Accenture the Consumer Centric Supply Chain

7/31/2019 Accenture the Consumer Centric Supply Chain

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The Consumer-centric Supply ChainAchieving high performance through dynamic, demand-driven execution

Gary Godfrey, Bill Frey, Sundip Naik and Angela Evers


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With the growth of emerging markets andthe reality of permanent volatility, meetingconsumer demand is becoming ever morechallenging. Globalization and regulatorychanges further confound the struggle. What

can companies do to conquer these issuesand challenges? Accenture believes that highperformance can be achieved by evolving toa dynamic, demand-driven supply chain.

Product allocation and availabilityare critical to maintaining revenueflow without incurring unnecessary

production, distribution, inventoryand marketing costs. With todaysshortened product lifecycles, acompany may find itself with a greatdeal of useless inventory if demandforecasts and fulfillment processes arenot aligned. Retailers, suppliers andmanufacturers must work together toavoid stockouts and excess inventory.

Industry figures suggest that retailstockouts run at about 10 percent,jumping to 25 percent during promotions

and other sales-boosting efforts.Customer-perceived stockouts costconsumer products manufacturers anestimated $90 billion in sales each year.1When faced with an empty shelf froman out-of-stock item, about 40 percentof consumers do not buy an alternativeproduct; they buy nothing at all. Thismeans that the retailer loses the sale aswell as the manufacturer.2 The challengeof meeting dynamic consumer needs andexpectations requires advanced processesand systems across the supply chain.


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Depending on size, companies arespending from $5 million to $20 millionannually implementing state-of-the-art planning and forecasting systems.The goal is data-driven planning andforecasting, with more frequent updatesto raise forecast accuracy. Analystsexpect companies will spend $3 billionfor new licenses and maintenance forthese systems in 2012, and that number is

forecasted to grow at an average of ninepercent annually through 2015.3

However, forecast accuracy is onlyhalf of the equation. While forecastnumbers and actual orders may alignquite favorably, fulfillment may bestruggling to keep up. To react as quicklyas forecasts are updated, the supply chainneeds commensurate investments intools that enable better responsivenessto more frequent and more accurateforecasts. Without the ability to execute

dynamically, a companys leading-edgeforecast is rendered useless.

Improved forecasting: Half of

the equation


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Many companies are often not equippedto execute the downstream supply

chain processessuch as order routing,multi-channel inventory allocation, orderexceptions, returns and transportationexpertly enough to ensure productavailability. The result is inventory in thewrong place at the wrong time, causinglost sales, obsolescence and excessivetransportation costs.

The issues that stand in the way ofmeeting demand are myriad:

Fluctuatingsupplierleadtimes

pose challenges to many inventorydeployment planners who must ensureproducts arrive at the right time andthe right place.

Ever-changingbusinessmodelsand

customer priorities stand in the way ofgetting inventory where it is needed.

Legacymanufacturingandsupply

processes do not support theability to respond quickly tofluctuating consumer demands.

Alackofinformationsharingamongdepartments and fast-changingmarkets force the organizationinto a reactive stance.

Manycompaniesarefocusedoncost

reduction strategiesoff-shoring,outsourcing, static manufacturing,static processes and othersthatinterfere with supply chain agility.

Consumer behavior, an external factor,adds to the complications. With more

choices arising from more productsfrom more competitors, consumers canbe easily swayed to switch loyalties.Companies must think beyond typicalcustomer retention strategies, such asprice and exclusivity, and ensure thefull product experience meets consumerexpectations. This includes guaranteeingservice levels and minimizing stockoutsacross all channels.

Gartner analysts cite a number ofbenefits that come from improved

forecasting. When done well, demandforecasting initiatives can increase on-shelf availability by 20 percent to 30percent, improve inventory productivityby three percent to five percent, reduceobsolete inventory by 10 percent to15 percent, and increase revenue andgross margin by one percent to threepercent.4 For a company to achievethe benefits of better forecasting;dynamic, demand driven executioninitiatives must complement demandforecasting initiatives. The resultingimprovements in production, warehousingand distribution deliver the benefits ofmore efficient and profitable operationsand lower inventory carrying costs.

