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High Performance through Fulfillment
Accenture Research and Insights intoFulfillment Mastery
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ContentsIntroduction
The Gap between the Masters and the Restin Fulfillment Performance
The Capabilities of the Fulfillment Masters
Operational Excellence: How MastersOut-execute the Laggards
On the Journey to High Performance
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Introduction
In a world in which customers
literally can change suppliers at theclick of a mouse, the ability to fill
orders reliably and efficientlyon-
time, at the right place, with the
right merchandise and at efficient
costhas become a hallmark of high-
performance businesses. In short,
superior fulfillment operations count
more than ever.
Yet despite steady advancements
in the technology for capturing and
tracking orders, companies face
increasing business challenges as well
as opportunities. In todays multi-
polar world with numerous centers
of economic might and increasing
volatility, fulfillment capability is
critical to success.
The globalization of supply and
demand.On the demand side,
companies have been relentlessly
seeking new markets for growth, as
well as new sources of talent to help
generate it: innovation, marketing,
sales and so on. At the same time,
these companies have been searching
on the supply side for lower-cost
sources of materials, labor andmanufacturing. Today, the content
of many products has traveled over
numerous independent and far-flung
paths: sourced in multiple locations
around the world, manufactured in
several others, sometimes assembled
in other locales and warehoused
in numerous distribution centers.
While companies with such globally
interconnected supply chains can
efficiently supply the world, the side
effect is a substantial increase in lead
times and transportation costs.
Major fluctuations in key supply
chain cost drivers. The past few
years have seen major fluctuations
in critical supply chain costs: crude
oil prices (a record 27 percent plunge
in the United States in November
2008 alone1), prices of other key
commodities, interest rates (and thus
inventory costs), shipping charges(boat, rail, plane and truck) and
currency valuations, to name a few.
Supply chain forecasting has become a
hazardous game that has reaped havoc
on cost and asset management.
Overall economic volatility. The
global economy has gone from boom
to bust in just two short years.
When will it boom again? Or at a
minimum, when will the bust be over?
Leading economists are not at all in
unison on the economic outlook. A
highly uncertain economy, likely to
operate in fits and starts in 2009, will
place great pressure on companies
to maintain a vice-grip on costs.Forecasting demand and staging
inventory with any level of accuracy
is now an arduous taskeven for the
most adept of supply chain planners.
Escalating customer demands.
Heightened service expectations
and ever-increasing preferences for
customized products and delivery
options have made filling orders more
complex. Not only must the order
have the right quantity of items for
customer X, increasingly customer Xs
items must be configured expressly for
its purposes. Furthermore, declining
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Figure 1. Survey participant demographics
product life cycles and time-to-
market cycles for new products mean
many more products are flowing
through a companys supply chain.
Thus, the chances for disappointing
customers have risen exponentially in
many industries.
Rising pressures for sustainable
business practices. Considered a fringe
movement just a decade ago, the
need for sustainability is now firmly
entrenched and companies can no
longer ignore the activists. This is
in part because many of the activists
are huge customers such as Wal-Mart,
which have seen the light on how
becoming environmentally friendly also
can reduce costs and increase profits.2
The job of reducing a companysnegative environmental impact falls
disproportionately on the supply chain,
especially in how an organization
structures its transportation and
distribution operations.
These forces now make it imperative
for companies to build dynamic
fulfillment capabilitiesones that
enable them to react rapidly to
marketplace changes. Companies
that are first to do so will capture
substantial emerging opportunities and
pull away from the competition.
But what capabilities make a
companys fulfillment operations such
a machine for high performance? And
if a company is able to build such a
capability, what impact can it have on
its performance? In short, is the gain
worth the pain? To answer these and a
number of related questions, Accenture
conducted an extensive survey of 240
major companies around the world in
the second half of 2008 (see Figure 1).Each company answered 70 questions
that explored:
By Geography By Industry By 2007 Revenue
Their fulfillment performance.
