Globalization

Linking Supply Chain Transformation to the Profit and Loss Statement

September 2011 Bob Heaney

September 2011

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement
Aberdeen Group's Chief Supply Chain Officer (CSCO) Survey (January 2011) collected data from 191 companies of which 56 claim to have active C-level support for supply chain process/technology investments. Findings from that survey were shared at Aberdeens Supply Chain summit (March, 2011) and indicate that globalization is driving change and transformation across virtually every process step of the inbound-to-outbound supply chain for companies of all sizes and industry segments. This Analyst Insight will explore how the 56 companies with active C-level involvement are approaching the global expansion of their supply chains relative to their peers. It will examine the improvement areas addressed by these C-level Supply Chain Executives. This examination will trace 21key inbound-to-outbound process steps through a process hierarchy and link these actions to the benefits they yield to the company profit and loss statement, balance sheet and cash flow statement. This document demonstrates the types of capabilities that companies are leveraging and highlights case studies and business results. This document is intended for use as a decision framework for supply chain transformations that yield positive net contribution to the company's bottom line.
Analyst Insight Aberdeens Insights provide the analyst perspective of the research as drawn from an aggregated view of the research surveys, interviews, and data analysis. Company Size Demographics of the 56 companies with Active C-Level Executives Small (less than $50 million) - 21%, Mid-size ($50 million - $ 1billion) 32%, Large (greater than $1 billion) - 47% Additional demographics are available at the end of this document.

Globalization / Complexity is Dominating the CSCO Agenda

According to the study, Figure 1, the top business pressures facing the Clevel Supply Chain Executives or the office of the CSCO are the impact of increasing supply chain complexity as well as rising supply chain management costs (55% and 43% respectively).

Figure 1: Top Business Pressures: Globalization and Supply Chain Cost / Complexity
C-Level Executives Growing complexity of global operations (e.g., longer lead times and lead-time variability, or increasing numbers of suppliers, partners, carriers, customers, countries, logistics channels) Rising supply chain management costs (e.g., total landed costs, fuel, labor costs) 0% 20% 40% All Others 55% 25% 43% 51% 60%

Percent of Respondents, n=191

Source: Aberdeen Group, January 2011

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for 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 Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 2

The overseas supplier base (Figure 2) continues to grow relative to a given company's home country with up to 64% of all groups claiming suppliers in China and 56% claiming suppliers in Europe. Although the customer base is expanding globally, supply and demand remains unbalanced (e.g., China for represents 64% of supply but only 34% of customer demand). This imbalance increases complexity putting time and distance between source and customer. Figure 2: Global Sourcing and Customer Demand is Driving Supply Chain Complexity and Transformation

Canada
35% / 48%

USA
77% / 73%

Europe
56% / 55%

Asia Pac
64% / 31%

Africa & Mid East South America

25% / 38% 14% / 38%

Southeast Asia
29% / 37%

Suppliers Black Customers Red

Australia and Pacific

16% / 39%

Percents equal numbers of all companies having suppliers or customers in each region. Source: Aberdeen Group, January 2011

For years companies have been transforming their domestic supply chains and have harvested double digit reductions in cost per unit handled in areas such as transportation (International Transportation: Optimize Cost and Service in a Global Market; July 2010). Supply chains that were once purely domestic have now gone international as an increasing number of shipments flow across borders and supply and demand imbalances increase. But the harvested reductions from supply chain transformation are largely tapped. What companies are realizing is that many of the benefits derived from their finely tuned / optimized domestic supply chains are being cancelled out by their poorly performing global supply chain (Figure 3).

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Figure 3: Global Complexity Degrades Cost/Service Compared to Domestic Supply Chains

International visibility from satellites and cloud technology

Improved Cost/Time Degraded Cost/Time DEMAND

Global Air

Customs Delay, Broker Plant (Mfg Planning/ Execution) Transportation (TMS) Freight Forwarder Customs Delay, Broker Ocean

Customers (Forecasting)

Global DC (Warehouse Mgmt)

Retail Store (Forecasting)

Ocean Component Supplier

Raw Materials Supplier

SUPPLY

In Figure 3 we can see that the efficiencies between parties and process steps that are optimized in the domestic supply chain (the green arrows) are now in imbalance and degraded by the new complexities of the global supply chain (the red arrows). Companies tend to optimize the process steps which they can see and over which they have direct control. The domestic supply chain has benefited from this fact with respect to the following advanced process methodologies: Just-in-Time (JIT) Lean and Six Sigma Internal and external process collaboration Automation: Supply chain and manufacturing planning and execution Inventory optimization and forecasting Transportation management systems Warehouse management systems
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Longer lead-time and increased multi-party handoffs like customs degrade performance Source: Aberdeen Group, September 2011

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The positive impact from these process and automation tools has been significant for the domestic supply chain. Unfortunately, many of the benefits they produced domestically have fallen out-of-balance and focus as the supply chain has become more global (Table 1). Table 1: Domestic vs. Global Supply Chain Performance / Complexity Imbalance Domestically Optimized
Optimized domestic transportation plan Just in Time (JIT) manufacturing plan Optimized inventory plan Finding lowest cost supplier

Cycle Times
Mainly Improved Mainly Improved Mainly Improved NA

Cost
Mainly Improved Mainly Improved Mainly Improved Mainly Improved

Global Breakdown Impacts

Expedited airfreight Failure to select low cost ocean carrier Parts or raw materials being delayed at Customs Excess safety stock required to offset lack of visibility into extended global supply chain Failure to take advantage of preferential duty programs

Cycle Time
Degraded

Cost
Degraded

Degraded Degraded NA

NA Degraded Degraded

Globalization and supply chain complexity is opening up new avenues for optimization and transformation across the growing multi-tier global supply chain. The processes and technologies to manage the new global inboundto-outbound flow of finished goods, parts or raw materials are much less mature / efficient than domestic operations, as are the processes and technologies to manage the outbound flow of goods. Islands of peak domestic performance are sandwiched between poorly performing global supply chains across each continent (Figure 3). In the next sections, we examine the areas of global supply chain improvement by tracing the flow of product and information through each process step in the extended supply chain and applying the same process and automation techniques across the new areas of imbalance that now exist.