Enabling the supply chain:The other half of the equation


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Accenture high-performance businessresearch has identified four distinctive

capabilities among leading companies:transparency, responsiveness,collaboration and agility. The supplychain organizations of these leaders takeadvantage of the demand informationthey receive from planning andforecasting to shape their own strategiesand tactics, becoming demand driven inthe process.

Fluctuating demand as a result ofseasonality, promotions or changing

consumer needs poses significantchallenges to retailers. A look at howleading retailers successfully allocateinventory across multiple channels, meetfluctuating demands and efficientlyprocess returns reveals how they applythese four key capabilities. Building thesefour distinctive capabilities into the supplychain and applying them throughout theyear can help retailers to deliver cost-effectively on demand as predicted byhighly accurate forecasts.

Dynamic, demand drivenexecution capabilities

Figure 1. Distinctive capabilities of companies with successful dynamic, demand

driven execution strategies.


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TransparencyFrom brick-and-mortar stores tocatalogues to online sites, shoppershave a variety of channels for makingpurchases. Many companies have nochoice but to fill an order from a givenchannel from a predetermined fulfillmentsite. Demand-driven companies, however,

can make a fulfillment decision at thetime an order is created. They operatewith a high degree of transparency.Holistic views of inventory data allowthem to determine at the point of salewhich distribution center is the mostefficient one for filling the order. Theyalso know the costs associated with eachfulfillment location.

Technology enables this data visibilityand the sharing of data among retailers,suppliers and manufacturers. Analytics

help to avoid costly errors in execution,and co-located teams and processesboost execution accuracy.

Inventory transparency can lead to

Reduced fulfillment costs with optimalreplenishment plans enabled by earlierand better visibility of demand

Improved customer service by reducingstockouts with early warnings of lowinventory levels

Increased sales by taking advantageof cross-channel selling opportunitiesthrough the free flow of informationacross all channels and units

Practical examplesImproving inventory visibility and

fulfillment channels. After the economicfallout, fashion retailers found it difficultto get consumers to shop again anddeployed mass promotions and low cost

product lines to encourage customerspending. On the other hand Nordstrom,a US department store chain, decided tofocus on the way it handles inventory.Nordstrom altered the online experienceby increasing the transparency of its

fulfillment channels. The companydisplayed stock from both the webwarehouse and its stores simultaneously.They also expanded the multi-channelshopping experience by enablingcustomers to shop online and pick up theitem in the store. The updated interactivewebsite led to increased sales overall,faster moving inventory and a lower

likelihood of markdowns.

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Enabling network-wide transparency.

Del Monte Foods, a large US foodscompany, has undergone a successfuldemand-driven supply chaintransformation. The company creatednetwork-wide transparency into demandsignals and inventories to establish pullrather than push processes. Del Montesresults and the accompanying service-level enhancements for its retail partnershave been impressive: order-to-ship lead

times dropped by 24 hours for manycustomers and enabled a 60-hour order-to-delivery cycle time, which enabledthe company to help retailers recoverworking capital through reduction ofsafety stocks.6

ResponsivenessHighly responsive retailers haveprocesses that can be easily adaptedto align supply with demand. For

example, these leading retailers mayrespond to peak demand with pop-upwarehousing or distribution locations.Opened as demand peaks and then closedwhen no longer needed, these sitesprovide an ideal solution to balancingcosts and asset under-utilization.

Having transparent data and knowinghow to use that data are critical forbecoming more responsive. A responsivecompany uses data and technology tochoose the best option to fill an order

and re-allocate orders when stockoutsoccur. Responsive companies caneven redirect in-transit product to thedistribution center closest to the demand.

