managing scm complexities

7/29/2019 managing scm complexities

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Supply ChainComplexity:Managing

Constant ChangeA study of supply chain maturity

by KPMG LLP (UK)

May 2011

kpmg.co.uk


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SUPPLY CHAIN MATURITY SURVEY

Foreword

I supply chain risk isnt keeping you up at night, then it should be. Supply Chain

Directors now ace an unprecedented level o risk. And increasingly, the risks

arent even related to the supply chain itsel.

As you will undoubtedly see rom our research and analysis, supply chain risk is ying

up the corporate agenda. Recent global events have only heightened the anxiety andclarifed minds.

In the midst o all this turbulence, KPMG LLP (UK), the Chartered Institute o 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 o

the issues they were acing and the degree o their supply chain maturity.

As the inaugural issue o an ongoing series, this report sets a clear benchmark or

supply chain organisations across the UK. In subsequent years, we will expand the

survey to include more respondents and a wider variety o industries to create a better

understanding o supply chain maturity.

We would like to thank all o those organisations that participated in this study and

whose candid responses allowed us to deliver a clear and accurate view into the current

state o 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 exible and robust

network operations.

Andrew UnderwoodPartner

KPMG LLP

Steve AggChie Executive

Chartered Institute o

Logistics and Transport

Craig NeamePartner

Holman Fenwick Willan LLP

2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.


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Contents

SECTION 1: Executive Summary 1

SECTION 2: Key Findings Supply Chain Risk 3

SECTION 3: Key Findings Speed o Change 6

SECTION 4: Key Findings Sustainability and Environment 7

SECTION 5: Supply Chain Trends 9

SECTION 6: Conclusion 14

SECTION 7: Methodology 15

SECTION 8: Quantitative Analysis 17

SECTION 9: Participants 21

SECTION 10: About the Authors 24

2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.


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1 | Supply Chain Survey

SECTION 1

Executive Summary

Not since the end o the Second World War have

global supply chains been so raught with risk.

In the past year alone, supply chains have seen

unprecedented (and widely unexpected)

disruptions caused by everything rom Icelandic

Volcanoes through to political upheaval in the

Middle East and North Arica.

Today, many Supply Chain Directors continue to

eel the impact o the horrifc earthquake and

tsunami in Japan which suddenly cut o critical

markets and closed down swaths o the global

supply chain. Shockwaves will continue to

reverberate in organisational supply chains or

some time to come.

But other risks are also appearing with increasing

requency: political turmoil, market turbulence,

exchange rate uctuations and pending regulatory

changes all combine to create volatility and

uncertainty that must be identifed and managed.

At the same time, questions o 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 theywere dealing with. Here is what we ound:

The drive for more efcient and interconnectedsupply chains has exposed network operations

to unexpected risks;

Many supply chains are incapableof keepingup with the pace o change underway in the

business world; and

Sustainabilitymeasures will force changesin operating models that will bring additionalcomplexity to the supply chain.



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Supply Chain Survey | 2

Supply Chain Directors at UK corporates also

overwhelmingly pointed to a massive opportunity

or logistics providers: 3PLs and 4PLs that are

able to live up to customer expectations around

innovation, service levels and commerciality can

gain signifcant traction in a market where clients

are becoming increasingly concerned about the

gap between expectations and reality.

We also wanted to gauge the maturity o these

organisations supply chains to understand i

more mature supply chains were better suited

to withstand the risks and changes they aced.

What we ound was both surprising and

inormative. In some cases, preconceived notions

o supply chain maturity were shattered as

organisations that were widely believed to enjoy

advanced maturity reported signifcant limitations

in the development o certain aspects o 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 o winners separating

themselves rom the market. In particular,

Consumer Packaged Goods companies have

overall progressed the urthest and nowpossess advanced maturity across their supply

chain. In comparison, Retailers who are at the

sharp end o demand have not progressed as

ar in their supply chain maturity. For both the

Retail and Utilities sectors, achieving supply

chain maturity will still require substantial

work and eort.



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2011 KPMG LLP, a UK limited liabil ity partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

SECTION 2

Key Findings Supply Chain Risk

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 nancial crisis and

ensuing economic recession has put

renewed ocus on economic and

regulatory volatility. To mitigate these

risks, they must be identied and

managed on both a part level and a

network level.

