Collaboration The Butterfly Effect -...
Transcript of Collaboration The Butterfly Effect -...
Survey conceptualised and initiated by
Global Supply Chain Dynamics – Measuring the Butterfly Effect
for South Africa
supplychainforesight
2009
CollaborationNetwork
IntegrationPlanning
Forecasting
Visibility
Agility
Strategic alignment
Optimisation
FMCG/Retail Report
www.supplychainforesight.co.za
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Collaboration
Network
Planning
Forecasting
VisibilityStrategic alignment
Optimisation
Agility
The supplychainforesight report for 2009, true to tradition for this benchmark piece of South African strategic supply chain research, is right up to the minute in offering insights into supply chain strategy and operations in the global recession and economic crisis.
Last year’s research focused on those companies that were earning competitive advantage from their supply chains in a global context of economic growth and market diversity. However, the macro-economic situation in which the research takes place this year could not be more different. The global growth boom was enabled by the building out of global supply chains into an intricately intertwined network of supply and demand all over the world. Now, the global recession means that an industry decision on the other side of the world to put the brakes on growth plans could mean serious consequences for suppliers in South Africa. We’ve called this the Butterfly Effect – the phenomenon where a small change at one place in a complex system can have large effects elsewhere.
The 2009 supplychainforesight survey has been conducted by respected international research company Frost and Sullivan, and continues to be conceived and sponsored by Barloworld Logistics.
In this year’s overall report we delved into the impact of the Butterfly Effect in different areas of urgent relevance for SA’s supply chains, including the move to localisation, the relationship between business strategy and supply chain strategy, and the latest views of the industry on outsourcing and environmental agendas – all with the trenchant comment and insight the market has come to expect from the research.
Also true to tradition is the quality and depth of the response to the questionnaire with around 250 senior executives and supply chain managers in most of SA’s major companies across key industries taking part. This maintains the focus of the research, established over the past six years, on large multinational companies whose strategies shape much of the country’s economy.
Each year the research is taken from these key industries and presented back as a focused insight into the industry concerned. As part of this exercise, each key SA industry is compared to the overall view of supply chain management and senior executive viewpoints given in the main report. For the FMCG/Retail supply chain this year, different responses were measured from both the supply side and the retail side. Throughout the report, these are compared and contrasted.
Apart from this, the 2009 edition of supplychainforesight for the FMCG/Retail industry is structured according to many of the key themes and findings that appeared in the main report, but focuses specifically on the following ways in which South Africa’s major FMCG supply chains are responding to the global economic meltdown:
• Short-termFMCGsupplychainobjectivesandchallenges: Tracking industry trends and strategies, including responses to the economic crisis and the focus on aligning the supply chain strategy with the business strategy. Since supplychainforesight has been tracking the FMCG/Retail industry since the inception of the research six years ago, we also draw some comparative conclusions about the strategic trend in the sector.
The Butterfly Effect
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• Outsourcingrevisited: an in-depth look at the outsourcing question in the FMCG/Retail sector reveals a characteristic maturity about the reasons for and the value of outsourcing – in accordance with the picture in the overall research this year.• Industryinvestment:where the senior supply chain executives in FMCG are planning to invest, and why. • Speakingthesamelanguage–PrivateandPublicsectorco-operation: This section addresses a perennially difficult issue for the FMCG/Retail industry, which is often dependent on complex physical distribution networks – the challenges presented to the private sector by the public sector’s supply chain and logistics initiatives, especially the physical logistics infrastructure of the country. • TheRealGreenissues: An in-depth look at the levels of awareness and business thinking in SA around sustainable environmentally-friendly business practices reveals that South Africa Inc has a long way to go on the issue. This is, surprisingly, especially true for the FMCG/Retail sector, which, despite indirectly or directly servicing the consumer market, is fairly non-committal about the value of investment in environmental sustainability.
FMCGObjectivesandChallenges
In this section we present the trend-tracking section of the survey, which takes place every year and provides our findings with some context – how senior executives and supply chain managers in the sector view their supply chain objectives and challenges for the coming year.
