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Integrated Operating models for Africa
Operating models for Africa
1
2
Integrated supply chain operating model
Putting theory to practice: A practical example
Julian TaskerDirector, EMEIA Supply Chain Strategy
Wayne WhifflerExecutive Director, Africa Supply Chain Transformation
Page 1
You must act as if it is impossible to fail.
Do not let what you cannot do,
tear from your hands what you can. ~ Ashanti Proverb
Page 2
Why all the hype?
• The existing population of 1 billion is set to double by 2050
• Consumer spending is expected to hit $1.4 trillion dollars by 2020
• Africa’s economic growth is projected to accelerate from 4.5% in
2013 to 5.2% in 2015.
However……
Each additional day it takes to get
a consignment to its destination,
in Africa, is equivalent to approx.
1.5% additional tax.
Africa tomorrow……..
Page 3
Opportunity and risks vary widelyAfrican markets are diverse and fragmented
Note: A composite risk index is indicated on a colour spectrum from green (relatively more positive) to red (relatively less positive).
A fact-based approach to selecting and prioritizing markets in Africa is critical.
Source: World Bank; Transparency International; WEF Competitiveness Index; EY Growing Beyond Borders
Page 4
Size, scale and diversity makes Africa inherently complex
Source: Kai Krause
The sheer size and complexity of the continent, combined with the relative underdevelopment of many of its markets, makes Africa an inherently challenging place to do business.
► Land mass greater than USA, Europe, China and India combined
► Vast geography, with 54 different markets
► More than 2,000 languages and diverse cultural dynamics
► Few individual markets provide scale to be commercially attractive in themselves (in the short term)
► Inadequate infrastructure in many markets
► People/talent shortage
Page 5
Although pattern of growth are evidentAfrica follows the typical growth and org. development path
Establish competitive position; grow, defend and unlock potential; optimize performance and returns.
Page 6
Polling Question
What is the greatest challenge that your company faces in Africa?
A. Logistics
B. Lack of infrastructure
C. Lack of transparency in government
D. Complex direct and indirect tax regimes
E. All of the above
Page 7
Network design
Incorporating:► Strategic, operational and tax
criteria► Integrated sea & road freight
design► Adaptable to rapid Africa region
sales growth► Pan Africa & Sub Region
planning► Inbuilt flexibility and resilience ,
e.g. addressing physical, product & route to market differences
Internal collaboration
Including:► Cross site/ sub-region
asset sharing► Strengthened role of
logistics in sub-regional/ regional S&OP alongside manufacturing, finance and commercial functions
External collaboration
Incorporating:► 3PL/ shipping lines
integration ► (organisation, process
& IT)► Single sourced/ 4PL
logistics providers
► Shared risk & reward pricing
Organisation► Building regional/ sub-regional
level logistics CoE, management, supplier contracting & performance management
Systems, processes & ways of working► Creating a single set of planning
and execution processes to reduce complexity, maximize service consistency, instil a common language
Establishing Supply Chains in Africa has challengesThere are however a number of enablers to assist
Page 8
► Operating Model choices create sustainable competitive advantage
► They serve as platform to be able to better ► Manage cost and margin► Optimize working capital and return on capital► Improve operational excellence ► Imply a company’s transaction model while taking complex direct & indirect tax obligations and
optimization
► An operating model encompasses the end to end value chain including Intellectual Property management, brand & product management, sales & marketing, channels, distribution, treasury, risk management & finance
► International companies are finding they need help shaping their operating model in a holistic way incl. organization & performance management, processes, physical & financial transaction flows, legal structure, IT systems
Why an integrated OM and not simply an integrated SC?
Page 9
Business Model
Operating Model
How and where you organise your people, organisation, processes, transactions, technology,
assets and IP deliver the Business Model
‘the idea’How will you make
money?
“….in a globalised world, companies compete OM v.s. OM”
Page 10
Companies usually structure their OM around one or more core models
Page 11
Supply chain network, distribution and indirect tax2
Processes3Functional, e.g.
