Managing SCM Complexities

Supply Chain Complexity: Managing Constant Change
A study of supply chain maturity by KPMG LLP (UK)

May 2011
kpmg.co.uk
SUPPLY CHAIN MATURITY SURVEY
Foreword
If supply chain risk isnt keeping you up at night, then it should be. Supply Chain Directors now face an unprecedented level of risk. And increasingly, the risks arent even related to the supply chain itself. As you will undoubtedly see from our research and analysis, supply chain risk is flying up the corporate agenda. Recent global events have only heightened the anxiety and clarified minds. In the midst of all this turbulence, KPMG LLP (UK), the Chartered Institute of Logistics and Transport and Holman Fenwick Willan LLP came together to talk to Supply Chain Directors at more than 50 UK companies. We wanted to gain a better understanding of the issues they were facing and the degree of their supply chain maturity. As the inaugural issue of an ongoing series, this report sets a clear benchmark for supply chain organisations across the UK. In subsequent years, we will expand the survey to include more respondents and a wider variety of industries to create a better understanding of supply chain maturity. We would like to thank all of those organisations that participated in this study and whose candid responses allowed us to deliver a clear and accurate view into the current state of supply chain maturity across the UK. We hope this study acts as a clarion call to Supply Chain Directors and corporate executives to re-examine their supply chain and create more flexible and robust network operations.
Andrew Underwood Partner KPMG LLP
Steve Agg Chief Executive Chartered Institute of Logistics and Transport
Craig Neame Partner Holman Fenwick Willan LLP
2011 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network , of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Contents
SECTION 1: SECTION 2: SECTION 3: SECTION 4: SECTION 5: SECTION 6: SECTION 7: SECTION 8: SECTION 9: Executive Summary Key Findings Supply Chain Risk Key Findings Speed of Change Key Findings Sustainability and Environment Supply Chain Trends
Conclusion Methodology Quantitative Analysis Participants 1
3
6
7
9 14 15 17 21 24
SECTION 10: About the Authors
1 | Supply Chain Survey
SECTION 1
Executive Summary
Not since the end of the Second World War have global supply chains been so fraught with risk. In the past year alone, supply chains have seen unprecedented (and widely unexpected) disruptions caused by everything from Icelandic Volcanoes through to political upheaval in the Middle East and North Africa. Today, many Supply Chain Directors continue to feel the impact of the horrific earthquake and tsunami in Japan which suddenly cut off critical markets and closed down swaths of the global supply chain. Shockwaves will continue to reverberate in organisational supply chains for some time to come. But other risks are also appearing with increasing frequency: political turmoil, market turbulence, exchange rate fluctuations and pending regulatory changes all combine to create volatility and uncertainty that must be identified and managed.
At the same time, questions of long-term sustainability and environmental impact are returning to the market as regulators and consumers rejoin the battle against carbon and greenhouse gas (GHG) emissions. So we talked to Supply Chain Directors at 50 leading UK organisations to see what issues they were dealing with. Here is what we found: The drive for more efficient and interconnected supply chains has exposed network operations to unexpected risks; Many supply chains are incapable of keeping up with the pace of change underway in the business world; and Sustainability measures will force changes in operating models that will bring additional complexity to the supply chain.
Supply Chain Survey | 2
Supply Chain Directors at UK corporates also overwhelmingly pointed to a massive opportunity for logistics providers: 3PLs and 4PLs that are able to live up to customer expectations around innovation, service levels and commerciality can gain significant traction in a market where clients are becoming increasingly concerned about the gap between expectations and reality. We also wanted to gauge the maturity of these organisations supply chains to understand if more mature supply chains were better suited to withstand the risks and changes they faced. What we found was both surprising and informative. In some cases, preconceived notions of supply chain maturity were shattered as organisations that were widely believed to enjoy advanced maturity reported significant limitations in the development of certain aspects of their supply chain. Still others displayed much more
advanced supply chain maturity than would be expected, bucking the norms and extending their lead against their competitors. There are already a number of winners separating themselves from the market. In particular, Consumer Packaged Goods companies have overall progressed the furthest and now possess advanced maturity across their supply chain. In comparison, Retailers who are at the sharp end of demand have not progressed as far in their supply chain maturity. For both the Retail and Utilities sectors, achieving supply chain maturity will still require substantial work and effort.
SECTION 2
Key Findings Supply Chain Risk
To be prepared is half the victory