The key metrics they used to gauge
that performance.
The maturity of their fulfillment
practices and capabilities.
The rest of this report explores
the key findings from thiscomprehensive survey.
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Figure 2. Maturity of practices and capabilities in key areas are strongly
correlated to superior planning performance
5
We would call the fulfillment
performance of companies across the
industries we surveyed as good but not
great. Survey respondents received a
median 90 percent of orders from their
suppliers on time and in full. In turn,
respondents performance with their
customers was better. They delivered
95 percent of their customers orders
in full and on time, and their days of
supply of finished goods inventory was
a median 15 days.
To be sure, that performance is
admirable. But it trails the 98 percent
OTIF performance of a select number of
companies that we studied. In addition,
the best companies in fulfillment had
50 percent less inventory. All this
suggests the majority have substantial
opportunities for further improvement.
What is holding back the majority
of the 240 companies we surveyedfrom having outstanding fulfillment
performance? By assessing the maturity
of their fulfillment processes, our survey
found a clear cause: While having some
strong competencies, these companies
needed to continue improving a number
of key fulfillment capabilities. Our
survey probed seven core dimensions
of fulfillment strategy and operational
capabilities. We found overall
fulfillment practices fell short of whatthe best companies had achieved. And,
often flexibility was achieved through
manual meansmeaning, lots of phone
calls, faxes, e-mails and other episodes
in which people had to interveneand
on an inconsistent basis.
Such practices were especially evident
at companies operating multiple
distribution channels (the majority of
our respondents). While companies
designed channels for specific customeror product needs, they often fell short
in measuring performance across
multiple supply chains or managing the
network complexity they created. For
instance, most respondents evaluated
material flows infrequently or on ad hoc
basis, and they typically looked at only
isolated portions of those flows.
So at companies that want to take their
fulfillment performance to the next
level, where should managers start?
Which practices and capabilities are
most essential to achieving superior
fulfillment performance? Our researchfindings provide some guidance. To
better understand what leads to
great performance, we compared
survey respondents with top-quartile
performance in cost and customer
service measures to respondents in the
bottom quartile on these metrics. We
refer to top-quartile respondents as the
fulfillment masters and the bottom-
quartile companies as the fulfillment
laggards. We found substantial
differences in their fulfillment efficiency
and effectiveness:
Cost effectiveness measured by
outbound transportation cost, total
transportation costs or total supply
chain costs. Masters median outbound
transportation cost was 2 percent
of total revenue versus laggards 16
percenta 14 point cost advantage.
(The median outbound transportation
cost for all survey respondents was 5
percent of revenue.) Overall, masters
had a 35 percent total supply chain cost
advantage over laggards.
Customer servicemeasured by
on-time, in-full deliveries to customers
across all product lines. In delivering
on-time, in full-orders, masters reported
a median of 98 percent versus 85
percent for the laggards. (The median
OTIF for all 240 respondents was 95
percent.) Suppliers clearly helped the
masters achieve their stellar OTIF rate;
the median OTIF for orders received from
suppliers was 95 percent for masters
versus 82 percent for the laggards.
The masters and the laggards were
distinctly different in their fulfillment
capabilities and performance
(see Figure 2).
The Gap between the Masters and the
Rest in Fulfillment Performance
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Masters demonstrated high levels of
maturity and advanced capabilitiesin every element of fulfillmentfrom
fulfillment strategy (that is, the way
they design and adjust their fulfillment
operations) through operational
excellence (how well they execute
the strategy) and technology (how
effectively they use IT to improve
operations). In comparing masters
and the rest of the survey population
(including the laggards), the biggest
differences in capability maturity
were in fulfillment strategy, inventorymanagement and integrating
technology and data. We explore
in more detail the key differences
between the masters and laggards.
