Paolo Gallibci, Electrolux presentation at Spare Parts 2013

Network Optimization

as next step in Spare Parts

Cost and Service Optimization

How to create Value?

Paolo Galli

European Logistics EMA-EMEA Ops

E: [email protected]

T: +39 0434 394408

Carlo Peters

Supply Chain Strategy Consultant

E: [email protected]

T: +31 622 917 254

Stockholm, February 7, 2013

Buck Consultants International, 2013 1

Contents

1 The dynamics in spare parts / AMS services

2 The added value of Network Design

3 The building blocks of an intelligent Supply

Chain

4 Introduction Electrolux

5 Case Electrolux spare parts network design

6 Key takeaway’s


After Market Service (AMS)

Creating value

After market service is the combined

offering of parts, services and information

that delivers maximum customer

satisfaction and ongoing customer loyalty

in terms of exceeding the customer’s

expectations in the application of the

purchased product


1 The dynamics in spare parts /

AMS services

FROM

Focus on forward supply chain of

Finished Goods

Cost Center

High inventories

Western European Focus

Single sales channels

Own operations

Single supply chain for FG and Parts

TO

Focus on aftermarket, incl. spare parts,

returns, asset recovery, etc.

Profit Center

Reducing inventories

New Geographies such as Russia,

Turkey, Mexico, etc.

Multiple sales channels incl. internet

Outsourcing of aftermarket functions

Differentiated supply chains

Key Trends & Developments


2 The added value of Supply

Chain Network Design

Range of Optimal Values

Annual

Cost

Transfer

Freight

Fixed

Cost

Outbound

Freight

Number Of Facilities Few Many

Total

Cost

Inventory

Carrying Cost

Range of Optimal Values

Annual

Cost

Transfer

Freight

Fixed

Cost

Outbound

Freight

Number Of Facilities Few Many

Total

Cost

Inventory

Carrying Cost

A Supply Chain network has an optimum number of facilities

depending the relevance of in- and outbound transport cost versus

inventory and warehousing costs

The majority of a supply chain’s lifecycle costs are locked-in at the start…

Decisions Solutions Value

Advanced

Planning and

Scheduling

ERP / MRP

Execution

Strategic and

Tactical

Supply Chain

Optimization

80%

20% Op

era

tio

na

l Ta

ctica

l S

tra

teg

ic

Source: AMR Research

Manufacturing/supplier network

Distribution network

Inventory Locations

Inventory Levels

Service policies

As the majority of the supply chain costs are locked in

the infrastructure, network design is critical in order to

realize step changes


Op

era

tio

nal

Ta

cti

ca

l

S

tra

teg

ic

Supply chain configuration

Inventory deployment

Service level /Safety stock targets

Allocation

Capacitated scheduling

Available-to-promise

Purchase order management

Transaction management

Bill-of-materials management

Performance monitoring

Event/alert management

Connectivity

Network footprint design

Transport lanes

Facility numbers/locations

Strategic network design is directly linked to Inventory

Policies; where to start?


Network Design

Inventory Policy

Advanced Planning and Scheduling

MRP / ERP

Execution


3 The building blocks of an

intelligent Supply Chain

Differentiated service offering

Differentiated Supply Chain set up

Pre-pack and warehousing locations

SC Visibility and transport management

Collaboration and outsourcing

Inventory optimization

8

Europe in 4 hours

Advanced Network

● Centralized backup-inventory

● Localized emergency inventory in selected cities in each country

● Shared infrastructure

● Pick-to-order 24 x 7 x 365

● Individual transportation to customers and engineers

● Consolidated replenishment transportation

● Delivery within 4 hours of order

Europe in 24-48 hours

Centralized Solution

● Centralized inventory


● Scheduled batch-run picks

● Late cut-offs

● Consolidated transportation to customers and engineers

● Delivery on next business day

Europe in 2 Hours

High Density Network

● Centralized backup-inventory, eventually hosted in two locations

● Localized emergency inventory using a high density storage network to achieve shortest lead times


● Pick-to-order 24 x 7 x 365

● Individual transportation to customers and engineers

● Consolidated replenishment transportation

● Delivery within 2 hours of order

Buck Consultants International, 2013

Differentiated service offering

Can be accomplished through the network and

through transport modalities used

http://www.cisco.com/en/US/hmpgs/index.html

http://www.sgi.com/

http://www.klatencor.com/index.html


Customers

Distributor

Dealer

Direct to

retail

End

customer

Customer

site

Service

technician

Dependent on the product, product characteristics and

product/market combinations a variety of supply chains

solutions can be developed

Source

Source

Hub EDC

RDC /

SDC

Hub

MSP

Activities

Milkruns

Production

Repair

Activities

Consoli-

dation

Deconsoli-

dation

Activities

VAL

Merge in

transit

Cross-dock

Repair

Inventory

Postponed

manufacturing

Prepack

Activities

VAL

Merge in

transit

Cross-dock

Repair

Inventory

Prepack

Activities

Cross-dock

Consoli-

dation

Deconsoli-

dation

Activities

VAL

Repair

Inventory

Consignment

stock

Critical parts

Prepack

PU

Activities

PuDo /

Kiala

locations

Lockers

Garage

box /

Van

Markets

Markets

Markets

Differentiated Supply Chain set up


Pre-pack and warehouse locations

If labor and warehousing costs are the key drivers,

low labor costs countries can be favorable for labor

intensive pre-pack and warehouse operations

Low labor cost countries

Labor cost index

Warehouse rent index

Source: IMD 2012

Inbound

Logistics

Suppliers Receiving

Customer Manufacturer

Customer

Channels

Outbound

Logistics

Return

Management

Multi Modal Control Tower End-to-end transportation Management across the supply chain