Source: Aberdeen Group, September 2011

Best-in-Class (the top 20% of performers) definition from the February 2011 Supply Chain Visibility study: 96% of orders delivered complete and on time 96% of orders received from suppliers complete and on time Decreased by 3% total landed costs per unit Decreased by 3% supply chain cost relative to revenue Yielding versus Laggards (the bottom 30% in study): 25 percentage point higher complete and on time delivery to customers 12 percentage point greater advantage in year-over-year unit landed costs

Capabilities by Process Step Inbound to Outbound

The global landscape is changing and the new priority for the office of the CSCO has shifted to supply and demand synchronization across each linked process step in the extended supply chain. The level of capability the average company has when it comes to coordinating information and synchronizing operations across these process steps from source to end consumer has been explored in a recent study (Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency, February 2011). In Figure 4 and Figure 5, we plot the degree of automation from the 183 companies mentioned in the February study across the Best-in-Class (top
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20% of aggregate performance scorers), Industry Average (the middle 50% of aggregate performance scorers) and Laggards (the bottom 30% of aggregate performance scorers) - see sidebar on previous page. Examining these companies across 21 key inbound to outbound process steps we can better understand process weaknesses and isolate potential areas of improvement. As we discovered in prior studies, companies of all sizes and classes are hampered in their ability to track, monitor and synchronize supply chain process steps with trading partners. Generally, only about 30% (average of blue bars in Figure 4) of companies have automated data and event monitoring and/or have optimized process capabilities in place. From source to destination, the 13 inbound process steps or milestones needed to synchronize product and information flows are still being monitored manually (phone, fax and email) in up to 49% of all companies. Figure 4 - Inbound Process Steps from Source to Destination/Country
Monitor with our visibility software Order acknowledgment by supplier Order acknowledgment matches purchase order Supplier invoice status (for invoices we receive from suppliers) Raw material arrival at supplier Suppliers projected production plans Suppliers production in-process events Quality control passed Advance shipment notice (ASN) created by supplier ASN matches purchase order Carrier pickup of goods (INBOUND) In-transit status events at shipment level (INBOUND) In-transit status events at order line level (INBOUND) Customs clearance events (INBOUND) 0% 16% 9% 7% 23% 31% 30% 31% 31% 28% 25% 20% 40% Monitor manually (e.g., via phone / fax / email) 38% 38% 44% 28% 43% 43% 43% 39% 42% 43% 42% 42% 46% 60% 80% 100% 49% 43% 42%

Percent of Respondents, n = 183

Source: Aberdeen Group, February 2011

The good news is that leading companies have superior financial and service metrics (see sidebar on the previous page for definitions) and also are several times as likely as their peers to automate many of these events. For
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instance, compared to the Industry Average and Laggard companies combined (all others), the Best-in-Class are more frequently measuring and automating events for inbound: Suppliers projected production plans - 1.42-times more likely to track than all others (68% of the Best-in-Class monitoring this milestone) Customs clearance events (inbound) - 1.34-times more likely to track than all others (90% of the Best-in-Class monitoring this milestone) In-transit status events at order line level (inbound) - 1.34times more likely to track than all others (87% of the Best-inClass monitoring this milestone)

On the outbound side (Figure 5) eight additional linked process steps are plotted and the picture is almost identical. In the typical sequence of event flow (i.e., outbound from shipment/pickup to proof of delivery and settlement) the degree of visibility/collaboration and automated monitoring and control ranges from 24% to 45% (blue bars). So across warehousing, pickup, outbound transportation/delivery, and payment anywhere from 28% to 49% of respondents claim they are still manual (phone, fax and email). Figure 5 - Outbound Process Steps from Receiving to Customer Delivery and Payment
Monitor with our visibility software Warehousing events Carrier pickup of goods (OUTBOUND) In- transit status events at shipment level (OUTBOUND) In-transit status events at order line level (OUTBOUND) Trucking (haulage) events Proof of delivery to customer Customer invoice status (for invoices we send to customers) Bank interactions 0% Monitor manually (e.g., via phone / fax / email) 35% 37% 31% 27% 24% 38% 45% 41% 20% 40% 42% 45% 47% 46% 48% 51% 36% 31% 60% 80% 100%

"We were committed to redesigning our entire supply chain and becoming more floworiented in order to drive more efficiency and cost savings across our entire business. We wanted to be more just-in-time and less just-in-case. Working on supplier-side collaboration / visibility is key. ~ James Hilzendeger, Director of Logistics, Giant Eagle

Percent of Respondents, n = 183 Source: Aberdeen Group, February 2011

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Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 7

Once again the good news is that leading companies are performing better and are several times as likely as their peers to automate many of these events. For outbound compared to all others the Best-in-Class from the study are more frequently measuring and optimizing: Trucking (haulage) events - 1.24-times more likely to track than all others (84% of the Best-in-Class monitoring this milestone) In-transit status events at order line level (outbound) 1.20-times more likely to track than all others (84% of the Best-inClass monitoring this milestone)

Note: For a description of the impacts and implications that lack of visibility and synchronization of these 21 process steps produces, and to examine the capability and performance advantages that the Best-in-Class possess see the full report Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency.

