Capacity Building Workshop on Trade Facilitation Implementation: Tools, Techniques & Methodologies

1. Capacity Building Workshop on Trade Facilitation Implementation: Tools, Techniques & Methodologies Supply Chain Efficiency & Trade Facilitation Geneva, October 18th 2004 Olivier Aba Capacity Building Workshop UN SCM Geneva slides Olivier Aba

2. Workshop Agenda • What is a Supply Chain, “SC”, & Supply Chain Management, “SCM”? • Benefits of Supply Chain Management • E-business & Supply Chain – opportunities • E-commerce & Trade Facilitation: how to improve Supply Chain efficiency & competitiveness? Implications for Trade facilitation & global view SC view from the inside of companies Capacity Building Workshop UN SCM Geneva slides Olivier Aba

3. What is a Supply Chain? Customer wants detergent and goes to Supermarket P&G or other manufacturer Supermarket or 3rd party DC Supermarket Plastic producer Tenneco packaging Chemical manufacturer (e.g. Oil Company) Paper manufacturer Timber industry Chemical manufacturer (e.g. Oil Company) Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

4. What is a Supply Chain? • Every company is involved in one or more Supply Chains • A supply chain can be defined as “the sequence of suppliers that contribute to the creation and delivery of a good or service to end customers. This encompasses virtually all aspects of a business—sales processing, production, inventory management, material supply, distribution, procurement, forecasting, and customer service, and several other areas…” Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source :Aglira & al. , 1999

5. Components of a Supply Chain PLAN BUY MAKE MOVE SELL Demand & Supply Planning Sourcing & Supplier Management Manufacturing Storage & Transportation Customer & Order Management Manage the flow of materials, goods or services Capacity Building Workshop UN SCM Geneva slides Olivier Aba

6. Logistics vs. Supply Chain • Supply Chain is NOT logistics… • Supply Chain is MORE THAN logistics • covers the coordination of most activities & flows upstream: • from suppliers to manufacturing • and activities & flows downstream: • from manufacturing to end-customer Capacity Building Workshop UN SCM Geneva slides Olivier Aba

7. Logistics Costs in Europe (as a % of revenues) 1998 Transportation: 40% Warehousing: 26% Inventory: 18% Admin: 16% Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: ELA, Insight to Impact, 1999

8. Logistics Costs Worldwide Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Bowersox, Closs, Cooper, 2002

9. Flows in a Supply Chain? • There are 3 types of flows to consider in a Supply Chain: • Material flows • Financial flows • Information flows Capacity Building Workshop UN SCM Geneva slides Olivier Aba

10. SUPPLIER MANUFACTURER CUSTOMER What is an Internal Supply Chain? A company’s “internal” Supply Chain is made of the material, information and financial flows between the company and its direct business partners. Material flows Financial flows Information flows Capacity Building Workshop UN SCM Geneva slides Olivier Aba

11. Need to take into account the supplier’s suppliers and the customer’s customers because they generally have an impact on the overall Supply Chain performance. Integrated or Extended Supply Chain Material flows 2nd tier suppliers 1st tier suppliers Manufacturer Wholesaler Retailer End-customer Financial flows Information flows Capacity Building Workshop UN SCM Geneva slides Olivier Aba

12. PRIMARY VALUE-ADDING ACTIVITIES Inbound Logistics Production Outbound Logistics Marketing & Sales Service IT systems Margin Human resources management & training SUPPORT ACTIVITIES Research & development Purchasing & contracting Finance, planning, etc. Porter’s Value Chain Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: ITC, 2002

13. Supply Chain Manufacturers, Regional warehouses: stocking points Customers, demand centers Field warehouses: stocking points Sources: plants vendors ports Supply Manufacturing/ Inventory & warehousing costs Material Production/ purchase costs Transportation costs Transportation costs Inventory & warehousing costs Source: Simchi-Levi & al, 2000

14. SCOR 5 Processes: Overview Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Supply Chain council, 2003

15. SCOR 5 Processes (1) • Plan: • Processes that balances aggregate demand & supply to develop a course of action which best meets sourcing, production & delivery requirements • Source: • Processes that procure goods and services to meet planned or actual demand • Make: • Processes that transform product to a finished state to meet planned or actual demand Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Supply Chain council, 2003

16. SCOR 5 Processes (2) • Deliver: • Processes that provide finished goods and services to meet planned or actual demand, including order management, transportation management, and distribution management • Return: • Processes associated with returning or receiving returned products for any reason. These processes extend into post-delivery customer support. Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Supply Chain council, 2003

17. What is Supply Chain Management? “Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.” Source: Simchi-Levi & al, 2000 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

18. Drivers of Supply Chain Performance • Inventory • Transportation • Facilities • Information Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

