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Management consulting, Procurement, Sourcing, Lean Manufacturing, Supply Chain Management, Services operation, OTC, Performance improvement, Business Process Re-engineering, Operational Due Dilligence, Change Management
Citation preview
State of the Supply Chain Management: Middle East Series 2010
B2G Consulting
Supporting Growing Markets
2
© 2010 B2G Copyright - Middle East Series
Foreword
3
© 2010 B2G Copyright - Middle East Series
Foreword
Asia and Europe. This confers to the
region a large source of business
opportunities, which are still mostly
untapped. In this race, many GCC
countries have started to differentiate
themselves by launching large scale
initiatives. For example, the Kingdom of
Saudi Arabia, one of the leading
countries, has embarked on a massive
transformation through Saudi Arabian
General Investment Authority (SAGIA).
Important investments have been done
to support the development of logistics
infrastructure in the Kingdom (road and
rail networks, ports and airports facilities
etc…). In addition, laws and regulations
are in the process of being adapted to
sm
iddle East benefits from an
exceptional position between
chain from performing to its
optimum level the supply chain
from performing to its optimum
M
smoothen and ease business
transactions. However, the complex
challenges in the region cannot be
ignored, and should be addressed as an
opportunity to revolution the current
situation. Supply chain management is
clearly lagging compared to more
mature markets such as Europe, but we
believe at “Art of International Trading
and Import (Artiti)” that the region
should find innovative ways to
distinguish itself by providing world-
class services. We hope to see soon
more GCC organizations globally
recognized for their high dedication to
customers, outstanding quality and
operational excellence, supported by a
dynamic and highly trained professional
workforce.
Mohammed H. Al Qhahtani
ARTITI
level the supply chain from
performing to its optimum
4
© 2010 B2G Copyright - Middle East Series
Foreword 2
01 Introduction 6
02 Executive summary 8
03 Survey panel analysis 10
Where are your headquarters located?
What is your company’s annual revenue?
What is your number of employees?
What is your main sector of activity?
Industry insights: Conducting a cost reduction program
in the transport sector 12
04 Supply Chain maturity
How is the level of knowledge of your Supply Chain organization? 14
What are the Best practices currently used by your organization? 15
What are the activities outsourced? 16
What is your supply-demand model? 17
Which technology is being used to support your Supply Chain operations? 18
How is your Supply Chain considered by the top management? 19
What is the frequency of training for the Supply Chain staff? 20
Industry insights: Human Resources Management –
Recruiting Supply Chain Experts 22
Table of contents
5
© 2010 B2G Copyright - Middle East Series
Table of contents
05 Supply Chain performance metrics
Perfect order fulfillment 24
Delivery performance 25
Total supply chain management cost 26
Cash-to-cash cycle time 27
Inventory days of supply 28
Days of payable outstanding 29
Days of sales outstanding 30
Industry insights: 3PL outsourcing in the Petrochemical
Industry 32
06 Supply Chain challenges
What are the top Supply Chain concerns your organization is facing? 36
How difficult is the recruitment of Supply Chain professionals? 37
What are the next initiatives you are planning to implement? 38
07 Conclusion 40
08 Appendix 41
6
© 2010 B2G Copyright - Middle East Series
free from the effects of global recession,
and once again looks forward to the
good times. Senior leadership of
multinational companies based within
GCC is justifiably optimistic about the
economic upswing, however upon closer
inspection, one finds that only a few
have taken the opportunity during this
crisis to strengthen their operational
readiness. Companies that exclusively
opted for short-termism through ruthless
cost cutting as a means of survival
during the crisis, will find themselves
unable to respond to the upturn, since
they will struggle to counter demand
through scaling production, this coupled
with unresponsive supply chains will
lose valuable time to market.
they will struggle to counter demand
through scaling production, this coupled
with unresponsive supply chains will
lose valuable time to market. How will
these companies face the upcoming
operational and supply chain
challenges, in an increasingly complex
global market, characterized by local
specificities? As a region, the GCC has
undergone an extraordinary
transformation in recent years and has
emerged as a global freight hub by
virtue of its strategic location between
Asia, Africa and Europe. Spurred on by
World economic growth (before 2008),
its position as a global transit hub
further solidified in recent years as
increasing volumes of finished goods
and raw materials passed through its
borders.
further solidified in recent years as
increasing volumes of finished goods
and raw materials passed through its
borders. The collective aspiration and
commitment of the region, in becoming
a world class transit hub, is evidenced
by unprecedented levels of investments
in logistics infrastructure that will be able
to cope with expected increase in freight
over the coming years, driven by double
digit growth in South and East Asia.
However set against this present and
future context, the following report
poses a serious question: Do current
players within the region, whether at
company, country or regional level have
the vision and oversight to make the
necessary shift in paradigm, from a
mindset which is purely focused on
logistics, to one which is holistic in its
Introduction
ptimism is back in the Middle
East, as the region shakes itself
free from the effects of global
recession, and once again looks
forward to the good times.
effects of global recession, and
once again looks forward to the
good times.
recessioptimum level the supply
chain from performing to its
optimum
O
01
7
© 2010 B2G Copyright - Middle East Series
Introduction
the vision and oversight to make the
necessary shift in paradigm, from a
mindset which is purely focused on
logistics, to one which is holistic in its
treatment of the complete supply chain.
Supply Chain Management (SCM) is the
corner stone of any successful strategy
and yet paradoxically it is also the least
understood of all disciplines, often under
resourced and devoid of investment.
Misconceptions about the term “supply
chain” abound often leading to
confusion between itself and logistics.
While logistics involves getting the right
goods, to the right place, at the right
time, at the right cost, in the right
condition, and with due care and
attention to the environment, Supply
Chain Management (SCM) deals with all
business activities associated with
condition, and with due care and
attention to the environment, SCM deals
with all business activities associated
with satisfying a customer‟s demand.
SCM is the oversight of materials,
information, and finances as they move
in a process from supplier to
manufacturer to wholesaler to retailer to
consumer. SCM involves coordinating
and integrating these flows (Information,
physical, financial flows) both within and
among business partners (suppliers,
service providers, customers). It is said
that the ultimate goal of any effective
supply chain is to increase the customer
satisfaction in the most profitable way
by reducing inventories, lowering
operating costs, speeding product
availability, and increasing service level.
by reducing inventories, lowering
operating costs, speeding product
availability, and increasing service level.
Structuring the supply chain requires an
understanding of the demand patterns,
service level requirements, distance
considerations, cost elements and other
related factors. These factors are highly
variable in nature and this variability
needs to be considered to improve any
supply chain.
The ‘State of the Supply Chain
Management Middle East’ aims to
draw a concise portrayal of the
current situation as seen by supply
chain practitioners in the Gulf region.
There are six key elements to a supply
chain:
Supply
8
© 2010 B2G Copyright - Middle East Series
research by B2G Consulting, bringing
together under one publication the
collective wisdom of over 225
participating companies based within
the GCC region. Supply chain
management (SCM) is the cornerstone
of any successful organization and the
discipline increasingly finds itself
included in top management‟s strategic
agenda. This is further borne out by the
fact that 28.9% of all respondents
consider their supply chains as strategic
to their business goals. 39.5%, of all
respondents‟ perceived their supply
chains as chiefly driven by customer
demand, loosely linked together by
collaborative end-to-end partners,
23.7% stated that their supply
chains as chiefly driven by customer
demand, loosely linked together by
collaborative end-to-end partners,
23.7% stated that their supply chains
were organized by function whilst only
18.4% were structured in processes.
The quality of human resource is the
critical success factor of any
organization and supply chains are no
exception, collaborative chains are
stretched across longer distances,
across many borders, in their search for
low cost resources and at the heart of
these networks are people managing
complexity, technology and cross
cultural relationships. To maintain
leadership in the face of competition,
increasing complexity and innovation,
supply chains must continually, invest in
their human resource just to maintain
leadership in the face of competition,
increasing complexity and innovation,
supply chains must continually invest in
their human resource. However
investment in training is particularly low
in the region and the majority of
respondents (68%) provide training less
than 5 times a year to their supply chain
staff, this phenomenon becomes
especially acute when considering that
60% of their employees possess only
rudimentary knowledge of fundamental
concepts. Not surprisingly education
reform is a top priority amongst GCC
counties and there is a real need to
develop best talent across the region.
GCC firms face a unique challenge
where they are compelled to source
from a small pool of qualified local
professionals, who are hard to recruit
his report is the culmination of
over six months of dedicated
optimum level the supply chain
from performing to its optimum
level the supply chain from
performing to its optimum
T
02
Executive summary
9
© 2010 B2G Copyright - Middle East Series
Executive summary
GCC firms face a unique challenge
where they are compelled to source
from a small pool of qualified local
professionals, who are hard to recruit
and even harder to retain, 84% of
respondents found recruitment of
qualified supply chain professionals
difficult, especially at middle
management level (59.5%). Although
outsourcing presents an immediate
opportunity as a promising alternative, it
is still a nascent industry in the region.
