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Supply Chain Survey Report 2018

Supply Chain Survey Report

Australian Food and Grocery Council

AbridgedJune 2018

Prepared by GRA Supply Chain Pty Ltd

WE WORK WITH YOU UNTIL SUSTAINABLE RESULTS ARE DELIVERED

www.gra.net.au

Contents

AFGC | Supply Chain Survey Report 2018

About the AFGC 3

Foreword 4

Welcome 7

Introduction 8

Survey Results 10

Organisation and Supply Chain Overview 11

Cost Competitiveness 17

Industry Capability and Enablers 19

Customers and Consumers 28

About the Authors 32

2


180+ Members $127.4 Billion turnover

The membership of AFGC comprises more than 180 companies, subsidiaries and associates which constitutes in the order of 80 per cent of the gross dollar value of the processed food, beverage and grocery products sectors.

With an annual turnover in the 2015-16 financial year of $127.4 billion, Australia’s food and grocery manufacturing industry makes a substantial contribution to the Australian economy and is vital to the nation’s future prosperity.

Manufacturing of food, beverages and groceries in the fast moving consumer goods (FMCG) sector is Australia’s largest manufacturing industry. Representing 32.4 per cent of total manufacturing turnover in Australia.

The diverse and sustainable industry is made up of over 30,748 businesses and accounts for over $67.9 billion of the nation’s international trade. These businesses range from some of the largest globally significant multinational companies to small and medium enterprises. Industry made $2.9 billion in capital investment in 2015-16 on research and development.

The Australian Food and Grocery Council (AFGC) is the leading national organisation representing Australia’s food, drink and grocery manufacturing industry

About the AFGC

3

www.afgc.org.au

The food and grocery manufacturing sector employs more than 320,300 Australians, representing about 2.6 per cent of all employed people in Australia, paying around $17.3 billion a year in salaries and wages.

Many food manufacturing plants are located outside the metropolitan regions. The industry makes a large contribution to rural and regional Australia economies, with almost 40 per cent of the total persons employed being in rural and regional Australia. It is essential for the economic and social development of Australia, and particularly rural and regional Australia, that the magnitude, significance and contribution of this industry is recognised and factored into the Government’s economic, industrial and trade policies.

Australians and our political leaders overwhelmingly want a local, value-adding food and grocery manufacturing sector.

Figure: Composition of the defined industry’s turnover (2015-2016) (million)

2


In an industry under pressure on multiple fronts, the AFGC exists to work on behalf of food and grocery companies, providing ongoing support to members and a strong voice for the $119 billion food and grocery manufacturing sector.

Foreword - from the AFGC

The AFGC Supply Chain Survey (initiated in 2008) has been undertaken every 2 years, providing a platform from which the AFGC’s Supply Chain Committee make strategic decisions as to where the organisation will focus effort on behalf of members, be it with regulators, retailer trading partners, or in the broader industry environment. The survey is company anonymous, and covers many areas of critical importance to AFGC members’ supply chain operations, across strategy and performance, industry capabilities and trends, and retailer engagement.

In an industry under pressure on multiple fronts, the AFGC exists to work on behalf of food and grocery companies, providing ongoing support to members and a strong voice for the $127 billion food and grocery manufacturing sector.

The pace of change in the fast moving consumer goods (FMCG) industry has not abated over the past two years. A resurgent Woolworths continue to leverage their supply chain and will shortly open a highly automated distribution centre in Melbourne South, arguably putting them at the forefront of automation in the Australian retail environment. Aldi have continued their expansion, albeit at a slightly slower pace than previous years. Coles have completed a significant restructure to align their supply chain capability with their buying teams, with more change likely to come with the de-merger process scheduled for completion in 2019; the recent announcement of an updated strategic plan; and new CEO Steven Cain commencing in September.

The continued blurring of commercial and supply chain negotiations has resulted in an environment where the retailer and supplier trading relationships continue to evolve. With market analysts predicting the next two years will

become a more price rationale market. This will undoubtedly apply even more pressure to supply chains to deliver efficiencies within and between businesses.

Of note has been the:

• Huge focus on shopper data and how best to leverage its power to create additional value for consumers. Retailers are considering this in terms of delivering ‘frictionless’ shopping experiences

• EDLP offers by the major supermarket chains (MSC’s) have reached critical mass with between 2500 to 3500 SKU’s on the program

• Promotional volatility has not yet abated in response to increase EDLP offers

• Private label has been called out by Coles as a growth area, with some suggesting a move from 20% to 40% is possible.

• Product exclusivity, fresh, health and wellness are all seen as key industry trends

Over the next twelve months to two years we can expect:

• The growth challenge set to continue

• Advances in technology with a focus on blockchain, artificial intelligence, and internet of things (IoT)

• New entrants such as Amazon and Kaufland establishing a presence

• Alternate and disruptive models such as IRexchange

• Consumer trust and data security to increase in priority

‘As growth becomes increasingly challenging in mature retail markets the supply chain will continue to play a significant role in retailer and supplier trading relationships.’