And while the risk o supplier ailure has

always been ront and centre, supply

chains are now acing new and

increasingly volatile risks driven by the

state o the global economy. Exchange

rates are turbulent, borrowing costs have

soared, and bankruptcies (both supplier

and customer) have let 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 enorced with

extreme prejudice and a slew o new

regulations are on the books, bringing

everything rom labour practices to trade

taris into question.

But most o 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 or

Supply Chain Directors: Japans

earthquake and tsunami, Middle East

strie, environmental disasters; all o

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 nds that it

is the organisations with the most

advanced levels o supply chain maturity

that will ultimately rise above their

competitors to gain competitive

advantage and increase revenues.

To be prepared is

hal the victory

Miguel De Cervantes


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A closer look at legislative risks

Companies with international supply chains must comply with a myriad o international requirements ranging rom anti-corruption to

import and export controls. The legislation includes:

Anti-corruption: The UK Bribery Act

2010 (expected to enter into orce later

this year) and the US Foreign & CorruptPractices 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 o the

goods which are supplied, and the means

(and currency) o payment.

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

notifcation requirement (as o 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 fx pricing or carve up markets.

Failure to keep abreast o regulatory

changes can have very signifcant

fnancial and criminal consequences(including imprisonment). EU and US

investigations are intrusive and time-

consuming and they can irreparably harm

reputations. In addition, any disruption

to the supply chain will be very costly

and harmul to commercial relationships.

It is thereore essential companies ensure

they are ully advised o all the actors

which can have an impact on their supply

chains, some o which are more obvious

than others.

Source: Holman Fenwick Willan LLP



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From our survey, we have identied a

number o strategies that help mature

supply chain organisations to embedthe concept o risk into their strategy.

These include:

Strategic Network Design: Key to

understanding and managing these new

risks is the maintenance o 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 identiy sources o

unacceptable risk and deliver a ramework

or selecting new partners and suppliers.

Understanding the cost o risk:

By developing greater insight into the

potential risks, supply chain leaders canbegin to ascertain the real and potential

impacts o those risks. And by attributing

a hard cost to each risk, organisations can

start to identiy new partners and

geographies that carry less risk (be that

political or economic). In some cases,

higher per unit costs may be preerential

to the unknown cost o risk exposure.

In others, the level o risk may demand

robust contingency plans and new

strategic relationships that share risk

across the supply chain.

Structuring eective 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 closeattention to the structuring o contracts,

the more mature supply chains are also

able to urther reduce risk through

dynamic cost and risk sharing agreements.

Structured properly, these encourage

everyone in the supply chain to quickly

identiy potential risks beore they occur

and take appropriate actions to protect

the viability o 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 o Supply Chain risks to be managed

Intellectual Property Management(IP Risk)

Network Design for Agility(Supplier/Logistics Risk)

Contract Management(Compliance Risk)

Sales and Operations Planning(Supply Risk)

Customer Rationalisation(Proftability Risk)

Revenue Management(Demand Risk)

SUPPLYDEMAND

PRODUCT

Demand Driven Logistics

(Supply Risk)

Supplier Development/Supply Base Monitoring(Capacity Risk)

Social Responsibility(Brand Risk)

Hedging Strategies(Cost Risk)

Source: KPMG LLP (UK) 2011 2011 KPMG LLP, a UK limited li ability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.


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SECTION 3

Key Findings Speed o Change

Whosoeverdesires constantsuccess mustchange hisconduct with

the times

Niccolo Machiavelli

With almost total unanimity, Supply

Chain Directors and corporate

executives are experiencing an

unprecedented rate o change.And

while the recent global nancial crisis

has certainly accelerated the pace,

many o the actors driving this ever

pitch were evident even beore the

credit bubble burst in 2007.

Since the turn o the century, consumer

demand has been increasingly volatile.

The combination o a globalised

marketplace with the rapid adoption o

the internet has created new demands

on companies and their supply chains.

New distribution models and increased

competition rom online rivals have

orced everyone rom manuacturers to

retailers to become more responsive to

the needs o their customers and seek

new levels o fexibility 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.

