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Supply Chain Agility: Managing Change | B
Supply
Chain Agility:
Managing Change
A study of supply chain maturity
November 2012
kpmg.com
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
C | Supply Chain Agility: Managing Change
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Foreword
On face value, little seems to have changed over
the past twelve months. The global economy
continues to lurch from one crisis to the next,
input costs remain painfully high, business activity
stubbornly depressed, and growth – even in the
emerging markets – challenging. Some indices
have only eroded over the last year – business
confidence is down, volatility and uncertainty
is up, and the debate over the Eurozone crisis
seems never-ending.
Indeed, our firms experience and research tells us
that the strongest supply chain organizations are
those that are using this time to better position
their businesses for growth. Some are focused on
driving true collaboration across the supply chain
and integrating their Sales & Operations Planning
(S&OP) across the end-to-end supply chain
processes. Others are adopting new, low-cost
technologies and operating models to enhance
transparency and facilitate collaboration.
Against this backdrop, KPMG’s network of
member firms supported by the Chartered Institute
of Logistics and Transport (CILT) once again
cooperated to find out how supply chain directors
are managing in this uncertain world and to gauge
the level of supply chain maturity in certain markets
and industries. To deliver even greater insight this
year, we expanded our research to include some of
the key markets in Europe and the Americas.
We believe that this is no time for battening down
the hatches and weathering the storm; those that
do will emerge only to find that opportunity has
already passed them by. Rather, this is a time for
supply chain directors to take action to help their
organizations prepare for growth by developing a
more agile and responsive supply chain.
What we found was that, whilst cost and
profitability has come under intense scrutiny, much
work still remains in a number of areas, particularly
in understanding the cost to serve and the impact
of new customer channels. Supply chain directors
also said they were grappling with demand
volatility; those with more mature supply chains
also demonstrated that they were starting to take
measures to develop stronger collaboration with
their suppliers and customers in order to improve
planning and reduce fluctuations.
We would like to thank all of those individuals and
organizations that participated in our interviews.
By sharing your experience and providing valuable
insight into your supply chain operations and
strategies, you have played a key role in helping
KPMG and the CILT to further evolve this annual
benchmark survey of supply chain maturity.
We hope this report helps supply chain leaders
and corporate executives to better understand
the changes taking place in the market and the
opportunities available to address the challenges
posed, and – as a result – work to achieve more
agile, efficient, and resilient supply chains.
But there was one theme that held across nearly
all of our interviews: supply chain directors need to
focus on bringing agility to their supply chains, not
only to manage current volatility in the markets, but
also to put themselves in a competitive position
once the long-awaited upturn finally arrives.
Andrew Underwood
Partner, Supply Chain
KPMG in the UK
Steve Agg
Chief Executive
Chartered Institute of
Logistics and Transport
(UK)
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Contents
Executive Summary
1
Key findings – Relentless focus on cost and profitability
2
Case Study – British Sugar plc Enhancing collaboration to deliver value
5
Key findings – Redefining the meaning of LEAN
6
Key findings – Coping with demand volatility
8
Case Study – Kuehne + Nagel (KN)
11
Supply Chain Trends
12
Case Study – ZIM Integrated Shipping Services 15
Supply chain in the cloud
16
Focus on talent
Conclusion
Quantitative Findings
Quantitative Analysis
20
22
24
26
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 1
Executive Summary
It seems to all come down to volatility: Economic volatility (the
Eurozone crisis and anemic economic growth) compounded
with political volatility (elections in the US and on-going
turmoil in the Middle East) have led to business volatility
(bankruptcies, insolvencies and increased regulation) and
supply chain volatility (demand fluctuations and gyrating input
costs). That’s a lot of volatility.
It should come as no surprise, therefore, that KPMG’s
interviews indicate that supply chain directors are now
increasingly focused on those activities that help them reduce
the impact of volatility, enhance flexibility and drive out costs.
And while some seem to still be taking short-term actions
in order to weather the storm, others are pursuing new
approaches and reorganizing their operating models to turn
volatility into opportunity.
By comparing the results of the 2012 interviews with those
from last year, we noted three areas in particular that supply
chain directors and corporate executives were particularly
focused on:
• Identifying opportunities to squeeze further costs out
of the end-to-end supply chain to drive profitability; and
understand the true supply chain cost to serve.
Overall, our analysis of the interviews reveals that supply
chain maturity has generally increased, though some
areas – such as supply chain risk, cost to serve analysis
and sustainability – still seem to be slow to develop in
many sectors and geographies. In part, this may be due
to challenges recruiting and retaining skilled operators.
Indeed, across almost all of the markets and industries
we interviewed, we found that high-quality talent was a
scarce resource.
While supply chain maturity levels have remained broadly
stable when compared to our 2011 results, our interviews
revealed that respondents are re-evaluating their maturity
in key functional areas based on the lessons learned over
the past year of supply chain challenges. Looking across
the sectors, however, we find that participants from the
Diversified Industrials, Consumer Packaged Goods (CPG) and
Logistics sectors tended to demonstrate the highest levels
of supply chain maturity overall. Participants reported the
highest overall maturity in their capabilities around Customer
Relationship Management and Supplier Relationship
Management, but were less optimistic about their maturity
in Sales & Operations Planning, Working Capital and Supply
Chain Risk Management.
• Developing more effective responses to demand volatility
in order to reduce fluctuations and reduce costs.
• Reorienting their operational processes with a ‘LEAN flavor’
to enhance flexibility while maintaining efficiency.
Our interviews also uncovered a number of emerging and
continuing trends that are influencing the supply chain
environment. Some organizations are moving towards globally
integrated Sales and Operations Planning processes to
create more alignment across the supply chain, while others
are setting up shared service centers to centralize order
taking, financing, logistics planning and elements of logistics
execution. More revolutionary still will be the widespread
adoption of cloud services within the supply chain.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
2 | Supply Chain Agility: Managing Change
Key findings –
Relentless focus on cost and profitability
Whilst cost cutting has been the rally cry for supply chain
leaders ever since the start of the global financial crisis, our
interviews show that the pressure to remove cost has still
not let up. And with cost remaining at the top of the corporate
agenda across virtually all sectors and markets, it seems clear
that the relentless focus on cost and profitability will not ease
any time soon.
Other costs are also on the rise. Fuel costs remain stubbornly
high overall (notwithstanding short-term dips due to market
gyrations), while in the emerging markets we have seen costs
increase for property and operating assets. Labor costs are
also mounting – most rapidly in the East – but also in the West
as talent becomes scarcer and the cost of living increases
faster than margins.