GovernanceKPIs and performance Mang.DOAs and decision rightsContracts and SLAsSupplier
Performance Management
Customer PM Performance Management
1
Organisation, location and people4
Location + organisation Training
Talent managementRoles and responsibilities Experience and capability
Network design Customs and excise VAT
Plan Source Make Move (includes Return)
Transactional Purchase to pay Record to Report Order to Cash
Regulatory
Organisation
Systems, Information and data
ERP, e.g. SAP ECC , OracleCRMSRM
Master data management BI and reporting
Supply chain, PLM6
Transactional model and transfer pricingLegal title flows
CustomersSuppliers SC Hubs
Marketing and brand mgt
HQRandD
OpcosFinancial flowsSupplier
interfaceCustomer interface
5
Physical flows
Str
ateg
y
Distributors
Integrated Supply Chain Operating ModelA holistic, approach is generally required to improve supply chain performance
Page 12
Layers of an ISCOM
Integrated operating supply chain model (ISCOM) design principles
Key Design Principles
• The design is driven by business strategy, agreed design principles and business case
• The design is holistic and consider all layers
• Changes in one layer are reflected in other layers
• Governance drives performance and desired behaviors
• Supply chain network configuration considers total delivered cost, inventory taxes and lead time
• Processes are end to end and cross functional to avoid silo/ functional/ geographical bias
• Location choice balances operational, skill and substance requirements
• The operational and tax models are aligned
• IT drives implementation plan and cost
• Centralized shared services are considered in the design
Supply chain network, distribution and indirect tax2
Processes3
Functional, e.g.
Governance
KPIs and performance Mang.
DOAs and decision rightsContracts and SLAsSupplier
Performance
Management
Customer PM
Performance
Management
1
Organisation, location and people4
Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Network design
Customs and excise VAT
Plan Source Make Move (includes Return)
Transactional
Purchase to pay Record to Report Order to Cash
Regulatory
Organisation
Systems, Information and data
ERP, e.g. SAP ECC , Oracle
CRMSRM
Master data management BI and reporting
Supply chain, PLM
6
Transactional model and transfer pricing
Legal title flows
CustomersSuppliers SC Hubs
Marketing and brand mgt
HQRandD
Opcos
Financial flowsSupplier interface
Customer
interface
5
Physical flows
Distributors
Page 13
Story-telling is importantNumbers make it realCredibility is critical
Page 14
Putting theory to practice
A practical example of improving supply chain performance by applying an integrated supply chain operating model approach
Integrated supply chain operating model example
Page 5
Strategic direction• Significant growth• Expansion into new markets• New channels
Exceptional cost in selected markets (supply chain process effectiveness gaps will contribute to this)
Approximately £20m - £27m when extrapolated over continent
Reason Loss in £m Year 1Air freight (RSA) 0.12
Product write-offs (Ke, Ni and RSA)
4.30
Write off RM/PM etc. (Kenya) 1.13
Demurrage (Ni) 3.30
Total : £8.8m
Operational issues• Severe delays in raw material and finished product
deliveries driving service failures, stock-outs and returns
• Inability to manage demand and supply volatility resulting in large stock buffers, working capital requirements and obsolescence
• High exceptional costs due to inability to respond quickly to short term competitive moves, price changes and longer
Context Typical African operating environment and issues
Page 16
Functional Plan Source Make Move (includes Return)
Transactional Purchase to pay Record to Report Order to Cash
Planning and inventory management• Local/ regional and demand planning/ supply planning/ S&OP integration• Plan numbers and parameters• New product development participants and data
Customer replenishment and logistics• Reliability• Manual and disconnected processes• Returns integration
Distributor management
• Stock mix• VMI• Credit management
Manufacturing• Conformance• Reliability• Scrap/ defect %
Procurement• Lead times• Reliability• Quality
Suppliers Company
Plant DC Depots Distributors Consumers
Raw materials and packaging
Customers• Manual activities
prone to error (forecasting, budgeting, supply planning, master data)
• Poor culture of discipline and control
• Poor organisational memory – process falls over when people move role
• Key inputs missing or steps not performed adequately
• Lack of end-to-end process ownership
• Functional silos with poor communication
• Skill/ capability shortage
Integrated supply chain operating model example
Process issues Findings
Processes Fixing processes alone rarely delivers a performance step change
Page 17
Integrated supply chain operating model example
• Improved decision making across:• Multiple supply points and markets• End to end supply chain
• Broken processes may be fixed by:• Clarifying roles and responsibilities• Identifying and leveraging
experience and capability• Training• Talent management
• However, this may not be sustainable
• Turbo charge process improvement through:
• Resource sharing• Co location
• Africa wide visibility and capability, e.g.• Supply and demand balancing• Spend aggregation and supplier rationalisation
Scale
Skill
Standardisation
Development
• Common processes, roles , governance and technology
