SCM PRACTICES AT SYSCO

Case Study PresentationBy

Group 5

THE CASE

• Case Published By ICMR Centre For Management Research in 2006

• Focus on the Food Service Distribution Industry of the USA

• Exemplifies the SCM Practices Adopted by SYSCO – Systems and Services Company

• Selection of Company for Discussion based on industry leading operational efficiencies and record revenue growth

SCOPE• Characteristics of Foodservice Industry• Complexities of Foodservice Industry• Introduction to SYSCO• SCM Practices• SCM Impact• SCM Enablers• Performance Evaluation of SYSCO• Summary Of Learnings

FOODSERVICE CHARACTERISTICS• Peak Demand Determined by Local Customs,

e.g In USA Mother’s Day is most popular day to dine out.

• Foodservice Products include both food items and non-food items

• North American Market comprised of Three Type of Operating Companies(OCs) - Broadline, Customised and Speciality/Niche

• OC’s involved in manufacturing AND/OR procurement and Distribution/Re-Distribution.

FOODSERVICE COMPLEXITIES• Distribution involved handling of

complementary products, e.g. Frozen, Dry, Fresh, non-perishable, etc.

• Demand growth due to rise in number of Double Income Families

• High demand fluctuations due to shifting preferences of demographics

• Excellence in Delivery – on schedule and as required – identified as key value proposition for success in foodservice distribution industry

INTRODUCTION TO SYSCO• Founded in 1969 by merger of various small

food distribution companies.• Subsequent growth fuelled through

acquisitions – 43 during 1970 to 1990• By 1993-94, SYSCO had 24000 employees,

4100 Trucks, 3000 Suppliers.• As of Mar 2003, SYSCO had largest market

share of 13% of the market worth US$ 200 Billion.

INTRODUCTION TO SYSCO

• By 2006, Sales and Service relationship spanned 3,90,000 Customers covering both retail and institutional clients.

• Network of 100 Operating Companies with Portfolio of 3,00,000 products comprising both national brands and SYSCO’s Private Brands.

• Had reached 47,500 employees operating from 170 locations across USA, Alaska, Hawaii and Canada

• Identified 07 Strategic Areas for long term Growth Development & Global Reach

INTRODUCTION TO SYSCO

Suppliers/Processors

CustomersOperating Company

Forward Warehouse

Inbound Transportation

Operating Company

Operating Company

Operating Company

INTRODUCTION TO SYSCOSupplier ManufacturingSupplier Manufacturing Supplier DCs and 3rd Party

Forward WarehousesSupplier DCs and 3rd Party

Forward Warehouses SYSCO OpCosSYSCO OpCos

… resulting in complexand costly product

and information flows

… resulting in complexand costly product

and information flows

ManufacturerManufacturer

ManufacturerManufacturer

ManufacturerManufacturer

ManufacturerManufacturer

OpCoOpCo

OpCoOpCo

OpCoOpCo

OpCoOpCo

Supplier DCSupplier DC

Supplier DCSupplier DC

ForwardWarehouse

ForwardWarehouse

• Multiple orders flowing from multiple OpCos

• Multiple invoices and payments

• Replication of safety stocks

• Significant number of less-than-truckload (LTL) shipments

• Less than pallet order quantities

SCM PRACTICES• National Supply Chain Project

– Autonomous ordering by OC’s – Division of inventory into 04 categories : A, B, C, D– ‘A’ directly to subsidiaries– ‘B’ & ‘C’ to Regional Distribution Centres(RDC)– ‘D’ handled by 3P Provides termed as Forward

Warehouse Network– RDC aimed as Supplier Consolidation as well as

Aggregation of Safety Stock for OC’s– High order fill rate and quick delivery supported

by supplier assistance programs to cut lead times

SCM PRACTICES• Vendor Management

– Collaboration based on intense understanding of value and profitability contribution to each other

– Performance based recognition and rewards

• ChefEx Program– Distribution of gourmet speciality products having

low volumes and low shelf life– Program connected pre-certified suppliers and

customers through direct deliveries– Regional and customer limitations overcome with

added benefits of cost savings and single source

SCM IMPACT

Suppliers/Processors

Outbound Transportation

CustomersOperating Companies

Regional Distribution Centers

Forward Warehouse

Inbound Transportation

Collaboration

SCM ENABLERS• 1970-1994 - Basic Distribution

– Setting up of series of warehouses and creating fleet of refrigerated trucks.