The short term (1-2 years) objectives of the FMCG sector have become realigned to the restrictive market conditions in a very interesting way. A graphic depiction of these objectives can be seen here.
High Significant Medium LowCritical
ImportanceLevels
Legend
16% 14% 16%
11% 11%3% 6%14%
5% 12% 5% 9% 9%
5% 16% 23% 12% 5%
30% 9% 12% 5%
2%
Fig1:KeyShort-termObjectivesofFMCGSector
60%0% 40%20%
Alignment with business objectives
Demand driven production
Procurement optimisation
Vertical Integration of ERP and P&F tools
Inventory management
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As can be seen, the top 5 leading short term objectives of the FMCG industry sector, in order of first-rank importance, are:
• Aligningthesupplychainwithbusinessstrategy• Demand-drivenproduction• Procurementoptimisation• Inventorymanagement• VerticalintegrationofERPandPlanning&Forecasting(P&F)tools.
Over the last five years of the supplychainforesight study, some of these same objectives, crucial cornerstones for effective supply chains in the sector, have appeared time and time again.
Improve service offered to customers
Reduce investment in inventory
Increase flexibility and responsiveness
of manufacturing
Improve cooperation/ collaboration in the
supply chain
Improve information visibility
0% 10% 20%
37%
37%
42%
47%
59%
30% 40% 60%50% 70%
Fig2B:FMCGObjectives2005
Reduce investment in inventory
Increase effectiveness of procurement
processes
Reduce out of stocks
Improve services offered to customers
Reduce costs of transportation
0% 10% 40%20% 50% 70%
63%
63%
58%
57%
50%
30% 60%
Fig2A:FMCGObjectives2004
20%
24%
26%
31%
60%Improve service offered to customers
Increase shelf availability/ reduce
out of stocks
Improve cooperation/ collaboration in the
supply chain
Reduce supply chain costs
Reduce investment in
industry
0% 10% 40% 60%20% 50% 70%30%
Fig2C:FMCGObjectives2006
Reduce out-of-stocks/ increase shelf availability
Improve services offered to customers
Lower warehousing and distribution costs
on-time deliveries
Lower the costs of manufacturing
0%
7%
8%
11%
15%
21%
15% 25%5% 10% 20%
Fig2D:FMCGObjectives2007
16% 12% 16% 7%16%
30% 14% 14% 14%
2%
12% 9% 12% 14% 7%
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81%
94%
100%
77%
74%
Lower sourcing/ procurement
costs
Reduce out-of-stocks/increase shelf
availability
Improve service offered to customers
Reduce investment in inventory
Lower warehousing and distribution costs
0% 90% 100%30%10% 20% 40% 50% 60% 80%70%
Fig2E:FMCGObjectives2008
In almost every instance, the FMCG focus in previous years has been on supplying the right kind of stock at the right service levels to the retail trade – service delivery has been paramount, as has the focus on improving collaboration with their downstream retail customers.
For the first time since the survey began six years ago, the FMCG sector shows a major shift in their strategic thinking. The top-ranked objective of strategic alignment was in fact ranked as important only by 9% of FMCG respondents last year, as opposed to the 46% of the retail response who rated it as significant. Now, almost a third of the respondents rate it as their first priority, with the traditional areas of inventory management (even though this remains the most widely-ranked factor) and planning and forecasting slipping down the rankings. The fact that demand-driven production and procurement optimisation have moved up in importance as objectives points to a more collaborative attitude with retailers, and a more holistic approach to cost containment and supply chain planning.
As far as challenges in the FMCG sector are concerned, the picture is somewhat more practical and tactically oriented.
Growing severity of economic slowdown
Making supply chain demand-driven
Making the supply chain lean
Oil price volatility
Efficient P&F tools
90%0% 60%30%
Fig3:WhatChallengesareShapingtheStrategiesofFMCG?