4

Understanding the implications of potential change within traditional supply chain through an examination of the consumer, business channels, routes to market, technology and the operational supply chain will be essential in meeting future challenges

The supply chain will continue to play a significant role in retailer and supplier trading relationships. Indeed many would consider it of primary importance in delivering growth. Some suppliers are already responding to the trading environment by striking a balance between price and promotional activity, developing shopper insights and driving supply chain efficiencies. Others have yet to make this shift and there is a clear mismatch between their trading priorities and those of their retail customers.

New opportunities abound – developing new sales channels and distribution strategies, entering new markets, driving product innovation, delivering environmental credentials – and supply chain functions are at the center of this.

Regardless of whether supply chain and operations improvements are needed to maintain or fuel growth, organisations need a cross functional well-constructed supply chain strategy, and the results outlined in this report offer a rare snapshot of where Australian FMCG supply chains stand at this juncture.

Examining your supply chain against the industry results provides a unique benchmarking opportunity. What has become increasingly clear is that the supply chain is taking on an ever more important role in driving growth and delivering value for businesses in these prevailing business conditions.

It is anticipated that this survey will continue to be completed on a biennial basis and provide value and insight by highlighting supply chain performance, issues and trends across the fast moving consumer goods (FMCG) industry in Australia.

The AFGC’s Supply Chain Committee sincerely thank all members who participated in the Survey in 2018 and hope to continue to build participation rates in the years to follow. All participants will receive a supplementary benchmarking report specific to their business along with a copy of the full survey report. This will prove valuable to members in providing comparative insight for use in setting and validating their internal supply chain strategies.

The Committee also wish to thank program partners GRA, who have co-developed the 2018 Supply Chain Survey, undertaken analysis, and developed both Full and Abridged versions of the report as well as respondent specific benchmarking supplements. GRA are considered a leading consultancy in the FMCG Supply Chain space in Australia and bring significant insight and analytical expertise to the partnership. The Committee commends GRA on this work and looks forward to the opportunity to work together again in the future.


5

A dedicated website to provide information to potential high quality and talented graduates to encourage them to consider the supply chain

as a profession. Members are encourage to provide logos and links to the AFGC Secretariat for inclusion on to the website. Please feel free to

use this website in your recruitment and communication campaigns.

www.fmcgsupplychain.com.au

6

Doug Cunningham

Venkata (Subra) Subramanyan

Russell Brown

Adam Sime

Stuart Martin

Tim Plummer

Jason Barclay

Mark Olson

David Elliston

George Sebastian

Shannon Davidson

Michael Barton

Crispin Powis

Michael Frey

SecretariatMs Samantha Blake

Mr John Cawley

GRAMr James Allt-Graham

Mr Dan Knox

Ms Jessica Dal Pra

Johnson & Johnson Pacific (Chair)

Kellogg (Aust) Pty Ltd

Johnson & Johnson Pacific

Church & Dwight

Fonterra Australia Pty Ltd

Nestle Australia

Lion

Primo Smallgoods

Asaleo Care Pty Ltd

PepsiCo Australia & New Zealand

Campbell Arnott’s

Sanitarium Health & Wellbeing Company

Kimberly-Clark Australia Pty Ltd

Mars Petcare

Director Industry Affairs

Associate Director Industry Affairs

Supply Chain Committee


Contributors

6

6

The AFGC biennial survey is designed to improve engagement with the AFGC userbase and provide actionable insight to industry members


Consumer expectations are already changing, and Retailers and Suppliers are now challenged to adjust. Online is at the tipping point, driving new requirements adding cost and complexity. We are seeing more Suppliers diving into omni -channel and selling directly to their consumers. This brings with it a new set of issues for the supply chain. The location of the warehouse and distribution is becoming an increasingly important driver. As fast delivery becomes a critical requirement for omni-channel, having a location near the direct customer base is vital to minimise costs and deliver on your delivery service promise. Amazon’s entry to the market has seen several survey participants considering selling products directly through Amazon.

The competition is not just Retailer vs Retailer. Home delivery services such as Uber Eats and Deliveroo and Meal kit providers such as HelloFresh are all competing for that shopper dollar. This has forced the Retailer to respond. Woolworths are partnering with Google Home and adding their rewards program into Apple Wallet. Retailers are looking to tailor their range and massively increase their number of SKUs. Gone is the concept of store clustering, every

store will have a tailored range of products. Warehouse automation is being leveraged to pick these ranges efficiently. Fresh food is also the battle ground placing more pressure on Supplier’s supply chains to deliver more available shelf life on products.

With this complexity comes increased cost pressure. Suppliers are facing increasing inputs and logistics costs and are finding it difficult to recover them. The pressure to keep prices down has meant that Retailers are reluctant to accept any price rises.

We seek to compete rather than collaborate. FMCG businesses in Australia have not yet embraced collaborative warehousing and transport. In Europe, a successful collaboration freight arrangement between Nestle, Mondalez International and Colgate Palmolive has led to an 18 million kilogram reduction in CO2 emissions. In France, Mars PF France, United Biscuits, Saupiquet and Wrigley combined forces to transport products to a shared warehouse in Orlèans, operated by a logistics service provider. This led to a 0.5% improvement in service levels, 20-40% reduction in inventory and a 30-35% increase in truck utilisation. Collaborative storage arrangements are another opportunity the AFGC could look to support the industry in.