For its part, the global nancial crisis has

increased the rate o change and added

a new level o complexity to the supplychain. Tighter lending and credit practices

have increased the cost o working

capital and orced Supply Chain Directors

to rethink their inventory levels and

management. And while the crisis

ocially ended in 2008, many supply

chain organisations and service providers

continue to eel the eects o reduced

demand: key suppliers are acing

bankruptcy, credit remains elusive and

industry consolidation is redening

networks and partnerships.

But it is not enough to merely withstand

the pace o change. Leading supply chain

organisations are ocusing on key areas

that will allow them to take advantage o

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 fexibility:By creating a more fexible supply chain,

many leading organisations are building

their capacity to quickly and seamlessly

respond to sudden market shits. 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 o goods and services.

In particular, supply chain leaders will

want to diversiy their supplier and

logistics service provider networks inregions where there is a higher risk o

service interruption.

Customer ocus: At the same time,

Supply Chain Directors will need to

vigilantly monitor customer needs anddemands in order to develop greater

insight into ast-moving trends and

service level expectations. For retailers

and CPG companies (or whom on-shel

availability is paramount), insight into

these trends will result in greater

alignment to customer demand and more

ecient use o shel-space. But across

the board, a stronger ocus on the

customer allows or more eective

demand planning and a reduced cost to

serve, leading to increased margins and

higher protability.

Integrated supply chain: Equally

important is the building o collaborative

supplier relationships that integrate the

supplier networks (including processes,

IT and orecasting) to create a

harmonious and mutually benecial

relationship. In turn, this can lead to

more accurate orecasting, lower levels

o working capital and an ability to quickly

respond to the needs o the business.

And while there continues to bedissatisaction with the ability o many

logistics providers to innovate and oer

more valuable services, some o the

more mature supply chains also

incorporate fexible cost-structures and

dynamic contracts with their suppliers

to encourage risk-sharing and the

development o innovative services.

However, most organisations will need

to rst ocus on integrating their supply

chain planning internally in order to align

to the business marketing and productdevelopment strategies.



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SECTION 4

Key Findings Sustainabilityand Environment

The recent economic crisis had a

signicant impact on environmental and

sustainability initiatives. As marginstightened, many supply chain

organisations ound that their green

programmes were becoming increasingly

hard to justiy, especially when viewed

amongst the slew o other competing

business priorities that required unding.

Tightened wallets have also orced many

consumers to de-prioritise environmental

concerns, eectively taking much o the

pressure o o CPG and retail

organisations.

But as the economy rebalances, the

issue o environmental sustainability is

once again gaining traction in the minds

o UK businesses and consumers. In part,

this is a reaction to the expectation o

tighter environmental regulation and the

introduction o carbon pricing schemes

that will have a direct eect on supply

chains particularly those in carbon

intense sectors. However, many

organisations are nding signicant

challenges in designing a fexible and

responsive supply chain that is bothcarbon ecient and environmentally and

economically sustainable.

For most Supply Chain Directors and

leaders, sustainability and the

environment are largely seen asreputational strategies, designed to

dierentiate their services in the minds o

the consumer and clients. But there can

also be signicant bottom line benets

too. For example, as the price o energy

continues to rise, organisations will want

to rely less on carbon-spewing lorries and

airplanes. Reduced packaging is not only

an eective way to manage

environmental impact, but also cuts costs

or materials and shipping. Shorter supply

lines both reduce GHG emissions and the

cost o bringing a product to market.

And while the path orward may seem

exceedingly complicated and undened,

there are a number o considerations that

supply chain directors should take into

account when designing a sustainable

and environmental supply chain strategy:

Get ahead o the game: At this stage,

there should be little doubt that

regulation is coming. The question or

supply chain leaders should be whetherthey 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 actored into supply chain planning

by incorporating a level o fexibility to

properly react to changing regulatory

demands.

Taking a holistic view: Supply chain

leaders seeking to reduce their

environmental ootprint are increasinglylooking past the lorries to identiy carbon

reducing measures. In some examples,

the operators o rerigerated warehouses

are nding that by implementing more

energy ecient systems they are able

to cut costs and reduce their

environmental impact. In other cases,

manuacturers are moving packaging

acilities closer to the end-markets to

reduce transport and carbon costs.