High Significant Medium LowCritical
ImportanceLevels
Legend
19% 16% 12%19%
21% 12% 12%19%
2%
5%
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Collaboration
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Planning
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Optimisation
Agility The growing severity of the economic slowdown is first on the agenda, though it is regarded slightly less seriously than by the general sample – perhaps because the true extent of the slowdown was yet to hit the sector at the time the data was collected – followed by the ongoing struggle to make the supply chain demand-driven, and lean. These factors, demand-led and lean supply chains, appear in reverse order of importance in the Retail picture. Finally, the oil price volatility for the FMCG sector also features as a challenge, since it is dependent on fuel-heavy manufacturing and transport operations.
The differences between this year’s picture and previous years’ research are again instructive. Without fail the major challenges in the past were related to planning and forecasting accuracy, closely followed by skills shortages and the means to collaborate effectively.
42%
43%
43%
50%
68%Improve planning
and forecasting capabilities
Create supply chain collaboration
opportunities
Benchmark our supply chain performance and improve
our use of existing IT systems
Improve the core capabilities of our supply chain staff
Change our physical logistics/
distribution network
0% 10% 40% 60%20% 50% 70%30%
Fig4A:FMCGChallenges2004
33%
35%
35%
44%
58%Our planning
and forecasting abilities
Aligning our skills to meet the supply
chain strategy
The capabilities of our existing IT systems
The physical distribution network
The skills/ capabilities of our supply chain staff
0% 10% 40% 60%20% 50% 70%30%
Fig4C:FMCGChallenges2005
24%
26%
26%
26%
35%Our planning
and forecasting abilities
The specialised needs of customers
Skills and capabilities of our SC staff
Benchmarking our supply chain
performance
Creating SC collaboration opportunities
0% 5% 20% 30%10% 25% 35%15%
Fig4B:FMCGChallenges2006
14% 16% 18%
7%
9%
7%
9%
17%
The increased complexity of our
supply chain
Our planning and forecasting
capabilities
Skills and capabilities of supply chain staff
The diverse needs of our customers
The increased volume in our supply chain
0% 6%2% 4% 8% 10% 12%
Fig4D:FMCGChallenges2007
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92%
78%
78%
98%
100%
Our planning and forecasting
abilities
The increased volume in our
supply chain
Capabilities of our existing IT systems
Skills and capabilities of our supply chain staff
Our distribution network
0% 30%10% 20% 40% 50% 60% 80%70% 90% 100%
Fig4E:FMCGChallenges2008
We might conclude from the shift in the challenges picture that the FMCG industry has found a more focused and strategic means of working with the retail sector to move to a demand-driven supply chain as a means to address planning and forecasting accuracy. Outsourcing of supply chain functions may also be assisting in addressing the skills shortages that previously presented a consistent challenge in the sector.
RetailObjectivesandChallenges
For the retail side, a more traditional picture for industry short-term objectives is seen. Inventory management remains the number one priority, with strategic alignment a distant second, and far less of a priority than the FMCG sector. With procurement optimisation appearing in third place, it’s clear that the business focus remains on stock availability and cost containment.
High Significant Medium LowCritical
ImportanceLevels
Legend
25% 11% 6% 11% 6%
6% 22% 11% 17% 3%
11% 11% 8% 6%
9% 6% 6% 6% 3%
6% 3% 6%
Fig5:KeyShort-termObjectivesoftheRetailSector2009
Inventory Management
Alignment with business objectives
Procurement optimisation
Demand-driven production
Improved collaboration
0% 40% 60%20%
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Collaboration
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Planning
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VisibilityStrategic alignment
Optimisation
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While the picture in previous years focused on planning and forecasting and collaboration opportunities, the current focus on inventory management and procurement optimisation might be seen as progress on the collaboration front with the FMCG sector, even if the optimisation of procurement may represent a rationalisation of the supplier base.
