"Network Optimization as next step at Spare Parts Cost and Service Optimization. How to create Value?" Paolo Galli European Logistics EMA-EMEA Ops, Electrolux and Carlo Peters, Supply Chain Strategy Consultant, Buck Consultants International presentation at Spare Partns Business Platform 2013.
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Paolo Gallibci, Electrolux presentation at Spare Parts 2013
1. Network Optimization as next step in Spare Parts Cost and Service Optimization How to create Value?
Paolo Galli
European Logistics EMA-EMEA Ops
E: paolo.galli@electrolux.it
T: +39 0434 394408
Carlo Peters
Supply Chain Strategy Consultant
E: carlo.peters@bciglobal.com
T: +31 622 917 254
Stockholm, February 7, 2013
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Contents
1 The dynamics in spare parts / AMS services
2 The added value of Network Design
3The building blocks of an intelligent Supply Chain
4Introduction Electrolux
5Case Electrolux spare parts network design
6Key takeawayâs
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After Market Service (AMS) Creating value
After market service is the combined offering of parts, services and information that delivers maximum customer satisfaction and ongoing customer loyalty in terms of exceeding the customerâs expectations in the application of the purchased product
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1 The dynamics in spare parts / AMS services
FROM
Focus on forward supply chain of Finished Goods
Cost Center
High inventories
Western European Focus
Single sales channels
Own operations
Single supply chain for FG and Parts
TO
Focus on aftermarket, incl. spare parts, returns, asset recovery, etc.
Profit Center
Reducing inventories
New Geographies such as Russia, Turkey, Mexico, etc.
Multiple sales channels incl. internet
Outsourcing of aftermarket functions
Differentiated supply chains
Key Trends & Developments
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2 The added value of Supply Chain Network Design
Range of Optimal Values
Annual
Cost
Transfer
Freight
Fixed
Cost
Outbound
Freight
Number Of Facilities
Few
Many
Total
Cost
Inventory
Carrying Cost
A Supply Chain network has an optimum number of facilities depending the relevance of in- and outbound transport cost versus inventory and warehousing costs
6. The majority of a supply chainâs lifecycle costs are locked-in at the startâŚ
Decisions
Solutions
Value
Advanced
Planning and
Scheduling
ERP / MRP
Execution
Strategic and Tactical Supply Chain Optimization
80%
20%
Operational Tactical Strategic
Source: AMR Research
ďŹManufacturing/supplier network
ďŹDistribution network
ďŹInventory Locations
ďŹInventory Levels
ďŹService policies
As the majority of the supply chain costs are locked in
the infrastructure, network design is critical in order to
realize step changes
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3The building blocks of an intelligent Supply Chain
Differentiated service offering
Differentiated Supply Chain set up
Pre-pack and warehousing locations
SC Visibility and transport management
Collaboration and outsourcing
Inventory optimization
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Europe in 4 hours
Advanced Network
âCentralized backup-inventory
âLocalized emergency inventory in selected cities in each country
âShared infrastructure
âPick-to-order 24 x 7 x 365
âIndividual transportation to customers and engineers
âConsolidated replenishment transportation
âDelivery within 4 hours of order
Europe in 24-48 hours
Centralized Solution
âCentralized inventory
âShared infrastructure
âScheduled batch-run picks
âLate cut-offs
âConsolidated transportation to customers and engineers
âDelivery on next business day
Europe in 2 Hours
High Density Network
âCentralized backup- inventory, eventually hosted in two locations
âLocalized emergency inventory using a high density storage network to achieve shortest lead times
âShared infrastructure
âPick-to-order 24 x 7 x 365
âIndividual transportation to customers and engineers
âConsolidated replenishment transportation
âDelivery within 2 hours of order
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Differentiated service offering
Can be accomplished through the network and
through transport modalities used
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Customers
ďŹDistributor
ďŹDealer
ďŹDirect to retail
ďŹEnd customer
ďŹCustomer site
ďŹService technician
Dependent on the product, product characteristics and
product/market combinations a variety of supply chains
solutions can be developed
Source
Source
Hub
EDC
RDC / SDC
Hub