Miguel De Cervantes
With change comes risk. For supply chain leaders and directors, todays business environment has certainly highlighted many of the traditional risks inherent in the business. Whats more, it has introduced a myriad of new risks. Indeed, the global financial crisis and ensuing economic recession has put renewed focus on economic and regulatory volatility. To mitigate these risks, they must be identified and managed on both a part level and a network level.
And while the risk of supplier failure has always been front and centre, supply chains are now facing new and increasingly volatile risks driven by the state of the global economy. Exchange rates are turbulent, borrowing costs have soared, and bankruptcies (both supplier and customer) have left glaring gaps in networks. At the same time, government policies and regulations have on occasion dampened demand and added new complexities to global supply chains. Old regulations are being enforced with extreme prejudice and a slew of new regulations are on the books, bringing everything from labour practices to trade tariffs into question.
But most of these are what we would call known risks, challenges that by and large can be anticipated and managed. It is the unknown risks that may pose the greatest challenges for Supply Chain Directors: Japans earthquake and tsunami, Middle East strife, environmental disasters; all of these have disrupted supply chains around the world and brought some UK companies desperately close to a stand-still. In this increasingly complex environment, our survey finds that it is the organisations with the most advanced levels of supply chain maturity that will ultimately rise above their competitors to gain competitive advantage and increase revenues.
A closer look at legislative risks