What is more, costs only seem set to rise over the coming
years. One particular area of concern for many supply chain
directors has been the potential cost that new legislation
and regulation may bring to their balance sheets. Beverage
companies in Europe, for example, are trying to grapple with
how proposed sugar taxes and bottling deposit requirements
will impact their margins. In Portugal, an increase in VAT
levied on beverages has also had impact on the final price
of products for the end customer, thereby putting additional
pressure on cost and the need to identify changes in operating
models as a way to maintain some profitability.
All is not as dark as it seems however; pockets of growth do
exist. For example, the emerging markets clearly continue
to shine as a region of opportunity, as does the automotive
industry which has seen significant growth globally over the
past 18 months. But when growth returns to organizations,
costs are sure to follow, leading many supply chain directors
to turn their attention towards ensuring their previous cost
cutting measures are sustainable.
In particular, our interviews with supply chain directors around
the world highlighted a number of areas where organizations
may be able to gain greater control over supply chain costs.
Likely the most significant and far-reaching regulatory change,
however, will emerge from the development of carbon taxes,
and debate continues as to who within the supply chain will
bear the brunt of that cost: the logistics provider, the end
consumer, or the retailer (some vocal pundits suggest it will
likely be the retailer). Many will be keenly watching in 2014
when Australia’s carbon tax expands to encompass the
transportation sector to see how the system will impact costs
across the supply chain.
If this is true whatever the context, under the current economic pressure – with
margins being so squeezed – it is more and more important that companies have
a clear understanding of where the value from their operations is being created,”
noted Jorge Maia Gomes, Supply Chain Specialist, KPMG in Portugal.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 3
Get clear about your cost to serve
Embed finance into the supply chain
Understanding the exact cost to serve across each line of
product and channel is essential to not only cutting costs,
but increasing profitability. With this data, organizations can
start to make rational choices about how they serve their
customers and which customers or channels may be lossgenerators. But while much of the information required
to achieve this nirvana tends to be fairly available within
organizational ERP systems, many supply chain organizations
struggle to convert this data dump into actionable programs
and projects that will translate these findings into real
cost savings.
One of the common complaints aired by our interviewees
was that their finance departments were mandating cost
reductions without a clear understanding of the supply
chain’s cost drivers and Key Performance Indicators (KPIs).
Increasingly, we are seeing finance analysts and managers
becoming embedded in the operations team in order to build
a bridge between the objectives of the CFO and the realities
of supply chain operations. Moreover, our experience shows
that once finance professionals are properly indoctrinated
into the supply chain world, they tend to uncover veins of
untapped cost savings that may not have been apparent to
supply chain professionals.
Taking a radical view of costs
With many supply chain leaders now scraping the bottom
of the barrel to find costs to eliminate, some are looking
to innovative – often even radical – models for slashing
further costs from their supply chain. Take the Consumer
Packaged Goods (CPG) sector for example, where a small
but growing number of organizations are partnering with
potential competitors to share logistics and distribution assets
(particularly in situations where both parties share common
customer bases and product characteristics). On the more
traditional end, supply chain directors are also starting to
peer further and further down the supply chain and across
the extended enterprise to find previously unidentified
opportunities for bringing down costs.
In Asia, we are seeing many of the multinationals step up their focus on
driving out costs, but – given the diversity of the markets in the region
– success has varied from country to country,” noted Amrinder Singh,
Associate Director, KPMG in Singapore. “Supply chain directors will
need to understand the differences in each market to ensure that their
cost cutting measures are realistic, effective and sustainable.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Photo: PRshots
4 | Supply Chain Agility: Managing Change
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 5
British Sugar Plc
Enhancing collaboration to deliver value
For the past 100 years, British Sugar Plc has played a leading role in supplying
sugar to the British and more recently Irish food and beverage markets. Over this
time, the organization has developed its maturity in a number of key supply chain
capabilities such as Supply Chain Performance and Financial Management, Sales &
Operations Planning, and Supply Chain Strategy.
case study
According to Andrew Lawson, Head of Product Availability at British Sugar, the
company’s supply chain success is facilitated by the organization’s growing strength
in supply chain finance. “Finance savvy supply chain people and supply chain savvy
finance people drive value, improvements and internal investment, and ultimately
are more likely to have successful relationships and outcomes with customers and
internal stakeholders. I think the key challenge for any organization is having finance
professionals with a deep understanding of supply chain operations to a point
where they know what a good supply chain looks like and why”.
For British Sugar, supply chain operations are increasingly seen as the lynchpin
between manufacturing and sales and marketing. “It’s not just about moving
resources or products from one stage to the next, it is also about building a bridge
between manufacturing – which is cost led – and sales and marketing which is very
much price led. Supply chain is a mixture of both and therefore plays an important
role in improving the value chain,” Mr. Lawson added.
To properly assume this role however, supply chain professionals will need to help
their wider organizations understand the value that supply chain operations can
provide. “The challenge is that supply chain professionals only tend to be called
to the table when something fails in their operations, and as a result the function
is often perceived as being only as good as their last bad event. But the reality
is that most supply chain organizations are actually at the forefront of driving
the business forward by reducing costs, mitigating risk and importantly fulfilling
customer expectations. As a function, we need to become better at celebrating
those victories in a way that articulates our value to the wider organizations we
work within.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
6 | Supply Chain Agility: Managing Change
Key findings –
Redefining the meaning of LEAN
Many of the supply chain directors interviewed for this report
say that they have applied LEAN principles to the supply
chain. But a common concern is that LEAN may have actually
reduced their supply chain flexibility at a time when the
business is baying for more agility to support growth.
This indicates that organizations may not fully understand the
fundamentals of LEAN. Indeed, for many, LEAN has become
synonymous with cost savings and efficiencies. But the
reality is that LEAN is really about enabling efficient growth.
In some cases this may indeed translate into cost savings
and efficiency; in others, however, efficient growth may
mean delivering greater flexibility to business operations or
enhancing innovation in product development.
In short, LEAN is about creating the right processes to allow
the organization to respond to customer demands in order to
enable growth. So if what your customer values is flexibility,
then LEAN methodologies can be structured to supply
flexibility. If customers want lower cost, LEAN can provide
this. The same can be said for service quality, increased
innovation or greater product selection. The bottom line is
that, rather than being single-mindedly focused on cost and
efficiency, LEAN is actually more about delivering what the
customer demands.
And when viewed in this light, it quickly becomes apparent
that the supply chain director is often the most important
enabler of growth within the organization. It is up to the
supply chain director to understand what the market
values and then develop the supply chain around those
requirements. So while marketing can make promises to
customers, it is the supply chain director that turns those
promises into deliverables.
So what can supply chain directors be doing to better align
the LEAN programs with the enablement of efficient growth?