KPI metrics and reporting, QBR reviews with vendors, freight invoicing and auditing

Air Freight Sea Freight

Warehousing &

Distribution

Last Mile /

Integrators Road & Rail

Compliance &

Documents

SC visibility and transport

management Multi Modal Control Tower allowing for end to end visibility and

continuous optimization of cost, quality and service


Several collaboration initiatives have emerged; some

are outsourced, other are managed amongst brand owners

Collaboration and Outsourcing


http://www.cadburyschweppes.com/EN/

http://www.bridgestone.nl/bfe/v/index.jsp?vgnextoid=c913d120ffb40010VgnVCM1000005901a10aRCRD

http://www.bridgestone.nl/bfe/v/index.jsp?vgnextoid=c913d120ffb40010VgnVCM1000005901a10aRCRD

http://www.google.com/imgres?imgurl=http://www.voedingsacademie.nl/pics/Hero.jpg&imgrefurl=http://www.voedingsacademie.nl/pagina.php?id=120&lang=nl&h=410&w=1280&sz=109&tbnid=okYgng01cr38UM::&tbnh=48&tbnw=150&prev=/images?q=hero&usg=__DbOzHsdkYXYdJKOLBOHYjR0hPUc=&ei=Cc7VSZvQE9WD-AaIyezKBQ&sa=X&oi=image_result&resnum=1&ct=image

http://www.sca.com/en/Home/

http://www.reckittbenckiser.com/site/RKBR/Templates/Home.aspx?pageid=1

http://images.google.com/imgres?imgurl=http://www.bier-etiketten.nl/europa/frankrijk/fr_kronenbourg/M-bestanden/kronenburg_pilsner2.jpg&imgrefurl=http://www.bier-etiketten.nl/europa/frankrijk/fr_kronenbourg/M.htm&usg=__zY9TSzLV8IpEuW72szQX9HEKgtY=&h=240&w=323&sz=9&hl=nl&start=3&um=1&tbnid=pfWOZTA-TxZVuM:&tbnh=88&tbnw=118&prev=/images?q=kronenburg+bier&hl=nl&rls=com.microsoft:nl:IE-SearchBox&rlz=1I7GGLR&sa=N&um=1

Inventory optimization

Excess inventory

and added cost

Central inventory management visibility and stocking

decisions are needed over to optimize over all echelons



BCI methodology for strategic network

design & optimization

Design and optimization of a complex service supply chain structure requires a

proven and well-structured methodology in combination with powerful

optimization tools

Start-up

Understand

&

Analyze

Design Detail &

Validate

Document

& Plan Implement

Project management

• Objectives

• Constraints

• Scope

• Team

• Level of detail

• Project plan

• Business CSFs

• Operations

• Level of detail

• Data collection

• Baseline model

• Scenarios

• Alt. Locations

• Alt. DC network

• Alt. service

levels

• Sensitivities

• Populate

• Run

• Analyze/Debug

• Robustness

test

• Rank / Select

Impact analysis

• Organization

• Systems

• HR

• Risk

• Service

Change Mngt.

A phased approach with clear deliverables per phase

15

Electrolux 2011

Position Sales SEK 102 billion

Op income SEK 3.2 billion

Sales in more than 150 markets

A world leader in appliances

Figures as of 2011

Products

More than 40 million products per year

To meet the real needs of consumers and professionals

40

MIL

LIO

N

150

MA

RK

ET

S

People 58,000 in 60 countries

60 C

OU

NT

RIE

S

16

Electrolux business

A global company

Cookers, Ovens & Hobs

Refrigerators & Freezers

Dishwashers

Laundry products

Vacuum cleaners &

Small appliances

Air Conditioners &

Dehumidifiers

Products for professional use Share of net sales as of 2011


From a country based, uncoordinated spare parts service set up, via a

centrally coordinated, regional spare parts set up towards a customer

centric driven set up balancing cost and service

Sales co

Sales co

Sales co

Sales co

Factory

Supplier

Factory

Factory

Country based business

Local management

20 Warehouses

No unified IT system

European business unit for spares

Integrated Spares Business

6 warehouses

European IT system

Market

Market

Market

Market 6 ware-

houses

Factory

Supplier

Factory

Factory

Sales co’s

European functional Aftermarket organization

Spares entities aligned with the rest of EMA-E

organization

Each unit to focus and specialize (KPI’s, visibility…)