Reduce investment in
inventory
Increase effectiveness of procurement
processes
Reduce out of stocks
Improve services offered to customers
Reduce costs of transportation
0% 10% 40%20% 50% 70%
63%
63%
58%
57%
50%
30% 60%
Fig6A:RetailObjectives2004
35%
30%
30%
39%
43%
Improve services offered to customers
Increase shelf availability/reduce
out of stocks
Reduce investment in inventory
Improve co-operation/ collaboration in
supply chain
Reduce warehouse operating costs
0% 15%5% 10% 20% 25% 30% 40%35% 45%
Fig6C:RetailObjectives2006
10%
8%
8%
10%
12%
Reduce out-of-stocks/increase
shelf availability
Improve service offered to customers
Improve co-operation/ collaboration in the
supply chain
Redefine our supply chain strategy
Improve flexibility and agility of supply chain
0% 4%2% 6% 8% 10% 14%12%
Fig6D:RetailObjectives2007
80%
33%
63%
59%
48%
68%
Reduce investment in inventory
Improve collaboration/ co-operation in
the supply chain
Increase shelf availability/ reduce
out of-stocks
Improve information visibility
Improve service offered to customers
0% 30%10% 20% 40% 50% 70%60%
Fig6B:RetailObjectives2005
31%
25%
17%
3%
6%
11%
14%
6%
11%
28%
14%
8%
11%
3%
8%
14%
11%
8%
6%
17%
8%
3%
14%
6%
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82%
80%
60%
89%
100%
Improve services offered to customers
Reduce investment in
inventory
Reduce out-of-stocks/ increase shelf
availability
Improve co-operation/ collaboration in
supply chain
Decreased lead times
0% 30%10% 20% 40% 50% 60% 80%70% 90% 100%
Fig6E:RetailObjectives2008
As far as challenges are concerned, the severity of the slowdown is indicated, but is ranked highly for a relatively low 25% of the sample. A lean supply chain, given the industry is all about high volumes and low margins, remains the first priority.
Growing severity of economic slowdown
Making the supply chain lean
Making supply chain demand-driven
Efficient P&F tools
Shortcomings of infastructure
0% 30% 60% 90%
Fig7:WhatChallengesareShapingtheStrategiesoftheRetailSector2009
High Significant Medium LowCritical
ImportanceLevels
Legend
6%
As with the FMCG sector, this focus on lean supply chain represents a strategic shift from previous years, where the chief challenges came from achieving collaboration with suppliers and, as a result, implementing more effective planning and forecasting.
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42%
43%
43%
50%
68%Improve planning
and forecasting capabilities
Create supply chain collaboration
opportunities
Benchmark our supply chain performance and improve our
use of existing IT systems
Improve the core capabilities of our supply chain staff
Change our physical logistics/distribution
network
0% 10% 40% 60%20% 50% 70%30%
Fig8A:RetailChallenges2004
33%
52%
36%
36%
68%
Creating supply chain collaboration
opportunities
Our planning and forecasting abilities
The logistics channel
Benchmarking our supply chain
preformance
Our sourcing and procurement practices
0% 30%10% 20% 40% 50% 70%60% 80%
Fig8B:RetailChallenges2005
88%
88%
100%
62%
59%
Integration of IT system
Capabilities of IT systems
Achieving a common supply chain vision
Warehouse management
capabilities
Creating supply chain collaboration
opportunities
0% 30%10% 20% 40% 50% 60% 80%70% 90% 100%
Fig8E:RetailChallenges2008
12%
13%
14%
7%
11%
8%
Our planning and forecasting
capabilities
Achieving a common supply chain vision
The increased volume in our supply chain
Capabilities of our existing IT systems
Creating supply chain collaboration
opportunities
0% 6%2% 4% 8% 10% 12%
Fig8D:RetailChallenges2007
35%
25%
21%
43%
46%
Creating supply chain collaboration
opportunities
Planning and forecasting
abilities
Integration of our IT systems
Benchmarking and auditing our supply chain performance
Capabilities of our existing IT systems
0% 30%10% 20% 40% 50% 60%
Fig8C:RetailChallenges2006
50% 7% 36% 7%
11% 28% 39% 22%
11% 11% 22% 11% 44%
6% 17% 17% 39% 22%
33% 28% 17% 22%
22% 17% 22% 28% 11%
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Fig8D:RetailChallenges2007
Overall, the objectives and challenges of SA’s FMCG and Retail sectors are less focused than most of the sample on the economic slowdown, although this remains an urgent issue. This may be because the consumer impact and falling demand had not yet properly filtered through to the market at the time of the study being done. More pertinently, the objectives and challenges of both sides of the supply chain seem much more aligned with each other than in previous years, which seems to indicate a more effective collaborative approach to planning and inventory management in particular.
