Operating models for Africa
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The document discusses the complexities and opportunities related to integrated supply chain operating models in Africa, highlighting the continent's unique challenges such as underdevelopment, inadequate infrastructure, and diverse markets. It emphasizes the importance of a holistic approach to supply chain management that encompasses various functions and processes, aiming to optimize performance and achieve competitive advantage. The document also illustrates a practical example of improving supply chain performance through integrated operating models, outlining the need for effective collaboration and governance.
Operating models for Africa
- 1. Integrated Operating models for Africa
- 2. Operating models for Africa 1 2 Integrated supply chain operating model Putting theory to practice: A practical example Julian Tasker Director, EMEIA Supply Chain Strategy Wayne Whiffler Executive Director, Africa Supply Chain Transformation Page 1
- 3. 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
- 4. 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
- 5. Opportunity and risks vary widely African 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
- 6. 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
- 7. Although pattern of growth are evident Africa follows the typical growth and org. development path Establish competitive position; grow, defend and unlock potential; optimize performance and returns. Page 6
- 8. 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
- 9. 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 challenges There are however a number of enablers to assist Page 8
- 10. ► 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
- 11. 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
- 12. Companies usually structure their OM around one or more core models Page 11
- 13. 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 Strategy Distributors Integrated Supply Chain Operating Model A holistic, approach is generally required to improve supply chain performance Page 12
- 14. 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, distributionand indirect tax 2 Processes3 Functional, e.g. Governance KPIs and performance Mang. DOAs and decision rights Contractsand SLAsSupplier Performa nce Manage ment Custome r PM Perform ance Manage ment 1 Organisation, location and people 4 Location + organisation Training Talent management Roles and responsibilities Experience and capability Network design Customs and excise VAT Plan Source Make Move (includes Return) Transactio nal Purchase to pay Record to Report Order to Cash Regulat ory 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 Marketin g and brand mgt HQRandD Opcos Financial flowsSupplier interface Custome r interface 5 Physical flows Distributors Page 13
- 15. Story-telling is important Numbers make it real Credibility is critical Page 14
- 16. Putting theory to practice A practical example of improving supply chain performance by applying an integrated supply chain operating model approach
- 17. 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 1 Air 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
- 18. 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
- 19. 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
- 20. Location + organisation Training 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 example People, organisation and location The key question is what activities to locate where Page 19
- 21. 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 Africa Middle 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 dashboards Global 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 example People, organisation and location This will be determined by the distribution of activities and product characteristics Page 20
- 22. 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 example Standing still is normally not an option Groups often have existing structures in place that need to evolve Page 21
- 23. • 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/Customer Cash flow Goods flowCash flow “Above market” organisation requires remuneration Legal title flows CustomersSuppliers SC Hubs Marketing and brand mgt HQ RandD Opcos Financial flows Supplier interface Customer interface Physical flows Integrated supply chain operating model example Transactional model and transfer pricing Enabling transactional models have tax implications that must be considered Page 22
- 24. Page 23 Integrated supply chain operating model example Reflecting the growth and importance of transfer pricing The last 20 years 1995-2000 2001-2005 2006-2010 2011-2013 1. South Africa 2. Zambia 1. Namibia 2. South Africa 3. Zambia 1. Algeria 2. Egypt 3. Kenya 4. Malawi 5. Namibia 6. South Africa 7. Zambia 1. Algeria 2. Angola 3. Egypt 4. Cameroon 5. Ghana 6. Kenya 7. Malawi 8. Nigeria 9. Namibia 10. Senegal 11. South Africa 12. Uganda 13. 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
- 25. 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
- 26. ERP, e.g. SAP ECC , Oracle CRMSRM Master data management BI and reporting Supply chain, PLM Integrated supply chain operating model example Systems information and data Page 25 Data WarehouseICBS 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 Semantic Layer Information Delivery InformationAccess Modelling Data Mining Reporting Dashboards Visualisation Scorecards Analytics Interface Visualisation Geospatial Other Source Systems Data Integration Data Integration Information Delivery Data Integration Dimensional Data Views & Models Data Quality Data Quality, Reconciliation and Control Source Systems
- 27. 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
- 28. 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 Integrated supply chain 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
- 29. Thank-you