76.3% of respondents outsource at least
one logistics function. However,
regardless of whether the supply chain
is in-sourced or outsourced, the biggest
challenge facing the industry is the lack
of visibility, both internally between
critical processes and between critical
partners (nodes) within the supply
challenge facing the industry is the lack
of visibility, both internally between
critical processes and between critical
partners, leading to soaring inventory,
long lead times, high operating costs
and low customer satisfaction. The
volatility in the economy has been
mirrored by fluctuating demand, which
has made forecasting, fraught with
errors and much more difficult to
manage. 73.7% of respondents stated
that improving their level of demand
forecasting was on top of their agenda
for 2011, followed by 63.2% who wished
to pursue inventory optimization. To
improve demand forecasting, 20.7% of
all respondents had implemented Sales
& Operations Planning Process) in a bid
to achieve a level of best practice and
more companies intend to set up such
all respondents had implemented Sales
& Operations Planning Process, and
more companies (42.1%) intend to set
up such initiatives within the next 12
months. Pressures on lead-times,
inventory levels and costs have led the
large majority of respondents to define
mid-term plans to reduce logistics costs
(36.8%), reduce delivery lead-times
(34.2%), optimize inventory levels
(31.6%) and improve suppliers‟
performance (21.1%). Lastly, the
importance of information is often
overlooked as a critical competitive
resource, but its role is crucial to
achieve higher productivity.
responsiveness, interconnectedness
(internally and externally) and lower
costs.
10
© 2010 B2G Copyright - Middle East Series
The “State of Supply Chain Management – Middle East Series” represents B2G consulting‟s largest annual review of global
supply chain performance focused on the GCC region. With participants from Saudi Arabia, Bahrain, UAE, Oman, Kuwait and Qatar,
the survey provides deep insight into the most critical yet least understood lever, i.e the Supply Chain management, to improve
significantly any company‟s operational profitability and margin‟s growth.
Consisting of a comprehensive online questionnaire, participants were invited to respond to 21 key questions covering the
different aspects of the supply chain management in terms of challenges, maturity and performance level.
Headquarters location
03
Survey panel analysis
Number of employees
48.6%
2.9%
20.0%
5.6%
2.9%
11.4%
6.0%2.6%
Saudi Arabia
Bahrain
Dubai
Abu Dhabi
Oman
Kuwait
Qatar
Other
48.6%
2.9%
20.0%
5.6%
2.9%
11.4%
6.0%2.6%
Saudi Arabia
Bahrain
Dubai
Abu Dhabi
Oman
Kuwait
Qatar
Other
18.4%
28.9%
15.8%
18.0%
18.8%
<101
101-500
501-1000
1001-5000
>500018.4%
28.9%
15.8%
18.0%
18.8%
<101
101-500
501-1000
1001-5000
>5000
Study background
11
© 2010 B2G Copyright - Middle East Series
Survey panel analysis
Nearly 230 companies participated in this 2010 survey, with data collection completed in November of 2010. The survey
population is composed of organizations from a diverse set of industries, including Retail, Oil&Gas, Consumer Goods, Mining and
metals, transport, industrial manufacturing, services, telecommunications, construction, health care and agriculture. The survey
reflects the response of the population which is composed of more than 60% senior executives in supply chain management, with
15% at the CXO-level. The region surveyed is only focused on the Middle East region particularly on the GCC countries: Saudi
Arabia, Bahrain, UAE, Oman, Kuwait and Qatar. And more than half of survey participants are companies with annual revenues
superior than $500 Million with a minimum of 500 employees.
21.1%
10.5%
11.1%
26.3%
10.0%
7.9%
13.2%
1M-25M
26M-50M
51M-150M
151M-500M
501M-1B
1B-10B
>10B
21.1%
10.5%
11.1%
26.3%
10.0%
7.9%
13.2%
1M-25M
26M-50M
51M-150M
151M-500M
501M-1B
1B-10B
>10B
Company annual revenue ($US) Main sector of activity
Survey participants
1,8%
1,8%
3,6%
3,6%
3,6%
5,4%
5,4%
7,1%
7,1%
8,9%
8,9%
10,7%
14,3%
17,9%
0% 5% 10% 15% 20%
Real estate
Agriculture
Telecommunications
Health care
Other
Construction
Mining and metals
Transport
Oil & Gas
Food and beverage
Retail
Consumer goods
Services
Industrial manufacturing
12
© 2010 B2G Copyright - Middle East Series
01 Company background and
Challenges
In few words, please describe your company
activity.
“Mubarrad is a publicly listed Kuwait-based company,
specializing in land transport, logistics, heavy transport, truck
manufacturing and maintenance. Mubarrad is a GCC player
with operations in Kuwait, Dubai, Oman and Egypt. With a
market value of 21.6 Million KD, its assets are worth 37
Million KD for a total of 200 employees (excluding drivers).”
Which pressures forced Mubarrad to embark on a
cost reduction program?
“After several acquisitions and major internal
transformations, a new management team has been
appointed in mid 2010 to restructure completely the financial
and operational departments in order to drastically reduce
costs. The situation when we arrived was a very high SG&A
costs compared to the revenue, accentuated by a difficult
economical context.”
What did Mubarrad decide to do to overcome this
challenge?
“The new management team decided to go for the best
practices in the industry, and conducted several analyses
(SWOT, balanced SCORE Card, zero based costing, Porter
analysis…) with the support of management consultants.”
Industry insights
Conducting a cost reduction program in the transport sector
02 Results
Which results have been obtained after the
implementation? How long did it take to reach the
expected outcomes? What are the next steps?
“It took six months after implementation to start seeing
improvements. The team built a 6-year strategic plan with
clear objectives. At that time there was a significant drop in
sales, but we finally managed to increase the revenue by
33%. Several strategic initiatives were launched such as:
Upgrading transport asset quality and improving
utilization rate
Securing long term contracts
Concentrating businesses in Oman and Dubai to
increase profitability
Building up a new executive committee with a cross
functional view to drive the change and bear
decisions as a team
Implementing a CRM system to optimize the
decision making process with the market dynamics
Increasing project planning and execution to
increase the projects success rate
Close monitoring of losses
Focusing on employees efficiency while
transforming the mindset from employees to
leaders
Diversifying the logistics offering
Expanding the regional coverage
13
© 2010 B2G Copyright - Middle East Series
Mohammad E. Al-Muaili Vice Chairman - CEO
Mubarrad Transport Company
03 Key lessons learned
Did Mubarrad face any difficulties during the
project phase?
“The major issue that we faced during the project
phase was the change resistance from the existing staff,
so we had to take tough decisions in order to
institutionalize a full commitment from everyone and to
bring the morale up within the company. As a new team,
we were constantly walking on eggs, as we wanted to
improve the situation but without jeopardizing the day-
to-day operations. It was helpful to set up employees
SCORECard, not only to monitor the individual
performance of each employee but as well to assure
that everyone would be able to measure its own
contribution to the global initiative.
One of the very first things that we did was to bring all
top management (including myself) in the same office
close to the operations, as the executive office used to
be remotely located. It was important for us that we, the
management, lead by example and demonstrate by our
own acts the high commitment that we were expecting
from our employees.”
04 Which lessons to retain in conducting
such initiative?
“People are definitely the most important assets for a
company, especially when the company decides to embark on
a major transformation program that involves changing the way
it operates. We can witness it every day at Mubarrad, so we
tried to really have the right personnel with the right mindset
who considers himself as an owner of the company rather than
just an employee. In the end, the success of the company lies
in a team effort and not on one-man show.
“People are definitely
the most important
assets for a company”
The challenge in the GCC is mainly
about having the right people, and
unfortunately, there is a workforce
deficiency in this market, which is
even stronger in the area of supply
chain and logistics. At Mubarad, we .
through two educational segments:
one with small workshops to improve
the technical and soft skills of the
employees and harmonize the levels
between departments, and one with
extra professional activities organized
by the company to cement the bonds
and improve the interpersonal
relationships within the company.”
decided to tackle the skills issue through two educational
segments: one with small workshops to improve the technical
and soft skills of the employees and harmonize the levels
between departments, and the other one with extra
professional activities organized by the company to cement
the bonds and improve the interpersonal relationships within
the company.”
So far, the results were the reduction of the loss to 71 K KD
from 2.2 Million KD at the same period in 2009. The road is
long and we haven‟t finished yet our mandate.”
not only to monitor the individual
performance of each employee but
as well to assure that everyone would
be able to measure its own
contribution to the global initiative.
One of the very first things that we
did was to bring all top management
(including myself) in the same office
close to the operations, as the
executive office used to be remotely
located. It was important for us that
we, the management, lead by
example and demonstrate by our own
acts the high commitment that we
were expecting from our employees.”
did was to bring all top management (including myself)
in the same office close to the operations, as the
executive office used to be remotely located. It was
important for us that we, the management, led by
example and demonstrated by our own acts the high
commitment that we were expecting from our
employees.”
“So far, the cost reduction program has brought in substantial cost savings and this has
reflected positively in the overall result. The road is long and we haven‟t finished yet our
mandate.”
Industry Insights
14
© 2010 B2G Copyright - Middle East Series
04 #1: How is the level of knowledge of your Supply Chain organization?
Knowledge of Supply Chain organization
32,0%
60,0%
8,0%Mature – with knowledge about advanced models such as SCOR and supply
chain best pratices (S&OP, VMI, etc…)
Average – with basic knowledge about supply chain (operational
fundamentals)
Low – with ad-hoc knowledge on supply chain
Introduction
Most companies enter supply chain to
improve profitability, through process
improvement and technology for more
responsiveness to consumer demands.
However maintaining a competitive
advantage depends on the ability of
each unit in the chain to apply
knowledge innovatively. Knowledge is
the competitive advantage in a supply
chain – it not only enhances the
efficiency of the operations but also
enables to foresee and manage
complexity and change. The major
challenge for companies is to acquire,
develop and retain skilled supply chain
professionals to sustain efficiently their
supply chain performance.