Companies with the tools for greater

responsiveness enjoy

Reduced order-to-delivery times

achieved with advanced data analyticstools, integrated planning and supplychain systems

Greater product availability throughsmart inventory and stocking strategies

Higher productivity driven by non-traditional staffing models anda flexible workforce that can beadapted as demand fluctuates

Practical exampleEstablishing a flexible workforce aligned

with demand. The United States PostalService reached an agreement with theAmericanPostalWorkersUnionAFL-CIO

to set the stage for a more flexible and

cost-effective workforce to accommodateAmericas changing mailing trends. Thisdeal will include economic provisions tocontrol labor costs and greater workforceflexibility to match the workforce withthe workload.7

CollaborationCollaboration is not a new concept, butorganizations with dynamic, demanddriven execution have found new ways to

look at collaboration. These organizationscommit to partnerships among suppliers,manufacturers, retailers and third-party logistics providers that transformindependently owned and operatedentities into strategically aligned, cohesiveorganizations. Relationships built on trustand collaboration throughout the supplychain are required to move from reactiveto proactive fulfillment.

Information is shared across the greaterorganization to improve planning and

enable rapid reactions to changesin demand. Knowing the lead timesthroughout the supply chain allowsa company to make demand-drivenchoices with minimal financial impact forthemselves and their partners.


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Successful organizations haveimplemented teams at strategicpartners to facilitate collaboration andthe free flow of information. Theseco-located teams ensure meaningfuldata is captured, provide insight intodecision making and ultimately helpdeliver on customer expectations.

Many leaders integrate the developmentand introduction of new products intothe supply chain through horizontalcollaboration, versus more traditional newproduct development where marketing,R&D and engineering creates the newproduct and the supply chain merelyexecutes. Product design and packagingcan significantly impact picking andtransportation efficiency, in turn affectingfulfillment and the ability to meet demandforecasts. Extensive collaboration betweena companys fulfillment organization,

transportation providers, stores andmarketing organizations during the designphase allows for optimal distribution,replenishment and display.

Supply chain alliances can also allowcompanies to take advantage ofshared inventory costs and implementpostponement strategies. And, accordingto Gartner, Successful vendor managedinventory initiatives can deliver two tothree percent improvement in on-shelfavailability and a 20 percent to 50percent increase in inventory turns.8

Effective collaboration can result in:

Reduced time to market, product

obsolescence and inventory levelsdriven by postponement strategies

Improved space utilization by optimizingcase and product sizes to meetwarehouse, transportation andstore requirements

Rapid responses to demand shifts byaligning sales, marketing and fulfillment

teams through collaboration

Practical examplesBuilding an integrated planning solution

with suppliers. Teradyne, a US-basedsupplier of precision automatic testequipment, has extended the use ofcontract manufacturing to complete itsproduction processes. To reduce the leadtime on purchase orders, Teradyne workedwith its contact manufacturer to put in

place an application that integrates datafrom Teradyne, the contract manufacturerand that companys suppliers. Thissoftware provides a multi-enterprise viewof inventory data and ready access toproduction planning data. The result is adrop in order time from ten to 15 weeksdown to zero to two weeks.9

Improving supplier collaboration for

new technology. Corning, a USmanufacturer of specialty glass andceramic products, and Acer, a globalmanufacturer of personal computersand notebooks based in Taiwan, havean ongoing collaborative relationshipfor continually raising product quality


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and performance. As a result of theirlatest work together, Acer is introducingnew devices that are more durable andhighly portable, helping Acer to increasecustomer satisfaction and remaincompetitive in the marketplace.10

AgilityAgility allows organizations to handlespikes and troughs in demand, minimizingthe bullwhip effect on fulfillmentoperations.11Leadingretailershaveinplace the infrastructure, technology andprocesses that bring agility to the supplychain, giving them the ability to respondto peak season demand with novelsolutions such as in-store annexes andpop-up stores. They are putting in placeshared services, cloud computing andflexible labor contracts.