The Capabilities of the Fulfillment Masters
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Figure 3. Masters were more likely to regularly evaluate
the tradeoff between cost to serve and value achieved
Figure 4. Masters are routinely involved in the
R&D process
Fulfillment Strategy: How
Masters Create DynamicFulfillment Operations
One of the key distinctions between
leaders and laggards at fulfillment
was the ability to build dynamic and
responsive supply chainsthat is, ones
that could be adjusted rapidly to meet
changing market conditions (customer
demands, competitive moves, changes
in supplier base, changes in fuel,
interest rates, and other costs of
doing business). Masters designtheir supply chains by continuously
reassessing cost and service factors,
adjusting their fulfillment methods
(especially in capitalizing on
established technology),regularly
reviewing their channels to
customers, being highly selective in
their choice of supply chain partners
(3PLs, etc.) and actively modeling and
managing their carbon footprint.
Masters were much more likely todesign their distribution channels to
meet specific customer needs and
product characteristics than were
the laggards. Some 70 percent of the
masters designed their channels this
way versus only 30 percent of thelaggards. At the same time, masters
were better at managing the cost and
service of each channel. The majority
of the masters regularly measure
and monitor their cost to serve in
each channel; only the minority of
the laggards did so. Further, half of
the masters regularly evaluate the
tradeoff between cost to serve and
value achieved, compared with only
one-third of the laggards (see Figure
3). In addition, masters were routinelyinvolved in the R&D process to
ensure efficiencies, constraints and
available value-adding activities were
incorporated into product design
(see Figure 4).
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An effective fulfillment strategy is
also one that changes rapidly to meetshifting market conditions. In this
area, the masters outperformed the
laggards as well. Masters rigorously
evaluate their distribution networks
more frequently than quarterlyboth
inbound and outbound product flows
to be in sync with changing market
and geographical demand. These
companies comprehensively review all
the elements of fulfillment.
On their inbound flows, masters payspecial attention to the capabilities of
transportation providers and supplier
locations. As part of their inbound flow
analysis, every one of the masters we
surveyed reviews both transportation
firm capability and supplier locations.
In comparison, less than half of the
laggards evaluate supplier locations,
and only 40 percent scrutinize
transportation providers. Masters
are also more active in monitoring
their inbound flows. Some 43 percentevaluate such flows more than once
a quarter; only 13 percent of the
laggards review them as frequently.
Figure 5. How Masters and Laggards evaluate inbound and outbound flows
Masters furthermore are more rigorous
than laggards in monitoring keyelements of the outbound flow. Some
43 percent of the masters evaluate
outbound flows more than once
every three months, compared with
only 29 percent of the laggards. And,
100 percent of the masters evaluate
customer locations when analyzing
their outbound flow, which was the
case with only half the laggards
(see Figure 5).
The case of a major elevatormanufacturer illustrates the payoff
from possessing sophisticated
capabilities in fulfillment strategy.
To improve operating margins, the
companys North American division
moved US production to Mexico,
which forced a reassessment of its US
distribution network. After evaluating
the network, the company designed a
new supply chain that achieved high
performance at a competitive cost.
The new fulfillment operation cut thecompanys transportation costs alone
by 13 percent, or more than $2 million.
And the company achieved total
fulfillment savings of nearly $5 million
while also doubling the fulfillmentservice levels.
Our survey also found masters were
more likely to use third-party logistics
firms, which increases the flexibility of
their supply chains. Some 80 percent
said their 3PLs boosted flexibility,
while a lower percentage of the
laggards63 percentsaid the same.
Masters were also far more likely to
extensively integrate data with supply
chain partners. Half of them reportedextensive data integration versus only
19 percent of the laggards.
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Operational Excellence: How Masters
Out-execute the Laggards
The masters not only were superior
at fulfillment strategy; they were farbetter than the laggards at executing
their strategy: in capturing customer
orders, managing inventory, operating
their warehouse and distribution
centers, managing reverse logistics,
integrating technology and data
internally and externally, and
measuring supply chain performance
and responding to issues.