Results
The respondents were asked to indicate
the level of knowledge of their supply
chain organization. The results show
that:
32% of respondents have
advanced knowledge of supply
chain concepts
60% present basic knowledge
on supply chain
6% admit to have less
knowledge
Analysis
The supply chain is one of the most
rapidly evolving disciplines, and the
variances in supply chain activities
require new set of skills and
experiences for world class supply chain
professionals. The noticeable shortage
in the Middle East of supply chain
professionals with the required skill-sets
is not something exclusive to this region
but it is likely to be accentuated by
some governmental initiatives that
encourage the employment of their
nationals
nationals (Saudization, Emiratization
etc…). In the face of fierce global
competition to recruit the skilled
resources, GCC Companies should
start looking at ways to develop and
secure domestically the skilled
manpower, required to support the
expansion of their organizations. In
fact, some of the respondents have
already jumped on the bandwagon by
establishing “learning centers” to
develop training and education
programs to enhance local work force.
understanding of the true root causes
preventing the supply.
Supply Chain maturity
15
© 2010 B2G Copyright - Middle East Series
Supply Chain maturity
#2: What are the best practices currently used by your organization?
Best practices in place
Results
The top 5 best practices used by the
respondents are:
#1 Sales & Operations Planning process
#2 End-to-End supply chain visibility
#3 Performance measurement
#4 Customer segmentation
#5 Integrated business planning
Due to the recent financial crisis, there is
a noticeable growing trend for financial
supply chain practices, which were not
very popular in the Middle East in the
past years.
Analysis
The lack of visibility: internally amongst critical
processes, and externally between business
partners; have incurred high inventory levels,
significant operating costs, longer lead times
and lower customer satisfaction. To forecast the
demand more accurately and plan the supply
accordingly, the respondents have implemented
one of the most powerful best-practices in
demand planning: the Sales & Operations
Planning Process (S&OP). The S&OP process
provides optimum results when complemented
with end-to-end visibility systems and efficient
performance measurement tools for segmented
customers. This would logically explain
the position of the top 3 best practices used by
the respondents. The most advanced
companies have elevated the conventional
Introduction
Everybody talks about best
practices. But what does it really
mean in the Middle East context? It
does not mean always getting the
latest technology or doing exactly
what best-in-class companies did
lastly. “Best-practices” are the
methods, processes or activities
that are the most effective at
delivering the highest outcome in a
particular context. It is critical to
understand that the way of using
best practices are business-specific.
Consequently success depends on
choosing them with a thorough
understanding of the operations
involved while considering the
specific business environment.
customers. This would logically
explain the top 3 best practices
used by the respondents. The most
advanced companies have
elevated the conventional S&OP
process to integrate R&D, Product
management, marketing and
financial issues into the process to
merge the operational and financial
plans into a seamless business
planning and tactical execution-
directing process: The Integrated
Business Planning (IBP).
0.6%
1.6%
1.6%
1.0%
1.3%
1.6%
1.9%
2.2%
2.5%
3.2%
5.1%
5.7%
6.4%
8.0%
10.2%
11.1%
15.3%
20.7%
0% 5% 10% 15% 20% 25%
Other
Financial supply chain (cash flow management)
JIT - Just in time
Formalized supply chain risk management
Supplier collaboration
Vendor Managed Inventory
Competitive Benchmarking
Customer collaboration
Lean methodology
Collaborative forecasting
Supply chain costing (Activity Based Costing)
Joint service agreement (JSA)
Real time information
Integrated business planning
Performance management
End to end Supply chain visibility tool
Customer segmentation
Sales and Operations Planning Process
16
© 2010 B2G Copyright - Middle East Series
#3: What are the activities outsourced?
Outsourced activities
Supply Chain maturity
Introduction
Outsourcing in the Middle East is a fairly
new trend knowing that most companies
have been in-sourcing the majority of
their activities so far. In order to
optimize costs and deliver greater
efficiencies on all managed services,
Middle Eastern Corporate went through
an intermediary phase of shared
services with a central department. As
the supply chain sector has
professionalized along with the level of
maturity of the organizations, an
increasing number of new ventures
have spun off, meanwhile developing
the outsourcing service offerings.
Results
23.7% of respondents do not outsource
any of their activities. Amongst the
respondents, who outsource some of
their functions, there are:
28.9% outsource Logistics
function
18.4% work with contract
manufacturers
15.8% outsource Warehousing
services
Considering the enabling functions, IT
and R&D represent altogether slightly
more than 23%.
Analysis
Managing the supply chain has become
increasingly complex, especially
coupled with the specific challenges in
the Middle East: narrow local supply
base, regulated markets, level of
maturity of business partners, shortage
of qualifies manpower etc…which has
forced some companies to outsource
some of their non-core activities such as
logistics, warehousing or IT but as well
some of their very core activities
including R&D, manufacturing,
procurement and including the provision
of manpowerof . information and
financial flows along the Customers by
optimizing the physical, information and
financial flows along the Supply Chain
of manpower. One of the biggest
challenges in outsourcing is to be able
to understand and master the activity or
function that the company wants to
outsource. Especially, before handing
over its operations with potential related
unresolved issues. Else this will only
limit this initiative to outsource the
current issues the company is facing.
Innovative companies amongst the
respondents have embarked in a
journey, where they are accompanying
the service provider, as a partner, to
grow at the same pace, hand in hand.
28,9%
15,8%
18,4%13,2%
10,5%
23,7%
10,5%
Logistics
Warehousing
Manufacturing
R&D
IT
None - Inhouse
Other
17
© 2010 B2G Copyright - Middle East Series
#4: What is your supply-demand model?
Supply-demand model
Introduction
Competitive pressures on lead-times,
inventory level and costs have led many
organizations to review their production-
inventory-delivery practices. In their
quest for “zero-inventory” goal, World-
class companies have started to
determine the optimal conditions when
to hold a finished good inventory and
when it is not. Based on that, the
resulting configuration selected, i.e.
Make-To-Stock (MTS) / Make-To-Order
(MTS) / Make-to- Engineer (MTE), is
determinant of the performance of the
company‟s supply chain.
Results
The configuration of the supply chain
generally depends on the industry sector;
however the respondents‟ responses
give a good indication of the leading
supply chain model present at the
regional level, which helps to understand
the related supply chain challenges. The
large majority of respondents (55.3%)
indicates that their supply chain model is
a mix of Make-to-Stock and Make-to-
Order. For the other supply chain
configurations:
18.4% only have Make-to-Order
10.5% only have Make-to-Stock
13.2% have Make-to-Engineer
Analysis
Inventory carrying costs count for a
large portion of total costs in many
supply chains, so unsurprisingly
effective inventory management is one
of the most important issues that supply
chain managers are facing. Managers
have the difficult task to determine
which products should be made to
order, and which should be made to
stock in order to reduce the inventory
level while increasing (or maintaining)
the level of service. For made-to-stock
products, accurate demand forecasting
and proper inventory management
strategies must be determined to reduce
the level of inventory hold. For made-to-
order products, approaches for reducing
customer lead time must be developed.
The decision to use either a MTS or
MTO strategy depends strongly on the
business specificities and has a
significant impact on the supply chain
performance. Indeed, with 55.3% of
respondents using a combined
MTS/MTO strategy, it appears to be
much more effective than using either
strategy exclusively. For this reason,
most companies are employing a hybrid
MTO–MTS approach, holding inventory
in some cases, and producing to order
in other cases.
10,5%
18,4%
55,3%
13,2%
Make/Deliver-to-stock
Make/Deliver-to-order
Mixed of Make to stock /
Make to Order
Make-to-Engineer
Supply Chain maturity
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#5: Which technology is supporting your Supply Chain operations?
Technology supporting the Supply Chain operations
Supply Chain maturity
Introduction
The importance of information is often
overlooked as a critical competitive
resource. Indeed, its contribution to the
management of the supply chain is not
always very well understood. However,
the role of the information technology in
supply chain management is crucial to
achieve higher productivity,
responsiveness and lower costs. The
everlasting changing customers‟
expectations have greatly increased
along with the internet trend, and have
put on the spot the necessity of an
efficient information system to support
the end-to-end supply chain operations.
Results
The top 3 information systems used by
the respondents are:
(34.2%) Warehouse management
system (WMS)
(26.3%) Forecasting tool
(23.7%) Performance measurement
tool
Further to the growing interest in the
S&OP process, there are 21.1% of
respondents who are using related
tools.
Analysis
Traditionally, warehouse management
systems have been widely used to
monitor the warehouse operations and
transactions. Indeed, WMS counts for
34.2% of respondents‟ answer. On the
other hand, the lack of market visibility
in the Middle East coupled with a
versatile and hectic demand signal has
forced companies to improve their
demand planning with more accurate
forecasting tools. The market is
currently shifting from a supplier-push
model to a more customer- pull model
that
5,3%
10,5%
13,2%
13,2%
13,2%
18,4%
18,4%
21,1%
23,7%
26,3%
34,2%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Other
Capacity planning tool
Supplier management e-portal
e-invoicing
SRM application
Transportation management system
CRM application
S&OP tool
Performance measurement
Forecasting tool
Warehouse management system
that imposes a greater discipline in
anticipating and fulfilling the market
demand in a more cost-effective way. In
this regard, to measure and control the
effectiveness of their organization to
supply the demand, companies have
embarked on initiatives to improve both
the visibility of their internal performance
and that of their business partners. The
volume of information processed
requires the use of Business
Intelligence tools to segregate the most
relevant information to support key
business decisions.