To start, a series of questions must be answered. What is
your business strategy? What do your customers value?
What activities within the business deliver on these customer
demands? And, ultimately, how can those activities be
enhanced?
Based on our research, we have identified three areas of
focus that can help supply chain directors reorient their LEAN
projects to deliver customer value.
Many supply chain leaders have been guiled into thinking that LEAN and agile
are two polar opposites that are mutually exclusive, but this simply isn’t the case”,
noted Dale Williams, Partner, KPMG in the UK. “LEAN is, at its heart, all about the
enablement of efficient growth along whatever lines deliver the most value for the
end customer. It’s as simple as that.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 7
Work with the business to identify customer demands
Bringing LEAN to the extended supply chain
Whilst many supply chain leaders claim to have implemented
LEAN, few can actually articulate what their customers value.
It is critical, however, that the ‘voice of the customer’ leads
the design of the LEAN program, rather than assumptions
about cost and efficiency. This will not only require frank
discussions with the customers themselves, but also
greater collaboration across the enterprise. Indeed, when
sales, innovation, marketing, operations and supply chain
are all brought together and start talking the same language
about how they can enable the business strategy, it quickly
becomes apparent what needs to happen to deliver customer
value through LEAN.
Having applied LEAN principles to their businesses, many
supply chain directors are now starting to look to their
suppliers – and their suppliers’ suppliers – to align LEAN
across the extended supply chain. But getting suppliers to go
LEAN is often much more challenging and usually involves
significant change in the way that supply chain directors
work with their suppliers. In part, this will require supply
chain directors to take a much longer view of the relationship
and behave in a way that demonstrates integrity in order
to instigate suppliers to improve their own processes.
Our experience shows that this can be done quite simply:
for example, by extending supplier contract lengths from
one year to three years, suppliers are provided with the
certainty they crave to allow them to secure investment for
improvements such as LEAN.
Focus on organizational development
Many organizations implementing LEAN seem to largely
overlook the need for organizational development to support
the introduction of new processes. organizations with mature
LEAN programs, for example, tend to find that decision
making is devolved lower into the business which – in turn –
demands a significant change in the organization’s leadership
style. In much the same way, functional ownership often
takes a back seat to process ownership. As a result, some of
the biggest challenges in making LEAN work are often related
to leadership and people rather than processes and flexibility.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
8 | Supply Chain Agility: Managing Change
Key findings –
Coping with demand volatility
Clearly, today’s organizations are dealing with high levels of
volatility exasperated by a break-neck pace of change. As a
result, many of the supply chain directors who participated
in our research now say that managing demand volatility has
become one of their biggest challenges.
As a result, many supply chain directors are now looking
to enhance their ability to develop real-time forecasting
capabilities to help them understand what products are
moving and through which channels in order to become more
responsive to spikes and troughs in demand.
In truth, demand volatility is being driven on multiple fronts.
The current economic environment is an obvious driver: as
consumer sentiment rises and falls with the tides, so too does
demand. Shifting customer preferences have also taken a
toll as consumers test out new channels, some of which only
accentuate demand volatility (take, for example, the increase
in returns that stems from customers over-ordering through
internet channels in order to ‘try on’ products).
Our interviews indicate that there are a number of areas
of focus that will help supply chain directors develop more
effective responses to demand volatility.
The economy has also led many organizations to rely heavily
on promotions in order to maintain volumes and soak up
unused capacity. This, too, has led to greater demand volatility
as suppliers are either caught unprepared or unable to meet
the sudden increase in demand.
For the most part, this comes down to suppliers not getting
promotional signals from their customers early enough to
adjust appropriately. But it is also due to the introduction
of multiple competing promotions which make reliable
forecasting much more difficult. Indeed, whereas retailers
used to develop a year-long promotional plan that was
shared with suppliers to ensure demand could be met, we
are now seeing the introduction of ‘flash promotions’ and
ad-hoc strategies that cause havoc for supplier planning and
forecasting processes.
Focus on collaborative forecasting
While many supply chain organizations pay credence to the
principles of collaborative forecasting, few go to the extent
of partnering with their suppliers in fundamentals such as
group Sales and Operations Planning (S&OP). To reduce
demand volatility, supply chain directors must strive to drive
forecasting visibility both upstream (to their customers) and
downstream (to their suppliers) to ensure that all parties
in the supply chain can properly plan supply and demand.
Increasingly, supply chain directors have been looking at cloud
computing in order to streamline collaborative forecasting and
drive group sales and operations planning.
Demand volatility is increasing almost unilaterally across industries”, noted Kevin
O’Laughlin, Managing Partner, Supply Chain and Logistics, KPMG in the US.
“Even in industries that have experienced a turn-around in fortunes and are starting
to grow again, demand volatility and the ability of companies to match capacity to
demand is a challenge.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 9
Know what you don’t know
Enhance supply chain flexibility
Of course, demand volatility is also tightly related to market
and supply uncertainty, particularly in situations where scarce
resources are integral to the manufacturing process. But
even commodity supplies can often become tight in certain
circumstances. As a result, many supply chain leaders find
themselves holding more inventory than needed, often simply
to respond to unexpected rises in demand. Given this, supply
chain directors must strive to understand where uncertainty
resides in the supply chain and develop approaches to balance
security of supply against holding inventory.
Flexibility has been high on the supply chain director’s
agenda for many years. Increasingly, we have started to see
supply chain leaders shift their scope from ‘supply flexibility’
to instead focus on developing capabilities that enhance
flexibility. In some cases, organizations have developed twostream supply chains – one to deliver the planned and steady
product flow, and the other to manage the promotion peaks.
Other supply chain leaders have focused on empowering their
sourcing teams to make decisions and problem solve on the
fly in order to quickly respond to demand changes in real-time.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Photo: Kuehne + Nagel
10 | Supply Chain Agility: Managing Change
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 11
Kuehne + Nagel (KN)
Helping clients achieve greater flexibility
from supply chain operations
As one of the world’s leading logistics companies, KN works with a wide range of
global organizations across more than 100 countries and, therefore, enjoys a unique
perspective on the challenges facing today’s supply chain directors.
case study
“What businesses are looking for now is flexibility,” noted Hayden Organ, Director
of Integrated Logistics at KN. “Customers are seeking to gain a much more global
view of their supply and – as a result – are finding opportunities to become more
agile by, for example, centralizing their safety stock in a way that not only enhances
flexibility but also reduces the costs related to storage, shipping and inventory.”
This trend has led KN’s Integrated Logistics division to place increased focus on
helping their customers re-engineer their supply chain to achieve better service at
a lower total cost. “A lot of what we do is diagnosing the customer supply chain
to understand how it is performing in order to help our clients develop solutions
that can help them perform better, more effectively or both,” added Mr. Organ.