Companies with international supply chains must comply with a myriad of international requirements ranging from anti-corruption to import and export controls. The legislation includes: Anti-corruption: The UK Bribery Act 2010 (expected to enter into force later this year) and the US Foreign & Corrupt Practices Act require companies to exercise due diligence throughout the supply chain. Sanctions: UN, US and EU sanctions against designated persons and designated goods (targeted at Iran, Libya, Cote dIvoire and others) require companies to consider their business partners, and other companies within the supply chain, as well as the nature of the goods which are supplied, and the means (and currency) of payment.
Source: Holman Fenwick Willan LLP
Import and export controls: UK Export Control Act 2002, the EU Dual-Use Regulation (Council Regulation (EC) 1334/2000 (re-cast as EC 428/2009)) and the EU Torture Regulation (Council Regulation (EC) 1236/2005), EU Import Control System (ICS), new EU advance notification requirement (as of 1 January 2011), and detailed US legislation. Cartels: companies need to supervise their overseas sales teams and agents to avoid them colluding with competitors to fix pricing or carve up markets.
Failure to keep abreast of regulatory changes can have very significant financial and criminal consequences (including imprisonment). EU and US investigations are intrusive and timeconsuming and they can irreparably harm reputations. In addition, any disruption to the supply chain will be very costly and harmful to commercial relationships. It is therefore essential companies ensure they are fully advised of all the factors which can have an impact on their supply chains, some of which are more obvious than others.
From our survey, we have identified a number of strategies that help mature supply chain organisations to embed the concept of risk into their strategy. These include: Strategic Network Design: Key to understanding and managing these new risks is the maintenance of a holistic supply chain strategy that puts an emphasis on risk management. For those with more mature supply chains, strategic network design allows organisations to create a well-planned, designed, executed and optimised network that can quickly react to change and proactively manage risk. Strategic network design enables supply chain leaders to identify sources of unacceptable risk and deliver a framework for selecting new partners and suppliers.
Understanding the cost of risk: By developing greater insight into the potential risks, supply chain leaders can begin to ascertain the real and potential impacts of those risks. And by attributing a hard cost to each risk, organisations can start to identify new partners and geographies that carry less risk (be that political or economic). In some cases, higher per unit costs may be preferential to the unknown cost of risk exposure. In others, the level of risk may demand robust contingency plans and new strategic relationships that share risk across the supply chain. Structuring effective contracts and building strong relationships: Clearly, those organisations that are able to build strong and collaborative relationships
with their suppliers and network partners will also achieve greater insight into their potential risks. But by paying close attention to the structuring of contracts, the more mature supply chains are also able to further reduce risk through dynamic cost and risk sharing agreements. Structured properly, these encourage everyone in the supply chain to quickly identify potential risks before they occur and take appropriate actions to protect the viability of the network. By the same token, dynamic contracts can also be used to encourage service providers to develop and deliver more innovative solutions to both manage risk and drive competitive advantage. However, to date, many logistics providers have been slow to innovate and are increasingly being challenged to remain relevant to their clients in this regard.
The myriad of Supply Chain risks to be managed
Intellectual Property Management (IP Risk)
Social Responsibility (Brand Risk) Hedging Strategies (Cost Risk)
PRODUCT
DEMAND
SUPPLY
Network Design for Agility (Supplier/Logistics Risk) Customer Rationalisation (Profitability Risk) Revenue Management (Demand Risk) Contract Management (Compliance Risk) Sales and Operations Planning (Supply Risk)
Demand Driven Logistics (Supply Risk) Supplier Development/ Supply Base Monitoring (Capacity Risk)
Source: KPMG LLP (UK) 2011
SECTION 3
Key Findings Speed of Change
Whosoever desires constant success must change his conduct with the times
Niccolo Machiavelli
For its part, the global financial crisis has increased the rate of change and added a new level of complexity to the supply chain. Tighter lending and credit practices have increased the cost of working capital and forced Supply Chain Directors to rethink their inventory levels and management. And while the crisis officially ended in 2008, many supply chain organisations and service providers continue to feel the effects of reduced demand: key suppliers are facing bankruptcy, credit remains elusive and industry consolidation is redefining networks and partnerships. But it is not enough to merely withstand the pace of change. Leading supply chain organisations are focusing on key areas that will allow them to take advantage of change in order to build their business and enhance their revenues. To paraphrase Machiavelli, supply chain organisations must change with the times to ensure ongoing success. This includes: Increasing supply chain flexibility: By creating a more flexible supply chain, many leading organisations are building their capacity to quickly and seamlessly respond to sudden market shifts. In most cases, this has involved partnering with multiple logistics providers who can in a pinch supplement and augment existing networks to ensure a consistent and secure supply of goods and services. In particular, supply chain leaders will want to diversify their supplier and logistics service provider networks in regions where there is a higher risk of service interruption.
Customer focus: At the same time, Supply Chain Directors will need to vigilantly monitor customer needs and demands in order to develop greater insight into fast-moving trends and service level expectations. For retailers and CPG companies (for whom on-shelf availability is paramount), insight into these trends will result in greater alignment to customer demand and more efficient use of shelf-space. But across the board, a stronger focus on the customer allows for more effective demand planning and a reduced cost to serve, leading to increased margins and higher profitability. Integrated supply chain: Equally important is the building of collaborative supplier relationships that integrate the supplier networks (including processes, IT and forecasting) to create a harmonious and mutually beneficial relationship. In turn, this can lead to more accurate forecasting, lower levels of working capital and an ability to quickly respond to the needs of the business. And while there continues to be dissatisfaction with the ability of many logistics providers to innovate and offer more valuable services, some of the more mature supply chains also incorporate flexible cost-structures and dynamic contracts with their suppliers to encourage risk-sharing and the development of innovative services. However, most organisations will need to first focus on integrating their supply chain planning internally in order to align to the business marketing and product development strategies.
With almost total unanimity, Supply Chain Directors and corporate executives are experiencing an unprecedented rate of change. And while the recent global financial crisis has certainly accelerated the pace, many of the factors driving this fever pitch were evident even before the credit bubble burst in 2007. Since the turn of the century, consumer demand has been increasingly volatile. The combination of a globalised marketplace with the rapid adoption of the internet has created new demands on companies and their supply chains. New distribution models and increased competition from online rivals have forced everyone from manufacturers to retailers to become more responsive to the needs of their customers and seek new levels of flexibility in their supply chains. At the same time, the traditional routes to market are quickly changing as organisations tap into new geographies and regions to augment supply, drive down costs and respond to customer demands.
SECTION 4
Key Findings Sustainability and Environment
The recent economic crisis had a significant impact on environmental and sustainability initiatives. As margins tightened, many supply chain organisations found that their green programmes were becoming increasingly hard to justify, especially when viewed amongst the slew of other competing business priorities that required funding. Tightened wallets have also forced many consumers to de-prioritise environmental concerns, effectively taking much of the pressure off of CPG and retail organisations. But as the economy rebalances, the issue of environmental sustainability is once again gaining traction in the minds of UK businesses and consumers. In part, this is a reaction to the expectation of tighter environmental regulation and the introduction of carbon pricing schemes that will have a direct effect on supply chains particularly those in carbon intense sectors. However, many organisations are finding significant challenges in designing a flexible and responsive supply chain that is both carbon efficient and environmentally and economically sustainable.