Total cost o production: One o the

biggest barriers to building an

environmentally sustainable supply chain

is that costs and impacts are oten

viewed in silos: procurement worries

about supply, distribution ocuses on the

cost o shipping, manuacturing is

concerned about the production cost per

unit. But by taking a total cost o

production perspective, Supply Chain

Directors and leaders will nd that they

are able to gain clarity into the real

environmental impacts o their supply

chain and ultimately work to reducetheir ootprint in the long-term.



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SECTION 5

Supply Chain Trends

The pace of change is accelerating.

Supply chain operations are

increasingly being impacted by

developments and regulations outsideof 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 eel the sharp

impacts o reduced credit, supplier

ailures and sluggish consumer demand.For many organisations, the increasing

cost and scarcity o credit acilities has

led to a sober re-examination o their

working capital and inventory

optimisation in an eort to provide more

nancial fexibility and reduce capital

costs across the organisation.

But as demand evaporated in the wake o

consumer belt-tightening, many UK

businesses quickly ound that they were

unwittingly exposed to risks stemming

rom the potential ailure o their critical

supply chain partners. In response, the

issue o Supply Chain Risk rocketed up

the corporate agenda, orcing supply

chain leaders to either support their

partners nancially or quickly identiy

and source new suppliers and third party

logistics providers to mitigate the risk oailure and establish a more diversied

partner network.

For their part, logistics service providers

continue to struggle to adjust cost

structures and rebuild margins. Those

with either ewer physical assets or an

external source o income have tended

to perorm 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 o more

extreme cases providers have ailed

altogether.

The evolution of contract logistics

The contract logistics industry remains in

fux. In part, this is a result o many Third

Party Logistics operators (3PLs) evolving

their business models to provide more

value-added services in an eort to

reinvent themselves as 4PLs and move

urther 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, oering many o the

same services as in the past. At the sametime, infexible or constrained commercial

arrangements with logistics providers are

also hindering corporates ability to create

a more fexible supply chain.

As a result, many clients have ound

themselves disappointed by the gap

between expectations and reality,

causing a growing number o companies

to re-establish their own in-house

logistics departments. But or those

clients willing to work closely with their

service provider to integrate services and

drive improvements the development o

4PLs has created new opportunities and a

higher level o supply chain fexibility.

Given the characteristically low margins

o the sector, many larger service

providers are growing their international

capacity to mirror the needs o global

clients. In particular, we have seen a

number o 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.


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Sea reight rides the tide

The ups and downs o the global economy

have sent shockwaves through the global

sea reight industry. Shipping taris a

bellwether sign o the health o the

industry have been unprecedentedly

volatile. In July 2008 Drewrys regional

container reight rate index or European

imports1 reached a high tide o US$3,169

per 40-oot 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 demandand maintain or return to protability.

In response, a number o specialist

service providers have emerged and

expanded to meet the growing demand

or services related to the management

o surplus vessels. At the same time,

many larger feet owners continue to

manage their surplus vessels in-house,

oten rating them together in close

proximity to major markets to reduce

costs and prepare or an eventualupswing in demand.

For UK organisations, the benets o

volatile shipping rates have been

somewhat tempered by a corresponding

reduction in sea routes and limited access

to requent and reliable shipping services.

Those with fexible supply chains, however,

may nd this to be a benecial time to

optimise network inventory in order to

take advantage o lower shipping rates.

Air reight takes o

While air reight prices and Freight Tonne

Kilometres (FTKs) met some short-term

sotness during the economic crisis, the

medium and long-term prospects or air

reight remain very positive. Demand and

supply conditions seemed to stabilise at

the start o 2011, with emerging markets

(particularly in Asia) driving much o this

growth. Air reight volumes between

China and Europe and China and

America are expected to increase by a

compounded rate o between ve to ten

percent or the oreseeable uture and

some estimates suggest that the number

o aircrat servicing Asia will increase

ve-old over the next 15 years.