Survey participants this year are more willing to invest in collaborative arrangements, both freight and storage. As cost pressures build, this could be a great opportunity for suppliers to collaborate and improve both their carbon footprint and bottom line.

Another way the industry is meeting these

challenges is through the increasing use of Automation. Warehousing robotics and automation is seeing a large increase in implementation investment. This is necessary to improve efficiency, deliver on service requirements and take cost out of the supply chain, however it is capital intensive. Woolworths are close to opening their fully automated DC in Melbourne South, and Toll has developed a fully automated fashion distribution centre with a focus on eCommerce and omni-channel delivery.

Talent is scarce. Specialist skills are on the rise to meet the evolving demands. Requirements to convert the increasing volume of consumer data into insights has seen an increase in data scientists and people with advanced analytics skills. With automation on the rise there has also been an increasing need for robotics and automation engineers.

In an industry so dependent on scale for profitability, the need for food and grocery suppliers to work together to meet the diversity of requirements for their customers has never been more important.

It is for these reasons that the AFGC Supply Chain Survey is so timely and important. It provides us with an insight into industry trends and customer expectations, it provides a safe harbour to collaborate with sometimes competing businesses, and it provides a platform to work together for the mutual benefit of all players; the consumer, the Retailer and the Supplier.

James Allt-Graham, GRA Partner

We are seeing more Suppliers diving into omni-channel and selling directly to their consumers. This brings with it a new set of issues for the supply chain.

Welcome

7

It is a Consumers’ world!

6



Survey Introduction

• Measure supply chain performance across the industry and identify improvement opportunities

• Provide the AFGC with a fact base to support the members via advocacy

• Provide an industry specific benchmarking resource for members

• Review top of mind issues impacting the industry

• Track performance against industry led initiatives

Purpose of the Survey

This section reviews the role of the supply chain, current focus areas and overall supply chain performance. It reviews how organisations perceive the value of their supply chain as well as the key objectives that their supply chains are focusing on.

Organisation & Supply Chain Overview

Key Areas

This section surveys financial performance of the supply chain and how it delivers against key supply chain

metrics

Cost Competitiveness

The section assesses the supply chain organisation, S&OP, KPIs and the planning foundations. Key supply chain capabilities were surveyed and benchmarked against best practice.

Questions in this section covered the planning capability areas of People, Process, Systems and Data. This includes the organisation’s ability to forecast demand and plan the appropriate levels of inventory to meet service and cost targets.

It explores how key decision-making frameworks, including S&OP are structured and investigate the recruitment and training of supply chain professionals.

Industry Capability & Enablers

By measuring how the industry interacts with customers and executes on their requirements, it is possible to

gauge how the industry is performing in meeting these expectations and also to identify key trends and initiatives.

This section of the report looks at how the member base is engaging with their customers and explores how customer

requirements are changing. It explores planning and collaboration processes between the industry and retailer

and reviews delivery and DC performance.

Customers & Consumers


8

58%

Increased

26%

38%

23%

13%

31%

64%

36 Respondents

The Big Issues


Consistent with previous years, Supermarkets make up the greatest proportion, reaching 60% of sales revenue in 2018. However, 31% of respondents stated their combined revenue from Coles and Woolworths has declined in the last 2 years. This decline is up from the 2016 survey, where only 10% of respondents noted their total revenue to the major retailers had decreased.

9

Median number of SKUs is 175. Responses varied from 9 to 1100

The proportion of internationally sourced product is growing year on year. 34% of respondents expected this to increase, compared with 3% who expect it to decline

Majority of respondents operate in Dry Ambient categories with greater than 12 months shelf life

of respondents that sell some form of Chilled or Frozen product, up 20% from 2016

Not Changed

11%

Decreased

31%

Company Profile & Characteristics

Respondents by Revenue

Business Channel % of Revenue

Supermarkets 60.0%

Away from home / Foodservice 9.4%

Other 9.2%

Export 8.9%

Ingredients to other manufacturers

6.9%

Convenience / Impulse 5.9%

8%11%11%

14%17%

19%22%

33%56%

Ambient / air conditioned fresh produce

Ambient beverages

Raw or processed ingredients

Chilled beverages

Air conditioned foods (eg Confectionery)

Dry/ambient grocery (nonedible)…

Frozen foods

Chilled foods

Dry/ambient foods

Product Classification

Combined Sales Revenue to the major Retailers (Woolworths & Coles) as a % of Total Revenue over last 2 years

Number of SKUs SKU Percentage split by Shelf Life

200 or less 201 - 500 501 - 1,000 1,001+

4% 7%

1 -3 months 4-6 months

12%

0-1 month 7-12 months +12 months

70%

4% 34%

22%

$0-$100M

$101-$500M

$501-$1000M

$1000M+

22%

22%increase in Exports as a mix of business from the 2016 survey. This is at the expense of Away from home and Convenience channels.