Purchasing

Purchasing

SCM / Op’s

SCMSpares Op’s

Sales

After Sales

1990’s

2000’s

2010’s

5 Case: Electrolux spare parts

Network design


Jönköping

Newcastle

Madrid

Maniago

Rothenburg

Zurich

6 regional distribution centers

keeping (almost) all spare codes

Prepacking at each DC

Total headcount > 350FTE

35.000 customer order lines daily

>300.000 active spare codes

160.000 spare codes in stock

100 new spare parts introduced

every day

Less than 4% of spare codes

represent > 75% of sales volume

>80% of spare codes represent

less than 4% of sales volume

The current supply chain set-up provides high customer

service in terms of product availability (>97% on order

line level) and short order lead times

DELIVERY


The key cost drivers are labour and real estate related;

warehousing and pre packing represent >50% of the

total supply chain cost

Overall objective Balancing customer fulfillment requirements versus supply

chain costs


Customer fulfillment

Availability

Order lead-times

Complexity to manage

Supporting future strategies

Flexibility

Supply chain costs

Transportation costs

• In-, whs-whs, outbound

Warehousing costs

• Labour, building, other

Prepacking

Inventory carrying

Other

Scenario’s*)

AS IS

6 RDC

Reduced

# RDC

Single DC

CDC + satellites

Supplier Direct

(Variant to all

scenario’s)

Location

options

As is HCC & LCC HCC

LCC

HCC or LCC

Satellites in

relevant markets

Key network scenario’s under consideration

*) In each scenario different pre pack locations have been assessed

Supplier Supplier Supplier Supplier Supplier

Regional

markets

Regional

markets

All

markets

All

markets

All

markets


Different cost per supply chain element per scenario

result in overall supply chain cost (index) comparison

AS IS

6 RDC

Reduced

# RDC

3 RDC

Single DC

1 CDC

CDC +

satelites

3-6 Sat’s

Supplier

Direct

Warehousing

Prepacking

Inventory costing

Transport

22 Buck Consultants International, 2013


Weighed scores of Customer- and Internal Facing

aspects result in comparison of scenarios on quality /

service elements

Qualitative aspect Weight As ls Single DC RDC set up

(less RDC) CDC + Sat

Order Lead Time x%

Immediate availability x%

Ease of inventory

management x%

Ease of transport

management x%

Ease of Pre-Pack operations

and management x%

TOTAL Quality score 100% Depending the relevance (weight) of each aspect

Low score High score

Cu

sto

me

r

fac

ing

Inte

rna

l

fac

ing

24

Weighted quality scores

2.5 4.5 3 4

3.5

Theoretic

optimum

AS IS

The project specific cost – quality matrix to support

strategic decisions for balancing cost and service / quality

High quality

Lo

w C

os

t H

igh

Co

st

Low quality

More DCs (10)

CDC+SAT’s

Central DC

3 RDCs

CDC East Europe

Co

st

Ind

ex


30%


Pitfalls and success factors

Strategy

Clearly communicate the company strategy

Have an idea what you want but keep an open mind

Once high level results are available focus on a limited amount of plausible

scenarios

Involvement

Make sure to have all key stake holders represented in the working team

Company wide involvement (M&S, product management, operations,

logistics and supply chain, finance, …)

Top down commitment

Bottom up involvement

Data / Information

Define the right level of details of data

Reliable: Take the time to review it!


Final conclusion

Road map coming 3

years

Implement the plan

Harvest the

benefits

Next steps


5 Key takeaways

Strategic network design adds value

There are various building blocks to optimize

Priorities alongside the axles of cost or service drive the preferred network solution

A structured approach, involving company wide stakeholders, is key to success

28

Questions?



Buck Consultants International in

a nutshell

Areas of activity

Development of European Business

Strategies

Global Supply Chain Optimization

Real estate strategy / location advice

From Strategy to realization

Profile

Established in Nijmegen, the Netherlands

in 1985

Employs 65 full-time professionals

Performed studies in more than

50 countries in 5 continents

Milan

Madrid

Frankfurt Paris

London

Brussels

The Hague

Nijmegen HQ

Chicago, IL

Office locations

Partners in

US :

Far East :

Russia :

29

30

Buck Consultants International

supply chain services offering

Supply Chain strategy

development

Supply chain optimization

(network analyses)

Distribution centre and

manufacturing facility

operations audit and design

Location selection for DC or

manufacturing site

Logistics outsourcing

(3PL selection processes)

Transport & carrier

optimization

Inventory analysis and

optimization


31

Manufacturing /

Aftermarket Other references

Sample BCI references


http://www.husqvarna.com/nl/

http://www.mitutoyo.com/home.aspx

http://www.yamaha-motor.co.jp/global/index.html

http://www.cadburyschweppes.com/EN/

http://www.sappi.com/SappiWeb

http://www.janssenpharmaceutica.be/index_N.asp

http://www.grolsch.nl/Homepage.aspx

http://www.crh.nl/index.php

Paolo Gallibci, Electrolux presentation at Spare Parts 2013

Business

Transcript of Paolo Gallibci, Electrolux presentation at Spare Parts 2013