Linking Process Step Improvements to ROI Expectations by Investment Choice

Todays CSCO has many choices to select from when it comes to improving product and information flows and synchronizing events from source to consumer in the extended global supply chain. From our research we see how the C-level Executives are ranking the various investment choices they have in terms of ROI or payback expectations.

Table 2: Supply Chain Process Improvement ROI Investment Decision Matrix C-Level Executives - In 12 Months Planning to Enhance/Acquire Supply Chain Solutions C-Level Executives Expected ROI
Percent Companies Planning 0 - 6 months 7 - 12 months 13 - 18 months 19 months - 2 years 2 - 3 years

All Supply Chain Types Visibility or SCV

2 13 17 9 7 84% 1 12 16 6 6 1 1 43 17.6 30%

Supply Chain Transportation Network Management Design or TMS

82% 1 11 16 6 4 1 3 42 18.9 27% 73% 1 11 12 8 3 1 1 37 17.3 32%

Trade Compliance
33% 1 5 4 3 2 1 1 17 19.5 35%

3 - 5 years 1 More than 5 years 2 Total Companies 51 Planned Months to ROI 18.2 Percent expecting less than 1 year ROI 29%

In our survey we asked the all respondents that were planning investments in one or more competing technology areas such as visibility, transportation, or trade compliance to indicate their interest in investment / improvement by technology type (Table 2). Across the top of the matrix are the various technology types ranging from Supply Chain Visibility (SCV) at 84% of the investment responses, or 43 interested C-level respondents, and ending in Trade compliance (GTC) or import/export initiatives at 33% of the responses (17 companies). In the middle section of the matrix, there are the ROI financial payback hurdles
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C-Level Active companies (56 of 191companies) Source: Aberdeen's Chief Supply Chain Officer Survey, January 2011

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Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 8

planned or justified for each solution type and company for the 56 respondents. These respondents claim that C-level Executives and the office of the CSCO are active in supply chain investment decisions. Overall, there is an average ROI expectation of 18.2 months to payback. Some of the companies are targeting paybacks in less than one year and the percent of companies with that expectation is in the last row. From the ROI matrix we can observe several key points: The popularity of a given investment choice is ranked from left to right and the first two items SCV through and supply chain network design are closely ranked within the 82% to 88% range and they each have a payback within one month of the overall average of 18.2 months until planned payback. Supply chain visibility the top ranked option at 88% compares favorably with the next ranked supply chain network design. Likewise 30% of the companies have a planned payback on SCV within the first year. This is promising indeed for companies wanting to justify the SCV investment choice. Transportation management, with 73% popularity, is the most mature software area within supply chain execution (40% to 60% of companies claim they use a commercial package already). The fact is, however, most of the transportation management solutions companies have deployed to handle their domestic transportation do not address global transportation (i.e., ocean, air, cross-border rail). For instance we know that over 86% of companies are global but only 20% can claim that their TMS can handle import/export documentation (see sidebar). Finally, the fact that Trade Compliance or Import/Export stands at (33%) further illustrates the imbalance between domestic and global supply chains. While 86% of companies surveyed are global, only 20% reported having a formal Global Trade Compliance program for their global shipments. Ironically, GTM is likely the most important enabler and requirement for global expansion, but the least understood or addressed. Generally C-level executives and CSCOs are less familiar with Trade Compliance than other supply chain areas, but those who do understand it expect strong returns. In fact Trade Compliance had the highest percentage of respondents (35%) expecting a payback in less than a year. As Appendix A highlights, Trade Compliance is the source of strong financial returns and can help organizations to overcome the domestic vs. global supply chain performance imbalance depicted in Table 1 and Figure 3.

"Now visibility needs to be simple and easy to look at. What customers are really asking for is the ability to interact. If youre going to give me a portal, I want to be able to do something with it. ~ Donald Meewes, Chief Information Officer , NYK Logistics

Companies are Increasingly Global yet unequipped 88% Exporting (shipping across country borders). 83% Importing (receiving from other countries) 87% Domestic shipping 83% Domestic receiving Hence 86% have import and/or export trade volumes yet : Only 22% have the capability to include customs/duties in landed cost calculations Only 20% have a formal Global Trade Compliance (GTC) program

Linking Process Step Improvements / Benefits to the Profit and Loss Statement
We have shown in Figure 3 and Figure 4 how product and information are synchronized and flow across a series of 21 key process steps in the
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Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 9

extended supply chain. We can also see the various solutions and investment choices that the supply chain executives have to choose from in bridging process and technology gaps (Table 2, ROI Decision Matrix). Each investment choice yields an expected payback and we have ranked those expectations in the decision matrix for comparison. However, even a top ranked choice like supply chain visibility or a regulatory requirement like global trade compliance have different financial implications from company to company (even from supply chain to supply chain). Each company has different operating profiles, technology infrastructure, and partnering requirements which should always be matched to the solutions that best fits their current operating needs. In this section, we introduce the reader to the detailed Global Supply Chain Process Steps Linked to Profit & Loss Hierarchy, in Appendix A. Compiled from analyst experience and numerous reference documents, customer interviews, and case studies (see Related Research Section) this table provides a chronology of supply chain Process Steps (2nd Column) across various dimensions (Process Area, Improvement Area and Financial Savings, and the Solutions or Investment Area). These dimensions are linked or matched to a particular category or benefit on the P&L Statement. In addition, sample savings calculations from our research across numerous research topics and insights from case study interviews are included. All in an effort to qualify the transformation efforts, and document the types of benefits companies have derived by improving various process steps in their global supply chain. The detail provided is comprehensive - covering the full range of inbound to outbound process steps - and links P&L benefits into an overall sequenced hierarchy of supply chain transformation options. Examined appropriately and in conjunction with the ROI Decision Matrix, this appendix provides a detailed primer for end-to-end supply chain transformations that can yield benefits that flow directly to the bottom line.