Just under half of the respondents noted that increasing supply chain costs and price and margin pressure were the biggest issues facing their business over the next 2 years. The inability to offset costs through price rises was a leading concern.

• 38% of respondents felt their main concern was increased demands placed on Suppliers resulting in increased inventory holdings and costs. These related to tighter MLOR restrictions, reduced Retailer stock holdings, and Retailer DC capacity and constraints. These factors were specifically called out by 24% of respondents.

• 29% of respondents noted ongoing growth of private label and subsequent price pressure to lower own brand pricing to be their prime concern.

• 14% of respondents expect changes in consumer behaviour and price sensitive consumers to drive significant change. This is a 6% increase from prior years.

66


This section outlines the results of the 2018 AFGC Supply Chain Survey

Survey Results

Section 1


Supply Chain Objectives and Focus Online Technology and Focus

Section 2


Cost Concerns

Section 3

Industry Capability & Enablers

Supply Chain Organisation and Talent Sales and Operations Planning Planning Capability

Section 4

Customers & Consumers Customer Collaboration Execution and Performance

Survey results are based on the participation of 36 members of the AFGC

10

66

This section examines the role of the supply chain, current focus areas and overall supply chain performance.

It reviews how organisations perceive the value of their own supply chains as well as the key objectives that their supply chains are focusing on.

It also examines the impact of online trading, alongside the recent entry of Amazon into the marketplace. This section will also explore supply chain technology trends and how the industry is focusing and investing in them.


10


Section 1

11

72%of respondents believe their

supply chain is a source of competitive advantage.

Down 12% from 2016

#1Increased customer satisfaction still remains the number one priority for organisations

Customer Satisfaction

Key Observations


• Increased customer satisfaction still remains the number one priority

• Reduced logistics costs and improved quality have moved up the priority list from the previous survey

• Sustainable distribution has seen the greatest percentage increase in priority, returning to levels similar to those reported in the 2014 survey

• 72% of respondents believe their supply chain is considered a source of competitive advantage, a decrease of 12% from 2016

1 Organisation & Supply Chain Overview

1.1 Supply Chain Objectives and Focus

28%

Strongly Agree

22%

In my business, the supply chain is seen as a competitive advantage, not a cost centre

50%

Agree Disagree

Objectives in terms of their importance to your business this year:

3.4

3.7

4.0

5.5

5.5

5.6

5.7

6.1

2.1

3.5

3.8

6.0

4.7

4.6

5.4

6.5

Sustainable distribution

Reduced order to delivery cycle time

Service Innovation

Improving availability rates

Working capital efficiency

Improved quality

Reduced logistics cost

Increased customer satisfaction

20182016

This section examines the role of the supply chain, current focus areas and initiatives. It reviews how organisations perceive the value of their supply chain as well as the key objectives that their supply chains are focusing on.

Comparison of importance between 2016 and 2018

66%

6%

6%

-9%

18%

23%

6%

-6%

Sustainable distribution

Reduced order to delivery cycle time

Service Innovation

Improving availability rates

Working capital efficiency

Improved quality

Reduced logistics cost

Increased customer satisfaction

Scale: 1 to 8 - lowest to highest

12

? What do you consider to be the biggest opportunities for improving the FMCG industry supply chain function that the AFGC could pursue on behalf of members in 2018?

What do you consider to be the biggest issues facing AFGC members in the supply chain function in 2018?

72%

?

72% of respondents have a dedicated Supply Chain representative on

their Executive Team

Key Observations

• In this year’s survey, 72% of respondents said that there is a dedicated Supply Chain representative on their Executive team. This remains consistent with the 2016 Survey results

• The functions that are included in the Supply Chain are similar to that of the 2016 Survey


12 13

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Manufacturing

VRP's

Procurement

Demand Planning

Customer Service

Inventory Management

Supply Planning

Warehousing

Transportation

Which functions or activities belong to supply chain?


1.2 Supply Chain Objectives and Focus

Key Observations

• 31% of respondents engage in online channels to sell to

consumers directly. This is a large step up from 11% in the 2016 Survey

• 80% of respondents are expecting growth within the next 2-3 years

• Of the 20% of respondents who responded with “no growth anticipated”, all do not currently engage in online channels to sell to consumers directly

• 100% of respondents who do currently engage in online channels expect growth in online and direct to consumer channels over the next 2-3 years

• 86% of respondents expect Amazon operating in Australia to affect their business. 49% of these respondents expect this to be a positive effect

• 57% of respondents have considered supplying products direct to customer via Amazon

• Only 9% of respondents are well prepared to provide omni-channel order fulfilment. Of those who consider online a priority, only 54% consider themselves somewhat or well prepared to deliver through this channel


14

9%

34%

26%

11%

20%

How prepared is your supply chain to provide omni-channel order fulfilment such as B2B and B2C?

This section examines the impact of online trading, alongside the recent entry of Amazon into the marketplace. It also explores how prepared the industry is to provide omni-channel order-fulfilment to the consumer.