For most Supply Chain Directors and leaders, sustainability and the environment are largely seen as reputational strategies, designed to differentiate their services in the minds of the consumer and clients. But there can also be significant bottom line benefits too. For example, as the price of energy continues to rise, organisations will want to rely less on carbon-spewing lorries and airplanes. Reduced packaging is not only an effective way to manage environmental impact, but also cuts costs for materials and shipping. Shorter supply lines both reduce GHG emissions and the cost of bringing a product to market. And while the path forward may seem exceedingly complicated and undefined, there are a number of considerations that supply chain directors should take into account when designing a sustainable and environmental supply chain strategy: Get ahead of the game: At this stage, there should be little doubt that regulation is coming. The question for supply chain leaders should be whether they want to innovate at their own pace, or wait until the situation is do or die and the methods and approaches are mandated. For more mature supply chain organisations, environmental and sustainability considerations are already being factored into supply chain planning by incorporating a level of flexibility to properly react to changing regulatory demands.
Taking a holistic view: Supply chain leaders seeking to reduce their environmental footprint are increasingly looking past the lorries to identify carbon reducing measures. In some examples, the operators of refrigerated warehouses are finding that by implementing more energy efficient systems they are able to cut costs and reduce their environmental impact. In other cases, manufacturers are moving packaging facilities closer to the end-markets to reduce transport and carbon costs. Total cost of production: One of the biggest barriers to building an environmentally sustainable supply chain is that costs and impacts are often viewed in silos: procurement worries about supply, distribution focuses on the cost of shipping, manufacturing is concerned about the production cost per unit. But by taking a total cost of production perspective, Supply Chain Directors and leaders will find that they are able to gain clarity into the real environmental impacts of their supply chain and ultimately work to reduce their footprint in the long-term.
SECTION 5
Supply Chain Trends
The pace of change is accelerating. Supply chain operations are increasingly being impacted by developments and regulations outside of the UK. New technologies and methodologies are quickly changing the way that many organisations approach their supply chain planning and management. Impact of the Global Financial Crisis As markets slowly begin to stabilise, many supply chain and logistics organisations continue to feel the sharp impacts of reduced credit, supplier failures and sluggish consumer demand. For many organisations, the increasing cost and scarcity of credit facilities has led to a sober re-examination of their working capital and inventory optimisation in an effort to provide more financial flexibility and reduce capital costs across the organisation. But as demand evaporated in the wake of consumer belt-tightening, many UK businesses quickly found that they were unwittingly exposed to risks stemming from the potential failure of their critical supply chain partners. In response, the issue of Supply Chain Risk rocketed up the corporate agenda, forcing supply
chain leaders to either support their partners financially or quickly identify and source new suppliers and third party logistics providers to mitigate the risk of failure and establish a more diversified partner network. For their part, logistics service providers continue to struggle to adjust cost structures and rebuild margins. Those with either fewer physical assets or an external source of income have tended to perform better than those with more traditional asset models. But across the board, logistics service providers have taken drastic steps in order to remain viable: routes have been reduced, shipping and transportation assets mothballed, and in a number of more extreme cases providers have failed altogether. The evolution of contract logistics The contract logistics industry remains in flux. In part, this is a result of many Third Party Logistics operators (3PLs) evolving their business models to provide more value-added services in an effort to reinvent themselves as 4PLs and move further up the logistics value chain. However, in our experience, there is a disparity between operators who have
truly innovated to add value, and those that see the move to 4PL as a simple rebranding exercise, offering many of the same services as in the past. At the same time, inflexible or constrained commercial arrangements with logistics providers are also hindering corporates ability to create a more flexible supply chain. As a result, many clients have found themselves disappointed by the gap between expectations and reality, causing a growing number of companies to re-establish their own in-house logistics departments. But for those clients willing to work closely with their service provider to integrate services and drive improvements the development of 4PLs has created new opportunities and a higher level of supply chain flexibility. Given the characteristically low margins of the sector, many larger service providers are growing their international capacity to mirror the needs of global clients. In particular, we have seen a number of 3PLs examining potential acquisitions in developing markets, particularly in the so-called BRIC countries (Brazil, Russia, India and China) in order to meet market demand and gain competitive advantage.
Sea freight rides the tide The ups and downs of the global economy have sent shockwaves through the global sea freight industry. Shipping tariffs a bellwether sign of the health of the industry have been unprecedentedly volatile. In July 2008 Drewrys regional container freight rate index for European imports1 reached a high tide of US$3,169 per 40-foot container, only to sink to just US$1,071 over the next eight months. And while prices have almost returned to pre-recession levels (hitting US$2,716 by March 2010), shipping providers continue to lay up vessels and cancel leases to bring their capacity in line with demand and maintain or return to profitability. In response, a number of specialist service providers have emerged and expanded to meet the growing demand for services related to the management of surplus vessels. At the same time, many larger fleet owners continue to manage their surplus vessels in-house, often rafting them together in close proximity to major markets to reduce costs and prepare for an eventual upswing in demand.
For UK organisations, the benefits of volatile shipping rates have been somewhat tempered by a corresponding reduction in sea routes and limited access to frequent and reliable shipping services. Those with flexible supply chains, however, may find this to be a beneficial time to optimise network inventory in order to take advantage of lower shipping rates. Air freight takes off While air freight prices and Freight Tonne Kilometres (FTKs) met some short-term softness during the economic crisis, the medium and long-term prospects for air freight remain very positive. Demand and supply conditions seemed to stabilise at the start of 2011, with emerging markets (particularly in Asia) driving much of this growth. Air freight volumes between China and Europe and China and America are expected to increase by a compounded rate of between five to ten percent for the foreseeable future and some estimates suggest that the number of aircraft servicing Asia will increase five-fold over the next 15 years.
Much of this increased volume is related to the development of intra-Asian trade and freight movements, but equally important is the adoption of more conventional supply chain disciplines (such as Lean) in the emerging markets of China and India. In part, this is being driven by higher wage costs and tighter labour controls in parts of Asia, but it is also a direct response to the demands of European and American clients to integrate planning and supply strategies to reduce standing inventory and release working capital.
1. Drewry Freight Rate Index, Drewry Shipping Consultants Limited