Demographics Between January and February 2011, Aberdeen examined the use, the experiences, and the intentions of more than 191 enterprises regarding their Supply Chain Executive's Agenda in a diverse set of enterprises. From this overall group 56 companies which claim to have active C-level support for supply chain process /technology investments were analyzed for purposes of this document. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on Supply Chain Executive's Agenda strategies, experiences, and results. For the 56 enterprises responses included the following: Job title: The research sample included respondents with the following job titles: Manager (30%); Managing Director / Director (37%); C-Suite including CEO / President (23%); EVP / SVP / VP (6%); Staff (2%); and other (2%). Department / function: The research sample included respondents from the following departments or functions: supply chain, or logistics manager (45%); procurement (10%); operations manager (8%); senior management (20%); and IT manager or staff (14%); and other (5%). d Telephone: 617 854 5200 Fax: 617 723 7897

Recommendations and Summary Conclusions

As the degree of global collaboration grows, and global supply chains become more expansive and complex, it is likely that collaborative processes, systems and platforms will gain added popularity. These trends also give rise to the growing complexity and multi-tiered nature of today's supply chain and in turn feed the next cycle of change and beget further global transformations. This document explores the capabilities and ranks the technologies that 56 companies that have active C-level support for supply chain process/technology investments are prioritizing for deployment. It demonstrates the manner in which supply chain executives can examine their options and derive supply chain value through a step by step assessment of each linked process step in their end to end supply chain. Aberdeen recommends that supply practitioners consider adopting the following three steps as they use this insight to indentify supply chain transformation opportunities:
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Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 10

1. Start with process. Many companies jump right to technology first without taking careful consideration of the process first. Using this primer and the linked process step hierarchy identify your process gaps and streamline/reengineer them first with careful consideration given to where the P&L benefits are. Once you have identified which process steps remain in your transformation plan determine which of these can be enhanced and begin to quantify the specific cost/benefit they bring to your P&L and your value proposition. 2. Select technology appropriately. Using the cost benefit inputs developed in the first step, begin to link together areas of technology / service improvements that are required support the transformed supply chain. ROI analysis requires you estimate the costs of the technology investment offset by the benefits you quantified in isolation in the first step. In this step you can tie the specific benefits at each process step to an aggregated view of P&L benefits across all linked process steps to which the particular technology investment applies. 3. Equip and train your staff. Supply chain transformation is not simply the implementation of reengineered process or advance technology it requires people, who must be equipped. Train and build a center of excellence around people, process and technology that spans an understanding of fundamental process linkages and training in systems and technology. No transformation is complete if the people cannot properly leverage technology or do not utilize it properly. This document provides guidelines for ROI savings and transformational activates that can ultimately improve productivity and increase company profits. As companies adapt to the globalization of their supply chains these recommendations and guidelines can equip supply chain executives with actionable steps they can take to bolster performance and address each challenge. For more information on this or other research topics, please visit www.aberdeen.com.

Demographics (continued) Industry: The research sample included respondents from: Industrial Manufacturing (22%); Aerospace and Defense (17%); Automotive (15%); Computer Equipment (10%); Consumer Packaged Goods (CPG) (7%); Health and Medical (7%); Wholesale Distribution (3%) and all other (19%). Geography: The majority of respondents (60%) were from North America. Remaining respondents were from Europe (22%) and the Asia-Pacific region (18%). Company size: Forty-seven percent (47%) of respondents were from large enterprises (annual revenues above US $1 billion); 32% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 21% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Sixty-six percent (66%) of respondents were from large enterprises (headcount greater than 1,000 employees); 27% were from midsize enterprises (headcount between 100 and 999 employees); and 7% of respondents were from small businesses (headcount between 1 and 99 employees).

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Related Research
2011 Transportation Contract, Tender and Spend Management; April 2011 Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency; February 2011 International Transportation: Optimize Cost and Service in a Global Market; July 2010 State of Retail Logistics: Strengthening Cross-Channel Supply Chain Execution; March 2010 Supply Chain Visibility Excellence: Reduce Pipeline Inventory and Landed Cost; December, 2009 Integrated Transportation Management: Improve Responsiveness with Real-Time Control of Execution; October, 2009 Evaluating Logistics Outsourcing: Look Before You Leap!; October, 2009 Tending the Fleet: Paving New Roads with Effective Fleet Management; September, 2008 No Excuses! Why Optimizing Transportation Management is Within the Reach of Every Company; July, 2008 Achieving Closed-Loop Transportation Spend Management; January, 2008

Bob Heaney, Senior Research Analyst, SCM Practice (bob.heaney@aberdeen.com)

For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeens research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for 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 Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2011a)

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Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 12