Alliances with suppliers andmanufacturers discussed earlier thatfocus on packaging and product designhelp to standardize handling and to designfacilities that have the flexibility to servemultiple channels and adapt to changingcapacity requirements. To avoid underused assets yet ensure infrastructurecapacity when needed, these companiescontinually evaluate insourcing versusoutsourcing to gain the greatest flexibilitywhere and when needed; the traditional

low cost intent of outsourcing is notalways the right answer.

Improving agility can help

companies realize

Reduced inventory levels byoptimizing the supply networkto reduce supply variability

Increased asset utilizationthroughstandardized processes, cloud-basedservices and overflow capacity usage

Increased labor productivity and reducedoperating costs from the flexibilitygained with common IT platforms andprocesses across the organization

Practical exampleBuilding an optimized network. TheHome Depot, a US retailer of homeimprovement and construction productsand services, established a network ofrapid-deployment distribution centersthat apply the concept of geographicpostponement. With these facilities,Home Depot postpones deployment

of inventory until orders are received,creating the agility the company needsto meet demand for specific items whilesimultaneously lowering inventory costs .In 2011, Home Depot handled about 65percent of its goods through centralizeddistribution, compared to about 25percent in 2007.12


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Developing a dynamic, demanddriven organization to help lead acompany to high performance beginswith a thoughtful consideration ofthe current state of operations andproceeds to the implementation

of metric-driven capabilities.

Assess your currentcapabilities.An assessment of current capabilitiesmay reveal that the organization hasseveral foundational components alreadyin place for building a dynamic, demanddriven organization. This assessmentneeds to consider each of the fourcapabilities in turn: the transparency

of enterprise inventory and data inmultiple systems; the responsivenessneeded to react to emerging trends inthe market and among customers; theinternal and external relationships neededto foster collaboration and effectivedecision making; and the agility thatcomes with the successful executionof mid- and long-term solutionsfor product lifecycle management,planning and distribution that alignwith the companys overall strategy.

Determine opportunities anddevelop the roadmap.With a clear understanding of currentstrengths and areas for improvement,the organization is ready to develop thebusiness case for change. It is probablynot realistic to try to tackle all four of thecapabilities of dynamic, demand drivenorganizations at once. After selecting oneor two key capabilities to pursue towardshigh performance, the benefits need to

be enumerated, costs of implementationcalculated and potential return oninvestment determined. A risk assessmentis also needed to help identify andmitigate potential obstacles to success.

Establish metrics forsuccess.To achieve and reinforce success, itmust be recognizable. Key performance

indicators (KPI) for measuring successneed to be identified, with the help of keystakeholders and decision makers whocan help ensure that these KPIs align withthe organizations core strategy. The KPIsmust also be measurable, and a means forcollecting performance data and trackingresults needs to be created.

Implement the roadmap.Once metrics for success are establishedand agreed upon, work can begin on

implementing the quick wins that willdeliverimmediatevalue.Longerterminitiatives can then be implementedand progress tracked through KPIs, withroutine meetings held to keep executivesapprised of the status of related projects.

For organizations seeking highperformance with dynamic, demand-driven execution, the potential gainsare significant: improved customerservice, decreased order-to-deliverytime, reduced inventory levels and

increased revenue and gross margin. Thedistinctive capabilities of transparency,responsiveness, collaboration andagility are all within the reach of mostenterprises on the journey to creating adynamic supply chain.

Beginning the journey


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About the AuthorsGary Godfrey is a senior executive inAccenture Supply Chain Managementconsulting. He has 25 years of supplychain experience in global supply chaintransformation, fulfillment strategyand network improvement. His focusareas include retail and consumergoods, but he has also worked across

communications, high tech, media andentertainment, and utilities. Mr. GodfreyservesastheGlobalLeadforAccentures

Integrated Planning and Fulfillment group.Based in Atlanta, he can be reachedat [email protected].