1.2 Online

Somewhat prepared

Well prepared

Under prepared

Not a priority

Not prepared 9%

Well prepared Somewhat prepared Underprepared Not prepared Not a priority

of respondents believe Amazon operating in Australia will have a positive effect on their businesses

49% 57%of respondents have considered supplying their products on Amazon

The Amazon effect


14 15

Yes, negatively

Yes, positively

Do you think Amazon operating in Australia will effect your business? Have you considered supplying your products direct to customer via Amazon?

No

Yes


1.2 Online

No

49%37%

14%

57%43%

31%of respondents currently engage in online channels where they sell directly to consumers

20%

YesSignificant growth

17%

Are you anticipating growth in online and direct to consumer channels in the next 2-3 years?

63%

YesLow-moderate growth

No

Key Observations

• Advanced/Predictive analytics and Warehouse automation are seen as the largest potential impacts on the supply chain. Real time processing was the third largest potential impact

• Cloud computing has seen the second highest level of implementation investment whilst ranking in the bottom 5 disrupting technologies

• Changing consumerism, including supplying to customers by bypassing traditional supply channels (e.g. meal delivery) was another disruptive technology identified to impact futures supply chains

• Warehouse automation has received the greatest investment in implementation and feasibility combined. Predictive Analytics has the largest feasibility investment followed by Real time Processing and Big Data.


16

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Drones

Driverless Fleets

3D Printing

Blockchain/Distributed Ledgers

Innovation around Last Mile Delivery

AI & Machine Learning

Internet of Things (IOT)

Big Data

Advanced / Predictive analytics

Real Time Processing

Mobile Technology

Cloud Computing

Warehouse Automation/Robotics

Technology areas that respondents are planning to invest in over the next 3 years

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

3D Printing

Drones

Blockchain/Distributed Ledgers

Driverless Fleets

Cloud Computing

Internet of Things (IOT)

AI & Machine Learning

Mobile Technology

Big Data

Innovation around Last Mile Delivery

Real Time Processing

Warehouse Automation/Robotics

Advanced / Predictive analytics

Emerging technologies that respondents believe will offer the biggest improvement and impact on supply chain planning in their organisation

No Yes - Implementation investment

This section explores the front running supply chain technology trends and how the industry as a whole is focusing and investing in them.


1.3 Technology and Investment

Yes - Research & feasibility investment

“Risk mitigation to ensure businesses

have a stable platform to operate on, cyber

attacks etc are becoming ‘common’ - How will we operate

should a major attack compromise our

systems?Business continuity planning is critical”

6

This section of the Survey explores the financial performance of the supply chain and how it delivers against key supply chain metrics.

Working capital components consisting of cash conversion cycles & inventory levels were benchmarked across the respondents. Key supply chain cost measures, including logistics costs and finished goods write-offs were explored.


16


Section 2

17

?

90%of respondents believe Energy costs are getting worse for their business

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Ener

gy C

osts

Fixe

d Co

sts

Labo

ur C

osts

Logi

stic

s Cos

tsRa

w M

ater

ial C

osts

Key Observations

• Rising Energy costs was raised as the greatest source of concern and second most important issue the industry faces. The industry readiness to deal with it was ranked last

• Every cost category rated the level of impact to the business greater than the readiness of the business to respond to it

• 90% of respondents also noted that Energy costs were getting worse


High Medium Low

18

Respondents’ view of the readiness, importance and concern regarding supply chain costs issues in their organisation

2 Cost Competitiveness

2.1 Cost Concerns

Getting worse About the same Getting better

Are these cost issues getting better or worse?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Fixed Costs

Labour Costs

Raw Material Costs

Energy Costs

Logistics Costs

6

This section assesses the supply chain organisation, Sales and Operations Planning (S&OP), Key Performance Indicators (KPIs) and the Planning foundation. Key supply chain capabilities were surveyed across the respondents.

This section of the report explores how key decision making frameworks, including S&OP, are structured and investigates the recruitment and training of supply chain professionals.

Survey questions in this section covered the planning capability areas of People, Process, Systems and Data. This included reviewing the organisation’s ability to forecast demand and plan the appropriate levels of inventory to meet both service and cost targets.


18

Industry Capability and Enablers

Section 3

19

Key Observations

• Recruitment typically takes between 0-5 months and has become more difficult. This however, is an improvement from the 2016 survey where 8% of respondents noted that recruitment could take up to 6+ months with some taking 9+ months

• There is an increased focus on hiring specialised skills, such as advanced analytics, robotics and automation engineers

• 34% found that Online Services such as Seek were the most successful avenue in recruiting, followed by internal staff contacts and networks. This is in contrast to the 2016 survey where only 11% found that Online Services to be successful. In the 2016 survey Boutique Recruitment firms were the most successful avenue (at 32%)

• Workplace diversity and labour costs have been identified as the highest importance to organisations. <1% of survey respondents considered workplace diversity to be getting worse. 7% responded that labour costs are getting worse


20

3 Industry Capability and Enablers

3.1 Supply Chain Organisation and Talent

6%

13%

13%

13%

22%

34%

LinkedIn campaigns

Large recruitment firm

Staff contacts/friends/network

Boutique recruitment firm

Internal HR

Online Services (eg Seek)

52%24%

24%

Which channel has proved most successful in recruiting Supply Chain professionals?