OutsourcingRevisited One noteworthy aspect of last year’s overall national research was the growing realisation in large SA companies that the lack of available skills to provide resources to service the growth and diversity in supply chains was harming productivity and profitability. Once more, the most successful companies in the 2008 study were those who were early adopters of ‘smart outsourcing’, that is, working with supply chain partners who could provide more sophisticated skills and resource for the management of complex global supply chain operations.
FMCGviewsonoutsourcing
In the FMCG sector, the pattern follows that of the general research sample – however, with a significantly higher proportion giving as their reason for outsourcing most of their supply chains that they wish to focus on core competencies (83% versus 57% in the general sample), and also a higher proportion giving cost reduction as a reason (63% versus 39% in the general sample).
Fig9A:FMCGOutsourcingRevisited
19% Do not outsource
37% Outsource most of SCM
44% Minimal outsourcing
0% 20% 40% 60% 80% 100%
Keeping up with competition
Strong internal SCM skills
Source of competitive advantage
Low cost-efficiency
Lack of suitable supplier
Sceptical outlook on information sharing
High Significant Medium LowCritical
ImportanceLevels
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17%
31%
31%
25%
8%
13%
25%
13%
13%
31%
50%
25%
19%
25%
31%
6%
25%
2%
63%
56%
31% 31%
31%
25%
17% 8%
25%
38%
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Also in common with the overall sample, areas which are kept in-house and not outsourced relate to customer demands and inventory management, the two key areas in which the sector relates directly to their retail customers. Warehousing is notable for the extent of its outsourcing, understandable in the context of the way in which retail demand controls the flow of inventory.
19% Do not outsource
37% Outsource most of SCM
44% Minimal outsourcing
Fig9B:FMCGOutsourcingRevisited
80% 100%
Gaining competitive advantage
Reducing logistics costs
Focusing on core competencies
Not a source of competitive advantage
Lack of inhouse skills
Keeping up with competition
0% 20% 40% 60%
High Significant Medium LowCritical
ImportanceLevels
Legend
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7%
73%
13%
7%
Lack of qualified personnel/resources
Availability of strong capability among current partners
Lack of visibility across supply chain
Dependence on downstream participants(distributors/customers)
Dependance on upstream participants(suppliers)
Other
ImportanceLevels
Legend
Supplierselection
Inventory management
DistributionTransportation & shipping
Warehouse management
Manufacturing & production
Customer demands
100%
80%
60%
40%
20%
0%Sourcing
demographics
50%
17% 14%21%
4%8%
29%
25%
33%43%
43%
57%56% 14%
25%
17%
29%17%
14%17%
7%4%
29%
17%
9%
9%
12%
14%
12%
14%
12%
29%
Fig10:FMCGMainReasonsforOutsourcing
Retailoutsourcingrevisited
For the retail sector the picture is also the same as the general report, but the differences in emphasis are instructive. For those who outsource most of their supply chain functions, the overwhelming reason is to focus on core competencies. Also notable is the much lesser degree to which cost reduction is given as a key reason for outsourcing (23% versus 39% in the general sample), and how much more of the retail response see outsourcing offering competitive advantage (48% versus 35% in the general sample).