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Supplier Enablement Process Step Supplier PO Management Improvement Area and Financial Savings Supplier Enablement / Supplier PO Management / Days in Inventory Reduce order cycle times Improve coordination with suppliers to reduce order cycle times by 1 to 2 days Automate and save SG&A Cut the time needed to generate and confirm an Advance Ship Notice from 1.5 days to less than an hour. Improve Cost and Service Secure buyer approval of the shipment by confirming order compliance (fill rates and ship windows) Inbound Customs / Inbound Customs Clearance / Days in Inventory Reduce inventory by pre-clearing Customs and as well as reduce the percent of shipments held in Customs for exam Pre-clear Customs 90%+ of the time to avoid typical Customs clearance cycle time of 1 to 3 days. This can save 1 2 days of inventory Reduce the percent of import shipments held at Customs 80%. A best-in-class company can achieve 2.2% hold rate while an average company can be as high as 9.4% (Aberdeen GTM study 2010) ***. Assuming an average 4 -5 days for a Customs exam and a 7% differential, this translates to approximately .3 days of inventory Use Broker Scorecards to identify cycle time exceptions to SLA by broker by port Manufacturing Events / Manufacturing Production Status / Days in Inventory These solutions provide importers detailed visibility of the supply chain: back to the P&L Benefits Days in Inventory Reduce order cycle times Solution Area Supply Chain Visibility Illustrative Case Study Examples and Metrics Manager of Large European Distributor The major problem is that we are dependent on customers with a trader mentality, hence it is difficult to obtain time sensitive data for global trade. This leads to considerable delays and problems when purchasing raw & packing materials for our suppliers. We need to leverage a collaborative global trade solution and get away from time differences and fax and email."

Inbound Customs

Inbound Customs Clearance

Days in Inventory Reduce inventories

Import

Manager at an Automotive Manufacturer "We are an automotive subsidiary charged with providing supply chain management services in a global sourcing environment. We need to create conditions where dynamic planning of product purchases and logistics services enable optimized cost and time and avoid duties and inbound customs delays"

Manufacturing Events

Manufacturing Production Status

Days in Inventory Reduce safety stock

Supply Chain Visibility

Manager of Large European Co-packer We are a co-packer with some major captive customers. The major problem is that we are

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for 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 Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 13

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Improvement Area and Financial Savings supplier at the time of purchase order, to manufacturing status, to the time the goods ship from the manufacturing facility, to the time goods are loaded onto the vessel, while they are in transit, and finally arrive at their destination. This visibility enables companies to see actual transit times vs. the padded times they are given by their suppliers and carriers, ultimately enabling them to strip out unnecessary safety stock, while still meeting customer delivery commitments. In-transit Status / Carriers, Ocean other / Days in Inventory These solutions provide importers detailed visibility of the supply chain: back to the supplier at the time of purchase order, to manufacturing status, to the time the goods ship from the manufacturing facility, to the time goods are loaded onto the vessel, while they are in transit, and finally arrive at their destination. This visibility enables these customers to see actual transit times vs. the padded times they are given by their suppliers and carriers. This increased visibility enables these SCV customers to strip out unnecessary safety stock, while still meeting customer delivery commitments. Import Clearance efficiency Import Process / Import Clearance efficiency / Days in Inventory By automating and streamlining the entire import process companies can compress supply chain cycles times by eliminating delays associated with improperly classifying products, performing regulatory checks, calculating total landed costs, clearing goods P&L Benefits Solution Area Supply Chain Visibility Illustrative Case Study Examples and Metrics dependent on customers with a trader mentality; hence it is difficult to obtain status of events to gain visibility to manufacturing production. This leads to considerable line changeovers & inability to optimize on economic order quantities when purchasing. We need an integrated visibility platform to operate."

Manufacturing Events

Manufacturing Production Status

In-transit Status

Carriers, Ocean other

Days in Inventory Reduce safety stock

Supply Chain Visibility

A Supply Chain Visibility and Event Management solution provides a U.S.-based beverage distributor with complete order and shipment visibility; synchronizes logistics data across the companys supplier and trading partner network; and measures the performance of vendors and service providers using comprehensive scorecards and reports. With access to real-time data on shipment dispatches and warehouse receipts, users can now better manage safety stock levels at each distribution centre, avoid expediting and reduce domestic transportation costs.

Import Process

Days in Inventory Reduce inventories

Import

A large Asian-based electronics manufacturer automates over 30,000 import shipments annually with an import solution. The solution provides upto-date Customs documentation, performs regulatory compliance checks and manages other government agency document requirements to ensure that the manufacturer is taking reasonable care. The company also conducts variance Telephone: 617 854 5200 Fax: 617 723 7897

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Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Import Process Supply Chain Visibility Process Step Import Clearance efficiency Item Product Level Visibility Improvement Area and Financial Savings through Customs, generating international shipping documents, etc. P&L Benefits Solution Area Illustrative Case Study Examples and Metrics reporting to benchmark broker performance, monitor shipment delays and data discrepancies, and reallocate resources to various internal sales companies. By establishing a collaborative network with freight forwarders, carriers, suppliers, trading partners, and brokers using a Supply Chain Visibility solution, a large U.S.-based consumer packaged goods company is able to pinpoint delivery dates, allocate inventory in-transit and resolve import and export problems before they impact customer demand. With the SCV solution, the company has: Reduced number of days of inventory in hand by 24% Reduced lead times by 28% Improved on-time customer delivery from 33% to 74% Integrated into its ERP application, the Landed Cost Engine calculates duties and import taxes across complex tariff scenarios to optimize procurement decisions for a mid-sized electronics manufacturer.

Supply Chain Visibility / Item Product Level Visibility / Days in Inventory SCV solutions give companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and reallocate inventories to meet critical customer orders and backfill inventories to still meet orders with longer lead times.

