2. Operating models for Africa
1
2
Integrated supply chain
operating model
Putting theory to practice: A
practical example
Julian Tasker
Director, EMEIA Supply Chain Strategy
Wayne Whiffler
Executive Director, Africa Supply Chain
Transformation
Page 1
3. You must act as if it is impossible to fail.
Do not let what you cannot do,
tear from your hands what you can.
~ Ashanti Proverb
Page 2
4. Why all the hype?
• The existing population of 1 billion is set to double by 2050
• Consumer spending is expected to hit $1.4 trillion dollars by 2020
• Africa’s economic growth is projected to accelerate from 4.5% in
2013 to 5.2% in 2015.
However……
Each additional day it takes to get
a consignment to its destination,
in Africa, is equivalent to approx.
1.5% additional tax.
Africa tomorrow……..
Page 3
5. Opportunity and risks vary widely
African markets are diverse and fragmented
Note: A composite risk
index is indicated on a
colour spectrum from
green (relatively more
positive) to red
(relatively less
positive).
A fact-based approach to selecting and
prioritizing markets in Africa is critical.
Source: World Bank; Transparency International; WEF Competitiveness Index; EY Growing
Beyond Borders
Page 4
6. Size, scale and diversity makes Africa inherently
complex
Source: Kai Krause
The sheer size and complexity of the
continent, combined with the relative
underdevelopment of many of its
markets, makes Africa an inherently
challenging place to do business.
► Land mass greater than USA, Europe,
China and India combined
► Vast geography, with 54 different markets
► More than 2,000 languages and diverse
cultural dynamics
► Few individual markets provide scale to
be commercially attractive in themselves
(in the short term)
► Inadequate infrastructure in many
markets
► People/talent shortage
Page 5
7. Although pattern of growth are evident
Africa follows the typical growth and org. development path
Establish competitive
position; grow, defend
and unlock potential;
optimize performance
and returns.
Page 6
8. Polling Question
What is the greatest challenge that your company
faces in Africa?
A. Logistics
B. Lack of infrastructure
C. Lack of transparency in government
D. Complex direct and indirect tax regimes
E. All of the above
Page 7
9. Network design
Incorporating:
► Strategic, operational and tax
criteria
► Integrated sea & road freight
design
► Adaptable to rapid Africa region
sales growth
► Pan Africa & Sub Region
planning
► Inbuilt flexibility and resilience ,
e.g. addressing physical, product
& route to market differences
Internal collaboration
Including:
► Cross site/ sub-region
asset sharing
► Strengthened role of
logistics in sub-regional/
regional S&OP alongside
manufacturing, finance and
commercial functions
External collaboration
Incorporating:
► 3PL/ shipping lines
integration
► (organisation, process
& IT)
► Single sourced/ 4PL
logistics
providers
► Shared risk & reward
pricing
Organisation
► Building regional/ sub-regional
level logistics CoE,
management, supplier
contracting & performance
management
Systems, processes & ways of
working
► Creating a single set of planning
and execution processes to
reduce complexity, maximize
service consistency, instil a
common language
Establishing Supply Chains in Africa has challenges
There are however a number of enablers to assist
Page 8
10. ► Operating Model choices create sustainable competitive advantage
► They serve as platform to be able to better
► Manage cost and margin
► Optimize working capital and return on capital
► Improve operational excellence
► Imply a company’s transaction model while taking complex direct & indirect tax obligations and
optimization
► An operating model encompasses the end to end value chain including Intellectual Property
management, brand & product management, sales & marketing, channels, distribution,
treasury, risk management & finance
► International companies are finding they need help shaping their operating model in a
holistic way incl. organization & performance management, processes, physical & financial
transaction flows, legal structure, IT systems
Why an integrated OM and not simply an integrated SC?
Page 9
11. Business
Model
Operating
Model
How and where you organise your people,
organisation, processes, transactions, technology,
assets and IP deliver the Business Model
‘the idea’
How will you make
money?
“….in a globalised world, companies compete OM v.s. OM”
Page 10
13. Supply chain network, distribution and indirect tax2
Processes3
Functional, e.g.
