Supply Chain

Trends

Fro Cos Centr to

Competitive
m
t
e
By Shanaka
Advantage
Jayasinghe

March
2014Real Results.
Real People. Real World.
26th

What are we going to talk about

today?
Supply Chain
Trends
How is the supply chain changing?
Why is it changing?
Is it for the better or worse?
What can business do in response to these
changes?

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The Right
Rule
As long as the Earth keeps spinning, this rule
will exist.

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Key
Message
Dont focus on the change, respond to it whilst focusing on the fundamental
objective.

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A key trend to set the

scene

The Impact of the Internet on the

Supply

Chai
n

The internet is a magnificent innovation. It has;

Given the public a voice
Provided access to knowledge and information
Given us email, Facebook, YouTube and Twitter
Built communities

This is what 4.2

billion
IP addresses looks like.

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Th Impac of th Internet on the Supply

e t
e Chain

Threat of New
Entrants

Bargaining
Power
of Australian

Competitio
n

Customers

Suppliers

Threat of
Substitution

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Bargaining Power
of

The Impact of the Internet on the Supply

Chain

Provides access to new & broader customer

channels

Reduces requirement for a sales force

Threat of New
Entrants

Dick Smith had a saying,

find a
competitor, set up shop next
door to them and then beat
them at their own game. In
the process,
you take away their customers.

Bargaining
Power
of Australian

Competitio
n

of

Customers

Suppliers

Threat of
Substitution

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Online business is seriously

competitive in this regard.
You have hundreds if not
thousands of next door
Bargaining Power
competitors.

Th Impac of th Interne on th Suppl Chai

e t
e t
e y
n

Kogan is a new entrant to the online consumer electronics scene, founded in

2006 is now
Australias biggest online.

Revenue = $3million in 2009 and in 2014 is projected to make in upwards of

$350million.

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Th Impac of th Internet on the Supply

e t
e Chain

Threat of New
Entrants

Bargaining
Power
of Australian

Competitio
n

Bargaining Power
of
Customers
Customers because of the internet
now

Suppliers

have more flexibility in;

shopping hours
choice of range

Threat of
Substitution

visibility on price
shorter lead times

The demands on lead times are in

some instances unimaginable.
Same and next day delivery now
is the norm!

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Th Impac of th Interne on th Suppl Chai

e t
e t
e y
n

CAPABILIT
Y
DIFFERENT
IATION

CUSTOME
R
EXPECTATI
ONS

NEXT
INNOVATIO
N
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Th Impact of the Internet on the Supply

e Chain
Amazon Prime Air drones, the goal of this new delivery system is to get packages into
customers' hands in
30 minutes or less using unmanned aerial vehicles.

1. Imagine you order a tool

online
2. It immediately sends this
information
to the nearest distribution centre

3. It is picked in
minutes
4. And then it attached itself to
this

alien like creature which flies this to

your doorstep within 30minutes

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12

Th Impac of th Internet on the Supply

e t
e Chain

Threat of New
Entrants

Bargaining
Power
of Australian

Bargaining Power
of

Competitio
n

Customers

Suppliers

By making the overall industry

more

Threat of
Substitution

efficient, the Internet has expanded

the
size of thehave
markets.
Companies
responded by

diversifying product ranges,

creating new substitution
threats.

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13

The Impact of the Internet on the Supply

Chain
An explosion of Products has by
definition

resulte in
d
an

From milk to the automotive

industry we are seeing this.
The impact on the supply
chain is
an explosion in SKU counts
over the last decade.

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14

increase availabl substitut product

in
e
e
s

The Impact of the Internet on the Supply

Chain
Reduced barriers to
entry

Threat of New Entrants

Introduced new procurement
channels

Bargaining
Power
of Australian

Increased customer
expectations

Competitio
n

Customers

Suppliers

To add to all this, the internet

has
added additional channels to
procurement, this is
particularly worrying for
wholesaler suppliers as it
provides greater access to
leap-

Increased product
ranges

Threat of
Substitution

frog these suppliers and go direct

to source manufacturing.

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Bargaining Power
of

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The Impact of the Internet on the Supply

Chain
Private label is a form of vertical integration which allows for higher
profit margins.

Private label is a major threat to local suppliers.

COLES, in 2012 it drew approximately 20% of its sales from private label products. Industry
estimates private label products will account for 40% of the market in five years.

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Wha ca we take
t
n
away

fro
m

all of this
?

1
Competition

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So what
happens?

What happens when there is more competition? To stay in the game, you need to
get better!

Supply Chains become more complex and CEOs and CFOs respond to this
complexity by placing
greater focus on the supply chain today than ever before.