29%
21%
14%
50%
36%
38%
21%
14%
21% 7%
50%
21%
14%
21%
14%
7%
21%
57%
43%
14%
21%
8% 8%31% 15%
2%
15%
8%
23%
15%
36%
69%
38%
15%
38%
15%
18%
23%
46%
23%
31%
27%
8%
8%
23%8%
23%
31%
8%
31%
18%
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Collaboration
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Planning
Forecasting
VisibilityStrategic alignment
Optimisation
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Minimal outsourcing 42%
Do not outsource 22%
Outsource most of SCM 36%
Gaining competitive advantage
Reducing logistics costs
Focusing on core competencies
Not a source of competitive advantage
Lack of in-house skills
Keeping up with competition
0% 20% 40% 60% 80% 100%
High Significant Medium LowCritical
ImportanceLevels
Legend
Fig11:RetailOutsourcingRevisited
Low cost efficiency
Source of competitive advantage
Strong internal SCM skills
Lack of suitable supplier
Sceptical outlook on information sharing
Keeping up with competition
0% 30%10% 20% 40% 50% 60% 80%70% 90% 100%
High Significant Medium LowCritical
ImportanceLevels
Legend
9%
5%26%
44%
27%
23%
14%
30%
19%
26%
23%
16%
3%
48%
30% 5%
9% 14%
47%
16%
21%
40%
28%
6%
23%
12%
14% 21%
19%
28%
12%
23%
39%
28%
2%
16%
2%
30%
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What this may indicate, again, is the extent to which collaboration with manufacturers and distributors has improved – and the extent to which, in the retail trade, the control of inventory itself is a core competency.
IndustryInvestment
The picture on current and short-term sectoral investment in fact bears out the contention that the FMCG and retail components of the industry are collaborating more productively than seemed the case in previous years.
FMCG
In the FMCG sector, the short-term investment focus is on customer relationship management, alongside better co-ordination both upstream and downstream in the value chain. This indicates both a focus on cost containment upstream with component and material suppliers or manufacturers, as well as a wish to offer better value to retailers downstream in a hypercompetitive value chain.
100%
Fig12A:FMCGInvestmentPlans
Coordination with downstream value chain participants
Batch size reduction
Coordination with upstream value chain
participants
Higher functional integration
Customer Relationship Management: Improve
customer focus
New systems for collaboration with
logistics service providers
Global risk management system
New technologies for improved visibility eg RFID
0% 20% 40% 60% 80%
Short term (1-2 years) Medium term (3-4 years)Implemented
Long term (5-6 years) No plans
ImportanceLevels
Legend
22%
17%
36%
16%
17%
17%
16%
19%
8%
22%
22%
13%
28%
22%
11%
14%
53%
8%
11%
17% 11%
63%
17%
19%
8%
14%
8%
6%56%
47%
19%
19%
31%
31%
16%
42%
6%
15
Collaboration
Network
Planning
Forecasting
VisibilityStrategic alignment
Optimisation
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Retail
For the retail sector the picture is focused on upstream value chain participants, the FMCG sector, as well as on the consumers, with plans to invest in customer relationship in the short term leaping to 78% of the sample. With the crucial focus on inventory management in the sector, much focus is also placed on investment in improved supply chain visibility, with 61% of the sample planning investment in new technologies in this area.
Speakingthesamelanguage:PublicandPrivateSectorCo-operation
FMCG
In the FMCG sector there was a surprisingly high degree of lack of awareness of Transnet’s investments in SA logistics infrastructure, with 27% of the sample saying they were unaware. This may indicate the extent to which the sector deals with transportation and import/export issues directly, and the extent to which their value chain is regionally or domestically located. In common with the general sample, however, there is agreement among those who are aware that investment and private sector involvement in logistics planning and execution will improve matters.
100%
Fig12B:RetailInvestmentPlans
Coordination with downstream value chain participants
Batch size reduction
Coordination with upstream value chain
participants
Higher functional integration
Customer Relationship Management: Improve
customer focus
New systems for collaboration with
logistics service providers
Global risk management system
New technologies for improved visibility eg RFID
0% 20% 40% 60% 80%
Medium term (3-4 years)Short term (1-2 years)Implemented
ImportanceLevels
Legend
Long term (5-6 years) No plans
17%
8%
17%
21%
13%
8%
21%
71%
33% 8%46%
8%
13%
13%
71%
71%
50% 13%
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Retail
For the retail sector, the lack of awareness of the Transnet investment plans is less, and more in line with the general sample. Interestingly, there is less confidence here that the investments will have an impact on improved rail and port traffic, again perhaps because there is a more domestic focus for the industry. Where there is a difference is in the much greater conviction, with 32% of the sample strongly agreeing (compared to 14% for the general sample) that the investment will decrease road congestion. This is a particularly troublesome area for the management of inventory for retailers, since it affects deliveries both on the roads and as congestion at delivery bays and distribution centres.