– 89 Distribution Facilities, Serving 150 cities and approximately 2,25,000 Customers.

• 1995 – “Fold Out” Strategy– New Distribution Centers closer to the Market

• Late 1990’s – Capitalising on IT– System enabling customers to choose products

and place orders online.– Value Added Services through ‘iCare’

SCM ENABLERS• Early 2000’s – Strategic IT Initiatives

– Engaging Infosys to improve cost and service efficiencies.

– Concept of mid-point distribution facilities (RDC’s) to serve OC’s by consolidating LTL shipments and using Intermodal Transport.

– Business Processes defined for demand planning, order management, inventory management, transpcrtation and warehouse management

– CriticalArc Technologies Inc provided integration of existing online order entry system with web based SCM application

SCM ENABLERS• Early 2000’s – Strategic IT Initiatives

– Automated Order Selection System to reduce errors in order picking – concept of ASRS

– Vehicle Routing Software to enable vehicles to take most efficient routes

– Technologies for seamless exchange of order information to facilitate vendor development, contract management and supply chain visibility

– Implementation of SYSCO Uniform System(SUS) to efficiency in administrative document handling, e.g. invoices, reports, etc.

SCM ENABLERS• 2005-06 – Heralding Asset Visibility

– Implementation of Bar Coding for ‘Tracing’ Assets within the Supply Chain

– Introduction of RFID to enable ‘Tracking’ Assets across the Supply Chain

– Combination of both technologies improved shipment verification, integrity and reduced probability of spoilage losses especially in cold chains

– Knowledge portal to share innovative practices across OC’s in areas of customer care, operations, finance and HR. For example, Driver’s Pay System

PERFORMANCE EVALUATION• Return on Capital was 2nd Best at 22.3 %. Best

Performer had 26.5% and worst had -7%. • Profitability focus irrespective of market

situation aimed by adopting objectives of :– Lowest net landed costs in the Industry.– Food Security and Safety– Operational Flexibility– Capacity and Predictability

• RDCs provided shipping accuracy of 99.94 % & uninterrupted supplies despite “Katrina”

PERFORMANCE EVALUATION• IT enabled RDC concept significantly reduced

unloading time, dock congestion and material handling – US$ 27 Million savings

• Redistribution Centres provided benefits to Even Supplier and Customer.

SUMMARY OF LEARNING

• Organised Management Structure– Autonomous decision making management

structure– Commitment to Employees, customers, suppliers

and shareholders.– Improve profitability through leverage of assets

and people by improving productivity and efficiency

– Cross Functional Experts across key areas essential to ensure organisational structure-strategy fit

SUMMARY OF LEARNING

• Control Over Distribution Costs– Quality assurance policy to guarantee availability

of high quality products to customers– Leverage IT Tools in functions of physical

distribution as well as support functions(e.g SUS) for maximum efficiency

– Redistribution Enabled Supply Chain

SUMMARY OF LEARNING007 Virginia

008 Northern NE

009 Pittsburgh

010Lankford

012 Baltimore

025 Albany

027 Syracuse

051 Central PA

053 Jamestown

054 Connecticut

056 Hallsmith

073 Hampton Rds

075 Philadelphia

076 Metro NY

Mfg Plant

Mfg Plant

Mfg Plant

3rd PartyDistribution Center

SupplierDistribution Center

Mfg Plant

SUMMARY OF LEARNING007 Virginia

008 Northern NE

009 Pittsburgh

010Lankford

012 Baltimore

025 Albany

027 Syracuse

051 Central PA

053 Jamestown

054 Connecticut

056 Hallsmith

073 Hampton Rds

075 Philadelphia

076 Metro NY

RDC

SupplierDistribution Center

Mfg Plant

Mfg Plant

Mfg Plant

THANK YOU