Road haulage consolidates to grow The UK Haulage industry is currently thought to be worth around 60 billion in turnover per annum, with some 415,000 HGVs registered (not including foreign registered vehicles). The sector is predicted to see turnover growth rates of up to 40 percent between now and 2015, but this will not apply across the board and will actually reduce across most of the EU. Many smaller players will either be pushed out of the market or forced to consolidate in order to compete, meet customer demands, and deal with the threat from foreign operators. At the same time, there will be opportunities for expansion in India and China for those operators with the scope and scale to invest and deal with the specific market circumstances in those countries. However, over the next 12-18 months, there will be significant cost challenges to this market particularly when it comes to fuel.
Regulation creates complexities In the UK and around the world, national and regional governments have been stepping up regulatory reform on a number of important fronts. Facing tightened regulatory environments, most financial institutions have become substantially more cautious in their lending decisions and are increasingly broadening their risk reviews to include factors related to an organisations potential supply chain exposure. At the same time, regulators in the EU and US are clamping down on instances of bribery and corruption, creating new risks for global organisations entering into international mergers and acquisitions. Indeed, in the US alone, the Department of Justice has persecuted more bribery and corruption charges in the past two years than in the entire preceding two decades. With equal relish, authorities are actively pursuing regulations to stamp out money-laundering and the financing of terrorism through the Authorised Economic Operator (AEO) regime. For the larger 3PLs and corporations with the ability to comply with AEO certification rules, the regime may well deliver greater efficiencies and competitive advantage in the long-term versus their smaller or less flexible competitors.
And while the financial crisis seems to have effectively de-prioritised green initiatives amongst logistics service providers and retail organisation, regulatory pressures (such as the expansion of the EU Emissions Trading Scheme and the spectre of Carbon Pricing regimes) will continue to significantly impact activities, particularly in carbon intensive sectors. As a result, a number of service providers are considering the benefits of relocating their operations outside of the EU boundary. However, in our opinion, those organisations that are able to successfully reduce emissions (especially GHG) stand to gain a significant competitive advantage in distinguishing their services for both clients and consumers.
...a number of service providers are considering the benefits of relocating their operations outside of the EU boundary
Technology aids agility Nowhere is the pace of change more incessant than in the development and deployment of new technologies. In particular, IT applications that provide increased visibility into forecasting, inventory levels and supply chain risks are being adopted into supply chain organisations in an effort to manage volatility and create greater flexibility in the supply chain. In the more developed markets of the EU and US, the use of technology to enhance automation and drive down labour costs continues to gain traction, slightly less so in developing countries where lower wage costs reinforce traditional labourintensive methods. But it is the technologies that are only now emerging that offer some of the greatest advantages to corporations and service providers: mobile devices and RFID tags hold the promise of unprecedented insight into supply chain optimisation; cloud computing extends the value of shared services and cooperative planning initiatives; some pundits even suggest that 3D printing will make offshore and small-batch manufacturing a thing of the past.
Over the short-term, technology trends in supply chain management will generally follow the commercial priorities of the business, for example creating a welcome market for RFID in counterfeitprone industries such as the Pharmaceuticals. Many of the more mature supply chains have recognised the opportunities of updated technology and implemented new supply chain software and ERP systems. But as they amend and tweak their operations, most are not realising the full value of their changes by realigning their business plans accordingly. And given that ERP business cases are generally predicated on supply chain savings, Supply Chain Directors will no doubt benefit from paying close attention to how their changes impact their business case.
SECTION 6
Conclusion
There is no doubt that global supply chains are in a state of flux. Massive change and upheaval, increased risk and new sustainability considerations have coalesced to push supply chain high onto the corporate boardroom agenda. This survey and related analysis clearly demonstrates that those organisations with mature supply chain approaches are inherently better suited to meet and respond to these complexities and challenges. And while a small number of organisations have achieved advanced maturity (particularly in the CPG sector), others still have considerable work ahead of them. Underlying all of this data, however, three main themes seemed to resonate across the country: The drive for more efficient and interconnected supply chains has exposed network operations to unexpected risks; Many supply chains are incapable of keeping up with the pace of change underway in the business world; and Sustainability measures will force changes in operating models that will bring additional complexity to the supply chain.
So what is the right path to maturity? The answer is unique to each organisation and fully depends on where they are today, and where their organisation wants to be in the future. One thing is certain, however: supply chain maturity is an ever-changing destination. The pace of change is not likely to slow any time soon and new and unforeseen risks and considerations will undoubtedly arise. Indeed, even as organisations work to finalise their supply chain plans, new challenges and complexities will surely present themselves. For supply chain leaders, the need for flexibility is obvious. That is why we believe it is critically important to create and maintain a clear and consistent benchmark of supply chain maturity that can act as a guide for industry participants by setting milestones along the path to maturity. By sharing our combined experience and insight, we also hope to provide best practices and share key insights to help Supply Chain Directors and executives to maximise the value of their supply chain.
On behalf of KPMG LLP (UK), the Chartered Institute of Logistics and Transport, and Holman Fenwick Willan LLP we encourage you to leverage these , findings within your organisation to create robust supply chain strategies, deliver flexibility into the organisation and gain greater visibility into your competitive position. We would also 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.
SECTION 7
Methodology
Between January 2010 and January 2011, the supply chain professionals at KPMG in the UK conducted a series of in-person interviews with Supply Chain Directors (or their equivalent) at more than 50 companies across the UK. Respondents represented a broad cross-section of industries and sectors including Consumer Packaged Goods, Retail, Diversified Industries, Logistics Providers, Utilities and Telecommunications.
Participating organisations were rated for their relative level of maturity across six key supply chain areas: Supply Chain Strategy; Suppler Relationship Management (SRM); Working Capital and Inventory Optimisation; Logistics and Distribution; Customer Relationship Management (CRM); and Supply Chain Performance and Financial Management.
In each case, responses were analysed and categorised into four segments:
Maturity Level Advanced
Score (percent) 75% - 100%
Characteristics > > > > > > > > > > > > > A fully integrated supply chain Strategic partnerships with suppliers and customers Collaborative stakeholder programmes Realisation of synergies such as integrated reporting and IT Cross-functional supply chain integration Culture of continuous improvement focused on improved efficiencies and reduced waste Reduced data entry and duplication Planning recognises the functional interdependencies and impacts Operational performance is monitored and reported Roles and responsibilities are clearly documented Supply chain outlook shaped within functional silos Independent operations focused on expediency Adversarial relationships internally and externally
The study is the first of a regular series focused on creating a baseline of maturity levels for supply chain organisations. Future editions will include progress reports and sector updates that identify trends and best practices across the country.
Intermediate
50% - 74%
Secondary
25% - 49%
Primary
0% - 24%
Responses were aggregated and compared across sectors to identify key issues and challenges that impact the successful and efficient operations of supply chain organisations across the country. Analysis of the findings was conducted by supply chain professionals at KPMG LLP (UK), industry leaders at the Chartered Institute of Logistics and Transport, and international logistics lawyers at Holman Fenwick Willan LLP .
SECTION 8
Quantitative Analysis
Supply Chain Maturity by Sector