“Businesses can’t simply sit back on their laurels; markets are rapidly shifting,
competitors are becoming more agile, and volatility is becoming more acute. In this
environment, organizations will need to constantly be evaluating and adjusting their
supply chain operations.”
However, Mr. Organ also notes that the re-engineering of a supply chain can often
take on a life of its own. “The challenge is that it can become a rather perpetual
and cyclical process that seems to require constant re-evaluation and change as
the ground moves beneath it. But there comes a point where you need to make a
decision and implement it regardless of the changes on-going in the environment.
Ultimately, it takes implementation to deliver value,” he added.
Organizations are also increasingly looking to engage with a logistics partner that
can integrate all of their logistics activities into one central point that takes control,
provides visibility, and acts as a single point of contact for all logistics requirements.
“There has been a huge amount of activity in this space, and it has been steadily
growing since 2008 and is one of the areas where KN has been able to add a lot of
value and flexibility to our clients’ supply chain operations.”
Technology is playing a key role in enhancing that flexibility and driving greater
visibility into supply chain operations. Mr. Organ notes the increasing use of webenabled IT infrastructure that facilitates customer interactions and operations.
“Our customers want to be able to not only interact with us over web-enabled
platforms, but also use those platforms to share data from across the supply chain
in terms of demand and forecast data,” he added. “Linking up the entire value chain
through the internet is really driving some significant opportunity for supply chains
to aggregate and consolidate operations in order to reduce costs and enhance
operational flexibility.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
12 | Supply Chain Agility: Managing Change
Supply Chain Trends
Our interviews with supply chain directors
from leading organizations around the world
also highlighted a number of important
trends that are impacting their operations.
And while some seem to be significant
challenges that must be overcome, there are
also a number of opportunities now emerging
that hold promise for the supply chain sector.
Shared services changes operating models
It seems increasingly likely that shared services are about
to force further evolution in the supply chain and logistics
sector. According to our interviews, a growing number of
organizations are starting to move their supply chain functions
into shared service centers. In most cases, these have
been divided into two main areas: the procurement function
which focuses on how the organization purchases across
the extended enterprise, and the customer order side which
combines order taking, financing, logistics planning and
elements of logistics execution.
However, in many cases, benefits have been slow to
materialize. In part, this is because it is still early days and
organizations still must strike upon the optimal operating
model and integrate processes. But it is also because
the skills and capabilities residing within newly formed
shared services centers are not yet aligned to the unique
requirements demanded by shared services.
What does this mean for third party logistics providers? In
some cases, a company’s move towards shared services
may provide great opportunity, particularly for those that are
able to partner with their clients’ shared services functions
to deliver on the operational requirements. More mature
providers may even be able to provide those shared services
functions themselves, thereby pushing themselves further up
the value chain.
Regardless, the adoption of shared services for logistics and
distribution will require outsourced providers to reconsider
their operating models to see how this trend will impact their
business strategy. And while some may find themselves
further ‘commoditized’ by the introduction of shared services
into the mix, others may discover opportunities to deliver a
closer and more profitable relationship with their clients.
This ‘nirvana of logistics’ will essentially allow organizations to
optimize the processes and interaction between all of these
areas to deliver greater visibility and inform their logistics
operations planning. All that remains, it is envisioned, is to
send the actual pick order out to the operations team at the
distribution center or fleet level.
We’re seeing a big increase in logistics becoming an integral part of shared
service centers from the procurement through to the execution of logistics”,
noted Iain Prince, Director in KPMG in the UK’s Supply Chain practice. “This may
lead to a range of opportunities for both supply chain directors and logistics and
distribution providers.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 13
Integrated approaches to Sales and Operations Planning
Changing face of technology investment
The Sales and Operations Planning (S&OP) process is central
to many of the key findings highlighted earlier in this report.
Proper S&OP can help reduce costs, provide flexibility and
manage demand volatility. With this in mind, many of the
more mature supply chain organizations have started looking
at ways to develop more effective S&OP processes through
integrated planning.
Technology continues to be high on the agenda for supply
chain leaders around the world. But while some organizations
are still implementing new enterprise-wide technology
solutions (particularly in the emerging markets and in
cases where legacy platforms are simply too old to cope),
most seem to be focused on conducting upgrades and
applying tweaks to their existing systems to help unlock
new functionality.
While integrated S&OP is not necessarily new, it is now
receiving much more attention. Essentially, integrated S&OP
requires end-to-end collaboration that includes everyone from
finance and sales through to logistics providers and individual
suppliers. Rather than developing sales and operations plans
in silos and then ‘tossing them over the fence’ down the
line, integrated S&OP envisions that plans are constructed in
unison, allowing everyone within the extended supply chain
visibility into demand and supply requirements.
Those that are focusing on establishing integrated S&OP
now have access to a growing suite of software and
technology solutions to link up the various internal and
external stakeholders onto a single platform (many by
taking advantage of cloud computing). But – as with any
transformational IT project – great care must also be given
to ensuring that the right people, processes, controls and
governance are also in place to support the technology.
In part, this focus on smaller-scale technology change
is a result of both the economic climate (in which OpEx
investment is scarce) and the rapid pace of change within
the industry itself (leading to uncertainty about purchasing
decisions). The maturing of cloud may also be a factor as
organizations wait to see how new cloud-based technologies
will impact their operations (see sidebar).
However, while there are still a large number of organizations
either embarking on, or engaged in, large-scale technology
implementations, our research indicates that supply
chain considerations are not always considered when IT
purchasing decisions are being made. ERP systems, for
example, tend to focus on the finance side of the equation
and are often less tailored for the needs of a supply chain and
logistics organization.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Photo: ZIM Integrated Shipping Services
14 | Supply Chain Agility: Managing Change
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 15
ZIM Integrated Shipping Services
Collaborating across the supply chain to
reduce volatility
While the shipping services sector continues to push through the storm, all
indications point to more waves ahead.
case study
Facing volatile fuel costs, turbulent global trade patterns and a widely-anticipated
glut of new mega-container ships floating into the market, it is not surprising that
the shipping sector has experienced rapid and dramatic flux since the start of the
global financial crisis in 2008.
“To say it has been volatile would be an understatement,” suggested Chris Evans,
Managing Director at Zim Integrated Shipping Services, one of the world’s largest
cargo shipping companies. “Over the past five years, the container shipping
industry has navigated through two major busts – one at the onset of the global
financial crisis in 2008 and the second when the Euro crisis deepened in 2011 – and
one meagre return to profit in 2010. As a result, many of the big shipping lines are
now operating trade routes at a loss which, obviously, is unsustainable in the longterm.”