19. Competitive Strategy Supply Chain Strategy Efficiency Responsiveness Supply Chain Structure Inventory Transportation Facilities Information Drivers Source: Chopra & Meindl 2001 Drivers of Supply Chain Performance Capacity Building Workshop UN SCM Geneva slides Olivier Aba

20. Considerations for Supply Chain Drivers Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

21. Drivers of Supply Chain Performance Inventory: • Role of inventory in the Supply Chain: • Anticipation of future demand • Production and distribution costs reduction • economies of scale Dell Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

22. Drivers of Supply Chain Performance Transportation: • Role of transportation in the Supply Chain: • Transportation moves the product between different stages in a Supply Chain • Transportation choices impact the responsiveness and the efficiency of the Supply Chain Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

23. Drivers of Supply Chain Performance Facilities: • Role of facilities in the Supply Chain: • Where inventory is transformed into another state - manufacturing facility • Where inventory is stored before being shipped - warehousing facility • Choices such as number of facilities or capacity impact the Supply Chain Wal-Mart Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

24. Drivers of Supply Chain Performance Information: • Role of Information in the Supply Chain: • Serves as the connection between the Supply Chain’s various stages (allows coordination of actions) • Allows daily operations of each stage of the Supply Chain (ex. : a production scheduling system needs information) Zara Nokia Dell Source: Chopra & Meindl 2001 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

25. SC Nokia • Nokia’s frequent & rapid product introduction, major contributors to fast revenue & profit growth are: • supported by a very flexible & efficient SC • Nokia has put in place: • rapid response manufacturing, • quick-ship logistics, • global SC web that links Nokia’s suppliers & plants, supports Vendor Managed Inventories and collaborative planning Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Accenture, 2003

26. SC Zara (1) • Global clothing manufacturer/retailer – 44 countries • Focused on time to market, costs, order fulfillment & customer satisfaction • Zara owns 630 retail stores worldwide • Store managers send customer feedback directly to Zara’s in-house designers via handheld devices • designers are kept abreast of fast-changing trends & demands • gives Zara vital information on sale of less-desirable merchandise • better managed inventories Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Accenture, 2003

27. SC Zara (2) • Zara acquires fabrics in only 4 colors & postpones dyeing & printing until close to manufacturing reducing waste and minimizing need to clear unsold inventories • Zara can deliver new styles in 3 to 6 weeks, compared with up to 5 months for competitors Source: Accenture, 2003 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

28. SC Henkel • Multinational manufacturer of consumer & industrial products • Put in place collaborative planning, forecasting & replenishment (CPFR) with Condis, a Spanish supermarket & several packaging suppliers for laundry & home care products • Involves daily interchange for key items, coordinates business planning (combined promotions & collaborative forecasts) & jointly defined & measured key performance indicators. Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Accenture, 2003

29. The “Best” Supply Chains “They are not just fast & cost effective. They are also: • Agile • Adaptable • and they ensure that their companies’ interests stay aligned.” Hau L. Lee, Harvard Business Review, October 2004 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

30. Supply Chain & SCM Benefits • Reduction of SC costs • non-transport costs • transport costs • Lower inventories • Improved delivery time • Improvement in service quality Capacity Building Workshop UN SCM Geneva slides Olivier Aba

31. SC Champions: Service vs. Costs Capacity Building Workshop UN SCM Geneva slides Olivier Aba

32. SC Champions – Costs & Performance Capacity Building Workshop UN SCM Geneva slides Olivier Aba

33. The e-Business • e-Business is a collection of business models and processes motivated by Internet technology, and focusing on improving the extended enterprise performance: • e-commerce is part of e-Business • Internet technology is the driver of the business change • The focus is on the extended enterprise: • Intra-organizational • Business to Consumer (B2C) • Business to Business (B2B) Capacity Building Workshop UN SCM Geneva slides Olivier Aba

34. e-Business and e-Commerce • e-Commerce definition: • Is often referred to as “buying and selling using the Internet” • e-Business definition: • The transformation of key business processes through the use of Internet technologies (IBM) Capacity Building Workshop UN SCM Geneva slides Olivier Aba

35. Barriers to e-Business Adoption • For customers: • A large proportion of current non-Internet users • Look at your country • The poor understanding of the benefits • For companies: • No tangible benefits • Not relevant to the business • Technology costs too high and difficult to understand • Concern about fraud • Concern about confidentiality Capacity Building Workshop UN SCM Geneva slides Olivier Aba

36. Introducing B2B and B2C Capacity Building Workshop UN SCM Geneva slides Olivier Aba

37. organization Technologies e-Business Environment Environment today has more influence & impact Global Environment International, economic factors, Legal constraints, cultural factors Local Environnent Technologies, innovation used by global competitors Society Public opinion Media Moral… Supplier Customer Intermediates, Channels Local Competitors Country specific, economic factor, legal constraints, cultural factor Look at the top 100 companies from 50 years ago, less than a quarter of them remain in the top 100, many have ceased to exist. Capacity Building Workshop UN SCM Geneva slides Olivier Aba