Respondents were surveyed on the structure of their supply chain organisation and how supply chain decisions get made within the organisation. As an essential component of supply chain performance, recruitment and people remains a focus area for the industry. As the complexity of supply chains increases, it is anticipated that competition for the right team members will continue to grow.

3-5 monthsis the average time it takes to hire a Supply Chain professional according to 84% of respondents

Comparison of difficulty in hiring Supply Chain professionals in the past year vs. recent years

3%Easier

45%

About the same

Slightly more difficult

A lot more difficult

Average time to hire a suitable Supply Chain professional

3%16%

0-2 Months

84%

3-5 Months

48%

78% of respondents have some form of professional development program for key supply chain staff

31% of respondents have a dedicated supply chain capability resource within their organisation

Key Observations

• The biggest recruitment challenges that respondents have faced include: Keeping up with changing technology and lack of relevant experience in the complex FMCG environment

• 50% of respondents have a formalised professional development programme. This has not changed since the last survey

• 31% of respondents have a dedicated supply chain capability resource


20 21

Yes, informal

Yes, formal

Do you have a professional development program that identifies capability gaps/improvements and career progression opportunities for key supply chain staff?

Within supply chain, is there a dedicated supply chain capability resource or team?

No

Yes



No

50%

22%

28%

57%43%

50%of respondents have a formalised professional development program

31%

69%

?

41%of respondents stated Labour costs are getting worse

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Agei

ng o

f the

wor

kfor

ceCa

sual

isat

ion

ofla

bour

Labo

ur c

osts

Out

sour

cing

perfo

rman

ceTa

lent

sho

rtag

esW

orkp

lace

dive

rsity

Key Observations

• Workplace diversity and labour costs have been identified as the highest importance to organisations. 50% of survey respondents considered workplace diversity to be improving

• 41% of respondents reported that labour costs are getting worse

• Labour costs also remain the highest importance with a large gap to the business’s readiness to address

• 31% of respondents reported that Talent shortages are getting worse

• Talent shortages remain a high to medium concern with a low level of industry readiness to address

• An ageing workforce was also highlighted as an issue that is getting worse, however it was not rated as a high concern


High Medium Low

22

Respondent’s view of the readiness, importance and concern regarding workplace issues in their organisation



Getting betterAbout the same Getting worse

Are these workforce issues getting better or worse?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Ageing of the workforce

Casualisation of labour

Labour costs

Outsourcing performance

Talent shortages

Workplace diversity

Key Observations

• Based on this year’s survey, S&OP continues to be widely utilised across the industry, with 88% of respondents having a S&OP or Integrated Business Planning (IBP) process

• Whilst S&OP is widespread, only 60% of the organisations surveyed had a dedicated S&OP manager. This is a 10% increase from the 2016 survey.


22 23


3.2 Sales and Operations Planning

Yes - just identifyYes- identify & value

3%

6%

32%

58%

Not at all

To a small extent

to a moderate extent

To a great extent

52%24%

24%

To what extent does the S&OP process provide the framework for decision making regarding all major demand & supply issues?

This section of the report covers the Sales and Operations Planning (S&OP) process which, for the purpose of this survey the terms S&OP & Integrated Business Planning (IBP) are interchangeable.

It also looks at to what extent KPIs drive decision making. This can have an impact on how demand and supply trade-off decisions get made.

56% of the organisations surveyed state their S&OP process informs decision making to a great extent

Does your organisation use a formal S&OP or IBP process?

Does your organisation have a dedicated S&OP Manager?

Excellent

How would you rate the quality & accuracy of your organisation’s master data?

9%

Excellent

63%

Acceptable Inadequate

6%22%

Inadequate

Acceptable

Poor

Poor

No

Yes

60%40%

No

Yes

13%

88%

Key Observations

• Customer behaviour remains the largest driver of demand variability, with 44% of respondents identifying this as one of the top 3 contributors

• Whilst this was the highest rated factor, it is down from the last survey in which 70% of respondents identified it as the main driver

• Also included in the top 3 drivers of demand variability was price sensitive consumers and increased competition with 41% and 31%, respectively (which aligns to the previous survey)

• The key initiatives that have been undertaken, or are planning to be undertaken, to lift forecasting capability include:

1. Improved systems/tools (72% of respondents are undertaking this)

2. Forecasting process redesign (66% of respondents are undertaking this)

3. Collaborative forecasting – both internal and external (50% of respondents are undertaking this)

• 56% of respondents have forecast accuracy as an incentive KPI to the accountable function. This is slightly up from the last survey which reported 54%


24


3.3 Planning Capability

2%4%

6%7%

9%10%10%

12%12%12%

16%

Economic uncertaintyMulti-channels

CannibalisationLack of suitable planning skills or qualified people

Shortening product lifecyclesGrowing product portfoliosPoor or inappropriate data

Increased competitionPrice sensitive consumers

WeatherConsumer behaviour

52%24%

24%

What are the key drivers of variability or challenges faced when forecasting demand?

Is the function accountable for forecast accuracy incentivised on this KPI?