In an effort to soak up laid-up capacity and take advantage of the fuel savings that
can be gained by steaming at slower speeds, a growing number of shipping lines
have introduced new ‘slower’ services that deliver a lower cost service to their
customers. “We offer a mix of services including a slow service where the rates
tend to be lower and a couple of very fast services,” explained Mr. Evans. “The
slower services offer a great alternative that delivers value all around: the shipping
line saves costs by using up capacity instead of paying for ships to idle, fuel
consumption is lower which saves money and reduces overall carbon emissions,
and clients get more choice at lower price points.”
While Mr. Evans agrees that fluctuations in shipping rates are creating volatility in
supply chain costs for clients, he also notes that rates are currently far below breakeven for many shippers. “These continuous boom-bust cycles don’t do anyone any
good because all it does is create inconsistent pricing,” he said. “Increasingly, our
clients are approaching us to create three-year freight deals that provide them with
a level of surety on costs by paying a rate that is reasonable for both parties.”
The shipping line has also seen a rising trend in supply chain collaboration between
competing customers. “Companies are looking for opportunities to be innovative
about how they reduce their costs and sharing space allows them to reduce the
fresh air from their containers,” Mr. Evans adds. “I think this type of supply chain
collaboration will be a growing trend for the many industries over the next ten
years.”
Ultimately, Mr. Evans suggests that – by understanding their true cost of shipping
– supply chain directors can gain greater control over volatility and supply chain
efficiency. “The only way to truly cut costs in a sustainable way is to understand
what goes into those costs, not just within the extended supply chain but also from
the logistics and shipping companies,” he added.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
16 | Supply Chain Agility: Managing Change
Supply chain in the cloud
Cloud is undoubtedly the next generation of opportunity
for today’s supply chain. Indeed, while cloud is a relatively
new technology, its benefits are already becoming blatantly
obvious to supply chain directors and their executives:
organizations will be able to enjoy real-time access to
critical information, achieve greater transparency across
the extended supply chain, reduce their cost to serve, gain
flexibility and scalability from their technology, and gain the
capability to respond to demand and supply pressures as
they occur.
Take demand volatility for example; when all aspects of the
supply chain are connected through a cloud environment
through the distribution channels and into the retailer, all
parties gain unprecedented vision into demand and supply
requirements. Manufacturers can virtually see a product being
taken off the shelf and react accordingly.
It’s no wonder therefore that most supply chain operators
are positively salivating at the potential offered by cloud. But
in reality, few seem to be actually implementing solutions.
In part, this is because of lingering concerns and barriers
related to data security. But the reality is that the security
deployed by most cloud providers now far outstrips that of the
organizations they serve. Security, in other words, is a reason
to go to the cloud, not avoid it.
All indications point to the fact that – even if cloud only
delivers half of the promise that is being discussed – its
application to the supply chain will be revolutionary. It is not
difficult to imagine the benefits of, say, a beverage CPG who
integrates weather reports and predictive technology into
their data analytics, thereby triggering a cascade of reactions
such as sending an order down the supply chain and a delivery
command to the logistics function.
“Cloud offers a number of significant advantages to supply
chain leaders: very low up front costs, it doesn’t take long
to implement, you can connect your suppliers almost
immediately and all of your trading partners in fairly short
order, and the software is very powerful,” noted Steve Barron,
Senior Manager, with KPMG in the UK. “There are challenges
however, and supply chain leaders will need to be careful that
they maintain the integrity of their business processes while
adjusting their operating models to take full advantage of the
benefits of cloud.”
The consequences of a Greek default on the supply chain
While our research did not specifically ask about the impact
of the Eurozone crisis, it seems clear that if Greece were to
default on its EU bailout repayments and leave the Euro, its
economy would likely see a decline and higher inflation, as
prices for imported products and services increase.
The specter of economic turmoil may also increase the cost
of inbound supply, raising the risk of suppliers going out of
business. There is also a danger that potentially high-risk
investment in the form of upfront payments will be required to
service Greek supply chain elements. If that isn’t bad enough,
the instability in the Eurozone is increasing the risk of supplier
failure, which can lead to disruption of production.
Not since the end of Second World War have global supply
chains been so fraught with risk”, noted Andrew Underwood,
KPMG’s UK Head of Supply Chain. “The current Eurozone
crisis is just one of the many supply chain risks that are
threatening companies around the world.”
Not since the end of Second World War have global supply chains been so
fraught with risk”, noted Andrew Underwood, KPMG’s UK Head of Supply Chain.
“The current Eurozone crisis is just one of the many supply chain risks that are
threatening companies around the world.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 17
Integrating the operational S&OP
process as an essential part of the
strategic CxO decision-making
process allows the finance function
to become a more strategic business
partner, and provide direction in
managing the company strategy
– for example through active risk
management”, noted Jens Wagner,
Manager with KPMG in Germany.
“Moreover, by creating this
integration, companies are able
to quickly identify and respond to
risks and opportunities arising in
the market place.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
18 | Supply Chain Agility: Managing Change
With such concerning economic turmoil and the clear
links this can have on the supply chain, it is essential that
contracts are re-evaluated. If critical suppliers are located
in Greece, purchasing departments will need to review
their current sourcing arrangements and possibly re-tender
certain contracts to minimize their risk with respect to supply
availability, market price increases and financial health of
suppliers. Risk managers may also want to consider the
impact of cross-border trading.
In a broader sense, the Euro Area Crisis reminds us that
organizations should always be familiarizing themselves
with the commercial impacts of country specific issues and
how they can quickly turn into real supply chain risks. Doing
nothing is not an option. Supply chain risk must be on the
corporate agenda and it is time to capitalize on this to ensure
that the appropriate risk mitigation strategy is taken.
Is Tax being fully considered in Supply
Chain Management?
There remains a high level of interest and activity in
the potential cost savings that could be achieved by
understanding the tax impact of changes in the way supply
chains are managed. Historically, this interest has been
coming mainly from the finance community and tax directors
– only occasionally was tax a key component in decision
making by supply chain managers. However, this has started
to change in recent years with heads of procurement, in
particular, showing increased interest in tax efficiency
opportunities.
“Governments are competing for tax revenues; in particular
to be the location of choice for the development of R&D,
the registration of patents, or holding of other intellectual
property. Many will also offer tax or other grants and
incentives to continue/begin manufacturing in their country,”
noted Amanda Tickel, Tax Partner with KPMG in the UK.
“The question is, are you taking full advantage of the reliefs
and incentives offered in countries where you do business?