MSP
Activities
ďŹMilkruns
ďŹProduction
ďŹRepair
Activities
ďŹConsoli- dation
ďŹDeconsoli- dation
Activities
ďŹVAL
ďŹMerge in transit
ďŹCross-dock
ďŹRepair
ďŹInventory
ďŹPostponed manufacturing
ďŹPrepack
Activities
ďŹVAL
ďŹMerge in transit
ďŹCross-dock
ďŹRepair
ďŹInventory
ďŹPrepack
Activities
ďŹCross-dock
ďŹConsoli- dation
ďŹDeconsoli- dation
Activities
ďŹVAL
ďŹRepair
ďŹInventory
ďŹConsignment stock
ďŹCritical parts
ďŹPrepack
PU
Activities
ďŹPuDo / Kiala locations
ďŹLockers
ďŹGarage box / Van
Markets
Markets
Markets
Differentiated Supply Chain set up
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Pre-pack and warehouse locations
If labor and warehousing costs are the key drivers, low labor costs countries can be favorable for labor intensive pre-pack and warehouse operations
Low labor cost countries
Labor cost index Warehouse rent index
Source: IMD 2012
12. Inbound
Logistics
Suppliers
Receiving
Customer
Manufacturer
Customer
Channels
Outbound
Logistics
Return
Management
Multi Modal Control Tower
End-to-end transportation Management across the supply chain
KPI metrics and reporting, QBR reviews with vendors, freight invoicing and auditing
Sea Freight Air Freight
Warehousing &
Distribution
Last Mile /
Road & Rail Integrators
Compliance &
Documents
SC visibility and transport
management
Multi Modal Control Tower allowing for end to end visibility and
continuous optimization of cost, quality and service
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13. Several collaboration initiatives have emerged; some are outsourced, other are managed amongst brand owners
Collaboration and Outsourcing
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14. Inventory optimization
Excess inventory and added cost
Central inventory management visibility and stocking decisions are needed over to optimize over all echelons
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BCI methodology for strategic network design & optimization
Design and optimization of a complex service supply chain structure requires a proven and well-structured methodology in combination with powerful optimization tools
Start-up
Understand
&
Analyze
Design
Detail &
Validate
Document
& Plan
Implement
Project management
⢠Objectives
⢠Constraints
⢠Scope
⢠Team
⢠Level of detail
⢠Project plan
⢠Business CSFs
⢠Operations
⢠Level of detail
⢠Data collection
⢠Baseline model
â˘Scenarios
â˘Alt. Locations
â˘Alt. DC network
â˘Alt. service levels
â˘Sensitivities
⢠Populate
⢠Run
⢠Analyze/Debug
⢠Robustness test
⢠Rank / Select
Impact analysis
⢠Organization
⢠Systems
⢠HR
⢠Risk
⢠Service
Change Mngt.
A phased approach with clear deliverables per phase
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Electrolux 2011
Position
ď§Sales SEK 102 billion
ď§Op income SEK 3.2 billion
ď§Sales in more than 150 markets
ď§A world leader in appliances
Products
ď§More than 40 million products per year
ď§To meet the real needs of consumers and professionals
40
MILLION
150
MARKETS
People
ď§58,000 in 60 countries
60
COUNTRIES
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Electrolux business
A global company
Cookers, Ovens & Hobs
Refrigerators & Freezers
Dishwashers
Laundry products
Vacuum cleaners &
Small appliances
Air Conditioners &
Dehumidifiers
Products for professional use
Share of net sales as of 2011
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From a country based, uncoordinated spare parts service set up, via a centrally coordinated, regional spare parts set up towards a customer centric driven set up balancing cost and service
Sales co
Sales co
Sales co
Sales co
Factory
Supplier
Factory
Factory
Country based business
ďŹLocal management
ďŹ20 Warehouses
ďŹNo unified IT system
European business unit for spares
ďŹIntegrated Spares Business
ďŹ6 warehouses
ďŹEuropean IT system
Market
Market
Market
Market
6 ware- houses
Factory
Supplier
Factory
Factory
Sales coâs
European functional Aftermarket organization
ďŹSpares entities aligned with the rest of EMA-E organization
ďŹEach unit to focus and specialize (KPIâs, visibilityâŚ)
Purchasing
Purchasing
SCM / Opâs
SCMSpares Opâs
Sales
After Sales
1990âs
2000âs
2010âs
5Case: Electrolux spare parts Network design
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JĂśnkĂśping
Newcastle
Madrid
Maniago
Rothenburg
Zurich
ďŹ6 regional distribution centers keeping (almost) all spare codes
ďŹPrepacking at each DC
ďŹTotal headcount > 350FTE
ďŹ35.000 customer order lines daily
ďŹ>300.000 active spare codes
ďŹ160.000 spare codes in stock
ďŹ100 new spare parts introduced every day
ďŹLess than 4% of spare codes represent > 75% of sales volume