90 80 70 60 50 40 30 20
Across the responding sectors, the Consumer Packaged Goods industry clearly stands out as the sector leader and is the only group with an advanced maturity rating overall. Of particular note are high levels of maturity within the CPG sector in the logistics and distribution category as well as supplier relationship management. Matching the study average overall, the Diversified Industries sector (comprising of manufacturers, distributors and service organisations) scores highly in CRM and cost performance measurement, but given the relative degree of separation between this sector and the endconsumer the Diversified Industries group tends to lag behind the CPG group, particularly in CRM, SRM and logistics.
Maximum
Average
Median
Minimum
Utilities Retail
Study Average DI
Logisitcs CPG
Retail organisations tend to put higher levels of attention on cost performance measurement and logistics. With an almost single-minded focus on maintaining service levels (i.e. product availability), retail respondents as a group achieved weak scores in inventory and working capital management, preferring instead to put downward cost pressures
on their CPG and logistics partners to achieve lower costs and sustainable availability. However, looking ahead, retailers expect to seek out new opportunities for reducing stock on hand such as leveraging Vendor Managed Inventory approaches or having suppliers hold critical stocks further down the supply chain. And while Utilities returned the lowest scores in all areas except Supply Chain Strategy, this is largely reflective of their disproportionate focus on security of supply and safety considerations that outweigh many of the benchmarks that are central to supply chain maturity in other sectors. For logistics providers, however, respondents across the board overwhelmingly pointed to a massive opportunity: 3PLs and 4PLs that are able to live up to customer expectations around innovation, service levels and commerciality can gain significant traction in a market where clients are becoming increasingly concerned about the gap between expectations and reality.
Average Supply Chain Maturity score by category