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#6: How is your Supply Chain organization considered by top management?
Supply Chain organization perception by top management
Introduction
In today‟s business world, operations
and supply chain management are the
backbone of many companies. In this
regard, more CEOs are including supply
chain management in their strategic
agenda to differentiate themselves from
their competitors. This shift has helped
to see more supply chain executives at
the board table and has been
accompanied by a transformation of the
way the supply chain management was
perceived within the organization.
Results
The respondents‟ perception of the
supply chain is mainly demand driven-
customer centric (39.5%), collaborative
with end-to-end partners (21.1%) and
considered as a strategic department
(28.9%), but remains organized by
functions (23.7%) rather than by
processes (18.4%). Although for a
minority of companies (10.5%), the
supply chain is considered as a profit
generator, the majority still sees it as a
cost center (23.7%).
Analysis
With supply chains becoming more
dynamic and complex, organizations
have begun to understand the
significance of having a high level
supply chain executive influence their
business strategy. Indeed, an efficient
supply chain management, which is
aligned with business strategy,
becomes critical to remain competitive
and profitable. Competition is no longer
companies against companies but
supply chains versus supply chains.
This mindset shift has supported
organizations to reshape their supply
chain management in a more customer-
centric supply chain. However major
organizational changes, from a
functional model to a more process
oriented model, are still slow to occur in
the Middle East. Besides this, there is
an increasing trend to expand the
boundaries of the company‟s supply
chain to integrate more external
partners. As a matter of fact, each
member of the supply chain has an
impact on the performance of the
others, the overall supply chain and
ultimately the end customer.
7,9%
10,5%
18,4%
21,1%
23,7%
23,7%
28,9%
39,5%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Manufacturing driven - Internal focused
Considered as a Profit center
Process oriented (PLAN/SOURCE/MAKE/DELIVER/RETURN/ENABLE)
Collaborative with End-to-End partners (Suppliers / Customers)
Considered as a Cost center
Function oriented (LOGISTICS/PRODUCTION/PURCHASING…)
Strategic function (part of top management board)
Demand driven - Customer centric
Supply Chain maturity
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#7: What is the training frequency of the Supply Chain staff?
Training frequency of Supply Chain staff
28,0%
68,0%
4,0%
Never
Below 5 times a year
Between 5 to 10 times a year
Above 10 times a year
Supply Chain maturity
Introduction
Today, the global supply chain has
become more complex with more
integrated perspectives, linking
suppliers and customers. And one of the
most important drivers for success in
deploying and running an efficient
supply chain is People. The challenge
for supply chain executives, in the
Middle East, is to understand which
knowledge and skills are required, and
to define the appropriate training and
education for their existing staff. As the
scarcity of skilled supply chain
resources is exacerbated in the region,
training appears to be an adequate
solution more than anywhere else.
Results
The frequency of the staff training gives
a good indication of the importance of
education to the respondents‟
management:
68% of respondents provide
training to their supply chain staff
below 5 times a year
4% of respondents provide training
between 5 to 10 times a year
28% of respondents never provide
any training
Analysis
Education reform is on the top priority
list of the GCC governments, as the
need to develop best talents across the
region becomes urgent to tackling the
skills gaps, in a globalised economy. As
a recent discipline, Supply chain
management is lacking of universities
and private training centers to prepare a
highly skilled workforce for the future in
the Middle East. In this process, several
major initiatives in Education have been
launched to enter the era of Knowledge:
while in the UAE and Qatar private
institutions are booming, in Saudi Arabia
the focus is less on private universities,
but rather on improving the quality of
public universities such as KAUST.
Bahrain is making a point to differentiate
itself from Dubai and Qatar by offering
training in services to cater for various
sectors, including banking and
hospitals. However, Supply Chain
management has not found its place yet
in the academic programs and degrees
of GCC universities and private
institutions.
Supply Chain maturity
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© 2010 B2G Copyright - Middle East Series
“Good professionals
who can handle the
full supply chain cycle
are very hard to find”
Industry insights
Human Resources Management: Recruiting Supply Chain Experts
01 Company background
In few words, please describe your company
activity
“We are a recruiting agency which represents IESF in
Dubai. IESF (International Executive Search Federation) is
the largest retained executive search group in the world
identifying talent and leadership in 160 offices and 40
countries globally. We look for experts/specialists and talents
using direct search approach. We have successfully made
searches in all support functions (HR, Finance, Supply
Chain, Logistics, Procurement and Project ement
improve processes to increase quality, decrease costs and
optimize cycle times. Consequently, decision makers are not
able to improve the existing processes.
What attracts talents in the Middle
East? How difficult is it to retain
skilled resources?
“Some young talents look forward to getting
more exposure than they would have in a
mature market and to endorsing real
responsibilities. Besides, the packages
offered can be higher and tax free in some
countries of the Middle East. On the other
hand, retaining talent is extremely difficult
because of high inflation rates which have to
be reflected in salary increases. In addition,
recognition is very important to employees so
that management should be able to offer
training & development, career growth,
promotions, incentives on target reached…”
makers are not able to improve the existing processes.
Moreover, logistics companies are not using latest
technologies and thus, need more manpower to compensate
this lack of technology.
What attracts talents in the Middle East? How
difficult is it to retain skilled resources?
“Some young talents look forward to getting more
exposure than they would have in a mature market and to
endorsing real responsibilities. Besides this, the packages
What levels are the most lacking in the Middle East?
“Senior Levels and Middle Management are not strong
enough to ensure that the strategies and tactics decided by
the Board/Executives are efficiently implemented.”
How do the nationalization programs affect local
companies?
“It should be a two-way street; instead of focusing on these
programs, companies should make a real selection of
candidates and hire only motivated ones. Newly hired
employees should be provided with detailed job descriptions
and expected targets. It can take some time so it is better to
start early during training and internships. New employees
should gain more confidence in themselves and be helped
by a mentor.”
Management) and in the following industries:
IT/Telecom, Logistics, Engineering,
Manufacturing, Construction, Large Retailers
and FMCG for UAE, Qatar and Saudi Arabia.”
02 Manpower landscape
in the Middle East
How is the Middle East manpower
landscape?
“Good professionals who can handle full or
part supply chain cycle are very hard to find for
two main reasons. First, universities in the
region are not focusing enough on Logistics-
Supply Chain despite the huge needs of skilled
manpower in this sector. Moreover, we can find
a lot of good operational people but they
cannot think out of the box, improve processes
to increase quality, decrease costs and
optimize cycle times. Consequently, decision
makers are not able to improve the existing
processes.
“Good professionals who can handle full or part supply
chain cycle are very hard to find for two main reasons.
First, universities in the region are not focusing enough on
Logistics-Supply Chain despite the huge needs of skilled
manpower in this sector. Moreover, we can find a lot of
good operational people but they cannot think out of the
box, improve processes to increase quality, to decrease
costs and optimize cycle times. Consequently, decision
What attracts talents in the
Middle East? How difficult is it to
retain skilled resources?
offered can be higher and tax
free in some countries of the
Middle East. On the other
hand, retaining talent is
extremely difficult because of
high inflation rates which have
to be reflected in salary
training & development, career
growth, promotions, incentives
on target reached…”
What levels are the most
lacking in the Middle East?
“Senior Levels and Middle
Management are not strong
enough to ensure that the
strategies and tactics decided
by the Board/Executives are
efficiently implemented.”
How do the nationalization
programs affect local
increases. In addition, recognition is very important to
employees so that management should be able to offer
training & development, career growth, promotions,
incentives on target reached…”
Which levels are the most lacking in the Middle
East?
“Senior Levels and Middle Management are not strong
enough to ensure that the strategies and tactics decided by
the Board/Executives are efficiently implemented.”
“It should be a two-way street; instead of focusing on
these programs, companies should make a real selection of
candidates and hire only motivated ones. Newly hired
employees should be provided with detailed job descriptions
23
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Zoran Marinkovic Partner - HR Solutions
BM Management Consultancies – I.E.S.F.
How is the educational system in supply chain?
“Instead of focusing on proposing Business Administration
degrees, universities should offer Logistics and Supply chain
programs. Internships and trainings are not very developed
in the Middle East whereas they would give a professional
exposure and experience to students. Students would be
able to work with specialists and experts in supply chain and
logistics as well as discover the various functions of this
industry.”
How do you foresee the future of supply chain
manpower landscape in the Middle East?
“With the increase of regional competition and because
supply chain and logistics are critical in order to be able to
deliver the right quantity and quality of products on time and
at the right cost, we need professionals who can challenge
the existing procedures and who are familiar with the latest
technologies. Companies should understand that they need
to spend time to draw-up an outstanding Supply Chain cycle
which can be implemented in a mid-term view.”
How do nationalization programs affect local
companies?
“It should be a two-way street; instead of focusing on these
programs, companies should make a real selection of
candidates and hire only motivated ones. Newly hired
employees should be provided with detailed job descriptions
and expected targets. It can take some time so it is better to
start early during training and internships. New employees
should gain more confidence in them- selves
selves and be helped by a mentor.”
03 Recruiting Supply Chain
specialists
Are Supply chain professionals
more demanded compared to other
areas? What is the trend?