Much o this increased volume is related

to the development o intra-Asian trade

and reight movements, but equally

important is the adoption o more

conventional supply chain disciplines

(such as Lean) in the emerging markets

o China and India. In part, this is being

driven by higher wage costs and tighter

labour controls in parts o Asia, but it is

also a direct response to the demands

o 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 2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG networko independent member rms aliated with KPMG International Cooperative, a Swiss entity. All rights reserved.Consultants Limited


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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 oreignregistered vehicles). The sector is

predicted to see turnover growth rates o

up to 40 percent between now and 2015,

but this will not apply across the board

and will actually reduce across most o

the EU. Many smaller players will either

be pushed out o the market or orced to

consolidate in order to compete, meet

customer demands, and deal with the

threat rom oreign operators. At the

same time, there will be opportunities

or expansion in India and China or thoseoperators with the scope and scale to

invest and deal with the specic market

circumstances in those countries.

However, over the next 12-18 months,

there will be signicant cost challenges

to this market particularly when it

comes to uel.

Regulation creates complexities

In the UK and around the world, national

and regional governments have been

stepping up regulatory reorm on a

number o important ronts. Facingtightened regulatory environments,

most nancial institutions have become

substantially more cautious in their

lending decisions and are increasingly

broadening their risk reviews to include

actors related to an organisations

potential supply chain exposure.

At the same time, regulators in the EU

and US are clamping down on instances

o bribery and corruption, creating new

risks or global organisations entering intointernational mergers and acquisitions.

Indeed, in the US alone, the Department

o 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 nancing

o terrorism through the Authorised

Economic Operator (AEO) regime. For the

larger 3PLs and corporations with the

ability to comply with AEO certicationrules, the regime may well deliver greater

eciencies and competitive advantage in

the long-term versus their smaller or less

fexible competitors.

And while the nancial crisis seems to

have eectively de-prioritised green

initiatives amongst logistics service

providers and retail organisation,

regulatory pressures (such as theexpansion o the EU Emissions Trading

Scheme and the spectre o Carbon Pricing

regimes) will continue to signicantly

impact activities, particularly in carbon

intensive sectors. As a result, a number

o service providers are considering the

benets o relocating their operations

outside o the EU boundary. However, in

our opinion, those organisations that are

able to successully reduce emissions

(especially GHG) stand to gain a

signicant competitive advantage indistinguishing their services or both

clients and consumers.



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...a number o service

providers are considering

the benets o relocating

their operations outside othe EU boundary

Technology aids agility

Nowhere is the pace o change more

incessant than in the development and

deployment o new technologies. In

particular, IT applications that provideincreased visibility into orecasting,

inventory levels and supply chain risks

are being adopted into supply chain

organisations in an eort to manage

volatility and create greater fexibility in

the supply chain.

In the more developed markets o the EU

and US, the use o technology to enhance

automation and drive down labour costs

continues to gain traction, slightly less

so in developing countries where lowerwage costs reinorce traditional labour-

intensive methods.

But it is the technologies that are only

now emerging that oer some o the

greatest advantages to corporations

and service providers: mobile devices

and RFID tags hold the promise o

unprecedented insight into supply chain

optimisation; cloud computing extends

the value o shared services and

cooperative planning initiatives; some

pundits even suggest that 3D printing

will make oshore and small-batch

manuacturing a thing o the past.

Over the short-term, technology trends in

supply chain management will generally

ollow the commercial priorities o the

business, or example creating a

welcome market or RFID in countereit-prone industries such as the

Pharmaceuticals.

Many o the more mature supply chains

have recognised the opportunities o

updated technology and implemented

new supply chain sotware and ERP

systems. But as they amend and tweak

their operations, most are not realising

the ull value o their changes by

realigning their business plans

accordingly. And given that ERP businesscases are generally predicated on supply

chain savings, Supply Chain Directors

will no doubt benet rom paying close

attention to how their changes impact

their business case.



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SECTION 6

Conclusion

There is no doubt that global supply

chains are in a state o fux. 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 o

organisations have achieved advanced

maturity (particularly in the CPG sector),

others still have considerable work ahead

o them.