Bill Frey is a senior executive in AccenturesGlobal Supply Chain group with over20 years of experience. His areas ofexpertise include delivering operationalimprovements through the implementationof supply chain technology solutions. He

has delivered warehouse, transportation,order management, inventory controland asset management solutions toFortune 500 clients across a variety ofindustries, with a heavy concentration inthe retail and public service industries.Based in Cleveland, he can be reachedat [email protected].

Sundip Naik is an executive in AccentureSupply Chain Management consulting.He has an extensive background in globalsupply chain transformational programsfocusing on network design, fulfillmentstrategy, distribution re-engineeringand transportation operations. He hasworked in the retail, consumer goods,communications and high tech industries.

Most recently he has led AccenturesNorth American thought leadershipand offerings within the planning,fulfillment and sustainability areas.Based in Atlanta, he can be reachedat [email protected].

Angela Evers is an executive in AccentureSupply Chain Management consulting. Shehas an extensive background in supplychain transformation, transportationstrategy and planning operations. Herfocus area is the communications and hightech industries, but she has also worked

across retail and manufacturing. Mostrecently, she has led Accentures NorthAmerican thought leadership and offeringsfor the integrated planning and fulfillment.Based in Kansas City, she can be reachedat [email protected].

1 RISNewsandIHLGroup.5thannualRISstoresystemsstudy2008:Retailtechnologytrends.AccessedDecember2011atwww.risnews.com.2 Clark T. Driving at the speed of demand. Consumer Goods Technology. October 1, 2005.3 Graham C, Eschinger C, et al. Enterprise software markets, worldwide, 2010-2015, 4Q11 update. Gartner, Inc. December 5, 2011.4 Griswold M, Sterneckert K. Business case for demand planning. Gartner, Inc. March 18, 2011.5 Clifford S. Nordstrom links online inventory to real world. The New York Times. August 23, 2010.6 Johnson A. Del Monte improves on-shelf availability and shrinks inventory costs with retailer collaboration through one network. Gar tner, Inc. May 7, 2011.7BermanJ.USPSreachestentativeagreementwithAmericanPostalWorkersUnion.LogisticsManagement.March15,2011.8 Griswold M. Demand-driven retailers align products and replenishment strategies to improve supply chain performance. Gartner, Inc. May 2, 2011.9 Cooke JA. Control is instrumental to Teradynes success. Supply Chain Quarterly. October 3, 2008.10 Corning and Acer continue collaboration with Corning Gorilla Glass 2. The New York Times. January 10, 2012.11LeeH,PadmanabhanV,WhangS.Thebullwhipeffectinsupplychains.SloanManagementReview.Spring1997.12 Kell J. Supply-chain boosts net at Home Depot. Retrieved from Asia Wall Street. November 16, 2011.

References


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About Accenture ManagementConsulting, OperationsAccenture is a leading provider ofmanagement consulting services worldwide.Drawing on the extensive experience of its16,000 management consultants globally,Accenture Management Consulting workswith companies and governments to

achieve high performance by combiningbroad and deep industry knowledgewith functional capabilities to provideservices in Strategy, Analytics, CustomerRelationship Management, Finance andEnterprise Performance, Operations,Risk Management, Sustainability, andTalent and Organization. AccentureOperations consulting services helpclients develop more dynamic, innovativeand high performing Supply Chain andservice operations capabilities to enablerapid response to changing customer

demands and market opportunities.

About AccentureAccenture is a global managementconsulting, technology services andoutsourcing company, with more than244,000 people serving clients in morethan 120 countries. Combining unparalleledexperience, comprehensive capabilitiesacross all industries and business functions,and extensive research on the worldsmost successful companies, Accenture

collaborates with clients to help thembecome high-performance businesses andgovernments. The company generated netrevenues of US$25.5 billion for the fiscalyear ended Aug. 31, 2011. Its home pageis www.accenture.com.

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Accenture the Consumer Centric Supply Chain

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