Order Capture
In capturing orders, masters have
better visibility into warehouse
inventory and production scheduling
processesreal-time data that provides
a far more precise and accurate
snapshot on current conditions. The
majority of the masters had real-
time data on incoming shipments
and production scheduling, while
only the minority of the laggards
could claim likewise (see Figure 6).
With up-to-the-minute data on
stock levels (including what has
been committed to orders), these
companies are better at production
scheduling and planning future
manufacturing runs. Masters were
also more likely to have data on
inventory availability at their
warehouses; 87 percent had it versus
only 67 percent of the laggards.
(Note: masters and laggards did not
differ significantly in possessing
data on allocated inventory andlead times.) Superior visibility on
warehouse inventory and shipments
improves inventory allocation.
Masters real-time tracking of
inventory in transit allows them
to make the right changes inproduction plans.
Masters were far more likely to use
advanced planning options when
capturing orders (see Figure 7).
About three-quarters integrated
order allocation with production
scheduling versus only 42 percent
of the laggards. The leaders at
fulfillment were more likely to
change their production plans
based on real-time data from orderallocations. And, masters more
often allocate inventory at the last
possible moment, meaning they can
direct inventory more accurately based
on recent demand patterns. Masters
furthermore are better at balancing
customer service levels with safety
stocks, a key tradeoff in determining
replenishment strategy. Two-thirds
of the masters said they balance this
tradeoff, which was more than twice
the percentage of laggards.
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Masters are slightly better than
laggards at having critical informationwhen capturing orders. They process
orders having data available on raw
materials, order optimization, product
promotion activities and cross-selling
opportunities. The main factors that
influence the masters order-capture
decisions are availability of raw
materials, cost and lead times. Some 20
percent of masters and 15 percent of
laggards said their orders were based
on these three items. And at the time
they take an order, 36 percent of themasters and 29 percent of the laggards
can see promotional data and inventory
availability on the items customers
want to purchase. That enables them to
ensure customers have the most recent
prices and more accurate information
on delivery, which are crucial to
maintaining customer satisfaction.
In addition to having access to such
data when capturing customer orders,
a higher percentage of masters (albeitstill a small share) have their orderingsystems extensively integrated withother major enterprise systems in
their organizations. In our survey,
27 percent of the masters said their
order management systems werefully integrated with other corporate
systems, which was the case with only
18 percent of the laggards. Companies
that integrate their order-processing
systems this way can boost fulfillment
significantly. For example, a major
telecommunications company wanted
to change its manually intensive
order-acquisition system, integrating
it with other systems to increase the
volume of orders it can access, reduce
the number of problem orders (forexample, order-entry errors), cut order
processing costs and improve data
reporting and analysis. The company
built an integrated order-management
system that receives orders directly
from an online portal. Today, the
systemnot peoplequalifies and
processes each online order, which
saves considerable time and labor. But
the new system does more. Because
it is integrated with the companyscustomer relationship management
system, sales and marketing now get
detailed, up-to-the-minute data on
which customers are buying which
products. In addition, the systems links
to the companys service assurancesystem enables management to flag
troubled orders instantly. And finally,
the new ordering systems link to the
companys billing system eliminates
one more throw-it-over-the-wall
procedure, which means invoices go
out faster and more accurately and the
company gets paid faster. All of this
has reduced end-to-end order-cycle
times and boosted order accuracy. That,
in turn, has increased order volume
while at the same time cutting order-processing costs.
Figure 6. Data available at order capture
Figure 7. Masters were far more likely to use advanced
planning options when capturing orders
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Inventory Management
Inventory management capabilities
of masters and laggards differ
considerably. Unlike laggards, masters
build flexibility into each stage of the
extended supply chain. That enables
them to optimize inventory across the
entire chain. As a result, they operate
with 50 percent less inventory across
their supply chain.