Governance
KPIs and performance Mang.DOAs and decision rightsContracts and SLAsSupplier
Performance
Management
Customer PM
Performance
Management
1
Organisation, location and people4
Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Network design Customs and excise VAT
Plan Source Make Move (includes Return)
Transactional Purchase to pay Record to Report Order to Cash
Regulatory
Organisation
Systems, Information and data
ERP, e.g. SAP ECC , Oracle
CRMSRM
Master data management BI and reporting
Supply chain, PLM
6
Transactional model and transfer pricing
Legal title flows
CustomersSuppliers SC Hubs
Marketing and
brand mgt
HQRandD
Opcos
Financial flowsSupplier
interface
Customer
interface
5
Physical flows
Strategy
Distributors
Integrated Supply Chain Operating Model
A holistic, approach is generally required to improve supply chain performance
Page 12
14. Layers of an ISCOM
Integrated operating supply chain model (ISCOM) design
principles
Key Design Principles
• The design is driven by business strategy,
agreed design principles and business case
• The design is holistic and consider all layers
• Changes in one layer are reflected in other
layers
• Governance drives performance and desired
behaviors
• Supply chain network configuration considers
total delivered cost, inventory taxes and lead
time
• Processes are end to end and cross functional
to avoid silo/ functional/ geographical bias
• Location choice balances operational, skill and
substance requirements
• The operational and tax models are aligned
• IT drives implementation plan and cost
• Centralized shared services are considered in
the design
Supply chain network, distributionand indirect tax
2
Processes3
Functional,
e.g.
Governance
KPIs and performance
Mang.
DOAs and decision
rights
Contractsand SLAsSupplier
Performa
nce
Manage
ment
Custome
r PM
Perform
ance
Manage
ment
1
Organisation, location and people
4
Location +
organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Network
design
Customs and
excise
VAT
Plan Source Make
Move (includes
Return)
Transactio
nal
Purchase to pay Record to Report Order to Cash
Regulat
ory
Organisation
Systems, Information and data
ERP, e.g. SAP ECC , Oracle
CRMSRM
Master data management BI and reporting
Supply chain,PLM
6
Transactional model and transfer pricing
Legal title flows
CustomersSuppliers SC Hubs
Marketin
g and
brand
mgt
HQRandD
Opcos
Financial flowsSupplier
interface
Custome
r
interface
5
Physical flows
Distributors
Page 13
16. Putting theory to practice
A practical example of improving supply chain
performance by applying an integrated supply chain
operating model approach
17. Integrated supply chain operating model example
Page 5
Strategic direction
• Significant growth
• Expansion into new markets
• New channels
Exceptional cost in selected markets (supply chain
process effectiveness gaps will contribute to this)
Approximately £20m - £27m when extrapolated over continent
Reason Loss in £m Year 1
Air freight (RSA) 0.12
Product write-offs (Ke, Ni and
RSA)
4.30
Write off RM/PM etc. (Kenya) 1.13
Demurrage (Ni) 3.30
Total : £8.8m
Operational issues
• Severe delays in raw material and finished product
deliveries driving service failures, stock-outs and
returns
• Inability to manage demand and supply volatility
resulting in large stock buffers, working capital
requirements and obsolescence
• High exceptional costs due to inability to respond
quickly to short term competitive moves, price changes
and longer
Context
Typical African operating environment and issues
Page 16
18. Functional Plan Source Make Move (includes Return)
Transactional Purchase to pay Record to Report Order to Cash
Planning and inventory management
• Local/ regional and demand planning/ supply planning/ S&OP integration
• Plan numbers and parameters
• New product development participants and data
Customer replenishment and logistics
• Reliability
• Manual and disconnected processes
• Returns integration
Distributor
management
• Stock mix
• VMI
• Credit management
Manufacturing
• Conformance
• Reliability
• Scrap/ defect %
Procurement
• Lead times
• Reliability
• Quality
Suppliers Company
Plant
DC Depots Distributors Consumers
Raw materials and
packaging
Customers • Manual activities
prone to error
(forecasting,
budgeting, supply
planning, master
data)
• Poor culture of
discipline and control
• Poor organisational
memory – process
falls over when
people move role
• Key inputs missing or
steps not performed
adequately
• Lack of end-to-end
process ownership
• Functional silos with
poor communication
• Skill/ capability
shortage
Integrated supply chain operating model example
Process issues Findings
Processes
Fixing processes alone rarely delivers a performance step change
Page 17
19. Integrated supply chain operating model example
• Improved decision making across:
• Multiple supply points and markets
• End to end supply chain
• Broken processes may be fixed by:
• Clarifying roles and responsibilities
• Identifying and leveraging
experience and capability
• Training
• Talent management
• However, this may not be
sustainable
• Turbo charge process
improvement through:
• Resource sharing
• Co location
• Africa wide visibility and capability, e.g.