And a word of caution, there can also be a penal system for
importing or producing in different countries – additional tax
or duty costs need to be factored in and could completely
negate other cost savings carefully negotiated.”
Many mature organizations are aware of the tax system
close to home, and changes in the supply chain or business
operating model offer the most substantive and sustainable
opportunity to manage the ‘Effective Tax Rate’ with less
challenge from tax authorities or negative PR associated
with ‘tax planning’ – the key is to ensure the supply chain
team is ever more closely linked in to the tax team to ensure
changes are incorporated into any existing tax structure.
Further, as businesses operate more globally and search out
new markets to supply to or source from, tax becomes more
challenging. Emerging markets have constantly changing and
complex tax systems that need careful monitoring and can
throw up both costs and benefits at a moment’s notice.
Any major change to supply chain, whether to the country
goods or services are sourced from, the role companies
within an organization play (e.g. centralizing procurement or
distribution) or the way goods or services are sold on within or
outside of the organization, will usually have a significant tax
cost – or benefit – associated with them.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 19
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
20 | Supply Chain Agility: Managing Change
Focus on talent
Q&A with Dorothea Carvalho, Professional Development Project Director with The
Chartered Institute of Logistics and Transport in the UK
What are some of the key issues facing supply chain
directors when it comes to talent management?
The UK market is interesting right now. Despite high
unemployment, it can still be hard for organizations to find the
supply chain personnel with the right skill sets. In part, this
is because tight profit margins, together with a “just in time”
business philosophy, often means that organizations will not
carry extra staff in slow periods preferring instead to keep
only the minimum staffing levels to do the job. The problem
with this approach is that, in times of peaks in demand,
organizations can then find themselves unable to respond
effectively. We’ve also noted a lack of succession planning by
companies and a lack of available people with the right skill
sets coming into the industry.
How can supply chain leaders nurture and grow supply
chain talent?
To prepare for the next generation of supply chain managers,
organizations need to take a long-term strategic approach
to developing their supply chain personnel in a way that is
aligned to business objectives. We need to move away from
the gifted amateur approach and, rather than recruiting a
graduate with a degree in any subject, companies in the UK
need to start advertising for graduates with supply chain
and logistics degrees as these are the people who have
demonstrated an interest in the subject and not just “fallen
into it”.
In the UK, there are a number of universities that offer a wide
variety of supply chain undergraduate and postgraduate
degree courses. However, many UK employers are finding
that, with up to 85-90 per cent of the students actually
international students, there continues to be a massive
shortfall of highly-trained recruits in the local marketplace.
The reality is that supply chain is still often not seen as a
particularly exciting field, and we, as an industry, will need to
start promoting supply chain as a viable, varied career option
with huge opportunities to progress.
What does a ‘world class’ supply chain training and
development program look like?
World class logistics and supply chain people development
programs are (a) inclusive with a program covering personnel
at all levels, (b) have support from the highest level within the
organization to ensure continuity and (c) are based on learning
outcomes and objectives which are aligned to business
objectives.
We’ve found that having extremely well-qualified, talented
people at the senior levels in an organization can be a wasted
investment if these people are not supported by equally well
qualified and skilled staff at each level and for each supply
chain function.
But whilst we believe that learning is a crucial enabler
of success and the delivery of organizational business
objectives, we also think that we need good role models and
champions that understand the ever changing demands of the
profession.
Working out just how those alternate suppliers would connect on a logistic level, if
supply was interrupted, was an area often missed” noted Iain Prince, Supply Chain
Director with KPMG in the UK. “If you select an alternate supplier in a developing
country, you have to be mindful of whether all elements of the operation are secure
from the planning, inventory and logistics infrastructure and whether these are able
to cope if demand suddenly fluctuates.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 21
Taking action to mitigate supply chain risk
After the events of the past few years, many supply chain
organizations have now started focusing on supply chain risk
and assessing their exposure to supplier failure. However,
from our research, it seems that few organizations have
actually invested the time or resources to develop appropriate
responses or mitigation strategies.
Some of the more mature organizations in this regard have
now worked their way down three or four tiers of suppliers to
really understand where the risks lie within their supply chain.
Others have invested in warehousing, spare capacity and first
off-take contracts with alternate suppliers to reduce the risk of
supply interruption.
Sustainability leads to opportunity
There are clear indications that the issue of sustainability,
beyond basic compliance and reporting, has fallen down the
priority list for supply chain directors. This is no big surprise,
given the almost single-minded focus on cost over the past
five years.
But supply chain leaders must recognize that sustainability
is not only a reputational matter, it also has the potential to
reduce cost and mitigate risk across the supply chain and
logistics organization. Let’s start with the risk side: water
scarcity is a key environmental issue that has been discussed
with growing anxiety over the past decade, yet few of the
more water-intensive industries have implemented water
reduction plans to mitigate the risk of rising costs or – worse –
lack of supply.
Using the same example for cost, it is clear that by reducing
water consumption within the supply chain, organizations can
also reduce the input cost associated with that. Companies
either operating in – or whose supply chains include – the
chemical, agriculture or mining industries may find the cost
savings to be significant.
Supply chain leaders must also invest the time and resources
to stay abreast of new technologies and trends and assess
how they may impact their operations. This is not only
a risk mitigation measure; it also provides visibility into
opportunities to gain competitive advantage; a lesson that the
auto industry seems to know well.
Those with large fleets will need to pay particularly keen
attention to changing trends as the pace of technological
change in this area is brisk. What is more, with most parts
and vehicle manufacturers now offering a wide array of ‘fuel
efficient’ products (each seemingly with a claim that tops
the last) fleet managers will need to carefully assess their
options on a regular basis. Unfortunately, most fleet managers
tend to rely on their vehicle suppliers to provide the best
information, and therefore only reassess their options when
contract leases are due to expire, meaning that significant
sustainability achievements and potential cost savings could
remain on the table longer than necessary.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
22 | Supply Chain Agility: Managing Change
Conclusion
Clearly, volatility is creating new pressures and opportunities
for supply chain directors and corporate executives around
the world. But while some seem to still be taking short-term
actions in order to weather the storm, others are pursuing
new approaches and reorganizing their operating models to
turn volatility into opportunity.
Based on our interviews with 80 supply chain organizations
across 11 markets, we have found that supply chain directors
and executives seem to be focused on three main themes:
• Identifying opportunities to squeeze further costs out
of the end-to-end supply chain to drive profitability; and
understand the true supply chain cost to serve.
• Developing more effective responses to demand volatility
in order to reduce fluctuations and reduce costs.
• Reorienting their operational processes with a ‘LEAN flavor’
to enhance flexibility while maintaining efficiency.