Masters are far more likely than
laggards to continually evaluatetheir inventory levels against orders;
87 percent of masters did so versus
56 percent of the laggards. Masters
are also far much more likely to
structure contracts with transportation
providers to respond rapidly to
spikes in demand. Nearly two-thirds
(62 percent) of masters negotiated
mean-to-peak capacity flexibility
in their transportation contracts; in
contrast, only about one-quarter (26
percent) of the laggards did so. By
having access to transport capacity
at a prenegotiated rate and lead time,
masters can control fulfillment costs.
Warehouse and Transport
Operations
The ability to take highly efficient
approaches to managing warehouses
and transportation for getting goods
in and out of them is another hallmark
of companies that have mastered
fulfillment. Masters have flexible
networks of warehouses and transport
operations. Making these networks
perform are centralized transport
planning and the software that enables
it. A slightly higher percentage ofmasters (80 percent) use warehouse
management systems (WMS) than do
laggards (70 percent). WMS and hand-
scanning technology drive warehouse
and transport efficiency. Masters do
not go overboard with technology; they
adopt proven technologies and apply
them selectively to areas of greatest
return in their fulfillment operations.
Masters were three times more
likely than laggards (33 percent
compared to 11 percent) to have
a centralized international team
conduct transportation planning,
Figure 8. Use of postponement strategies and
make-to-order
This also helps them maintain high
service levels during times of highdemand. By also using postponement
in inventory management to a greater
degree than laggards, masters are
able to control inventory costs and
maintain a dynamic supply chain by
being predominantly a make-to-
order operation (see Figure 8).
Our survey revealed masters were on
par with the rest of the companies in
the extent to which they have visibility
into their own inventory. And, mastersand laggards were no different in
having data on finished goods and
in-transit inventories. However,
nearly half the masters had inventory
visibility for the extended supply
chainthat is, into the inventories
of the suppliers and customers. Only
about one- third of the laggards could
say the same (see Figure 9). Thus,
when it comes to managing inventory,
it would be fair to say that mastershad a better view of the big picture.
10
Figure 9. Visibility to inventory information
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rather than have it done at a
continental/regional or country level.Why? Planning transportation at a
global level enables a company to
leverage larger purchasing discounts,
standardize contracts, create common
transportation processes and systems,
reduce headcount and coordinate
intercountry distribution. All of these
elements reduce costs by improving the
utilization and efficiency of transport
operations. In addition, planning
transportation at an international
level requires using transportation
management systems or to work with
providers that have TMS and strong
data integration capabilities.
Another area separating masters and
laggards in fulfillment performance
was the ability to reroute during
shipment. A much higher percentage
of masters than laggards (63 percent
versus 38 percent) could manually
reroute transport while a product wasin shipment.
Reverse Logistics
Reverse logistics is another area
in which masters are more likely
to excel. More than twice as many
masters (77 percent) feed product
return data to their companies
product development function
than do laggards (only 32 percent).
Having detailed information on
why customers are rejecting their
purchases is crucial to companies
that want to rapidly fix faulty product
designs and manufacturing processes.Masters appear to place more
emphasis on getting unvarnished
information on their product returns.
More than twice as many masters
manage returns in house than do
laggards (see Figure 10).
Technology and Data
IntegrationThe aggressive use of established
technology to integrate fulfillment
processes and systems is another
capability that separates masters
and laggards in fulfillment. Nearly
half (43 percent) of the masters said
the fulfillment systems were fully
integrated versus a scant 4 percent of
the laggards. Why are masters much
more technology savvy in fulfillment?
They are much more likely to usein-depth business cases to justify IT
investments. Furthermore, they were
much more likely to track the return
on that investment (71 percent of the
masters monitor the return on their
IT spending versus just 45 percent of
the laggards). Its not that masters
spend more on IT in fulfillment; in
fact, on average they spend less than
laggards. Its that they are much
more likely to know whatand what
notto automate.
