”

*According to breadth and depth of capabilities

Agenda

2

2

1 Supply chain leaders and followers survey

Key steps for a resilient supply chain

Service qualityPercentage of deliveries

that are on time and in full

Inventory turns

How do you think the performance of

your company’s supply chain compares

to that of other firms in its industry?

Two main KPIs:

Deloitte Global Supply Chain Survey (2014)

12% Supply

Chain

leaders

88% Supply

Chain

followers

Service quality and low inventory turns

distinguish leaders from followers

3

Leaders

• SC Leaders also have a higher

financial performance. Measured

against other organizations in

their industry:

• 79% have revenue growth

significantly above average

• 69% have EBIT margin

significantly above average

margin

Followers

• SC Followers have a lower

financial performance. Measured

against other organizations in their

industry:

• Only 8% have revenue growth

significantly above average

• Only 9% have EBIT margin

significantly above average

margin

Supply chain excellence leads to better

financial performance

Of the 12% that were identified as SC Leaders, 98% were performing well above peers in

terms of both revenue growth and EBIT margin, whereas only 38% were of the Followers

4

Recognize the importance of innovation 96 percent identify innovation as "extremely important" to growth (vs. 65 percent of followers)

Be early adopters of disruptive technologies such as 3D-Printing48 percent of leaders use 3D-Printing "extensively" (vs. 13 percent of supply chain followers)

Use analytics extensively75 percent of leaders utilize optimization software (vs. 34 percent of followers), visualization software

(67 percent vs. 28 percent), mobile technologies (75 percent vs. 30 percent) and radio frequency

identification tags (65 percent vs. 27 percent)

Empower executive level leadership56 percent of supply chain leaders have a senior executive heading their supply chain function, compared to

just one–third of supply chain followers

Broader span of controlRoughly 50 percent of SC leaders own all of the six "links" frequently associated with supply chain

management – product development, demand planning, supply planning, sourcing and procurement,

manufacturing and logistics and distribution

Develop talent strategies88 percent are more likely to actively recruit supply chain professionals with analytics expertise and cross-functional

experience and 83 percent are more likely to recruit those with global experience

Supply chain Leaders are more likely to…

What do the leaders do differently?

5

• All the supply chain objectives listed were named by two-thirds or more of executives.

• The objectives cited most often were:

• Ensure reliable product quality and operations

• Meet customer service levels

• The gaps between Supply Chain Leaders and Followers were especially large for several objectives:

• Achieve global growth objectives

• Spur innovative approaches

• Integrate with other company functions, vendors, and customers

• Larger companies were more likely than smaller companies to cite many supply chain objectives as extremely or very important.

• The differences between larger and smaller companies were greatest for:

• Reduce delivered cost

• Minimize inventory investment

• Integrate with other company functions, vendors, and customers

All survey respondents Supply Chain Leaders Companies with annual revenues of < $1B

Companies with annual revenues of $1B or >Supply Chain Followers

Supply chain objectives

84%

80%

76%

75%

75%

72%

70%

69%

68%

Ensure reliable productquality and operations

Meet customer servicelevels

Achieve global growthobjectives

Reduce delivered cost

Increase flexibility torespond to erratic demand

Assure reliable supply ofraw materials

Minimize inventoryinvestment

Spur innovativeapproaches

Integrate with othercompany functions,

vendors, and customers

100%

98%

98%

94%

96%

96%

90%

96%

92%

81%

77%

73%

72%

72%

68%

67%

65%

64%

78%

73%

70%

67%

73%

67%

63%

64%

57%

88%

85%

81%

82%

77%

75%

76%

73%

76%

How important for your company are each of the following objectives for its supply chain?

6

80%

82%

73%

82%

64%

73%

71%

67%

62%

50%

47%

40%

65%

64%

52%

57%

39%

41%

78%

73%

73%

52%

57%

48%

73%

69%

63%

54%

50%

45%

Supply planning

Demand planning/forecasting

Procurement/ sourcing

Product development

Logistics & distribution

Manufacturing

• Supply planning, demand planning/forecasting, and procurement/sourcing were the activities most often listed as included in the supply chain function.

• Among companies with a supply chain function, only about half included product development or logistics & distribution.

• Supply Chain Leaders were more likely to report a greater span of control over select activities.

• Roughly one-third of Supply Chain Leaders did not include Logistics & distribution or Manufacturing in their supply chain function.

• Larger companies included a wider range of activities within their supply chain function.