90 80 70 60 50 40 30 20
Supply Chain Strategy
SRM
Working Capital
Logistics & Distribution
CRM
Performance Management
Utilities Retail
Study Average DI
Logisitcs CPG
Category: Supply Chain Strategy Utilities and CPG respondents tended to score higher than the study average. Specifically, Utilities scored highly in CSR and network design, while CPG achieved high scores in strategy and measurement. It should be noted that while service delivery is critical to both the utilities tended to be governed by public service considerations, whereas CPG companies are largely motivated in this category by commercial forces, namely trends and consumer behaviour. Category: Supplier Relationship Management CPG respondents take a significant lead across all SRM subcategories, particularly in the management of their supplier base. In large part, this is an outcome of their need to work closely with their suppliers to effectively deliver their retail customer requirements. And while retailers themselves are largely thought to enjoy strong supplier relationships, our data suggests that in the context of supply chain maturity they trend well below their counterparts in the CPG and Logistics sectors. Indeed, retail respondents saw the lowest scores across the entire study group in the collaboration and information sharing subcategory.
Category:Working capital and inventory management Somewhat perplexingly, all sectors reported a weaker focus on working capital and inventory management. While many UK organisations are actively looking at their working capital across their Accounts Payable, Receivables and inventory functions, additional focus must be placed on taking out the associated logistics costs as well. However, CPG and Logistics providers are particularly focused on achieving the right balance of supply and demand in order to effectively and quickly respond to changing customer needs. And while the Retail and Utilities sectors tended to see low maturity scores in inventory management, this is again related to their need to hold enough buffer stock to support fluctuations in demand, and may fluctuate as these sectors move towards Vendor Managed Inventory. Category: Logistics and Distribution When it comes to the maturity of the Logistics and Distribution function, the CPG and Logistics sectors once again rise to the top. Almost all CPG survey respondents demonstrated a strong mix of in-house and outsourced logistics functions, which has allowed many CPG organisations to retain overall
accountability and control of their supply chain. And while this may leave much of the legwork to their logistics service providers, it is clear from the data that the Logistics sector has also achieved advanced maturity in this category overall. It is worth noting that given the proclivity for the Utilities sector to fully outsource their logistics function most Utilities respondents did not comment on their maturity in this category and have therefore been excluded. Category: Customer Relationship Management Once again, the Logistics and CPG sectors have demonstrated a high level of customer relationship management maturity that is indicative of an advanced supply chain. However, for almost all survey respondents across the board, the creation and management of a CRM strategy ranked far higher than the actual measurement of performance. Above average CRM maturity was also evident in the Diversified Industries, reflecting their need to respond to customer demands and trends.
...cost visibility maturity remained low across all sectors, in contrast to the reported confidence in CRM customer profitability...
Category: Performance Management and Reward The Diversified Industries group reported the highest level of maturity in the use of supply chain cost visibility and cost to serve approaches. And while the CPG respondents demonstrated a strong lead in the maturity of their continuous improvement and supply chain financial performance measurement, cost visibility maturity remained low across all sectors, which stands in contrast to the reported confidence in CRM customer profitability and the actual cost visibility through the respective supply chains.
SECTION 9
Participants
This study and related analysis is based on the insight and experience of Supply Chain Directors at many of the UKs leading organisations. The authors of this study would like to recognise and thank all of those who participated, including:
Fraser Maclean Operations Director AJG Simon Rigby Head of Supply Chain Comet Trevor Ashworth Director of Supply Chain Co-Op Chris Lovatt Supply Chain Director EON Paul Fitzpatrick Supply Chain Manager GDC Group Ltd Dave Howorth Supply Chain Director, UK & Ireland General Mills UK Keith Allison Operations Director Homedics Nigel Reynolds Head of Logistics and Community Support HSNCI Peter Surtees Director, European Supply Chain Kimberly Clark M&S Food
Oliver Burgess Supply Director MILA Mark Whalley Head of Distribution Music Sales Tony Borg VP Supply Chain Nestle Group Ian Smith Chief Executive Officer Night Freight Clare Davies Head of Sales Norbert Dentressangle Simon Ranner Supply Chain Director One Stop Richard Slater Logistics and Development Director Palmer & Harvey Andrew Smith Head of Procurement Vehicles, Assets, Logistics Royal Mail Deepak Pandya Supply Chain Director Scotts Miracle Grow
Mars Ian McLeod Director Purchasing and Supply (Interim) Severn Trent Water Paul Burns Supply Chain Director Tarmac John Burdett VP Operations Planning Tata Global Beverages Jeremy Hawkins Head of Operations Treasury Wines EMA Jonathan Downes, OBE Supply Projects Director UK Grocery, Associated British Foods Colin Davis Director of Supply Chain & Commercial United Utilities Dan Curran Head of Supply Chain World Duty Free Jeremy Davidson Deputy Managing Director Yusen Logistics Europe Muller UK McDonalds
SECTION 10
About the Authors
About KPMG KPMG LLP a UK limited liability , partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of 1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. KPMG International provides no client services.
About The Chartered Institute of Logistics and transport The Chartered Institute of Logistics and Transport in the UK CILT (UK) is an independent professional body for individuals associated with logistics, supply chains and all transport. It aims to be the focus for professional excellence and the development of the most modern techniques in logistics and transport and encourage the adoption of policies, which are both efficient and sustainable. Membership of CILT is represented in more than 30 countries across the world. Its 33,000 members benefit from career enhancing benefits that save them time and money, keep them informed and ensure their career development.
About Holman Fenwick Willan LLP Holman Fenwick Willan is a global law firm advising businesses engaged in all aspects of international commerce. With offices in Europe, the Middle East and Asia Pacific, we have built a reputation worldwide for excellence and innovation and have focused the development of our capabilities and the growth of our expertise in a limited number of sectors, including logistics. Our logistics team has in-depth knowledge of the international conventions applicable to ocean, road, rail and air carriage and also of the standard conditions commonly used to govern logistics services. We specialise in drafting and negotiating best in class agreements for the procurement and provision of logistics services, as well as advising on the full range of corporate/ M&A transactions and handling all manner of insured and commercial disputes arising out of logistics operations, including supply chain risk management.
Contact us Julian Thomas