Days in Inventory Reduce stock outs and mark downs

Supply Chain Visibility

Total Landed Cost

Total Landed Cost Calculation

Sourcing Support

Duty Management

Total Landed Cost Management / Total Landed Cost Calculation / Cost of Goods Sold Total landed cost solutions enable companies to consider duty payments, freight charges and other global trade related costs when making sourcing decisions. In doing so, companies can reduce the total landed cost of imported goods. Sourcing Support FTA / Duty Management / Cost of Goods Sold A new free trade agreement solution helps companies significantly reduce duties by helping them identify qualify for, and administer free trade agreements for which they are eligible.

Cost of Goods Sold - Reduce total landed costs on imports

Import Landed Cost

Cost of Goods Sold - Reduce duties

Free Trade Agreements

A furniture manufacturer uses a free trade agreement solution to manage its NAFTA certification data across 1,000+ suppliers worldwide, analyze 16,000 products and ensure compliance with all US Customs export regulations. Delivered on-demand as a web portal the solution automates solicitation and

2011 Aberdeen Group. www.aberdeen.com

Telephone: 617 854 5200 Fax: 617 723 7897

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 15

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Improvement Area and Financial Savings Often companies will not attempt to fully capture FTA savings for all eligible products given headcount constraints this ranges from 20% to 50%. Assuming duty savings of 2% to 3%, a 20% to 50% improvement in coverage will net on average .4% to 1.5% additional duty savings on the sourced value of goods from the first trade agreement With automation, this benefit can be captured with no net change in headcount Sourcing Support / Automated FTA Sourcing Support / Cost of Goods Automate the process to capture subsequent duty savings (second and additional agreements) Many companies are reevaluating their sourcing options to take advantage of free trade agreements. With automation, this is a new opportunity for duty reduction without a change in headcount Assume 30 to 60% of the value of imports could qualify for one or more additional agreements, but is not currently managed today Assume a duty savings of 2% to 3% this equates to a reduction in duties paid per import value of .6% to 1.8% With automation, this benefit can be captured with no net change in headcount Sourcing Support / Administer, automate Foreign Trade Zones (FTZ) / Cost of Goods Sold Effective use of a foreign trade zone solution enables companies to avoid duty payments on 2011 Aberdeen Group. www.aberdeen.com Telephone: 617 854 5200 Fax: 617 723 7897 P&L Benefits Solution Area Illustrative Case Study Examples and Metrics management of qualification data from suppliers as well as integrating with companys order management, warehouse management, and ERP systems. The manufacturer has realized $1.2 million in duty savings.

Duty Management

Automated FTA Sourcing Support Sourcing Support

Cost of Goods Sold - Reduce duties

Free Trade Agreements

A furniture manufacturer uses a free trade agreement solution to manage its NAFTA certification data across 1,000+ suppliers worldwide, analyze 16,000 products and ensure compliance with all US Customs export regulations. We are currently reliant on this solution.

Administer, automate Foreign Trade Zones (FTZ)

Cost of Goods Sold - Reduce duties

Foreign Trade Zone

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 16

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Improvement Area and Financial Savings goods that get re-exported, eliminating the duties altogether. This savings go directly to a company's bottom line. Duty Management / Automate Duty Drawback / Cost of Goods Because the solution has a record of both imports and exports, it enables companies to identify instances where duties were paid on imported items, only to be re-exported as a finished good or as a bill of material component to a finished good. This enables companies to re-coup the duties paid originally on the imported good. That savings goes directly to a company's bottom line. Supplier Enablement / Automate Consolidated Supplier Import Entries / Cost of Goods Consolidate shipments to reduce Merchandise Processing Fee Assume 5% of import entries can be consolidated Save $100 - $500 per consolidated entry or on average, $5 to $25 per entry In addition, broker fees can be eliminated on the 5% of imports for an equivalent savings of $2.5 per entry ($50 per entry x 5%) Broker Enablement / Automate Precustoms Entry / Cost of Goods Reduce broker fees by sending electronic Pre-Customs Entry Prepare 7501 and electronically transmit to broker P&L Benefits Solution Area Illustrative Case Study Examples and Metrics

Duty Management

Automate Duty Drawback

Cost of Goods Sold - Reduce duties

Duty Drawback

Supplier Enablement

Automate Consolidated Supplier Import Entries

Cost of Goods Sold - Reduce buyer fees

Supplier Management

Automate Precustoms Entry Broker Enablement

Cost of Goods Sold - Reduce broker fees

Import

An import solution has enabled a large global retailer to take many of the import pre-clearance functions in-house for most of their products and self file for select products. This capability has reduced the companys total brokerage fees by 45%, which is a multi-million annual savings.