“The world credit crunch has made people realize that they
should focus on their core business and expertise. This is
the case in Dubai where professionals were less demanded
in Supply Chain than in the real estate or in the banking
industry. However, the trend will see a huge demand in
Supply Chain with new ports coming up like renewed Zayed
Port & Khalifa Port in Abu Dhabi, Kuwaiti port near the
border with Iraq, Saudi‟s Red Sea Gateway Terminal
extension, the Port of Salalah, extensions of several ports in
Dubai…”
Which positions in supply chain
are the most sought?
(Procurement, sourcing, planning,
warehousing, distribution,
“Instead of focusing on
Business Administration
degrees, universities
should propose Logistics
and Supply chain
programs”
areas? What is the trend?
“The world credit crunch has made
people realize that they should focus on
their core business and expertise. This
is the case in Dubai where professionals
were less demanded in Supply Chain
than in the real estate or in the banking
industry. However, the trend will see a
huge demand in Supply Chain with new
ports coming up like renewed Zayed
Port & Khalifa Port in Abu Dhabi,
Kuwaiti port near the border with Iraq,
Saudi‟s Red Sea Gateway Terminal
extension, the Port of Salalah,
extensions of several ports in Dubai…”
is the case in Dubai where professionals were less
demanded in Supply Chain than in the real estate or in the
banking industry. However, the trend will see a huge
demand in Supply Chain with new ports coming up like
renewed Zayed Port & Khalifa Port in Abu Dhabi, Kuwaiti
port near the border with Iraq, Saudi‟s Red Sea Gateway
Terminal extension, the Port of Salalah, extensions of
several ports in Dubai…”
Which positions in supply chain
are the most sought?
(Procurement, sourcing,
industry.”
How do you foresee the
future of supply chain
manpower landscape in
the Middle East?
“With the increase of regional
competition and because
supply chain and logistics are
critical in order to be able to
deliver the right quantity and
quality of products on time
and at the right cost, we need
professionals who can
challenge the existing
procedures and who are
familiar with the latest
technologies. Companies
should understand that they
need to spend time to draw-up
an outstanding Supply Chain
cycle which can be
implemented in a mid-term
quality of products on time and at the right cost, we need
professionals who can challenge the existing procedures and
who are familiar with the latest technologies. Companies
should understand that they need to spend time to draw-up
an outstanding Supply Chain cycle which can be
implemented in a mid-term view.”
Industry Insights
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05
Supply Chain performance metrics
#1: Perfect Order fulfillment
Perfect order fulfillment (%)
Introduction
The Perfect Order Fulfillment represents
the percentage of orders that are on
time, in full, with complete and accurate
documentation and no shipping
damage. This customer-facing metric is
crucial as it measures the performance
of the organization, as perceived by the
Customer. Needless to say that this
metric directly impacts the company‟s
top line and affects the relationship with
its Customer. Although the precise
quantification of its contribution to the
revenue growth is relatively challenging,
the benefits are confirmedly substantial.
Results
The respondents were asked to indicate
the level of their perfect order fulfillment:
35.5% of respondents indicate that
their perfect order fulfillment
reaches 95% and above.
16.1% of respondents have a
perfect fulfillment comprised
between 90-95%
22.6% of respondents say that their
perfect order fulfillment ranges
between 80-90%
9.7% of respondents do not
measure this metric.
Analysis
Achieving high „perfect order fulfillment‟
levels demands more than just
computing data from software.
Companies must configure their supply
chain processes from end-to-end to
deliver the highest possible
performance. It involves much more
than the logistics aspect of delivering a
customer. It includes putting in place
accurate forecasting process and tools,
building information systems that
connect suppliers, customers and
internal departments, or developing
strong
relationship that enhances collaboration
and speeds up transaction between
supply chain partners. Companies that
boast some of the highest Perfect Order
rates carry less inventory, experience
shorter cash-to-cash cycle time, and
have significantly less stock-outs when
compared to their competitors. AMR
Research says the pay-off for
companies with high rates of "perfect
orders" can be substantial. A 3 percent
improvement in perfect order fulfillment
translates to a 1 percent increase in
profits, AMR says.
3,2%
12,9%
22,6%
16,1%
35,5%
9,7%
50-60%
60-80%
80-90%
90-95%
95-100%
Not measured
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Supply Chain performance
#2: Delivery performance (line item delivery to first commit)
Delivery performance (%)
Introduction
The „Delivery performance‟ or „On-time
delivery‟ is one of the key components
of the perfect order fulfillment. On-time
delivery is measured as percent
achievement within a window of time
that brackets the customer-requested
date/time and/or the business'
committed date/time. While price has
always been a key element in the
purchasing decision, a constant and
timely delivery is becoming increasingly
important due to the market‟s pressure
for speed and product instant availability
Results
The survey results indicate that:
32.3% of respondents outperform
above 95% of On-time delivery
22.6% of respondents deliver with a
performance between 90-95%
29% of respondents reach an
average on-time delivery between
80-90%
16.2% of respondents are lagging
with a delivery performance below
80%
Analysis
The first step in improving on-time
delivery is defining what it is. This is
generally a major challenge. Each
customer may have his own definition of
„on time‟. Companies will need to
develop an operational definition for on-
time delivery that is aligned with their
business partners. Once done, it is
important to understand that improving
on-time delivery is mainly a matter of
issues concerning time and
expectations. Indeed, the expectations
must be well understood by both parties
in order to avoid unnecessary
pressures. On the process side,
Forecasting, demand planning and the
supply chain configuration play a major
role in the performance of the on-time
delivery. So to address the issue, supply
chain managers must examine carefully
their demand processes to identify and
measure those that are contributing in
the desired on-time outcome. From this
analysis, managers will be able to tackle
counter performance related to process
lead times, capacity bottlenecks,
process quality and etc… in the quest of
the 100% on-time delivery.
6,5%
9,7%
29,0%
22,6%
32,3%
50-60%
60-80%
80-90%
90-95%
95-100%
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#5: Total Supply Chain management cost
Supply Chain performance metrics
Total Supply Chain management cost (% revenue)
Introduction
The Total Supply Chain Management
Cost measures the fixed and
operational costs associated with the
Plan, Source, Make, Deliver and Return
supply chain processes. Concretely, the
supply chain costs take into account
order management (Deliver), material
acquisition (Source), inventory carrying
(Indirect Plan), planning/finance (Plan),
returns management (Return) and
information technology costs (Indirect
Enable). In a context of severe cost
competition, it is important to know the
total supply chain cost to be able to
reduce the total cost of acquisition on
any item.
Results
The respondents indicate that their total
supply chain management cost counts
between:
15 to 25% of their operational
revenue for 19.1% of respondents
10 to 15% of their revenue for
46.8% of respondents
5 to 10% for 23.4% of respondents
Under 5% of their revenue for 4.3%
of the respondents
Analysis
The total supply chain management cost
can vary significantly between industry
sectors however the differences between
best-in-class companies smooth over
regardless the industry sector. Median
companies have a supply management
cost which generally spans from 10%-
15%, and best-in-class companies
achieve cost performance under 6%.
This metric is still very difficult to track as
it involves many processes, however the
Supply Chain Council‟s SCOR model
(Supply-Chain Operations Reference)
model) the Customers by optimizing the
physical, Customers by optimizing the
physical,
provides a standard definition that helps
to align the way this metric is calculated.
"It is estimated that reducing the supply
chain cost by 1 percent can be the
equivalent of increasing revenues from
4 to 12 percent" says Scott Stevens,
CTO for the council. To reduce the
supply chain costs, managers should
focus on non-value added time and
costs in the supply chain including
excess inventory, communication
inefficiencies, long cycle times and
discoordination of efforts.
4.3%
10.6%
12.8%
19.1%
14.9%
12.8%
8.5%
10.6%
6.4%
0% 5% 10% 15% 20% 25%
<5%
5%-7%
8%-9%
10%-11%
12%-13%
14%-15%
16%-17%
18%-25%
>25%
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#6: Cash-to-cash cycle time
Cash-to-cash cycle time (days)
Introduction
Often called cash conversion cycle, this
metric represents the time it takes for a
dollar to flow back into a company after
it has been spent on raw materials. It is
one of the major metrics to determine
how well a company is managing the
working capital flow from suppliers
(accounts payable) to customers
(accounts receivable) through the
capital tied up in the company
(inventories). It consists of days of sales
outstanding, days of payables
outstanding and inventory days of
supply.
Results
The respondents were asked to indicate
their performance related to the cash-to-
cash cycle time (C2C). Companies which
are notable for their superior performance
in managing their working capital, have a
cash-to-cash cycle time that is 2 times
shorter than the median and 3.5 times
shorter than the laggard.
30% of respondents have a C2C
below 30 days
35% of respondents have a C2C
between 30 and 90 days
35% of respondents have a C2C
above 90 days
Analysis
The Financial supply chain is taking
more importance in CFO and Supply
chain top executives‟ agenda, as it
offers significant potential to generate
bottom line improvement and create
competitive advantage. The Financial
Supply Chain refers to the end-to-end
trade processes and information that
drive a company‟s cash, accounts, and
working capital. An optimized
management of the Financial Supply
Chain allows reducing the amount of
cash corporations need to hold. And the
cash-to-cash cycle time represents one
of its key performance indicators. The
shorter the cash-to-cash cycle, the less
the company needs working capital,
however depending on the industry
sector some significant differences
exist: sectors like Retail, Hospitality and
Telecommunication show negative cycle
times whereas sectors such as
Agriculture, Mining & Metals, Industrial
products or Chemicals have a cash-to-
cash cycle time that is superior to 130
days. It is important for a company to
shorten its C2C cycle time as much as
possible, but also to balance its Days of
Sales Outstanding (DSO) and its Days
of Payables Outstanding (DPO) to
optimize its operational performance.