• Complexity reduction• Shared best practices
• Centres of excellence • Common vision, roadmap and language • Talent management
Example resource sharing and co-location benefits
Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Organisation, location and people Integrated organisation and process change is often necessary for ‘step change’
Page 18
Location + organisationTraining
Talent management
Roles and responsibilities
Experience and capability
Globally managed Regionally managed Locally managed
Source direct materials
Source indirect materials (tiered)
Demand Planning - Generate base line forecast
Demand planning - sales forecast / input
Aggregate and check demand
Plan capacity, supply and inventory policy / mgmt
Manufacture product
Own logistics strategy and manage logistics suppliers
Plan and manage warehousing: Pick, pack and despatch
Plan and manage transportation to customers
Capture and manage sales orders
Manage cross region supply chain development
Manage cross region supply chain performance
Consumer product company Africa organisation location choices
Company 1Key Company 2 Company 3 Company 4 Company 5
Integrated supply chain operating model examplePeople, organisation and location The key question is what activities to locate where
Page 19
Location + organisation
Training
Talent management
Roles and responsibilities
Experience and capability
Operating Model key characteristics
Characteristics
• Global/ Regional product portfolio• Regional S&OP• Sub regional manufacturing control
• S&OP• Logistics contracts
Global
AfricaMiddle East and
Turkey
Asia- Africa
Primary markets
Secondary markets
Tertiary markets
• Sales and marketing activation• Demand planning• Order management • Warehousing and distribution
• Production schedule• Reporting, coordination,
consolidation and cascade
Global
Regional
Sub regional
Market
• Policies and processes • Direct procurement Standardise
KPI dashboardsGlobal
Africa
East Africa
• Policies and processes • Direct procurement• Standardise KPI dashboards
• S&OP• Production schedule• Logistics contracts
• SandOP• Outbound logistics to
markets• Reporting, coordination,
consolidation and cascade• Sales and marketing activation• Demand planning• Order management • Logistics
Global
Regional
Sub regional
Market
Other
West Africa
South Africa
Other
North Africa
Developed Growing New Distributor
• Localised product portfolio• Regional and sub regional S&OP
Integrated supply chain operating model examplePeople, organisation and location This will be determined by the distribution of activities and product characteristics
Page 20
African Regional Management Hubs often exist providing some level of oversight and support services• Strategic direction with budget and forecast approval• Risk management, financial and control frameworks with IT/ERP systems standardization
and support• Sales and marketing, new product development and innovation leadership• Sourcing, procurement, technical/ manufacturing, supply chain and logistic support
services
Above-Market Management Hub
Market Sales and Supply
SuppliersCustomers
• In Africa, focussing on what can be done to elevate part or all of the core supply chain functionality and accountability above market is typically a key source of significant incremental operational benefit
• Shared services and BPO are often helpful enablers too
Goods flow
Typical service model• Market operates
independently• Hub provides
support services across a range of functions
• Hub charges market for services
• Limited leverage of skill and scale
Cash flow
With growth, complexity, and
resource shortages, the question
becomes, “How best to leverage skill and
scale?”
Management Hub
Sourcing/ Procurement Hub
Supply Chain Planning Hub
Logistics Hub
Shared Services/BPO
Provides typical HQ services, e.g. strategic direction, risk management frameworks, etc.
Owns/operates the source to contract/pay function and process for key materials/services
Owns/operates planning function and process for key products/manufacturing locations
Owns/manages end-to-end in/outbound logistics, e.g. control tower
Outsource routine functions and processes, e.g. accounts payable, human resources, debtors
Integrated supply chain operating model exampleStanding still is normally not an option Groups often have existing structures in place that need to evolve
Page 21
• Supply chain functions generate significant value for multinational businesses• Creating an “above market” supply chain organisation results in supply chain value being
generated by both the “above market” and “in market” organisations
Above-Market Supply Chain Hub
Market Sales and Supply
SuppliersCustomers
• A complex web of regulations and tax legislation applies – it needs to be understood when changing a supply chain operating model• “Above market” and “in market” tax authorities want to secure their “fair share” of supply chain value to tax it in their country• Functions performed, assets employed, and risks borne by a supply chain function, and the physical locations of its people, assets and
legal entities, impact a territory’s entitlement to a “fair share” of that value• Cross border transactions have income tax, transfer pricing, withholding tax, customs and VAT implications
Above-Market Supply Chain Hub
Market Sales
SuppliersCustomers
Market Supply
Goods flow
Service model• Market provides forecasts• Hub provides services, e.g.