2011 Aberdeen Group. www.aberdeen.com

Telephone: 617 854 5200 Fax: 617 723 7897

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 17

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Improvement Area and Financial Savings Broker avoids having to rekey data and often a 20% to30% fee reduction is possible. Many companies have seen a 30% reduction in fees by automating this information feed. In addition, by avoiding errors related to rekeying, entry accuracy improves. Broker Enablement / Automate selffiling on Imports / Cost of Goods Further reduce broker fee by self-filing Typically a company can self-file for less than $10 per entry and leverage much of the effort of working with a broker This requires additional headcount, but typically each FTE can file 5,000 entries annually In addition to saving on broker fees companies can reduce entry cycle time, prevent delays by reacting to ABI errors in real time, and eliminate broker premiums for dock fees and transportation arrangements. Any Importer of Record can self-file without a license or permit ( just apply for a filer code which can take a few weeks. This also helps to establish a strong relationship with Customs. Automate Export / Cost of Goods Sold By simplifying and automating many of the functions required to export goods, companies are able to perform these functions in-house, thus eliminating the need to pay the forwarder fees associated with various tasks. Tasks reduced include : Electronically provide shipment details and eliminate the need to re-key data up 2011 Aberdeen Group. www.aberdeen.com P&L Benefits Solution Area Illustrative Case Study Examples and Metrics

Automate Precustoms Entry

Broker Enablement Automate selffiling on Imports

Cost of Goods Sold - Reduce broker fees

Import

The average broker fee for filing an import is $75 per" (see Aberdeen study from June 2007 and revalidated our current GTM survey ). Moving to self filing, would reduce this cost to under $10 per. That is an 85% reduction in brokerage fees. Since implementing an import solution, a U.S.based diversified manufacturer has improved visibility over origin operations, reduced overall cycle time, streamlined the process with broker to improve efficiency and reduced fees. The single biggest improvement in the compliance process, according to the companys vice president of compliance, is that the number of broker errors we are detecting in our post-entry audit review has gone down remarkably. The company reduced broker fees and realized 3% product cost savings on imported goods.

Automate Export

Automate Exports

Cost of Goods Sold - Reduce forwarder fees

Export

An electronics parts manufacturer is leveraging a comprehensive product master, workflow tools and screening engines, which have enabled them to improve export productivity by 50 percent without hiring additional staff. The electronics part company has also reduced forwarder fees by an estimated 20%.

Telephone: 617 854 5200 Fax: 617 723 7897

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 18

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Improvement Area and Financial Savings Self file EEI, saving an average of $15 for a forwarder to file. Supply Chain Visibility / Automate Carrier Visibility and Tracking / Cost of Goods Sold By providing real-time visibility of ocean container shipments, inbound from supplier all the way to port of destination, companies can better plan domestic pick up of goods, thus avoiding demurrage penalties associated with containers waiting for pick up Allocations / Automate item-inventory balancing / Cost of Goods Sold A new SCV solution gives companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and reallocate inventories to meet customer orders without the need to expedite shipments. Transportation / Automate Freight Audit and Pay / Cost of Goods Sold A new transportation solution enables companies to compare actual freight charges to contracted freight charges by shipment in order to identify and recoup overcharges by the carrier. P&L Benefits Solution Area Illustrative Case Study Examples and Metrics

Supply Chain Visibility

Automate Carrier Visibility and Tracking

Cost of Goods Sold - Reduce demurrage and detention fees

Supply Chain Visibility

A Supply Chain Visibility solution helps an ocean carrier to coordinate both internal and customer-facing operations in one online platform. The solution also generates alerts such as container ready for pick-up to streamline supply-chain hand-offs between multiple trading partners to minimize delays. This coordination helps reduce demurrage and detention fees by 25 50%. An oil & gas engineering company proactively address issues and minimize expedited shipments using a supply chain visibility solution, eliminating an average of 10% of the value of expedited freight.

Allocations

Automate item-inventory balancing

Cost of Goods Sold - Reduce expedited shipments

Supply Chain Visibility

Automate Freight Audit and Pay Transportation

Cost of Goods Sold - Reduce overages on freight charges

Global Transportation - Freight Audit

Automate, Manage Transportation 2011 Aberdeen Group. www.aberdeen.com

Transportation / Automate, Manage Transportation Performance / Cost of Goods Sold A new transportation solution tracks the on-

Cost of Goods Sold - Reduce global

Global Transportation

A large apparel manufacturer uses a global transportation management solution for end-toend freight audit capabilities across fourteen ocean carrier service contracts. The solution provides tools to quickly evaluate a range of options across its portfolio of service contracts prior to booking and identifies rating discrepancies to quickly resolve billing issues with carriers. The company resolved and recouped over $220,000 in bill-of-lading overcharges in the first year it deployed the solution. Using a new Contract and Price Management solution, a large forwarder was able to automate their ocean service contracts, streamline the rate and quotation process, and audit all freight Telephone: 617 854 5200 Fax: 617 723 7897

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 19

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Improvement Area and Financial Savings time delivery performance of global carriers which enables companies to determine which ones are meeting their SLA's and which ones are not. Where applicable, companies can recoup fees already paid to carriers based upon penalty clauses in their contracts. Companies can also use this performance data to negotiate lower rates on future contracts. Transportation / Automate Transportation Procurement / Cost of Goods Sold A new global transportation management solution enables companies to evaluate and select carriers based upon freight charges and a variety of other assessorial charges, as well as on-time delivery performance. Therefore, companies can reduce freight costs by picking the lowest cost provider based on all charges. Supplier Enablement / Optimize shipments or loads and consolidate / Cost of Goods Sold Identify consolidation opportunities: A new Supplier Order Management capability gives you visibility to supplier orders and ready dates to identify additional opportunities to consolidate loads and improve load factors. Automate Export / Automate Export Processes / Days Sales Outstanding By automating and streamlining the entire export process, companies can eliminate delays of exported products to customers caused by compliance checks, license determination and generation, international shipment document generation, restricted party screening checks, etc. P&L Benefits freight costs Solution Area Illustrative Case Study Examples and Metrics transactions to track the cost and margin on each quote, as well as eliminate carrier invoice overcharges. The company reduced misquotes and carrier overcharges, improved profit margin and realized cost savings of $1.45m per year.