• Supply and demand balancing
• Spend aggregation and supplier rationalisation
Scale
Skill
Standardisation
Development
• Common processes, roles , governance and
technology
• Complexity reduction
• Shared best practices
• Centres of excellence
• Common vision, roadmap and language
• Talent management
Example resource sharing and co-location benefits
Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Organisation, location and people
Integrated organisation and process change is often necessary for ‘step
change’
Page 18
20. Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Globally managed Regionally managed Locally managed
Source direct materials
Source indirect materials (tiered)
Demand Planning - Generate base line forecast
Demand planning - sales forecast / input
Aggregate and check demand
Plan capacity, supply and inventory policy / mgmt
Manufacture product
Own logistics strategy and manage logistics suppliers
Plan and manage warehousing: Pick, pack and despatch
Plan and manage transportation to customers
Capture and manage sales orders
Manage cross region supply chain development
Manage cross region supply chain performance
Consumer product company Africa organisation location choices
Company 1Key Company 2 Company 3 Company 4 Company 5
Integrated supply chain operating model example
People, organisation and location
The key question is what activities to locate where
Page 19
21. Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Operating Model key characteristics
Characteristics
• Global/ Regional product portfolio
• Regional S&OP
• Sub regional manufacturing control
• S&OP
• Logistics contracts
Global
Africa
Middle East and
Turkey
Asia- Africa
Primary
markets
Secondary
markets
Tertiary
markets
• Sales and marketing activation
• Demand planning
• Order management
• Warehousing and distribution
• Production schedule
• Reporting, coordination,
consolidation and cascade
Global
Regional
Sub regional
Market
• Policies and processes
• Direct procurement Standardise
KPI dashboards
Global
Africa
East Africa
• Policies and processes
• Direct procurement
• Standardise KPI dashboards
• S&OP
• Production schedule
• Logistics contracts
• SandOP
• Outbound logistics to
markets
• Reporting, coordination,
consolidation and cascade
• Sales and marketing activation
• Demand planning
• Order management
• Logistics
Global
Regional
Sub regional
Market
Other
West Africa
South Africa
Other
North Africa
Developed Growing New Distributor
• Localised product portfolio
• Regional and sub regional S&OP
Integrated supply chain operating model example
People, organisation and location
This will be determined by the distribution of activities and product
characteristics
Page 20
22. African Regional Management Hubs often exist providing some level of oversight and support
services
• Strategic direction with budget and forecast approval
• Risk management, financial and control frameworks with IT/ERP systems standardization
and support
• Sales and marketing, new product development and innovation leadership
• Sourcing, procurement, technical/ manufacturing, supply chain and logistic support services
Above-Market
Management Hub
Market Sales and
Supply
SuppliersCustomers
• In Africa, focussing on what can be done to elevate part or all of the core supply chain functionality and accountability above
market is typically a key source of significant incremental operational benefit
• Shared services and BPO are often helpful enablers too
Goods flow
Typical service model
• Market operates
independently
• Hub provides
support services
across a range of
functions
• Hub charges market
for services
• Limited leverage of
skill and scale
Cash flow
With growth,
complexity, and
resource shortages,
the question
becomes, “How best
to leverage skill and
scale?”
Management Hub
Sourcing/
Procurement Hub
Supply Chain
Planning Hub
Logistics Hub
Shared
Services/BPO
Provides typical HQ services, e.g. strategic
direction, risk management frameworks, etc.
Owns/operates the source to contract/pay
function and process for key materials/services
Owns/operates planning function and process
for key products/manufacturing locations
Owns/manages end-to-end in/outbound
logistics, e.g. control tower
Outsource routine functions and processes, e.g.
accounts payable, human resources, debtors
Integrated supply chain operating model example
Standing still is normally not an option
Groups often have existing structures in place that need to evolve
Page 21
23. • Supply chain functions generate significant value for multinational businesses
• Creating an “above market” supply chain organisation results in supply chain value being
generated by both the “above market” and “in market” organisations
Above-Market
Supply Chain Hub
Market Sales and
Supply
SuppliersCustomers
• A complex web of regulations and tax legislation applies – it needs to be understood when changing a supply chain operating model
• “Above market” and “in market” tax authorities want to secure their “fair share” of supply chain value to tax it in their country
• Functions performed, assets employed, and risks borne by a supply chain function, and the physical locations of its people, assets and
legal entities, impact a territory’s entitlement to a “fair share” of that value
• Cross border transactions have income tax, transfer pricing, withholding tax, customs and VAT implications
Above-Market
Supply Chain Hub
Market
Sales
SuppliersCustomers
Market
Supply
Goods flow
Service model
• Market provides forecasts
• Hub provides services, e.g.