Underlying all o this data, however, three

main themes seemed to resonate across

the country:

The drive or more ecient andinterconnected supply chains has

exposed network operations tounexpected risks;

Many supply chains are incapable okeeping up with the pace o change

underway in the business world; and

Sustainability measures will orcechanges 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 ully depends on where they are

today, and where their organisation

wants to be in the uture.

One thing is certain, however: supply

chain maturity is an ever-changing

destination. The pace o change is not

likely to slow any time soon and new

and unoreseen risks and considerations

will undoubtedly arise. Indeed, even as

organisations work to nalise their

supply chain plans, new challenges

and complexities will surely present

themselves. For supply chain leaders,

the need or fexibility is obvious.

That is why we believe it is critically

important to create and maintain a clear

and consistent benchmark o supply

chain maturity that can act as a guide

or industry participants by setting

milestones along the path to maturity.

By sharing our combined experience andinsight, we also hope to provide best

practices and share key insights to help

Supply Chain Directors and executives to

maximise the value o their supply chain.

On behal o KPMG LLP (UK), the

Chartered Institute o Logistics and

Transport, and Holman Fenwick Willan

LLP, we encourage you to leverage these

ndings within your organisation to

create robust supply chain strategies,

deliver fexibility 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 o supply

chain maturity and begin the complex

task o charting your supply chain

strategy or the uture.

For more inormation, please contact any

o the authors listed on the back o this

publication, or your local KPMG member

rm oce.



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SECTION 7

Methodology

Between January 2010 and January 2011,

the supply chain proessionals at KPMG

in the UK conducted a series o in-person

interviews with Supply Chain Directors

(or their equivalent) at more than 50

companies across the UK.

Respondents represented a broad

cross-section o industries and

sectors including Consumer Packaged

Goods, Retail, Diversied Industries,

Logistics Providers, Utilities and

Telecommunications.

Participating organisations were rated or

their relative level o 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 Perormance andFinancial Management.


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In each case, responses were analysed

and categorised into our segments:

Advanced

Maturity Level Score (percent) Characteristics

75% - 100% > A ully integrated supply chain

> Strategic partnerships with suppliers and customers

> Collaborative stakeholder programmes

> Realisation o synergies such as integrated reporting and IT

Intermediate 50% - 74% > Cross-unctional supply chain integration

> Culture o continuous improvement ocused on improved efciencies and reduced waste

> Reduced data entry and duplication

Secondary 25% - 49% > Planning recognises the unctional interdependencies and impacts

> Operational perormance is monitored and reported

> Roles and responsibilities are clearly documented

Primary 0% - 24% > Supply chain outlook shaped within unctional silos

> Independent operations ocused on expediency

> Adversarial relationships internally and externally

Responses were aggregated and

compared across sectors to identiy key

issues and challenges that impact the

successul and ecient operations o

supply chain organisations across the

country. Analysis o the ndings was

conducted by supply chain proessionalsat KPMG LLP (UK), industry leaders at the

Chartered Institute o Logistics and

Transport, and international logistics

lawyers at Holman Fenwick Willan LLP.

The study is the rst o a regular series

ocused on creating a baseline o

maturity levels or supply chain

organisations. Future editions will include

progress reports and sector updates that

identiy trends and best practices across

the country.



20/28



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. O particular note

are high levels o maturity within the CPG

sector in the logistics and distribution

category as well as supplier relationship

management.

Matching the study average overall, the

Diversied Industries sector (comprising

o manuacturers, distributors and service

organisations) scores highly in CRM and

cost perormance measurement, but

given the relative degree o separationbetween this sector and the end-

consumer the Diversied Industries

group tends to lag behind the CPG group,

particularly in CRM, SRM and logistics.

Retail organisations tend to put higher

levels o attention on cost perormance

measurement and logistics. With an

almost single-minded ocus on

maintaining service levels (i.e. product

availability), retail respondents as a group

achieved weak scores in inventory and

working capital management, preerring

instead to put downward cost pressures

SECTION 8

Quantitative Analysis

20

30

40

50

60

70

80

90

Maximum Average Median Minimum

Utilities

Retail

Study Average

CPG

Logisitcs

DI

Supply Chain Maturity by Sector

Source: KPMG LLP (UK) 2011


21/28


on their CPG and logistics partners to

achieve lower costs and sustainable

availability. However, looking ahead,retailers expect to seek out new

opportunities or reducing stock on hand

such as leveraging Vendor Managed

Inventory approaches or having suppliers

hold critical stocks urther down the

supply chain.