No

Yes

56%

44%

of all respondents had a key initiative of improved systems/

tools to improve forecasting72%

What are the key initiatives your organisation has undertaken or is planning to undertake, to lift forecasting capability?

1%

1%

2%

2%

2%

13%

16%

18%

22%

25%

Alternate forecasting techniques

Improved product lifecycle management (NPI)

None

Other

Utilising additional data sources

Training / Education

Collaborative Forecasting - Internal

Collaborative Forecasting - External

Forecasting process redesign / improvements

Improved systems / tools

3%

3%

6%

13%

19%

56%

Procurement

Operations/Manufacturing

There is no dedicated demand planning team

Finance

Sales

Supply Chain

50% of respondents have the same team responsible for both Forecasting and exiting

of SLOB and obsolescent stock

68%% of respondents integrate customer store data (either via their planning systems or manually)

Key Observations

• 50% of the teams accountable for the forecast are accountable for obsolete inventory

• Demand Planning reported to Supply Chain in 56% of the respondents (no change from the previous survey)

• 53% of respondents generated forecasts weekly. Surprisingly, 25% of respondents who are $100m+ still forecast in monthly buckets. No companies in the $1bil+ range forecast in monthly buckets (which is an improvement from the last survey)

• More companies are integrating consumer store data into their forecasts - 34% vs 22% from the prior survey

• More companies are utilising best of breed planning solutions. Up to 41% from 33% when surveyed in 2016

• Spreadsheets still remain the number two method of forecasting, however the number of respondents has dropped to 25% down from 28% from the prior survey


24

Under which department does your Demand Planning function report?

25

Yes - regularly and is integrated into planning

systems

34%

Do you utilise customer store data (scan sales) in your forecasting process?

25%

6%



3%

9%

22%

25%

41%

Hybrid

In-house/Custom tool

ERP System

Spreadsheets

Specialised tool/Advanced Planning Systems

34%

What type of system do you primarily use to generate and maintain your forecasts?

How often are demand forecasts regenerated?

Daily

9%

Daily

53%

Weekly Monthly

38%

Monthly

Weekly

Yes - regularly but manually reviewed

Yes - ad hoc No

Key Observations

• The number of companies updating their safety stocks annually greatly reduced down to 6% from 22% in the previous survey. Quarterly still remains the most popular timeframe

• Upstream planning remained mostly the same with local suppliers improving slightly

• Significant improvement has been made in the level of collaboration in upstream suppliers. 53% state they “often collaborate”. This is up from 35% from the prior survey. Only 3% have stated they don’t collaborate vs 11% from the prior survey


26



Do you collaborate with your (upstream) suppliers to improve in-stock and performance and support your efforts to reduce inventory

0% 20% 40% 60% 80% 100%

International

Local

Upstream (eg. raw and packaging) supplier performance versus last year has:

53%

Always (standard process)

31%

Often Occassionally

13%

How often are safety stocks refreshed?

9%

19%16%

44%

6%3% 3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Daily Weekly Monthly Quarterly Annually Never Don't know

Improved

Declined

Remained the same

3%

No

?>55%% of respondents that require active management around shelf life issues

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Transportation Capacity

Storage Capacity

Labour/Resourcing

Shelf life or rotation issues

Key Observations

• Capabilities around Capacity planning and Inventory Parameter Calculations have appeared to improve, both areas increasing approximately 10% in Highly Capable/Sufficient rating

• A little over 55% of respondents require moderate or above active management around shelf life

• 60% of respondents stated that managing storage and transportation capacity needed to be actively managed to a moderate or above level

• Scenario planning still remains the largest opportunity remaining around the 40% level issues


26

To a great extent To a moderate extent

27

Does your organisation have to actively manage any of the following constraints in order to not compromise service level?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Inventory Parameters Calculations (e.g. Safety Stocks)

Inventory Planning (e.g. Inventory Projections)

Scenario Planning

Capacity Planning



How would you rate your organisation’s system capability in the following areas?

To a small extent Not at all

Highly capable Sufficient Inappropriate or insufficient Non-existent

6

This section surveys how the member base is engaging with their customers and explores how customer requirements are changing. It explores planning and collaboration processes between the industry and retailer, reviews delivery and DC performance and asks respondents about the impact of retailer driven initiatives.

By measuring how the industry interacts with customers and executes on their requirements, it is possible to gauge how the industry is performing in meeting these expectations and also to identify key trends and initiatives.