creates supply plans,
contracts logistics
• Hub charges market for
services
• Market manufacturers,
sells and ships direct to
Customer
Transactional model
• Sales provide forecasts
• Hub create supply plans
and Supply produce for Hub
• Hub owns inventory –
always finished goods,
sometimes inputs
• Hub sell to Sales and Sales
sell to Customer
• Supply ships product to
Sales warehouse/Customer
Cash flow Goods flowCash flow
“Above market”
organisation requires
remuneration
Legal title flows
CustomersSuppliers SC Hubs
Marketing
and brand
mgt
HQ
RandD
Opcos
Financial flows
Supplier
interface
Customer
interface
Physical flows
Integrated supply chain operating model example
Transactional model and transfer pricing
Enabling transactional models have tax implications that must be considered
Page 22
24. Page 23
Integrated supply chain operating model example
Reflecting the growth and importance of transfer pricing
The last 20 years
1995-2000 2001-2005 2006-2010 2011-2013
1. South Africa
2. Zambia
1. Namibia
2. South Africa
3. Zambia
1. Algeria
2. Egypt
3. Kenya
4. Malawi
5. Namibia
6. South Africa
7. Zambia
1. Algeria
2. Angola
3. Egypt
4. Cameroon
5. Ghana
6. Kenya
7. Malawi
8. Nigeria
9. Namibia
10. Senegal
11. South Africa
12. Uganda
13. Zambia
Driven by ATAF’s focus on transfer
pricing, there has been an almost 100%
increase in growth in transfer pricing
regulation, within 3 years.
Countries in Africa have placed a greater
emphasis on arm’s length compliance
regarding cross-border transactions
Countries with transfer pricing legislation / rules
25. Total VAT and duty “throughput”: 70.35
(70.35% of consolidated turnover)
Page 7 Network design Customs and excise VAT Regulatory
Integrated supply chain operating model example
Dsitributors
Supply chain network distribution indirect tax
Tax should also be considered when optimising the distribution network
Page 24
30
Supplier
Local Manufacturing
Co
Local Sales Co
Foreign Sales Co
Local Customer
Foreign Customer
Note: Indicative Africa VAT rate of 18% and duty rate of 5% used for example
45
8.10
45
0
50
9.00
50
9.00
2.25 8.10
Legend: VAT payable
VAT
recoverable
DutySupply
8.10
8.10
Foreign Supplier
30
5.40
1.50 5.40 5.40
Group of companies
26. ERP, e.g. SAP ECC , Oracle
CRMSRM
Master data management BI and reporting
Supply chain, PLM
Integrated supply chain operating model example
Systems information and data
Page 25
Data WarehouseICBS
Decision
Point
Tallyman
External
Normalised
Data Stores
BI Program & Project Management
BI Change Management
BI Architecture Governance
Metadata Management
Security and Data Privacy
Staging
Files
Information
Consumers
Landing
Dimensional
Data Stores
Semantic
Layer
Information
Delivery
InformationAccess
Modelling
Data Mining
Reporting
Dashboards
Visualisation
Scorecards
Analytics
Interface
Visualisation
Geospatial
Other
Source
Systems
Data
Integration
Data
Integration
Information
Delivery
Data
Integration
Dimensional
Data Views
& Models
Data
Quality
Data Quality, Reconciliation and Control
Source
Systems
27. Page 26
Performance managementControlsRolesSupplier
Performance
Management
Customer PM
Performance
ManagementProcesses/ organisation
Role based
• Delegation of authorities
• Decision rights
• Job profiles
Performance management
based
• KPIs
• Reporting
• SLAs
Control based
• Authorisations
• Workflow
• Audit
Process/ organisation based
• Collaborative S&OP
• Procurement councils
• Continuous improvement
Integrated supply chain operating model example
Example governance mechanisms
Governance
Governance enables the whole organisation to ‘live’ the model
28. Page 27
Fully integrated end to end supply chain extending into distributors and managed
by Supply Chain
Regional S&OP to drive commercial, supply chain and investment decisions
Introduced regional and local KPIs and performance management forums
Integrated
supply
chain
Decision making
Regional supply chain hubs to drive benefits of regional scale, and cross region
optimisation plus drive continuous process improvement and skills development
Organisation and
location
Governance
Set up a service model to correctly remunerate hubs for planning and Centre of
Excellence services provided
Operational and
tax alignment
Optimised trade routes based on total delivered cost (including international
trade)
Network
Integrated operating model example
Operating model changes
Integrated supply chain operating model example outcomes
Business case achieved through implementing operating model changes