100%
Encourage usage of rail and sea modes
Improved rail infastructure
Decreased road congestion
Improved port infastructure
Logistics cost reduction
0% 20% 40% 60% 80%
Fig13A:FMCGAwarenessTransnetInitiatives
Disagree Undecided Agree Strongly agreeStrongly disagreeLegend
Aware of the initiative 30%
Partly aware of the initiative 43%
Not aware at all 27%
Fig13B:FMCGAwarenessTransnetInitiatives
7%
7%
11%
7%
7%
21%
25%
43%
14%
4%
11%
7%
25%
61%
21%
39% 4%
50%
61% 18%
7%
32%
18%
17
Collaboration
Network
Planning
Forecasting
VisibilityStrategic alignment
Optimisation
Agility
Encourage usage of rail and sea modes
Improved rail infrastructure
Decreased road congestion
Improved port infrastructure
Logistics cost reduction
0% 20% 40% 60% 80% 100%
Fig14A:RetailAwarenessTransnetInitiatives
Disagree Undecided Agree Strongly agreeStrongly disagreeLegend
Fig14B:RetailAwarenessTransnetInitiatives
Aware of the initiative 49%
Partly aware of the initiative 38%
Not aware at all 13%
TheRealGreenIssues:TheEnvironmentandEconomicSustainability
The debate in the SA market, such as there has been, around environmentally-friendly business practices has largely been confined to the Corporate Social Investment (CSI) agenda. This section of this year’s research sought to drill down into the awareness and attitudes among SA supply chain practitioners and senior executives about the environment and sustainability. With the business tide moving in the direction of the Obama administration’s strong new stance on reversing the impact of global trade on the environment, the time is right to start a strategic business dialogue about doing business in a more environmentally friendly SA.
Of course, the current priorities of cost reduction and business survival militate strongly against moving green business practices up the agenda, but this section of the study uncovered some interesting views.
Disappointingly, the FMCG Retail sector as a whole is not seeing environmental sustainability as a serious business issue.
supplychainforesight
200918
FMCG
For the FMCG sub-group, lack of awareness, or lack of prioritisation for the issue, extends to almost half the sample. Similarly, ROI is not expected from investment in environmentally-aware business practices, and the whole thing is seen as building brand value rather than having any concrete or even longer-term balance sheet implications. In terms of what areas of the business the FMCG sector intends to address for environmental sustainability, strengthening reverse logistics and shortening the globalised supply chain stand out. It is possible to argue that these are crucial cost containment elements in the FMCG sector anyway, and that the motivation for addressing them is cost reduction rather than environmental benefit.
Fig15A:FMCGEnvironmentalAwareness
33% Very serious
42% Serious
24% Not serious/somewhat serious
19% Aware but not a priority
33% Major country wide initiative
30% Unaware/limited awareness
19% Priority in branches outside SA
30% Somewhat important
3% Not relevant
27% Very important/critical
39% Important
AwarenessabouttheIssueof“greenfootprint”
Importanceofan“environment-friendly”SupplyChain
End-user’sPerceptionsontheSeriousnessofClimateChange
26%
25%
50%
14%
18%
33%
9%
29%
5%
42%
14%
15%
33%
3%
22%
50%
56%
17%
29%
55%
27%
27%
14%
20%
21%
7%
9%
19%
45% 30%
29% 10%
55%
5% 5% 26%
41%
15%
9%
33%
43%
9%
19%
9%
6%
3%
11%7%
19
Collaboration
Network
Planning
Forecasting
VisibilityStrategic alignment
Optimisation
Agility
Retail
The same picture is, if anything, even more exaggerated in the retail sector. Here, the major areas for addressing carbon footprint are transportation efficiency and the use of lean logistics, which, again, are areas of the business listed as key strategic objectives anyway.