creates supply plans, contracts logistics
• Hub charges market for services
• Market manufacturers, sells and ships direct to Customer
Transactional model• Sales provide forecasts• Hub create supply plans
and Supply produce for Hub
• Hub owns inventory – always finished goods, sometimes inputs
• Hub sell to Sales and Sales sell to Customer
• Supply ships product to Sales warehouse/CustomerCash flow Goods flowCash flow
“Above market” organisation requires
remuneration
Legal title flows
CustomersSuppliers SC Hubs
Marketing and brand
mgt
HQRandD
Opcos
Financial flowsSupplier interface
Customer interface
Physical flows
Integrated supply chain operating model exampleTransactional model and transfer pricing Enabling transactional models have tax implications that must be considered
Page 22
Page 23
Integrated supply chain operating model exampleReflecting the growth and importance of transfer pricing The last 20 years
1995-2000 2001-2005 2006-2010 2011-2013
1. South Africa2. Zambia
1. Namibia2. South Africa3. Zambia
1. Algeria2. Egypt3. Kenya4. Malawi5. Namibia6. South Africa7. Zambia
1. Algeria2. Angola3. Egypt4. Cameroon5. Ghana6. Kenya7. Malawi8. Nigeria9. Namibia10. Senegal11. South Africa12. Uganda13. Zambia
Driven by ATAF’s focus on transfer pricing, there has been an almost 100%
increase in growth in transfer pricing regulation, within 3 years.
Countries in Africa have placed a greater emphasis on arm’s length compliance regarding cross-border transactions
Countries with transfer pricing legislation / rules
Total VAT and duty “throughput”: 70.35 (70.35% of consolidated turnover)
Page 7 Network design Customs and excise VAT Regulatory
Integrated supply chain operating model example
Dsitributors
Supply chain network distribution indirect tax Tax should also be considered when optimising the distribution network
Page 24
30
Supplier Local Manufacturing Co Local Sales Co
Foreign Sales Co
Local Customer
Foreign Customer
Note: Indicative Africa VAT rate of 18% and duty rate of 5% used for example
45
8.10
45
0
50
9.00
50
9.00
2.25 8.10
Legend: VAT payable VAT recoverable DutySupply
8.10
8.10
Foreign Supplier
30
5.40
1.50 5.40 5.40
Group of companies
ERP, e.g. SAP ECC , OracleCRMSRM
Master data management BI and reporting
Supply chain, PLM
Integrated supply chain operating model exampleSystems information and data
Page 25
Data Warehouse
ICBS
Decision
Point
Tallyman
External
Normalised Data Stores
BI Program & Project Management
BI Change Management
BI Architecture Governance
Metadata Management
Security and Data Privacy
Staging
Files
Information Consumers
Landing
Dimensional Data Stores
Sem
an
tic
Layer
Info
rmati
on
D
elivery
Info
rmati
on
Access
Modelling
Data Mining
ReportingDashboard
s
Visualisation
Scorecards
An
aly
tics
Inte
rface
Visualisation
Geospatial
Other Source System
s
Data
In
teg
rati
on
Data
In
teg
rati
on
Info
rmati
on
D
elivery
Data
In
teg
rati
on
Dimensional Data Views & Models
Data Qualit
y
Data Quality, Reconciliation and Control
Source Systems
Page 26
Performance managementControlsRolesSupplier Performance Management
Customer PM Performance ManagementProcesses/ organisation
Role based• Delegation of authorities• Decision rights• Job profiles
Performance management based
• KPIs• Reporting• SLAs
Control based• Authorisations• Workflow• Audit
Process/ organisation based• Collaborative S&OP• Procurement councils• Continuous improvement
Integrated supply chain operating model example
Example governance mechanisms
Governance Governance enables the whole organisation to ‘live’ the model
Page 27
Fully integrated end to end supply chain extending into distributors and managed by Supply Chain
Regional S&OP to drive commercial, supply chain and investment decisions
Introduced regional and local KPIs and performance management forums
Integratedsupplychain
Decision making
Regional supply chain hubs to drive benefits of regional scale, and cross region optimisation plus drive continuous process improvement and skills development
Organisation and location
Governance
Set up a service model to correctly remunerate hubs for planning and Centre of Excellence services provided
Operational and tax alignment
Optimised trade routes based on total delivered cost (including international trade)Network
Integrated operating model example
Operating model changes
Integrated supply chain operating model example outcomes Business case achieved through implementing operating model changes
Thank-you