Automate, Manage Transportation Transportation Automate Transportation Procurement

Cost of Goods Sold - Reduce global freight costs

Global Transportation

Implementing a new logistics contract management system provided a diversified manufacturer with a central online contract repository and rating engine for 100 users in US, Europe and Asia Pacific locations to calculate full bottom-line costs for any shipment. As a result, the company was able to reduce its international transportation spend.

Supplier Enablement

Optimize shipments or loads

Cost of Goods Sold - Reduce global transport

Supply Chain Visibility

Assuming a Full Container Load (FCL) factor at 70%, an SCV solution can conservatively increase load factor by an additional 10% for a total reduction of ocean transportation costs of several million dollars per year.

Automate Export

Automate Export Processes

Days Sales Outstanding - Improve Days Sales Outstanding

Export

A new Trade Export solution streamlines a large U.S. defense manufacturers global logistics operations, ensuring full compliance with countryspecific trade rules and regulations. By simplifying the shipment process, automating trade documentation and enabling restricted party screening online, the company can control the regulatory and financial implications of all its international shipments. Telephone: 617 854 5200 Fax: 617 723 7897

2011 Aberdeen Group. www.aberdeen.com

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 20

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Automate Export Status and Billing Improvement Area and Financial Savings Visibility, Event Management / Automate Export Status and Billing / Days Sales Outstanding. By giving companies order level visibility to shipments throughout their supply chain, companies are notified as soon as a shipment reaches its destination port and officially changes hands. Consequently, companies can electronically bill the buyer as soon as the goods change hands, rather than days following the goods transfer, ultimately allowing them to shorten their accounts receivable cycle times. Visibility, Event Management / Automate item, outbound export shipments / Revenue & Profit Margin The solution gives companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and reallocate inventories to meet critical customer orders and backfill inventories to still meet orders with longer lead times. P&L Benefits Days Sales Outstanding - Reduce accounts receivable cycle times Solution Area Supply Chain Visibility Illustrative Case Study Examples and Metrics Our continued improvements in supply chain visibility will help us do a better job of maintaining high in stock performance for our customers while effectively managing inventory level and days sales outstanding. ~ VP Supply Chain, Large Distributor

Supply Chain Visibility

Automate item, shipment, customer outbound export shipments

Revenue Reduce stock outs and mark downs

Supply Chain Visibility

Shipment Expedite

Visibility, Event Management / Automate Shipment Expedite / S, G & A The solution gives companies item level visibility of orders all the way back to the purchase order through delivery. This visibility enables companies to identify potential delays before they occur, and reallocate inventories to meet customer orders without the need to expedite shipments.

S, G & A Reduce expedited shipments

Supply Chain Visibility

By establishing a collaborative network with freight forwarders, carriers, suppliers, trading partners, and brokers using a new Supply Chain Visibility solution, a large consumer products company is able to pinpoint delivery dates, allocate inventory in-transit and resolve import and export problems before they impact customer demand. The company has: Reduced number of days of inventory in hand by 24% Reduced lead times by 28% Improved on-time customer delivery from 33% to 74% With an SCV solution, a large apparel manufacturer is able to manage incoming products and to proactively address issues by exception. This has reduced manual tracking and tracing of inbound shipments by 98%.

2011 Aberdeen Group. www.aberdeen.com

Telephone: 617 854 5200 Fax: 617 723 7897

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 21

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Process Step Automate Export Improvement Area and Financial Savings Administrative / Automate Trade Export / S, G & A Handle more export transactions with the same of fewer staff Automate entire process of screening, licensing and document production Provide access to information for all interested parties (compliance, logistics, procurement, distribution, forwarders) Manage by exception to reduce manual effort by 90% (eg. verify compliance on less than 10% of all transactions) Realize productivity savings of 90% * (20 30 minutes of manual effort per export transaction) assume 20 minutes per transaction Eliminate the need to hire more staff at $80,000 to $100,000 (fully loaded) which is equivalent to $40 to $50 per hour or approximately $15 per transaction Administrative / Automate Trade Import / S, G & A Handle more export transactions with the same of fewer staff Automate the entire import process including classifying goods, determining duty, valuing assists/royalties, assembling a compliant purchase order, coordinating orders with suppliers, screening transactions, producing documents (and broker packets), and reconciling entries. This does not include filing (above) Provide access to information for all interested parties (compliance, logistics, procurement, distribution, forwarders, brokers) Manage by exception to reduce manual effort by 90% (eg. touch an import less than 10% of the P&L Benefits S, G & A Reduce headcount costs Solution Area Export Illustrative Case Study Examples and Metrics

Administrative

S, G & A Reduce headcount costs

Import

By using an import solution to automate the function, a large electronics manufacturer nearly doubled import volumes with no increase in staff.

Automate Import

2011 Aberdeen Group. www.aberdeen.com

Telephone: 617 854 5200 Fax: 617 723 7897

Globalization: Linking Supply Chain Transformation to the Profit and Loss Statement Page 22

Appendix A: Global Supply Chain Process Steps Linked to Profit and Loss Hierarchy
Process Area Administrative Automate Import Process Step Improvement Area and Financial Savings time) Realize productivity savings of 90% * (15-20 minutes of manual effort per import transaction) assume 16 minutes per transaction Eliminate the need to hire more staff at $80,000 to $100,000 (fully loaded) which is the equivalent of $40 to $50 per hour or approximately $11 per transaction P&L Benefits Solution Area Illustrative Case Study Examples and Metrics

2011 Aberdeen Group. www.aberdeen.com

Telephone: 617 854 5200 Fax: 617 723 7897