We are also seeing continuing volatility in the supply chain
market itself. Cloud computing models and the wider
adoption of shared services models will force the need for a
re-think about how operating models will change in the future.
The increased focus on integrated S&OP processes and the
benefits of environmental technologies will also bring positive
change to the sector.
And while, in the midst of all of this, we saw strong reports
of maturity in Customer Relationship Management and
Supplier Relationship Management, this report also clearly
demonstrates that more work will be needed – particularly in
S&OP and Supply Chain Risk Management – if supply chain
directors hope to enhance their overall maturity and increase
their agility in the face of continued market volatility.
We hope that these findings and our accompanying analysis
helps supply chain leaders and corporate executives to reinvigorate their focus on developing more mature supply chain
organizations that are able to not only withstand volatility, but
benefit from it. We would be delighted to meet with you in
person to ascertain your current level of supply chain maturity
and begin the complex task of charting your supply chain
strategy for the future.
For more information, please contact any of the authors listed
on the back of this publication, or your local KPMG member
firm office.
We’re seeing a big increase in logistics becoming an integral part of shared service
centers from the procurement through to the execution of logistics”, noted Iain
Prince, Director in KPMG in the UK’s Supply Chain practice. “This may lead to a
range of opportunities for both supply chain directors and logistics and distribution
providers.”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 23
When competing in a global market
place, the response to emerging
carbon emissions reporting across
the supply chain is fast becoming a source
of competitive advantage,” added Kevin
Williams, a Manager with KPMG’s
Climate Change and Sustainability
practice in the UK. “ Forward looking
companies who actively monitor
and report carbon emissions
across the supply chain manage
inconsistencies in management
data carefully to reduce costs and
protect against risk, at the same
time fostering a philosophy of
collaborative and continuous
improvement to sustain
efficiency gains through
proactive carbon data
management”
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
24 | Supply Chain Agility: Managing Change
Quantitative Findings
Methodology
During 2012, the supply chain professionals across KPMG’s
network of member firms conducted a series of in-person
interviews with Supply Chain Directors (or their equivalent) at
80 companies across the UK, US, Portugal and Germany.
As a result, our supply chain maturity levels now focus on
eight functions:
• Supply Chain Strategy;
• Suppler Relationship Management (SRM);
Respondents represented a broad cross-section of industries
and sectors including Consumer Packaged Goods, Retail,
Diversified Industries, Logistics Providers, Utilities and
Telecommunications.
• Sales and Operations Planning (S&OP);
Participating organizations rated their relative level of maturity
across key supply chain areas. For this year’s report, we
have evolved our approach to add two new areas that, based
on experience and feedback, are high on the supply chain
director’s agenda: Sales and Operations Planning and Supply
Chain Risk.
• Logistics and Distribution;
• Supply Chain Risk;
• Working Capital and Inventory Optimization;
• Customer Relationship Management (CRM); and
• Supply Chain Performance and Financial Management.
In each case, responses were analyzed and categorized into
four segments:
Maturity Level
Score (%)
Characteristics
Advanced
75% – 100%
• A fully integrated supply chain
• Strategic partnerships with suppliers and customers
• Collaborative stakeholder programs
• Realization of synergies such as integrated reporting and IT
Intermediate
50% – 74%
• Cross-functional supply chain integration
• Culture of continuous improvement focused on improved efficiencies and
reduced waste
• Reduced data entry and duplication
Secondary
25% – 49%
• Planning recognizes the functional interdependencies and impacts
• Operational performance is monitored and reported
• Roles and responsibilities are clearly documented
Primary
0% – 24%
• Supply chain outlook shaped within functional silos
• Independent operations focused on expediency
• Adversarial relationships internally and externally
Reponses were aggregated and compared across sectors to
identify key issues and challenges that impact the successful
and efficient operations of supply chain organizations across
the country. Analysis of the findings was conducted by supply
chain professionals from KPMG’s UK firm.
The study builds on from KPMG’s 2011 Supply Chain
Maturity report (Supply Chain Complexity: Managing
Constant Change) and forms part of a regular series focused
on creating a baseline of maturity levels for supply chain
organizations. For 2013, KPMG intends to further expand the
number of respondent organizations worldwide to deliver a
more holistic vision of the challenges and opportunities facing
Supply Chain Directors and suppliers globally.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 25
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
26 | Supply Chain Agility: Managing Change
Quantitative Analysis
Overall, our analysis reveals that supply chain maturity has
increased overall when compared against our 2011 report,
though some areas (such as supply chain risk, cost to serve
analysis and sustainability) still seem to be slow to develop in
many sectors and geographies.
It must be noted that the following sector and overall study
ratings are correct as at 31 August 2012 and are comprised of
the UK data set only. Since this is an on-going assessment,
the ratings provided to individual participants may vary from
this report.
Year-on-year comparison
Over the past 12 months, supply chain maturity levels have
remained broadly stable, with the slight decrease in the
overall average level of maturity explained largely by the
addition of new analysis categories that focus on Supply
Chain Risk and S&OP.
Figure 1: Overall Supply Chain Maturity scores, for 2011
and 2012
80
This notwithstanding, this report does indicate slight
improvements in the overall response maturity level, led
mainly by the Logistics and Diversified Industrials industries.
In part, this may be because of the recent (recession-driven)
focus on enhancing profitability through the supply chain
which has forced many respondents to re-evaluate their
existing customer and supplier relationships and – as a result
– both Logistics and Diversified Industrials have shown an
increased level of maturity in CRM and SRM.
Increased levels of market volatility and uncertainty have
also caused respondents to review their ability to effectively
manage global supply chain risk. Take, for example, the top
performers in CPG and Diversified Industrials who were
forced to reassess their maturity levels in both working
capital management and logistics and distribution as a result
of the sustained pressure on their supply chains over the
past 12 months. For many respondents, therefore, the ability
to incorporate risk management into global supply chain
operating strategy was frequently noted as an area of current
focus.
Figure 2: Supply Chain Maturity scores by industry
sector 2012
70
60
80
50
70
40
60
30
50
20
40
10
30
Max
Average
Study average 2012
Median
Minimum
Study average 2011
Beyond the numbers, however, our interviews revealed that
respondents are re-evaluating their optimism following a
difficult year in which the economy presented a steady stream
of challenges to supply chains across all industries. Many
organizations also re-evaluated their ability to deal effectively
with unforeseen volatility in 2012, which led to a closing of
the gap between the top performers in the CPG, Logistics,
Diversified Industrials and Retail industries.