Fig15B:FMCGEnvironmentalSustainabilityStrategies
Hazardous material treatment
Use of Fleet Management Systems (FMS) for better fleet
utilisation
Use of RFID technology for monitoring moving
goods
Use of lean logistics
Recycling used products and strengthening
reverse logistics
Waste/packaging reduction
Shorter supply chain by reducing the globalisation of
supply chain
Increasing transportation efficiency
Outsourcing to more environmental-friendly
third-party logistics providers
Strategic placement of warehouses and distribution centres
Emerging “green” assets like hybrid vehicles,
environmentally friendly warehouses, etc
0% 20% 40% 60% 80% 100%
Short term (1-2 years) Medium term (3-4 years)
Long term (5-6 years) No plans
Implemented
ImportanceLevels
Legend
19%
16%
27%
21%
29%
15%
8%
15%
11%
10%
33%
54%
47%
38%
29%
43%
27%
38%
8%
6%
5%
50%
12%
21%
8%
29% 21%
29%
38%
38%
23%
56%
38%19% 29%
17%
12%
15%
54%
28%
8%
12%
11%
23%
4%
5%
4%
supplychainforesight
200920
Fig16B:RetailEnvironmentalSustainabilityStrategies
Hazardous material treatment
Use of Fleet Management Systems (FMS) for better fleet
utilisation
Use of RFID technology for monitoring moving
goods
Use of lean logistics
Recycling used products and strengthening
reverse logistics
Waste/packaging reduction
Shorter supply chain by reducing the globalisation of
supply chain
Increasing transportation efficiency
Outsourcing to more environmental-friendly
third-party logistics providers
Strategic placement of warehouses and distribution centres
Emerging “green” assets like hybrid vehicles,
environmentally friendly warehouses, etc
0% 20% 40% 60% 80% 100%
Short term (1-2 years) Medium term (3-4 years)
Long term (5-6 years) No plans
Implemented
ImportanceLevels
Legend
Fig16A:RetailEnvironmentalAwareness
31% Very serious
41% Serious
28% Not serious/somewhat serious
22% Aware but not a priority
33% Major country wide initiative
34% Unaware/limited awareness
11% Priority in branches outside SA
15% Not relevant
25% Very important/critical
28% Somewhat important
31% Important
AwarenessabouttheIssueof“greenfootprint”
Importanceofan“environment-friendly”SupplyChain
End-user’sPerceptionsontheSeriousnessofClimateChange
21
Collaboration
Network
Planning
Forecasting
VisibilityStrategic alignment
Optimisation
Agility
The FMCG and Retail sector’s current strategic supply chain trajectory looks something like this. Achieving a ‘responsible’ supply chain balance in the upper right quadrant, between profitability and sustainability in a world where most resources are thinly stretched _ is no mean feat, and currently the industry, like many others, is focused on cost containment and on efficiency in a tight economic environment. For the sector that means inventory management and demand-driven production, components of the combined supply chain that require strong and effective collaboration between suppliers and retailers. By and large the sector seems to be achieving this smart collaboration, which puts it in good stead for seeing out the recessionary conditions the market is currently experiencing.
It is far more difficult in an environment like today’s, where survival is the watchword and the potential for failure is the compelling event that drives most businesses on. The world’s explosion in cross border and international trade and consistent growth over the past few years has been shown to be fragile at its heart. And yet, the Butterfly Effect – say, for example, the sub-prime housing crisis in the US bringing down a global financial network intricately linked by information-based supply chains - can be combated and contextualised.
For the FMCG and Retail sectors a positive outcome of the crisis may be a more long-term view of strategic alignment between the business and its supply chains. The more collaborative attitude demonstrated this year will help in further reducing costs, and managing and optimising inventory in an even more volatile global economy.
The industry’s relative lack of emphasis and importance given to environmental issues in its supply chain operations is puzzling for a sector that is centrally concerned with consumers. Brand value apart, one would assume that sustainable environmentally-friendly business practices in the consumer goods sector might be a smart long-term investment.
Conclusion–OutofCrisis,Opportunity
Low High
Low
Hig
h
SupplyChainSophistication
BusinessCompetitiven
ess
Fig17:SupplyChainButterflyEffect
Industries Focusing on Efficiency
& Cost
Effective Planning & Forecasting
Leverage Modal Advantages
Industries Focusing on Efficiency
& Cost
Effective Planning & Forecasting
Leverage Modal Advantages