38. e-Business Processes • In this context, e-Business specifically refers: • to “the planning and execution of the front-end and back-end operations • in a chain using the Internet” Product Retailers Supplier Manufacturer Wholesalers Customer Capacity Building Workshop UN SCM Geneva slides Olivier Aba

39. Intermediaries, channels Retail Channel Supplier organization Technologies Consumer customers Organization or business customers B2C Technologies B2B B2B & B2C Transactions B2B > 80% of e-business Capacity Building Workshop UN SCM Geneva slides Olivier Aba

40. Consumer Wholesaler Retailer Producer Disintermediation or “cutting out the middle man” Don’t kill your traditional sales channels but help them in new way of sales Capacity Building Workshop UN SCM Geneva slides Olivier Aba

41. e-Business & the Supply Chain • Very broad impact of e-business on the Supply Chain: • upstream: sourcing, procurement • inbound & outbound logistics: links & use of third parties • downstream: ordering, warehousing & distribution… Easier Faster Capacity Building Workshop UN SCM Geneva slides Olivier Aba

42. The Role of e-Business in a Supply Chain • Supply Chain transactions which can be performed over the Internet: • Providing information across the Supply Chain • Negotiating prices and contracts with customers and suppliers • Allowing customers to place orders • Allowing customers to track orders • Filling and delivering orders to customers • Receiving payment from customers Capacity Building Workshop UN SCM Geneva slides Olivier Aba

43. e-Business Opportunities & SC • Reduce facility costs • Eliminate retail/distributor sites • Reduce inventory costs • Apply the risk-pooling concept • Centralized stocking • Postponement of product differentiation • Use dynamic pricing strategies to improve SC performance Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Chopra & Meindl 2001

44. e-Business Opportunities & SC • Supply Chain Visibility: • Reduction in the “Bullwhip Effect” • Reduction in inventory • Improved service level • Better utilization of resources • Improve Supply Chain performance • Provide key performance measures • Identify and alert when violations occur • Allow planning based on global supply chain data Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Chopra & Meindl 2001

45. Potential Revenue Opportunities from e-Business & SC • Direct sales to customers • 24 hour access for order placement • Information aggregation • Information sharing in supply chain • Flexibility on pricing and promotion • Price and service discrimination • Faster time to market • Efficient funds transfer - reduce working capital Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Chopra & Meindl 2001

46. Potential Cost Opportunities from e-Business & SC • Direct customer contact for manufacturers • Coordination in the supply chain • Customer participation • Postpone product differentiation to after order is placed • Downloadable product (software) • Reduce facility costs • Geographical centralization and resulting reduction in inventories Capacity Building Workshop UN SCM Geneva slides Olivier Aba Source: Chopra & Meindl 2001

47. Potential Cost Disadvantages of e-business • Increased transportation cost due to inventory aggregation • Increased handling cost if customer participation is reduced • Large initial investment in information infrastructure Capacity Building Workshop UN SCM Geneva slides Olivier Aba

48. Fromages.com • Founded in 1997 • Sale of French cheeses overseas: • USA: 70%, Europe: 15%, Asia: 15% • Reseller, not a producer • No inventory • Key elements: quality & logistics • 65% of costs: cheese, packaging, express delivery • 85% of orders delivered in 24 hrs… • Average sale: 70/80 euros • Selling price includes transportation costs • Partnerships: • Cheese producer & ripener in Loire-Atlantique • Shipper – FedEx • Sales (2003): estim - 1 M euros – profitable since 2000 Capacity Building Workshop UN SCM Geneva slides Olivier Aba

49. Aquarelle.com (1) • Founded in 1997 • Online sale of flower bouquets in France, Europe, USA, Japan, South Korea & Venezuela • 20 theme bouquets, as per the season • Craft work & Just in Time • Flowers purchases: 80% from Netherlands • Centralized flower assembly north of Paris • 25 assembly florists • Customer can « see » what he is purchasing • Key success factors: availabiliyt, freshness, leadtime & quality Capacity Building Workshop UN SCM Geneva slides Olivier Aba

50. Aquarelle.com (2) • Downstream logistics critical: transport, delivery, & followup: • Paris deliveries– E-liko • Delivereies in France - Chronopost • Specific packaging designed & used for the flower bouquets • Delivery fee added on customer bill: 9 euros • Investment in information systems: 4 M euros – online purchasing system for suppliers, supply chain mangement & order management application • Local partnerships • Sales (2003) : about 8 M euros – profitable since 2002 Capacity Building Workshop UN SCM Geneva slides Olivier Aba