20
10
Max
Average
CPG 2012
Diversified industrials 2012
Retail 2012
Median
Minimum
Logistics 2012
Study average 2012
Utilities 2012
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 27
The Retail sector’s results in particular
demonstrate that a restricted level of
investment in supply chain systems and
infrastructure has reduced respondents’
confidence in the ability of their supply
chain strategy and S&OP activities to
respond to increased levels of demand
volatility. Flat sales figures have also
resulted in reduced levels of stock
turnover, thereby putting pressure on
working capital management.
There was little significant change
between this year and last in the top
three industry sectors: Diversified
Industrials (DI), Consumer Packaged
Goods (CPG) and Logistics and
the overall study average rating
remains largely consistent with that
reported last year (‘intermediate’). It
is encouraging to note, however, that
at the lower end of the spectrum, the
minimum rating rose by two points
since last year (from 60 to 62).
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
28 | Supply Chain Agility: Managing Change
Sector comparisons
Logistics
The Logistics sector demonstrated one of the highest overall
levels of maturity in our survey, which may not be surprising
given that this is the core focus of their business. Overall,
the Logistics sector ranked either at or above the all-industry
average across all eight categories. Moreover, the sector’s
year-over-year results were fairly consistent, indicating that
the sector maintained their level of maturity. The sector
achieved an average maturity rating of 73 and saw little
deviation between categories, suggesting rather even focus
on the main supply chain disciplines.
Figure 3: Supply Chain Maturity scores for Logistics sector –
2011 and 2012
Figure 4: Supply Chain Maturity scores for Diversified
Industrials sector – 2011 and 2012
90
80
70
60
50
40
30
20
Max
Median
Minimum
Diversified industrials 2012
Diversified industrials 2011
90
80
70
Retail
While the Retail sector’s overall maturity rating fell slightly in
comparison to our survey in 2011, the sector did demonstrate
higher levels of maturity in certain categories such as Supplier
Relationship Management and Customer Relationship
Management.
60
50
40
30
20
Average
Max
Average
Logistics 2012
Median
Minimum
Logistics 2011
Diversified Industrials (DI)
While the DI sector saw their average rating fall from 68
points in 2011 to 66 points in 2012, the sector ranked highly
in their approach to Customer Relationship Management (79)
and Supply Chain Performance and Financial Management
(74). The sector also displayed improvements in each of
Logistics and Distribution, Working Capital and Inventory
Management, S&OP and Supplier Relationship Management.
Overall, the sector reported enhanced maturity in five
of the eight selected categories and netted an overall
‘Advanced’ rating.
Figure 5: Supply Chain Maturity scores for Retail sector – 2011
and 2012
80
70
60
50
40
30
20
10
Max
Average
Retail 2012
Median
Minimum
Retail 2011
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 29
Consumer Packaged Goods
The CPG sector again scored rather well in all of the main
categories and reported the joint highest level of maturity
across all surveyed industry groups. CPG companies also
retuned the lowest deviation between category scores, again
indicating that relatively even focus has been placed on all of
the key supply chain disciplines. Small setbacks in Customer
and Supplier Relationship Management were offset in part by
improvements in Sales and Operations Planning, and Working
Capital and Inventory Management.
Figure 6: Supply Chain Maturity scores for CPG sector – 2011
and 2012
90
80
70
60
50
40
30
20
Max
Average
Retail 2012
Median
Minimum
Retail 2011
Figure 7: Supply Chain Maturity scores by category and by
sector – 2012
90
80
70
60
50
40
30
20
10
SC Strategy
SC Risk Mgt
SRM
S&OP
Working capital
CPG
Logistics
Diversified industrials
Retail
Utilities
Communication
L&D
Study Average
CRM
Performance
MGT
This year, we expanded the number of categories within
our survey to include two categories that have become
increasingly important to supply chain directors: Sales &
Operations Planning and Supply Chain Risk Management.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
30 | Supply Chain Agility: Managing Change
Supply Chain Strategy
With an average rating across all industries of 69, all sectors
except for DI and Retail reported above average maturity.
Excluding these bottom two sectors, the category ranks as
one of the more progressed disciplines for Logistics, DI and
CPG sectors. Overall, the category saw reduced maturity
when compared to last year’s results.
Supply Chain Risk Management
This category returned a below average level of maturity,
indicating that some focus will need to be placed on
enhancing risk management and planning strategies. As
this was the first year that this category was included in this
survey, there is no comparable year-over-year data.
Supplier Relationship Management
SRM returned the second highest level of maturity, with a
score of 70. The relatively small deviation between sectors in
this category is indicative of the renewed focus all companies
have had to make on ensuring strong relationships with their
suppliers during a period of recession.
Sales & Operations Planning
With the lowest average maturity across all the reporting
sectors, Sales & Operations Planning clearly demands
increased focus from supply chain directors and executives
going forward. The Communications, Utilities and Retail
sectors returned the lowest rates in this category. As this was
the first year that this category was included in this survey,
there is no comparable year-over-year data.
Logistics & Distribution
Overall maturity for the category rose over the past twelve
months from 67 to 69. Once again, as would be expected,
the category was led by the CPG and Logistics sectors. The
Diversified Industrials and Retail sectors indicated slight yearon-year improvements in this category.
Customer Relationship Management
Across the board, Customer Relationship Management was
the area where most sectors demonstrated the highest levels
of maturity, ultimately showing increased maturity since
2011. Moreover, there was little deviation across the sectors
meaning that this is a fairly developed discipline overall.
Diversified Industrials returned a score of 79 for this category
– its highest overall.
Supply Chain Performance and Financial Management
Looking across the group, there seems to have been little
change in this category since last year. Communications
retained its top ranking with a score of 80, while Utilities
continues to trail with a score of 58. CPG fell marginally in this
category, while DI and Logistics both climbed somewhat.
Working Capital
The results for Working Capital show significant deviation
across the different sectors, demonstrating that while some
have achieved advanced maturity in this category, others still
have much work ahead of them. That being said, the category
saw a two point increase in overall maturity year-over-year. The
CPG and Logistics groups indicated that they had retained a
significant advantage versus other sectors in this category.
© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Supply Chain Agility: Managing Change | 31
©
©2012
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Contact us
Europe, Middle East and Africa
Andrew Underwood
Partner, UK Head of Supply Chain
KPMG in the UK
T: +44 (0) 121 232 3886
E: [email protected]
Iain Prince
Director, Supply Chain
KPMG in the UK
T: +44 (0) 117 905 4257
E: [email protected]
Dinesh Kumar
Associate Director, KPMG in South
Africa
T: +27 8 2717 8725
E: [email protected]
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Partner, KPMG in China
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E: [email protected]
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Director, KPMG in France
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E: [email protected]
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Managing Director, KPMG
Management Consulting in Japan
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Partner, KPMG in Germany
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www.kpmg.com
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© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent
firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to
obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
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