Supply Chain performance
30%
15%
20%
35%
0
0
0
0
0
0
0
0
0
<30 Days 30-60 Days 60-90 Days >90 Days
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#7: Inventory days of supply (DIO)
Supply Chain performance metrics
Inventory days of supply (DIO)
Introduction
Inventory is the backbone of the war in
supply chain management. Raw
materials, goods in process and finished
goods all represent various forms of
inventory. Each type represents money
tied up until the inventory leaves the
company as purchased products. This
inventory represents a large portion of
the business investment and needs to
be well managed to maximize profits.
One of the most important challenges of
inventory control is to have the items in
stock at the moment they are needed
while optimizing the cost of carrying this
inventory.
Results
Days inventory outstanding (DIO), is
also defined as days sales of inventory.
The respondents were asked to indicate
how many days on average their
company turns its inventory into sales:
10% of respondents have a DIO
below 30 days
60% of respondents have a DIO
between 30 and 120 days
30% of respondents have a DIO
above 120 days
Analysis
Successful inventory management
involves balancing the costs of
inventory with the benefits it provides.
A poor management of inventory can
result in a significant expense that can
affect profitability. Many executives
fail to appreciate fully the true costs of
carrying inventory, which include not
only direct costs of storage, insurance
and taxes, but also the cost of money
tied up in inventory. Value of DIO
varies from industry and company.
But in general, a lower DIO is better;
especially when the company is able
to meet its customer expectations.
With improved visibility into supply
and demand, supply chain managers
can make critical decisions about
how and where to reduce inventory
and still maintain the highest level of
customer service. Regardless the
nature of the business, the main
challenge lies in the capability of any
organization to forecast accurately
the demand and plan accordingly the
supply including inventories.
10%
25%
35%
30%
0
0
0
0
0
0
0
0
0
<30 Days 30-60 Days 60-120 Days >120 Days
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#8: Days of payable outstanding (DPO)
Days of payable outstanding (DPO)
Introduction
The Accounts payable (A/P) are
becoming a key component in the
optimization of the working capital, but a
lack of maturity (technological, process,
organization) in this discipline is slowing
down its evolution. One of the key A/P
indicators is the days of payables
outstanding (DPO) which are a measure
of the company‟s average payable
period. Despite the general belief, a
longer DPO can negatively affect the
suppliers and indirectly impact the
company on the long term.
Results
The respondents were asked to indicate
how many days on average their
company pays their suppliers‟ invoices:
55% of respondents have a DPO at
30 days or below
40% of respondents have a DPO
between 30 and 90 days
5% of respondents have a DPO
above 90 days
Analysis
The downturn in the economy and the
global financial credit crisis have
produced tremendous pressures on
cash reserves. Although the Middle East
region has been less impacted,
overseas suppliers have strengthened
the management of their credit affecting
the cash flow of companies, which used
to stretch payables period. Recently,
this metric has been less in control of
the company but rather defined by the
suppliers‟ payment terms. However, the
DPO has still its importance in the
management of the supply chain as it
directly affects the financial capability of
the company‟s supplier which can limit
its growth and operational capability. As
the supplier plays a major role in the
company‟s flexibility, responsiveness
and costs, the company may bear the
substantial consequences of a
mismanagement of the A/P (operational
and financial). A win-win situation can
be established between the company
and its supplier, for example shorter
payment terms can be negotiated
against better service level or higher
discounts on material purchase.
Supply Chain performance
55%
25%
15%
5%
0
0
0
0
0
1
1
=<30 Days 30-60 Days 60-90 Days >90 Days
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© 2010 B2G Copyright - Middle East Series
#9: Days of sales outstanding (DSO)
Supply Chain performance metrics
Days of sales outstanding (DSO) Introduction
The Accounts Receivable (A/R) is one
of the most critical factors in the
optimization of working capital. Due to
the high importance of cash involved in
running a business, it is in a company's
best interest to collect outstanding
receivables as quickly as possible. To
measure the average number of days
that a company takes to collect revenue
after a sale has been made, the
following indicator is commonly used:
Days of Sales Outstanding (DSO). By
quickly turning sales into cash, the
company is more likely to reinvest faster
and to support its growth.
Results
The respondents indicate how many
days on average their company is able
to collect the cash from their customers:
30% of respondents have a DSO at
30 days or below
65% of respondents have a DSO
between 30 and 90 days
5% of respondents have a DSO
above 90 days
Analysis
Amongst the different opportunities,
Accounts receivable is preferably used
by most companies to improve
positively the cash flow. The sooner the
company can collect cash from its
customers, the better it can re-invest
the money where it is needed. In
addition, it is important to note that the
timely collection of receivables helps to
predict more accurately the cash
requirements and limits the financial
risk. Best-in-class companies are able
to collect receivables twice as faster as
median companies, and forecast with
40% greater accuracy than median
companies. To improve the DSO,
companies should streamline and
automate the cash collection processes.
An automated process will fasten the
cash collection (ex: access to SWIFT)
and improve the invoicing accuracy. It is
highly recommended to manage the
DSO in a more integrated way through a
formal Order-to-Cash (OTC) process,
where the entire process from the
customer order to the cash collection is
completely managed and controlled.
Supply Chain performance
30%
35%
30%
5%
0
0
0
0
0
0
0
0
0
=<30 Days 30-60 Days 60-90 Days >90 Days
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© 2010 B2G Copyright - Middle East Series
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© 2010 B2G Copyright - Middle East Series
Industry insights
3PL outsourcing in the Petrochemical Industry
01 Company background
“Petro Rabigh was originally a refinery with a capacity of
400,000 bbls/day which belonged to Saudi Aramco. When
Saudi Aramco decided to enter the Petrochemical market, it
was decided to create a new venture with Sumitomo which
was called Petro Rabigh. The company is located in Rabigh,
165 kilometers north of Jeddah on the Red Sea coast. It is
now producing a wide range of polymers, monomers and
refined products.”
Which challenges forced PetroRabigh to
come to the decision of
outsourcing the logistics
department?
“PetroRabigh was seeking to be world-class
organized. Its motto was to become globally
recognized and locally committed. In this
regards, we decided to build a world-class
logistics function within the organization. To
do that, we had to face the reality about the
fact that logistics was considerably lagging in
the country compared to the West.
Consequently, Petro Rabigh decided to
outsource its complete inbound logistics
activity for its MRO and chemicals supply.
The company was therefore seeking to
develop a high-quality strategic partnership
with a Logistics Services Provider that could:
The company was therefore seeking to develop a high-
quality strategic partnership with a Logistics Services
Provider that could:
Provide a global logistics services offer (Freight
forwarding, warehousing, distribution, reverse
logistics)
Demonstrate the required experience and capability
to manage Petro Rabigh‟s logistics operations
Support Petro Rabigh to moving forward, during the
transition phase, from Project to operations mode”
Was this decision a premier in KSA? In the
Petrochemical industry? And in which
perspectives? Perspectives?
“This decision was a premier in the Petrochemical sector and
in the region. The initiative covers the logistics outsourcing
by a 3PL of PetroRabigh‟s MRO business including, Door to
door Freight forwarding, Warehousing management,
Delivery to Internal end users including collection of end-
user‟s returned materials and internal stock transfer,
Reverse Logistics (End-users returns & Return to Vendor).
We were conscious that being the first company to do that
could have posed some risks, but we felt that logistics, which
is an emerging industry in the region, needed to be
supported by a leading organization. As a major company,
our role is to develop the local industry and especially to
support the logistics sector which is strategic in KSA. We
took the risk albeit in a calculated way and it pays off.”
UAE, Qatar and Saudi Arabia.”
02 Manpower landscape in the Middle East
How is the Middle East manpower landscape?
Specifically in supply chain management
“PetroRabigh was seeking to be
world-class organized. Its motto was to
become globally recognized and locally
committed. In this regards, we decided
to build a world-class logistics function
within the organization. To do that, we
had to face the reality about the fact that
logistics was considerably lagging in the
country compared to the West.
Consequently, Petro Rabigh decided to
outsource its complete inbound logistics
activity for its MRO and chemicals
supply.
The company was therefore seeking to
develop a high-quality strategic
partnership with a Logistics Services
Provider that could:
committed. In this regard, we decided to build a world-class
logistics function within the organization. To do that, we had
to face the reality about the fact that logistics was
considerably lagging in the country compared to the West.
Consequently, Petro Rabigh decided to outsource its
complete inbound logistics activity for its MRO and
chemicals supply.
The company was therefore seeking to develop a high-
quality strategic partnership with a Logistics Services
Provider that could:
Provide a global logistics services offer (Freight forwarding, warehousing, distribution, reverse logistics)
Demonstrate the required experience and capability to manage Petro Rabigh‟s
Which challenges forced PetroRabigh to come to
the decision of outsourcing the logistics
department?
“PetroRabigh was seeking to be world-class
organized. Its motto was to become globally
recognized and locally committed. In this
regards, we decided to build a world-class
logistics function within the organization. To
do that, we had to face the reality about the
fact that logistics was considerably lagging in
the country compared to the West.
Consequently, Petro Rabigh decided to
outsource its complete inbound logistics
activity for its MRO and chemicals supply.