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Ability to Measure and
RespondFinally, masters differ from laggards
in their ability to measure the health
of fulfillment operations (costs,
cycle times, customer complaints,
etc.) and respond to performance
problems. Some 80 percent of
masters use information technology
to proactively reschedule activities;
only 59 percent of the laggards do
this. A slightly higher percentage of
masters (83 percent versus 75 percentof laggards) reduced operating costs
by gathering and analyzing real-time
data, while 71 percent of the masters
said such data helped them cut labor
(versus 62 percent of the laggards).
The sophisticated collection and
use of data generated by fulfillment
operations is a major reason why
masters have a 35 percent total
supply chain cost advantage over the
laggards. Such data provides real-time
visibility into warehouse inventory
and production scheduling. Masters
have operational visibility across
their supply chain through extensive
track and trace, and they are better
at leveraging their data to reducevariable costs.
Increasingly, many companies are
measuring their energy costs, a
huge component of total supply
chain expenses. A leading postal
service company needed to cut
energy consumption by an order of
magnitude. But it needed a solution
that provided results that could be
measured and verified. The company
conducted holistic facility controlanalysis and implemented changes
to optimize energy use. It also
instituted automatic fault detection
and diagnostics systems, including
condition-based and preventive
maintenance. This capability enabled
the company to sense equipment
failures and trigger an appropriate
response, cutting down significantly
on the need for reprocessing and
its associated energy consumption.The result: a 30 percent reduction
in energy use and reduced
carbon footprint. The companys
comprehensive energy management
system has had a quick payback. Asimportant, it has reduced the amount
of business disruption that the old
processes induced.
Figure 10. Reverse logistics practices of masters versus laggards
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Through our research on high
performance and our client work,
Accenture has found that fulfillmentmasters excel in creating and
managing a highly flexible supply
chain. Such a supply chain allows
them to differentiate themselves
competitively and react quickly
and appropriately to the volatile
environment. These companies possess
five overarching fulfillment traits:
They design their distribution
channels to accommodate varying
customer needs and productcharacteristics.
They regularly and rigorously
evaluate their networks of inbound and
outbound flows to respond to changes
in market and geographical demand.
They have flexible networks with
centralized, international transport
planning.They use established technology to
enable their operations and emphasize
systems integration.
They use real-time fulfillment
information to proactively maintain
customer service.
Companies that demonstrate these
traits achieve significantly lower
cost and better service than their
competitors. They do so by buildingdistinctive capabilities within
fulfillment strategy, order capture,
inventory management, warehousing
and transport and returns. They
enable these processes with real-time
data, appropriate technology and
measurement.
On the Journey to High Performance
In short, in todays volatile global
economy, masters possess the flexible
and responsive fulfillment capabilitiesthat have become critical to creating
a high-performance business in the
emerging multi-polar world.
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1 Trade Deficit Narrows Amid
Restrained Demand, J. Bater, The WallStreet Journal, January 13, 2009.
2Wal-Marts Environmental ReportCard, Claudia Deutsch, The New YorkTimes, November 16, 2007.
Special acknowledgement and
thanks are due to followingpeople for the effort and timethey invested in the preparationof this report: Jonathan Wright,Rup Banerjee, John Calder, BrooksBentz, Mike Engoian, Fred Hajjar,Ruchir Gupta, Varadaraj Shanbhag,Derek Jones, Scott Egler.
Notes
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Contacts
Jonathan Wright
Mike Engoian
Chris Coldrick
Ron Ash
Fred Hajjar
Sergio Nogueira
Jacobo de Silva
Iain Prince
Matthew Pyne
Brooks Bentz
Bill Frey
London, United [email protected]
Cleveland, United States
Sydney, Australia
Cleveland, United [email protected]
Boston, United States
London, United Kingdom
Madrid, [email protected]
Manchester, United Kingdom
Boston, United States
Boston, United [email protected]
Cleveland, United States
15
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Copyright 2009 Accenture
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