All survey respondents Supply Chain Leaders Companies with annual revenues of < $1B

Companies with annual revenues of $1B or >Supply Chain Followers

Activities Included in Supply Chain

Function Which of the following steps has your company taken to increase the flexibility and resiliency of

its supply chain to respond to disruptions or unexpected changes in demand?

7

48%

47%

45%

43%

42%

39%

38%

36%

36%

36%

35%

35%

34%

Collaboration with keysuppliers

Increase speed-to-market

Reduce cycle times

More flexible transportationpolicies

Increase visibility

Source from multiple vendors

Production facilities/vendors inmultiple locations

Build spare capacity

Reserve capacity for make-to-order products

Locate production closer tocustomers

Higher inventory levels

Interchangeability of parts

Locate production closer tosuppliers

76%

75%

69%

75%

76%

59%

75%

71%

61%

63%

61%

55%

65%

44%

43%

41%

39%

38%

36%

33%

32%

33%

32%

32%

32%

30%

Which of the following are included within your company’s Supply Chain function?

• Less than half of surveyed companies reported taking any of 13 actions to increase the resilience of their supply chain to respond to disruptions or unexpected changes in demand.

• The most common steps taken were:

• Collaboration with key suppliers

• Increase speed to market

• Reduce cycle times

• Supply Chain Leaders were much more likely to report having taken steps to increase resilience (roughly 30% more for most actions).

• However, even among Supply Chain Leaders, one-third or more had not taken any of the actions listed.

• Larger companies were more likely than smaller companies to have taken steps to increase resilience.

40%

39%

36%

32%

31%

28%

30%

27%

26%

55%

54%

49%

51%

45%

43%

40%

41%

41%

All survey respondents

Supply Chain Leaders

Companies with annual revenues of < $1B

Companies with annual revenues of $1B or more

Supply Chain Followers

Steps to Increase Resilience of

Supply Chain

8

39%

33%

35%

32%

17%

57%

59%

55%

57%

58%

Optimization software

Supply chain visualization software

Mobile technologies

RFID tags

3D printing

Extensively Somewhat / A Little

Technologies Used in Supply Chain

To what extent does your company use each of the following technologies in its supply chain

operations?

9

75%

75%

67%

65%

48%

30%

34%

28%

27%

13%

Mobile technologies

Optimization software

Supply chain visualization software

RFID tags

3D printing

Supply Chain Leaders

Supply Chain Followers

Industrial

Products/

Auto

Diversified

Man

Consumer

Products

High

Tech

Chemicals

/EnergyRetail Overall

Meet customer service levels 84% 83% 83% 79% 54% 84% 78%

Achieve global growth objectives 77% 76% 71% 70% 88% 77% 77%

Assure reliable supply of raw

materials82% 82% 73% 64% 50% 82% 72%

Minimize inventory investment 69% 73% 68% 64% 85% 69% 71%

Spur innovative approaches 74% 69% 79% 68% 48% 66% 67%

Integrate with other company

functions, vendors, and customers67% 72% 60% 60% 85% 69% 69%

• Chemicals/energy companies were most likely to cite: Achieve global growth objectives, Minimize inventory investment, and Integrate with other functions, vendors, and customers.

Supply Chain Objectives

How important for your company are each of the following objectives for its supply chain?

10

Industrial

Products/

Auto

Diversified

Man

Consumer

Products

High

Tech

Chemicals

/EnergyRetail Overall

Attracting and retaining talent 59% 45% 59% 52% 75% 59% 58%

Keeping up with product

introductions56% 42% 62% 52% 69% 65% 58%

Minimizing expenses while

supporting growth55% 42% 51% 55% 71% 65% 57%

Responding to demand uncertainty 57% 42% 59% 40% 79% 56% 56%

Ability to maintain operations

during disruptions52% 46% 49% 53% 77% 60% 56%

Responding to supply volatility 52% 41% 51% 52% 79% 54% 55%

Coordinating with Sales and

Marketing47% 38% 41% 40% 69% 61% 49%

Coordinating with vendors 45% 40% 42% 45% 67% 56% 49%

• Chemicals/energy companies more often rated several issues as very challenging: Attracting and retaining talent, Minimizing expenses while supporting growth, Responding to demand uncertainty, Responding to supply volatility, supporting global growth, and Keeping up with product introductions.

• Diversified manufacturing companies were least likely to consider Keeping up with product introductions as very challenging.

Challenges in Supply Chain

How challenging are each of the following for your company’s supply chain?