Partner, Global Head of Supply Chain KPMG LLP + 44 (0) 20 7694 3401 julian.thomas@kpmg.co.uk
Andrew Underwood
Partner, UK Head of Supply Chain KPMG LLP (UK) +44 (0) 121 232 3886 andrew.underwood@kpmg.co.uk
Iain Prince
Director, Supply Chain KPMG LLP (UK) +44 (0) 117 905 4257 iain.prince@kpmg.co.uk
Barbara Anderson
Senior Manager, Supply Chain KPMG LLP (UK) +44 (0) 20 7694 3314 barbara.anderson@kpmg.co.uk
www.kpmg.co.uk
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2011 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network , of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the United Kingdom. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. RR Donnelley | RRD-253831 | May 2011

Managing SCM Complexities

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Managing SCM Complexities

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Supply Chain Complexity: Managing Constant Change

A study of supply chain maturity by KPMG LLP (UK)

SUPPLY CHAIN MATURITY SURVEY

Andrew Underwood Partner KPMG LLP

Steve Agg Chief Executive Chartered Institute of Logistics and Transport

Craig Neame Partner Holman Fenwick Willan LLP

SECTION 10: About the Authors

1 | Supply Chain Survey

Supply Chain Survey | 2

3 | Supply Chain Survey

Key Findings Supply Chain Risk

To be prepared is half the victory

Supply Chain Survey | 4

A closer look at legislative risks

5 | Supply Chain Survey

The myriad of Supply Chain risks to be managed

Intellectual Property Management (IP Risk)

Social Responsibility (Brand Risk) Hedging Strategies (Cost Risk)

Supply Chain Survey | 6

Key Findings Speed of Change

7 | Supply Chain Survey

Key Findings Sustainability and Environment

Supply Chain Survey | 8

9 | Supply Chain Survey

Supply Chain Trends

Supply Chain Survey | 10

1. Drewry Freight Rate Index, Drewry Shipping Consultants Limited

11 | Supply Chain Survey

Supply Chain Survey | 12

13 | Supply Chain Survey

Supply Chain Survey | 14

15 | Supply Chain Survey

Supply Chain Survey | 16

Maturity Level Advanced

Score (percent) 75% - 100%

17 | Supply Chain Survey

Supply Chain Maturity by Sector

Source: KPMG LLP (UK) 2011

Supply Chain Survey | 18

Average Supply Chain Maturity score by category

Supply Chain Strategy

Logistics & Distribution

Source: KPMG LLP (UK) 2011

19 | Supply Chain Survey

Supply Chain Survey | 20

21 | Supply Chain Survey

Supply Chain Survey | 22

23 | Supply Chain Survey

Supply Chain Survey | 24

About the Authors

Contact us Julian Thomas

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