And while Utilities returned the lowest

scores in all areas except Supply Chain

Strategy, this is largely refective o their

disproportionate ocus on security o

supply and saety considerations that

outweigh many o 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 signicant traction

in a market where clients are becoming

increasingly concerned about the gapbetween expectations and reality.

20

30

40

50

60

70

80

90

Supply Chain

Strategy

SRM Working

CapitalLogistics &

Distribution

CRM Performance

Management

Utilities

Retail

Study Average

CPG

Logisitcs

DI

Average Supply Chain Maturity score by category

Source: KPMG LLP (UK) 2011



22/28


Category: Supply Chain Strategy

Utilities and CPG respondents tended

to score higher than the study average.

Specically, Utilities scored highly in CSR

and network design, while CPG achievedhigh 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 orces, namely trends and

consumer behaviour.

Category: Supplier Relationship

Management

CPG respondents take a signicant leadacross all SRM subcategories, particularly

in the management o their supplier base.

In large part, this is an outcome o their

need to work closely with their suppliers

to eectively deliver their retail customer

requirements. And while retailers

themselves are largely thought to enjoy

strong supplier relationships, our data

suggests that in the context o 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 inormation sharing

subcategory.

Category:Working capital and

inventory management

Somewhat perplexingly, all sectors

reported a weaker ocus on working

capital and inventory management.While many UK organisations are actively

looking at their working capital across

their Accounts Payable, Receivables and

inventory unctions, additional ocus must

be placed on taking out the associated

logistics costs as well. However, CPG

and Logistics providers are particularly

ocused on achieving the right balance o

supply and demand in order to eectively

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 buer stock to support

fuctuations in demand, and may fuctuate

as these sectors move towards Vendor

Managed Inventory.

Category: Logistics and Distribution

When it comes to the maturity o the

Logistics and Distribution unction, the

CPG and Logistics sectors once again

rise to the top. Almost all CPG survey

respondents demonstrated a strong

mix o in-house and outsourced logistics

unctions, which has allowed many CPG

organisations to retain overall

accountability and control o their supply

chain. And while this may leave much o

the legwork to their logistics service

providers, it is clear rom the data that

the Logistics sector has also achieved

advanced maturity in this category overall.

It is worth noting that given the

proclivity or the Utilities sector to ully

outsource their logistics unction most

Utilities respondents did not comment on

their maturity in this category and have

thereore been excluded.

Category: Customer Relationship

Management

Once again, the Logistics and CPG

sectors have demonstrated a high level

o customer relationship management

maturity that is indicative o an advanced

supply chain. However, or almost all

survey respondents across the board,

the creation and management o a CRM

strategy ranked ar higher than the actual

measurement o perormance. Above

average CRM maturity was also evident in

the Diversied Industries, refecting their

need to respond to customer demands

and trends.



23/28


...cost visibility maturity

remained low across all

sectors, in contrast to the

reported condence in CRMcustomer protability...

Category: Perormance Management

and Reward

The Diversied Industries group reported

the highest level o maturity in the use o

supply chain cost visibility and cost toserve approaches. And while the CPG

respondents demonstrated a strong lead

in the maturity o their continuous

improvement and supply chain nancial

perormance measurement, cost visibility

maturity remained low across all sectors,

which stands in contrast to the reported

condence in CRM customer protability

and the actual cost visibility through the

respective supply chains.



