The document discusses trends in supply chain management and how supply chains are adapting to changes in technology and customer expectations. It notes that the internet has increased competition, threats of substitution, and customer bargaining power. As a result, supply chains have become more complex, globalized, and diverse in their channels. However, the fundamental objectives of delivering the right product to the right place at the right time in the right quantity for the right cost remain the same. The document uses examples like Zara, Dell, and Amazon to illustrate how leading companies have developed supply chain strategies and information sharing to gain competitive advantages in areas like sales, costs, working capital and assets.

1. Real People. Real World. Real Results.
Supply Chain Trends
From Cost Centre to Competitive Advantage
By Shanaka Jayasinghe
26th March 2014

2. 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?
“Don’t focus on the change, respond to it, whilst focusing on the fundamental
objective.”
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3. The Right Rule
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• As long as the Earth keeps spinning, this rule will exist.

4. Key Message
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“Don’t focus on the change, respond to it whilst focusing on the fundamental objective.”

5. A key trend to set the scene…

6. The Impact of the Internet on the Supply Chain
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This is what 4.2 billion
IP addresses looks like.
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

7. The Impact of the Internet on the Supply Chain
7
Competition
Threat of New Entrants
Threat of Substitution
Bargaining Power of
Customers
Bargaining Power
of Australian
Suppliers
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8. The Impact of the Internet on the Supply Chain
8
Competition
Threat of New Entrants
Threat of Substitution
Bargaining Power of
Customers
Bargaining Power
of Australian
Suppliers
© GRA 2014
• Provides access to new & broader customer channels
• Reduces requirement for a sales force
• 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.
Online business is seriously
competitive in this regard. You
have hundreds if not thousands of
next door competitors.

9. The Impact of the Internet on the Supply Chain
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• Kogan is a new entrant to the online consumer electronics scene, founded in 2006 is now
Australia’s biggest online.
• Revenue = $3million in 2009 and in 2014 is projected to make in upwards of $350million.

10. The Impact of the Internet on the Supply Chain
10
Competition
Threat of New Entrants
Threat of Substitution
Bargaining Power of
Customers
Bargaining Power
of Australian
Suppliers
© GRA 2014
Customers because of the internet now
have more flexibility in;
• shopping hours
• choice of range
• 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!

11. The Impact of the Internet on the Supply Chain
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CUSTOMER
EXPECTATIONS
NEXT
INNOVATION
CAPABILITY
DIFFERENTIATION

12. The Impact of the Internet on the Supply Chain
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• 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

13. The Impact of the Internet on the Supply Chain
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Competition
Threat of New Entrants
Threat of Substitution
Bargaining Power of
Customers
Bargaining Power
of Australian
Suppliers
© GRA 2014
• By making the overall industry more
efficient, the Internet has expanded
the size of the markets.
• Companies have responded by
diversifying product ranges, creating
new substitution threats.

14. The Impact of the Internet on the Supply Chain
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An explosion of Products has by definition resulted in an increase in available substitute products
• 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.

15. The Impact of the Internet on the Supply Chain
15
Competition
Threat of New Entrants
Threat of Substitution
Bargaining Power of
Customers
Bargaining Power
of Australian
Suppliers
© GRA 2014
Reduced barriers to entry
Increased customer expectations
Increased product ranges
Introduced new procurement channels
• 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-
frog” these suppliers and go direct
to source manufacturing.

16. The Impact of the Internet on the Supply Chain
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• 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.

17. What can we take away from all of this?
17
Competition
1
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18. 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 CEO’s and CFO’s respond to this complexity by placing
greater focus on the supply chain today than ever before.
18
Competition
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19. Supply Chains become
more complex

20. Supply Chains adapt and become more complex
20
Take a basic supermarket supply chain to begin with…
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21. Supply Chains adapt and become more complex
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Globalisation
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• increasing the lead times of certain products
• operating in various currencies
• complex procurement process

22. Supply Chains adapt and become more complex
22
Channel Diversification
Globalisation
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• greater access to markets,
• lead time variability

23. Supply Chains adapt and become more complex
23
Channel Diversification
Globalisation
Increasing Customer
Expectations
Becomes a very complex system!
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24. Complexity does not change to goal…
24
Channel DiversificationGlobalisation Increasing Customer Expectations
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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.
“Don’t focus on the change, respond to it whilst focusing on the fundamental objective.”

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

26. CEO’s & CFO’s are turning to the supply chain for answers
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27. CEO’s & CFO’s are turning to the supply chain for answers
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• 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 60-70% of
company costs exist within the supply chain. This provides massive
opportunity.
• Working Capital – Get inventory management right, you’ll get this
right. Cash flow is critical to business success.
• Physical Capital – Make the most of the assets you have, design your
supply chain effectively so you can leverage asset utilisation through
centralisation and economies of scale.

28. Strategic alignment of business & supply chain objectives
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Business Strategy
What, Where, When, How much and Why?
Supply Chain Strategy
Structure & Flow, Insource/Outsource, Centralisation, Service/Cost/Capacity
Customer Value Proposition
Customer Offer, Service Level, Product Range, Services Offered
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• Zara’s business strategy is to offer cutting edge fashion at affordable 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
o Small and frequent shipments keep product inventories fresh and scarce—compelling customers to frequent the
store in search of what’s new and to buy now…because it will be gone tomorrow.

29. • 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
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Source: The Financial Advantages of the Lean Supply Chain
Dell & Compaq
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• 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!

30. Information hoarding  Information sharing and visibility
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Pro’s vs. Con’s for the Supplier?
• need to know how to leverage what you’re given
• expectations are higher
• more visibility/consistency
• 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, distributors, and customers.
• What Coles & Woolworths are doing – information sharing via web portals.

31. Amazon vs. Borders
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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.

32. There are two constants – Change
and the “5 Right Rule”

33. What did we talk about today?
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“Don’t focus on the change, respond to it whilst focusing on the fundamental objective.”

34. Supply Chain Leaders step up…
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General Electric’s well-known boss Jack Welch once famously said that
“engineers who can’t add, operators who can’t run their equipment,
and accountants who can’t foot numbers become supply and
purchasing professionals.” Jack Welch at the time was simply reflecting
on the common perception veiling Supply Chains, that it is a back office
function.
In 2012 the highest paid CEO in the world was a man with a Supply Chain Background. Tim Cook,
CEO of Apple has a total compensation package of approx. $378 million
From back-office to strategic leader
Then…
Now…
© GRA 2014

35. www.gra.net.au
Thank you