Competitio
n

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Supply Chains
become
more complex

Supply Chains adapt and become more

complex
Tak a basic
e
supermarket

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suppl chain
y
to

begin
with

20

Supply Chains adapt

and

becom mor comple

e
e
x

Globalisatio
n
increasing the lead times of certain
products
operating in various currencies
complex procurement process

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Supply Chains
adapt

an becom mor comple

d e
e
x

Globalisatio
n
Channel
Diversification
greater access to
markets,
lead time variability

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Supply Chains adapt and become more

complex
Become a very complex
s

system!

Globalisatio
n
Channel
Diversification
Increasing
Customer
Expectations

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Complexity does not change to

goal
No matter what the trend or change, the notion of the 5 rights is fundamental and
unchanged.
Trends implies change, reaction, disruption. But the fundamentals will be the same.

Globalisatio
n

Channel
Diversification

Increasing Customer
Expectations

Dont focus on the change, respond to it whilst focusing on the fundamental

objective.

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Case Studies
Responding to
complexity, find your supply chain
competitive advantage

CEOs & CFOs are turning to the supply chain for

answers

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CEOs & CFOs are turning to the supply chain for

answers

If we consider generating shareholder value to be the goal, this graphic highlights how the supply
chain has a direct
impact via Sales Revenue, Costs, Working Capital and Physical Capital.

What I would encourage everyone to do is look at your supply chain in relation to these levers and find
your competitive
advantage.

Sales Revenue Depends on the supply chain delivering

product
availability, think service level

Costs Everything from inventory to warehousing to

transport, the
supply chain is core business and as a result, typical 6070% of company costs exist within the supply chain. This
provides massive opportunity.

Working Capital Get inventory management right, youll

get this
right. Cash flow is critical to business success.

Physical Capital Make the most of the assets you have,

design your
supply chain efectively so you can leverage asset utilisation through
centralisation and economies of scale.

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Strategi alignmen of business & supply

c
t
chain

objective
s

Business
Strategy
Customer Value
Proposition

What, Where, When,

How much and Why?

Customer Ofer, Service Level, Product Range, Services Ofered

Supply Chain
Strategy

Structure & Flow, Insource/Outsource, Centralisation, Service/Cost/Capacity

Zaras business strategy is to ofer cutting edge fashion at afordable prices by

following
fashion and identifying which styles are in, and quickly getting these latest styles into stores.

Zara has developed a highly responsive supply chain that enables delivery of new fashion as soon as
trends emerge.
o

Moved away from contract off-shore manufacturers, regionalised network

Small and frequent shipments keep product inventories fresh and scarcecompelling customers to frequent the

store in search of whats new and to buy nowbecause it will be gone tomorrow.

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Dell &
Compaq

Dell Computer Return on Assets (ROA)

Return on Assets (ROA) = asset turnover x profit
margin
Dell ROA was 16 %
Compaq ROA was 3%
both had similar gross margins ~21%
Dell had inventory turns of ~80 per annum
Compaq had inventory turns of ~20 per annum
Source: The Financial Advantages of the Lean Supply
Chain
Holding excess inventory comes with cost. Not just in write downs and
depreciation, but also overhead in carrying cost (could be 25% of COGS) and also
opportunity cost. Inventory is cash!

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Information hoarding Information sharing and

visibility
Too many companies are supply-chain introverts. That is, too many companies fail to
adequately
recognise that the supply chain extends far forward to customers, and back, to
suppliers and their suppliers. Less than 10% of companies go outside their four walls
to track the performance of supply-chain activities at their vendors, logistics
providers,
What Colesdistributors,
& Woolworths
doing information sharing via web
andare
customers.
portals.

Pros vs. Cons for the

Supplier?
need to know how to leverage what youre
given

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expectations are higher

more visibility/consistency
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Amazon vs.
Borders

Share Price peaked late 2013 at

$407

Amazon uses few distribution centres and the E-commerce strategy allows
Amazon to centralise the stocks. Inventory centralisation pays off most for
expensive, slow moving products with high demand variability
Warehouse facilities are strategically important to the company. Amazon
makes facility locations decision based on distance to demand areas and
tax implications.
Amazon ships order using common carriers so they can obtain economy of
scale.

Amazon is relentless.

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There are two constants

Change
and the 5 Right Rule

What did we talk about

today?
Dont focus on the change, respond to it whilst focusing on the fundamental
objective.

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Supply Chain Leaders step

up
From back-office to strategic
leader
Then
General Electrics well-known boss Jack Welch once famously
said that who cant add,
engineers
who cant run their
operators
equipment,
an
accountan wh cant
number
becom suppl an
d
ts
o
foot Jack at
s the time
e was simply
y
d
purchasing
professionals.
Welch
on
the common perception veilingreflecting
Supply Chains, that it is a
back office
function.

Now
In 2012 the highest paid CEO in the world was a man with a
Supply Chain
CEO of Apple has a total compensation package of approx. $378 million

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Backgroun Tim Cook

d.
,

Than yo
k
u

www.gra.net.
au