The company was therefore seeking to
develop a high-quality strategic partnership
with a Logistics Services Provider that could:
Provide a global logistics services offer (Freight
the decision of outsourcing the
logistics department?
“PetroRabigh was seeking to
be world-class organized. Its
motto was to become globally
recognized and locally
committed. In this regards, we
decided to build a world-class
logistics function within the
organization. To do that, we
had to face the reality about
the fact that logistics was
considerably lagging in the
country compared to the
West. Consequently, Petro
Rabigh decided to outsource
its complete inbound logistics
activity for its MRO and
chemicals supply.
“This decision was a premier in
the Petrochemical sector and in the
region. The initiative covers the
logistics outsourcing by a 3PL of
PetroRabigh‟s MRO business
including, Door to door Freight
forwarding, Warehousing
management, Delivery to Internal
end users including collection of
end-user‟s returned materials and
internal stock transfer, Reverse
Logistics (End-users returns &
Return to Vendor). We were
conscious that being the first
company to do that could have
posed some risks, but we felt that
logistics, which is an emerging
industry in the region, needed to be
Including Door to door Freight forwarding, Warehousing
management, Delivery to Internal end users including
collection of end-user‟s returned materials and internal stock
transfer, Reverse Logistics (End-users returns & Return to
Vendor). We were conscious that being the first company to
do that could have posed some risks, but we felt that
logistics, which is an emerging industry in the region, needed
to be supported by a leading organization. As a major
operations
Support Petro Rabigh to moving forward, during the transition phase, from Project to operations mode”
Was this decision a premier in KSA? In the
“We were seeking
to be world-class
organized”
33
© 2010 B2G Copyright - Middle East Series
meet our requirements. After the bid award of the LSPs, we
entered in a second phase of the project, where the selected
logistics provider was being integrated into Petro Rabigh‟s
structure. Then, the third phase aimed at supporting the
newly implemented logistics operations during the critical
ramp up period.”
How long did the project last?
“The selection of the Logistics Service Provider lasted 3
months whereas the implementation phase took more than 6
months. The ramp up phase lasted 6 months.”
03 Results
“After the integration of the 3PL in our organization, we
managed to put in place efficient processes that enable the
logistics operations to be more responsive to urgency,
especially when a part is needed on a short notice period.
On the other hand, the tangible result was a significant
improvement of the on-time delivery from both side, on the
suppliers side and to the customers side too. However, we
are still facing some issues of low performance from some
suppliers which affect our own 3PL performance, so for the
next steps, we intend to implement a supplier performance
program to support our suppliers to improve their delivery
and reliability performance. Through more awareness and
stronger incentives with a rewarding system, we expect to
see a significant improvement in our suppliers‟ performance
levels.”
company, our role is to develop the local industry and
especially to support the logistics sector which is strategic in
KSA. We took the risk albeit in a calculated way and it pays
off.”
02 Approach
What were the project objectives and expected
outcomes?
“The main objective was to reduce the total cost of
ownership, but besides financial considerations, we needed
to have the right expertise to conduct this critical work.
Indeed, the plant has to function 24h a day, 7 days a week
and the cost of an equipment breakdown can be substantial.
So the timely supply of the right parts becomes a critical key
to guarantee a seamless operation of the plant. Finally, our
objective was to expand the level of know how in logistics
both, for us internally by bringing a logistics expert within our
organization, and as well, by helping a 3PL to gain maturity
in outsourcing and to acquire specific knowledge in the
MRO-Petrochemical business.”
Which strategy was selected?
“The project started with the selection of the Logistics
Service Providers (LSPs). We conducted both a technical
and a commercial evaluation to assess the capabilities of the
LSPs to
“PetroRabigh was seeking to be world-class
organized. Its motto was to become globally
Industry insights
“We were conscious that being the first company to do that
could have posed some risks […] We took the risk albeit in a
calculated way and it pays off”
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© 2010 B2G Copyright - Middle East Series
Abdullah Al Saif
Materials Supply Manager
Petrorabigh
Industry insights
stronger incentives with a rewarding system, we expect to
see significant improvements in our suppliers‟ performance
levels.
04 Key lessons learned
How challenging was the integration of a 3PL
within Petro Rabigh’s organization? Is a bold
leadership enough to conduct such major change
in an organization?
“At the beginning, we had to face strong resistance to
change, to delegate key activities to an external company,
and with time, we have built trust and we can now work in
total transparency with our 3PL partner. The other main
challenge was to develop a cost-consciousness mindset, as
1% of cost reduction equals to 5% of sales increase. So we
had to educate our people to be more cost-focused in their
management of the operations.”
What would you recommend to companies which
are looking to outsource their logistics services?
Key success factors, pitfalls to avoid?
“We have experienced the outsourcing concept at Petro
Rabigh, and the results are more than convincing. I can only
recommend to other companies to focus on their core
business and outsource their non-core activities as long as
they find the right partner. For us the critical
path, besides the change management, had
been the quality of the information: we faced
quality issues from our different systems
“We have experienced the outsourcing concept at Petro
Rabigh, and the results are more than convincing. I can only
recommend to other companies to focus on their core
business and to outsource their non-core activities as long
as they find the right partner. For us, the critical path,
besides the change management, had been the quality of
the information: we faced quality issues from our different
systems which had impacted the performance of the 3PL.
The integration of our suppliers, 3PL and our company was
very challenging with a lack of data integrity. We could not
compare apples with oranges. The quality of data is really
critical amongst the supply chain partners to secure the
integrity of the end-to-end information flow.”Conclusion
“It is high time to capitalize on our experience amongst the
supply chain professionals, in the Petrochemical sector, and
to start sharing the outcomes of such initiatives. The model
has been tried successfully as a pilot at Petro Rabigh and
can be easily duplicated. We need to work as a group
towards the goal of helping each other to overcome our
challenges. The kingdom of Saudi Arabia is located at the
strategic place and will have to fully play its role of logistics
hub between the East and the West, and each of us have to
lift the level of expertise and know how to make it happen.”
improve their delivery and reliability performance. Through
more awareness and stronger incentives with a rewarding
system, we expect to see a significant improvement in our
suppliers‟ performance levels.”
especially to support the logistics sector which is strategic in
KSA. We took the risk albeit in a calculated way and it pays
““It is high time to
capitalize on our
experience amongst
the supply chain
professionals”
“At the beginning, we had to face
strong resistance to change, to delegate
key activities to an external company,
and with time, we have built trust and
we can now work in total transparency
with our 3PL partner. The other main
challenge was to develop a cost-
consciousness mindset, as 1% of cost
reduction equals to 5% of sales
increase. So we had to educate our
management of the operations.”
What would you recommend to
companies which are looking to
outsource their logistics
services? Key success factors,
pitfalls to avoid?
“We have experienced the outsourcing
concept at Petro Rabigh, and the results
are more than convincing. I can only
people to be more cost focused in the management of their
operations.”
What would you recommend to companies which
are willing to outsource their logistics services?
Key success factors, pitfalls to avoid?
What would you recommend to companies which
are looking to outsource their logistics services?
Key success factors, pitfalls to avoid?
critical amongst the supply chain partners
to secure the integrity of the end-to-end
information flow.
To conclude, it is high time to capitalize
on our experience amongst the supply
chain professionals in the Petrochemical
sector, and to start sharing the outcomes
of such initiatives. The model has been
tried successfully as a pilot at Petro
group towards the goal of helping each
other to overcome our challenges. The
kingdom of Saudi Arabia is located at the
strategic place and will have to fully play
its role of logistics hub between the East
and the West, and each of us have to lift
the level of expertise and know how to
make it happen.”
improve their delivery and reliability
performance. Through more awareness
Rabigh and can be easily duplicated. We need to work as a
group towards the goal of helping each other to overcome
our challenges. The kingdom of Saudi Arabia is located at a
strategic place and will have to fully play its role of logistics
hub between the East and the West, so each of us has to lift
the level of expertise and know how to make it happen.”
improve their delivery and reliability performance. Through
more awareness and stronger incentives with a rewarding
system, we expect to see a significant improvement in our
suppliers‟ performance levels.”
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© 2010 B2G Copyright - Middle East Series
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© 2010 B2G Copyright - Middle East Series
06 #1: Top Supply Chain concerns your organization is currently facing?
Top Supply Chain concerns
Supply Chain challenges
Introduction
The supply chain has become
increasingly complex and the volatile
economy has significantly contributed to
bringing in the supply chain landscape
more challenges. Economists and
experts are in agreement that a
recovery is under way and will persist
above 2011; however Supply chain
managers will still have to face greater
difficulties in managing their supply
chain during the upturn, especially those
who drastically downsized their supply
chain capabilities without preparing the
return of the growth.
Results
The top five challenges enumerated by
the respondents are:
Improving demand forecasting
(73.7%)
Reducing and optimizing inventory
levels (63.2%)
Reducing delivery leadtimes
(57.9%)
Improving suppliers performance
(42.1%)
Reducing logistics costs (41%)
Analysis
With a volatile economy, the demand
has been fluctuating much more than
usual which has made the forecast of
the demand more challenging and
less accurate. Unsurprisingly,
improving the demand forecasting
appears on top of the other supply
chain challenges, followed by the
inventory optimization. As demand is
less predictable, the planning of the
resources and in particular inventory
becomes more difficult. This generally
leads to inadequate inventory levels.