Customers and Consumers

Section 4

28

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Data

Inte

grity

and

alig

nmen

t bet

wee

ntr

adin

g pa

rtne

rs

Elec

tron

ic tr

adin

gan

d bu

sine

ss to

busi

ness

pro

gram

sIn

crea

sed

MLO

Rre

quire

men

tsPl

anni

ng c

onsu

mer

dem

and

Key Observations

• Planning consumer demand remains the highest rated issue in terms of importance to the industry. This remains at a similar level to the last survey. What has changed is the industry readiness to respond to the issue. This has improved from the last survey. 40% of respondents stated a high level or readiness vs 10% from the last survey

• Readiness to respond to Retail Ready Packaging has seen positive change from the previous survey. The number of High respondents has gone up to 25% from 5%. If including Medium readiness this has improved to 80%, up from 50%

• Collaborative distribution has been ranked as an important issue with a low level of readiness from industry to deal with. The level of importance has grown since the last survey. 50% of the industry see this as a High importance up from 30% from the previous survey. Interestingly, 80% of the industry have now rated this Medium to High in importance, up from 60% in the previous survey


28

High Medium Low

29

Rating of importance, readiness and concern related to key developments in the industry

4 Customers and Consumers

4.1 Customer Collaboration

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Concern

Readiness

Importance

Colla

bora

tive

dist

ribut

ion

(Sha

red

DCs/

Truc

kloa

ds)

Reta

il Re

ady

Pack

agin

g / D

ispl

ayPa

llets

Reta

iler c

ontr

olle

dpr

imar

y fre

ight

Wee

kend

dis

patc

han

d de

liver

y


High Medium Low

30

Rating of importance, readiness and concern related to key developments in the industry


4.1 Customer Collaboration

Key Observations

• Over 90% of respondents would support an industry led approach to collaborative sharing of transportation (outside of primary freight). Only 9% of respondents would not consider industry led collaborative sharing of transportation. The main reason stated for not considering was mostly because they were already doing it or had specific transport needs

• 86% of respondents would consider some form of an industry led approach to collaborative sharing of warehousing. Of the 14% of respondents who said no the reasons stated were because they were already doing it or had specific warehouse needs

• Collaborative distribution has been ranked as an important issue with a low level of readiness from industry to deal with this issue. The level of importance has grown since the last survey. 80% of the industry have rated this Medium to High in importance, up from 60% in the previous survey

• All respondents expect that changing shopper habits such as weekends and home delivery will influence Retailers delivery requirements across the next two years. This will mean smaller order requests, weekend deliveries and late night deliveries


30 31

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Not at all To a small extent To a moderate extent To a great extent To a small extent To a moderate extent To a great extent

Has it changed now/already? Will it change in the next 2 years?


4.2 Execution and Performance

Would you support an industry led approach to collaborative sharing of Transportation (outside of Primary Freight)?

65%

22%

3%

3%

To what extent do you believe changing shopper habits (e.g. increased weekends, home delivery) have influenced your Retailers’ delivery requirements across the following time horizons? (*delivery requirements include small orders, weekend or late-night deliveries etc.)

Would you support an industry-led approach to collaborative sharing of warehousing?

14%

33%

39%

14%

0%5%

10%15%20%25%30%35%40%45%

Yes, withcompetitors

Yes with customers Yes, with non-competitors

No

22%

35% 35%

9%

0%5%

10%15%20%25%30%35%40%

Yes, withcompetitors

Yes with customers Yes, with non-competitors

No

GRA is Australia’s premier expert consulting firm specialising in supply chain and logistics strategy, planning and execution.

About the Authors

About us

GRA was founded in 1997 and is Australia’s premier specialist supply chain consulting firm. Our team has extensive commercial supply chain and logistics experience across a broad range of industries and at all levels of the process, both strategic and operational. For the last two decades, we have worked with over 200 organisations to turn their supply chains into a competitive advantage.

We guarantee results and aim for a minimum 3:1 ROI for work undertaken, with typical returns ranging from 10:1 to 30:1.

Our Team

Our team has extensive commercial supply chain and logistics management experience across a broad range of industries and at all levels of the process, both strategic and operational. Having worked within industry as practitioners to implement supply chain initiatives, we have first-hand insight into our clients’ requirements and challenges. This makes us uniquely qualified to help our clients achieve their goals.

Contact Us GRA Supply Chain Pty Ltd | 110 Jolimont Road, East Melbourne VIC | 61 3 9421 4611

www.gra.net.au

WE WORK WITH YOU UNTIL SUSTAINABLE RESULTS ARE DELIVERED

James Allt- Graham GRA Partner

James joined GRA in 2014 to lead the Sydney office having previously been a senior partner with a Big 4 firm. His focus is on utilising his consulting and executive experience to assist clients to improve their strategic and operational performance. For the last 20 years, James has worked with clients in the commercial and government sector and has a focus on engaging executives, agreeing a direction and driving the practical implementation of transformation programmes.

Dan Knox Director

Dan is a Director at GRA with over 20 years’ experience in Supply Chain Management covering Demand Management, Supply Planning and Sales & Operations Planning and Transformation, with a focus on the FMCG industry. Dan has implemented numerous Supply Chain Planning process improvement and system implementations as well as led large scale S&OP & Supply Chain transformation projects across organisations. Dan is also a lead trainer at the Supply Chain Business Institute.

Jessica Dal Pra Consultant

Jessica is a Consultant at GRA with a keen interest in the FMCG industry. In addition to FMCG, Jessica has worked on a variety of consulting engagements across multiple industries, including pharmaceutical, mining and financial services. Jessica has broad experience in supply chain business process improvement, gained through working for both small and large clients in the manufacturing, distribution and retail sectors.


www.afgc.org.auFor further information

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