11

Industrial

Products/

Auto

Diversified

Man

Consumer

Products

High

Tech

Chemicals

/EnergyRetail Overall

Collaboration with key suppliers 56% 47% 54% 47% 38% 46% 48%

Increase speed-to-market 45% 54% 54% 48% 35% 48% 47%

Reduce internal cycle times 52% 37% 48% 41% 56% 42% 46%

More flexible transportation

policies49% 32% 44% 42% 48% 42% 43%

Build spare capacity 44% 38% 25% 34% 38% 38% 36%

Reserve capacity for make-to-

order products45% 42% 33% 28% 33% 33% 36%

Maintain higher inventory levels 44% 36% 27% 38% 23% 40% 35%

Interchangeability of parts 36% 36% 41% 41% 35% 13% 34%

• To increase resilience, industrial products/auto companies more often cited Collaboration with key suppliers, Build

spare capacity, Reserve capacity for make-to-order products, and Maintain higher inventory levels.

• Diversified manufacturing and consumer products companies were more likely than those in other industries to

cite Increase speed-to-market.

Steps to Increase Resilience of

Supply Chain

Which of the following steps has your company taken to increase the flexibility and resiliency of its supply chain to

respond to disruptions or unexpected changes in demand?

12

Supply chain disruptions have become common

and costly….

…yet most companies are inadequately focused in

managing supply chain risks

…through neglected key organizational and risk managementenablers…

People

LL

LL

050 Technology

& Analytics

Process

Impact on SC Performance

(-$) (+$)0

True distribution Normal distribution

…and through unpreparedness for

high-impact, low-probability, “Black

Swan” events

…through unclear cross-functional ownership of supply chain risk…

?

Global supply chains,

finds a recent survey,

experienced at least

one disruption in the

last 12 months1

85%COMMON

OCCURRENCE OF

SUPPLY CHAIN

DISRUPTIONS

30%

Firms have 30% lower

shareholder returns

following a publicly-

announced disruption

compared to peers3

NEGATIVE IMPACTS

ON SHAREHOLDER

RETURN

Sources: 1) “Supply Chain Resilience 2011,” November 2011, Business Continuity Institute; 2) “An Empirical Analysis of

the Effect of Supply Chain Disruptions on Long-Run Stock Price Performance and Equity Risk of the Firm,” Spring 2005,

Production and Operations Management Journal; note: value reflects median results against several benchmarks during

disruption year

Companies under invest in proactive

supply chain risk management

Internal supply chain practices, focused on efficiencies

and cost, have increased and shifted risk exposure

CENTRALIZATION FOR

ECONOMIES OF SCALE

INCREASED OUTSOURCING

OF CORE ACTIVITIES

SUPPLIER CONSOLIDATION

STRATEGIES

RISE OF JUST-IN-TIME AND

LEAN PRACTICES

GLOBALIZATION OF

SUPPLY CHAINS

Customer, macroeconomic, and societal trends have

also increased pressure on supply chain operations

SHORTENED PRODUCT

LIFECYCLES

NEED FOR ENVIRONMENTAL

& SOCIAL RESPONSIBILITY

£$

¥

€SHIFTING ECONOMIC

LANDSCAPE

HEIGHTENED REGULATORY

ENFORCEMENT

WORSENED IMPACT OF

NATURAL DISASTERS

SOCIAL MEDIA & INCREASING

TRANSPARENCY

Recent supply chain practices have

increased risk exposure to supply chainsIn many cases, internal practices have limited companies’ ability to respond to increasingly

complex risks posed by external forces

14

Resilient supply chain methodology

Supply Chain

Resilience

Assess SC Resilience

Determine Risk Exposure

5

Evaluate and

Prioritize

Resilience

Strategies

Address SC Resilience Opportunities

Monitor SC

Resilience

2

1

3

4

Step 1:

Goal: Assess overall supply

chain resilience and pinpoint

critical vulnerabilities

Step 4:

Goal: Address supply chain

resilience opportunities using a

defined roadmap

Step 2:

Goal: Prioritize risks based

on intensity, vulnerability,

and node criticality

Step 3:

Goal: Quantify priority risks,

define the costs and benefits of

potential resilience strategies

and develop a business case

and roadmap for the best

course of action

Step 5:

Goal: Develop a means to

monitor supply chain

resilience and manage

emerging vulnerabilities

Five-step methodology helps build and

improve supply chain resilienceEach of the five steps has defined goals to support on-going resilience efforts

15

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Ivica Perica, DeloitteDirektor u Odjelu poslovnog savjetovanja