ďŹ>80% of spare codes represent less than 4% of sales volume
The current supply chain set-up provides high customer service in terms of product availability (>97% on order line level) and short order lead times
DELIVERY
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The key cost drivers are labour and real estate related; warehousing and pre packing represent >50% of the total supply chain cost
21. Overall objective Balancing customer fulfillment requirements versus supply chain costs
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Customer fulfillment
Availability
Order lead-times
Complexity to manage
Supporting future strategies
Flexibility
Supply chain costs
Transportation costs
â˘In-, whs-whs, outbound
Warehousing costs
â˘Labour, building, other
Prepacking
Inventory carrying
Other
22. Scenarioâs*)
AS IS
6 RDC
Reduced
# RDC
Single DC
CDC + satellites
Supplier Direct
(Variant to all scenarioâs)
Location options
ďŹAs is
ďŹHCC & LCC
ďŹHCC
ďŹLCC
ďŹHCC or LCC
ďŹSatellites in relevant markets
Key network scenarioâs under consideration
*) In each scenario different pre pack locations have been assessed
Supplier
Supplier
Supplier
Supplier
Supplier
Regional markets
Regional markets
All markets
All markets
All
markets
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23. Different cost per supply chain element per scenario result in overall supply chain cost (index) comparison
AS IS
6 RDC
Reduced
# RDC
3 RDC
Single DC
1 CDC
CDC + satelites
3-6 Satâs
Supplier Direct
ďŹWarehousing
ďŹPrepacking
ďŹInventory costing
ďŹTransport
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Weighed scores of Customer- and Internal Facing aspects result in comparison of scenarios on quality / service elements
Qualitative aspect
Weight
As ls
Single DC
RDC set up (less RDC)
CDC + Sat
Order Lead Time
x%
Immediate availability
x%
Ease of inventory management
x%
Ease of transport management
x%
Ease of Pre-Pack operations and management
x%
TOTAL Quality score
100%
Depending the relevance (weight) of each aspect
Low score
High score
Customer
facing
Internal
facing
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Weighted quality scores
2.5
4.5
3
4
3.5
Theoretic optimum
AS IS
The project specific cost â quality matrix to support strategic decisions for balancing cost and service / quality
High quality
Low Cost
High Cost
Low quality
More DCs (10)
CDC+SATâs
Central DC
3 RDCs
CDC East Europe
Cost Index
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30%
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Pitfalls and success factors
ďŹStrategy
ďˇClearly communicate the company strategy
ďˇHave an idea what you want but keep an open mind
ďˇOnce high level results are available focus on a limited amount of plausible scenarios
ďŹInvolvement
ďˇMake sure to have all key stake holders represented in the working team
ďˇCompany wide involvement (M&S, product management, operations, logistics and supply chain, finance, âŚ)
ďˇTop down commitment
ďˇBottom up involvement
ďŹData / Information
ďˇDefine the right level of details of data
ďˇReliable: Take the time to review it!
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Final conclusion
Road map coming 3 years
Implement the plan
Harvest the benefits
Next steps
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5 Key takeaways
Strategic network design adds value
There are various building blocks to optimize
Priorities alongside the axles of cost or service drive the preferred network solution
A structured approach, involving company wide stakeholders, is key to success
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Buck Consultants International in a nutshell
Areas of activity
ďŹDevelopment of European Business Strategies
ďŹGlobal Supply Chain Optimization
ďŹReal estate strategy / location advice
From Strategy to realization
Profile
ďŹEstablished in Nijmegen, the Netherlands in 1985
ďŹEmploys 65 full-time professionals
ďŹPerformed studies in more than 50 countries in 5 continents
Milan
Madrid
Frankfurt
Paris
London
Brussels
The Hague
Nijmegen HQ
Chicago, IL
Office locations
Partners in
ďŹUS :
ďŹFar East :
ďŹRussia :
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Buck Consultants International supply chain services offering
Supply Chain strategy
development
Supply chain optimization (network analyses)
Distribution centre and manufacturing facility operations audit and design
Location selection for DC or
manufacturing site
Logistics outsourcing (3PL selection processes)
Transport & carrier
optimization
Inventory analysis and
optimization
ď Buck Consultants International, 2013