Due to limited resources, the delivery
leadtimes have been abnormally
stretched and have become less and
less reliable, both on the customers and
suppliers‟ sides. The recurrent issue is
not new in the Middle East, on the
suppliers‟ side but the phenomenon has
been dramatically emphasized during
the downturn, with a greater lack of
visibility on the demand and supply sides
for the suppliers. This has resulted into
degraded service levels and higher
logistics costs.
10.5%
13.2%
15.8%
19.4%
21.1%
22.5%
23.7%
26.3%
34.2%
39.5%
41.0%
42.1%
57.9%
63.2%
73.7%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Other
Improve asset utilization rate
Reduce manufacturing costs
Reduce time to introduce new product
Increase delivery reliability
Fasten operations with supporting technology
Increase warehousing capacity
Increase inventory turnover
Improve distribution network
Develop collaboration within the supply chain partners
Reduce logistics costs
Improve supplier performance
Reduce delivery leadtimes
Reduce and optimize inventory levels
Improve demand forecasting
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© 2010 B2G Copyright - Middle East Series
Supply Chain challenges
#2: How difficult is the recruitment of Supply Chain professionals?
Difficulty to recruit Most searched positions
84,0%
12,0%
4,0%
relatively difficult
normal
relatively easy
Introduction
Today‟s supply chains face a severe
global shortage of talent and skills
whereas the demand in the profession
has never been greater. Even though
this shortage is more accentuated in the
Middle East, the trend is really global
and affects every market, regardless its
level of maturity or geographical
localization. The recruitment and
retention of the skilled people who have
to manage companies‟ supply chains is
becoming the next biggest challenge of
the century.
Results
The respondents were asked to cite the
profiles the most searched and to
indicate the level of difficulty in recruiting
supply chain professionals:
84% of respondents find the recruitment
of supply chain professionals relatively
difficult, especially at the middle
management level (59.5%) like
Materials Management Manager, but
also for more technical positions such
as forecaster. 13.5% of respondents are
facing difficulties to recruit top managers
at the position of supply chain directors.
Analysis
People are generally wrongly placed at
the last position after technology and
processes. Basically, Operations are
run by people and the productivity is
directly linked to the performance of the
operators. Even best practices cannot
be effective if the staff is not able to run
them properly. In addition to that, as
supply chain has become more
complex, it has emerged a new breed of
supply chain professionals with a new
set of required skills. To be able to
manage a global and complex supply
chain in a highly dynamic environment,
professionals need to have both “hard”
analytical skills and “soft” leadership
skills. In Today‟s context, the supply
chain professional must be able to
integrate the big picture in his supply
chain strategy which includes finance,
sales and marketing. He also needs to
extend his perimeter across the supply
chain partners, from the suppliers to the
end customers. The strategic position of
this discipline, has forced managers and
directors to develop an effective vertical
communication towards the top
management which considers more and
more the supply chain as a key
competitive differentiator.
13,5%
59,5%
27,0%
Senior positions (VP Supply chain, CSCO,Supply chain
director…)
Middle management positions (Logistics manager, supply chain
manager, Warehouse manager, etc…)
Technical experts (forecasting, supply chain analyst etc…)
13,5%
59,5%
27,0%
Senior positions (VP Supply chain, CSCO,Supply chain
director…)
Middle management positions (Logistics manager, supply chain
manager, Warehouse manager, etc…)
Technical experts (forecasting, supply chain analyst etc…)
13,5%
59,5%
27,0%
Senior positions (VP Supply chain, CSCO,Supply chain
director…)
Middle management positions (Logistics manager, supply chain
manager, Warehouse manager, etc…)
Technical experts (forecasting, supply chain analyst etc…)
13,5%
59,5%
27,0%
Senior positions (VP Supply chain, CSCO,Supply chain
director…)
Middle management positions (Logistics manager, supply chain
manager, Warehouse manager, etc…)
Technical experts (forecasting, supply chain analyst etc…)
13,5%
59,5%
27,0%
Senior positions (VP Supply chain, CSCO,Supply chain
director…)
Middle management positions (Logistics manager, supply chain
manager, Warehouse manager, etc…)
Technical experts (forecasting, supply chain analyst etc…)
84,0%
12,0%
4,0%
relatively difficult
normal
relatively easy
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© 2010 B2G Copyright - Middle East Series
#3: What are the next initiatives you are planning to implement?
Next initiatives planned to be implemented within the next 12 months
Supply Chain challenges
Introduction
Against conventional wisdom, it is even
more critical for companies to invest
time, effort and money in improvement
projects during downturn period.
Investing money on projects is often
disputable and difficult to defend without
a solid business case, however the pay
offs have proved to be substantial. It is
often the only way to get ahead of the
competition. To address their
challenges, the interviewed companies
have presented the course of mid-term
actions that they are planning to take.
Results
The top 5 initiatives that the
respondents are planning to implement,
within the next 12 months, correspond
to the major challenges cited previously:
Improving demand forecasting
(42.1%)
Reducing logistics costs (36.8%)
Reducing delivery lead-times
(34.2%)
Reducing and optimizing inventory
levels (31.6%)
Improving suppliers performance
(21.1%)
Analysis
Respondents have clearly identified the
weakest point yet most critical in their
supply chain: their ability to forecast
accurately the demand. Buying too
much inventory can be costly in terms of
space and trapped capital and exposes
the company to high level of
obsolescence. Underestimating demand
usually leads to backorders, stock outs
and poor service levels. Anticipating
demand accurately and efficiently is
crucial to balance a minimized inventory
investment and optimized revenue
opportunities. A more accurate
forecasting provides the company with a
better ability to plan the supply
accordingly, in a more cost-effective
way. As a matter of fact, once the
forecast accuracy has been improved,
there is a subsequent impact on the
inventory levels and the associated
costs. Part of the logistics costs is
automatically reduced and the delivery
lead-times can be improved too. Once
the company has a better visibility of the
demand, the relationship with its
suppliers can switch from an ad-hoc
mode to a more anticipative
collaboration where the supplier is able
to plan ahead of time and fulfill its
delivery commitment.
Supply Chain challenges
2.6%
5.3%
13.0%
13.2%
15.1%
15.8%
17.6%
18.0%
18.4%
21.1%
21.1%
31.6%
34.2%
36.8%
42.1%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Other
Reduce manufacturing costs
Improve asset utilization rate
Reduce time to introduce new product
Increase inventory turnover
Increase delivery reliability
Fasten operations with supporting technology
Improve distribution network
Increase warehousing capacity
Develop collaboration within the supply chain partners
Improve supplier performance
Reduce and optimize inventory levels
Reduce delivery leadtimes
Reduce logistics costs
Improve demand forecasting
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© 2010 B2G Copyright - Middle East Series
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© 2010 B2G Copyright - Middle East Series
Conclusion
apt title for the “2010 State of the Supply
Chain Report”. There was an increased
awareness of the strategic importance of
supply chain management in the Middle
East over the course of 2010 and an
even sharper focus was brought to bear
upon driving bottom line profits.
Strategic Supply Chain Management
has far reaching consequences, beyond
the scope of just logistics and if
deployed correctly can form an
unassailable defense against
competitors, resulting in a true
competitive advantage. As the world
pulls itself free from recession
As the world pulls itself free from
recession, competition for scarce
pulls itself free from recession,
competition for scarce resources will
intensify, there will be a greater
movement of goods across borders, and
there will be a downward pressure on
prices driven by the end customer,
whilst scarcity will ensure rising factor
input costs. Companies merely
competing on cost will find their profit
margins under serious threat and only
companies that decide to innovate
through differentiation will succeed in
defending their margins. In a post
recession world companies will
increasingly find themselves part of an
integrated network of companies, locked
in a supply chain, competing with other
supply chains, all focused in delivering
value to the end customer.
in a supply chain, competing with other
supply chains, all focused in delivering
value to the end customer. Integrated
supply chains underpinned by common
technology, systems and processes, will
lead to agility and flexibility in the form
of shorter lead times, and reduced costs
as a result of lean inventory and lower
cost of ownership through shared
investments. In an adversarial customer
supplier relationship, there will always
be a trust deficit, however, once trust is
replaced by collaboration, the entire
end-to-end supply chain can be equally
profitable for every player: from the
suppliers to the end customers.
pply chain has a greater interest to
maximize the profitability of its business
partners.
Supply chain under
construction… would be an
summa recessioptimum level
the supply chain from
performing to its optimum
A
Conclusion
07
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© 2010 B2G Copyright - Middle East Series
08
Appendix
© 2010 B2G Consulting .This document is the result of primary research performed by B2G Consulting. B2G Consulting methodologies provide for
independent and objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire
contents of this publication are copyrighted by B2G Consulting and may not be reproduced, distributed, archived, or transmitted in any form or by any
means without prior written consent by B2G Consulting.
Appendix
Frederic Gomer
Partner
B2G Consulting
Mobile: +65 972 604 97
Simon Chauvin
Senior consultant
B2G Consulting
Mobile: +973 39 31 98 83
Authors:
About B2G Consulting:
Based in the Middle East, B2G consulting is a newly created firm
focusing on supporting growing markets, from A to Z, we help our
clients to build profitable businesses in new and challenging
markets, transforming their critical challenges into high value
opportunities, and our capabilities to support organizations
encompass every operational aspect:
Definition of operational strategy
Hands-on support for implementation
Execution and interim management
B2G Consulting currently operates in Eastern Europe, Middle
East & Africa, Asia Pacific and China, the organization is
embarking on an ambitious expansion plan with the goal of
reaching 25 emerging markets by 2020…
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© 2010 B2G Copyright - Middle East Series
Appendix