24/28


SECTION 9

Participants

This study and related analysis is based on

the insight and experience o Supply

Chain Directors at many o the UKsleading organisations. The authors o this

study would like to recognise and thank all

o those who participated, including:


Fraser Maclean

Operations Director

AJG

Simon Rigby

Head o Supply Chain

Comet

Trevor Ashworth

Director o 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 o Logistics and CommunitySupport

HSNCI

Peter Surtees

Director, European Supply Chain

Kimberly Clark

M&S Food

Oliver Burgess

Supply Director

MILA

Mark Whalley

Head o Distribution

Music Sales

Tony Borg

VP Supply Chain

Nestle Group

Ian Smith

Chie Executive Ofcer

Night Freight

Clare Davies

Head o Sales

Norbert Dentressangle

Simon Ranner

Supply Chain Director

One Stop

Richard Slater

Logistics and Development Director

Palmer & Harvey

Andrew Smith

Head o Procurement Vehicles,

Assets, Logistics

Royal Mail

Deepak Pandya

Supply Chain DirectorScotts Miracle Grow

Mars

Ian McLeod

Director Purchasing and Supply (Interim)

Severn Trent Water

Paul Burns

Supply Chain DirectorTarmac

John Burdett

VP Operations Planning

Tata Global Beverages

Jeremy Hawkins

Head o Operations

Treasury Wines EMA

Jonathan Downes, OBE

Supply Projects Director

UK Grocery, Associated British Foods

Colin Davis

Director o Supply Chain & Commercial

United Utilities

Dan Curran

Head o Supply Chain

World Duty Free

Jeremy Davidson

Deputy Managing Director

Yusen Logistics Europe

Muller UK

McDonalds


25/28




26/28




27/28


SECTION 10

About the Authors

About KPMG

KPMG LLP, a UK limited liability

partnership, is a subsidiary o KPMG

Europe LLP and operates rom 22

oces across the UK with nearly 11,000

partners and sta. The UK rm recorded

a turnover o 1.6 billion in the year ended

September 2010. KPMG is a global

network o proessional rms providing

Audit, Tax, and Advisory services. We

operate in 150 countries and have more

than 138,000 proessionals working in

member rms around the world. The

independent member rms o the KPMG

network are aliated with KPMG

International Cooperative (KPMG

International), a Swiss entity. KPMG

International provides no client services.

About The Chartered Institute o

Logistics and transport

The Chartered Institute o Logistics and

Transport in the UK CILT (UK) is an

independent proessional body or

individuals associated with logistics,

supply chains and all transport. It aims

to be the ocus or proessional

excellence and the development o

the most modern techniques in logistics

and transport and encourage the

adoption o policies, which are both

ecient and sustainable. Membership

o CILT is represented in more than 30

countries across the world. Its 33,000

members benet rom career enhancing

benets that save them time and money,

keep them inormed and ensure their

career development.

About Holman Fenwick Willan LLP

Holman Fenwick Willan is a global law

rm advising businesses engaged in

all aspects o international commerce.

With oces in Europe, the Middle East

and Asia Pacic, we have built a

reputation worldwide or excellence

and innovation and have ocused the

development o our capabilities and

the growth o our expertise in a limited

number o sectors, including logistics.

Our logistics team has in-depth

knowledge o the international

conventions applicable to ocean, road,

rail and air carriage and also o the

standard conditions commonly used to

govern logistics services. We specialise

in drating and negotiating best in class

agreements or the procurement and

provision o logistics services, as well as

advising on the ull range o corporate/M&A transactions and handling all

manner o insured and commercial

disputes arising out o logistics

operations, including supply chain

risk management.



28/28

Contact us

Julian Thomas

Partner, Global Head o Supply Chain

KPMG LLP

+ 44 (0) 20 7694 3401

[email protected]

Andrew Underwood

Partner, UK Head o Supply Chain

KPMG LLP (UK)

+44 (0) 121 232 [email protected]

Iain Prince

Director, Supply Chain

KPMG LLP (UK)

+44 (0) 117 905 4257

[email protected]

Barbara Anderson

Senior Manager, Supply Chain

KPMG LLP (UK)

+44 (0) 20 7694 3314

[email protected]

www.kpmg.co.uk

The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual

or entity. Although we endeavour to provide accurate and timely inormation, there can be no guarantee that such inormationis accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation

without appropriate proessional advice ater a thorough examination o the particular situation.

2011 KPMG LLP, a UK limited liability partnership, is a subsidiary o KPMG Europe LLP and a member rm o the KPMG network

o independent member rms aliated with KPMG International Cooperative a Swiss entity All rights reserved Printed in the
mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.kpmg.co.uk/mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.kpmg.co.uk/

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