The Logitech Supply Chain: Solidifying Our Competitive Advantage

Transcription

1 The Logitech Supply Chain: Solidifying Our Competitive Advantage Gray Williams Vice President World Wide Supply Chain Logitech Investor Day London May 10, 2007

2 Our Mission Provide Logitech and its customers with industry best-in-class supply chain operations as measured by customer satisfaction and contribution to the company s financial performance Bottom Line: Make the WW Supply Chain a competitive advantage for Logitech Satisfied Customers - Low Operating Costs Working Capital Efficiency 2

3 Supply Chain Management ModelTM TM C U S T O M E R S A T I S F A C T I O N Predictability On-time delivery to commit On-time delivery to request Fill rate Forecast accuracy New product launch precision Supplier on-time delivery EXECUTE TO THE QUARTERLY BUSINESS PLAN BUSINESS EXECUTION PLAN Make commitments & meet them. Provide flexible & available supply. Responsiveness Forecasting/planning cycle Order fulfillment lead time Physical flow; source to customer Supplier flexibility Multiple SC delivery models Deliver a competitive SC cost structure. Sustain high velocity inventory & receivables. P & L Total supply chain costs as a % of revenue Increased revenue Balance Sheet Inventory days of supply Inventory profile Cash-to-cash cycle time Net asset turns F I N A N C I A L P E R F O R M A N C E Capable Effective PEOPLE & SYSTEMS 3 Useful Used

4 The Supply Chain Challenge Competitive product cost Minimize mfg costs Build in low cost locations Ship via ocean Minimize transport costs Long delivery cycle time Flexibility needs Reliance on forecast accuracy Inventory control Goal Supply Chain Network Implications Resulting Issues 4

5 A Unique Model for Mastering Many Challenges Million units Total Unit Shipments Over 150M units shipped in 07! 5 Balancing cost management with the flexibility needed to sustain high service levels Air vs. sea transportation Significant product disparity size, complexity, and cost Small mouse vs. desktop vs. heavy 5.1 speaker system Complex third-party relationships at virtually every supply chain node All logistics operations are outsourced Multiple sales channels with different needs and requirements e.g. just-in-time delivery for OEM vs. complex warehouse delivery to retailer Recognizing and incorporating regional differences into a global supply chain One product comes in up to 22 language versions

6 Multiple Delivery Models Amsterdam To EMEA JIT Hubs (18) Holland/ Hungary China JIT Hubs (17) Asia DC To Asia JIT Hubs (17) To North America LA Memphis Mexico City Air-based transportation Ocean-based transportation Land-based transportation Characteristics: Manufacturing sites positioned in Suzhou and South China Three alternative delivery models: Exclusively ocean/land-based transportation primarily for heavier products (speakers) Primarily ocean/land-based transportation with upside via Air Air-ship of bulk-packed assemblies to DC s with regional localization 6

7 Our Supply Chain is Actually Many Supply Chains Country- Specific Distributors Retailers CM Level 2 Final Configuration Distributors Component Suppliers Logitech Factory Regional Distribution Mass Retailers OEMs Consumer Contract Manufacturers VARs 7

8 From the Relatively Straightforward OEM mouse built in Suzhou and sold in the US Country- Specific Distributors Retailers CM Level 2 Final Configuration Distributors Component Suppliers Logitech Factory JIT Warehouse Mass Retailers OEMs Consumer Contract Manufacturers VARs 8

9 to the Most Complex Retail Desktop built by a CM & Suzhou and sold in Europe Country- Specific Distributors Retailers CM Level 2 Final Configuration Distributors Component Suppliers Logitech Factory Regional Distribution Mass Retailers OEMs Consumer Contract Manufacturers VARs 9

10 We Operate a Plug & Play Logistics & Transportation Model In-Bound Transportation Warehousing Out-Bound Transportation WW partners by mode Air, Sea 4 WW partners Standard annual contracts under fixed pricing Regional Partners by Channel Retail vs. OEM 10 retail DC s & 59 JIT warehouses Standard, fixed price, multi-year, transaction & storage-based contracts Regional partners by mode Less-than-full truckload, full truckload, express/next Day, small package 6 regional partners Standard annual contracts under fixed pricing We can change providers for all logistics services based on bid processes to achieve lower cost and better service 10

11 Our Organization is Structured Around Three Core Processes WW Supply Chain Core Process Management Line Organizations WW OEM Supply Chain EMEA Supply Chain AMR Supply Chain APR/Japan Supply Chain WW Transport/Logistics WW Demand & Supply Planning (S&OP) New Product Introduction (PLCM) 11

12 So, How Are We Doing? Logitech s Key Operational Objective: Maximize Shareholder Value Profitable Growth Capture & Increase Revenue Control & Reduce Costs Optimize Asset Management Bottom Line: WW Supply Chain continues to contribute to the achievement of these objectives 12

13 Revenue Capture: Channel In-Stock Stock Levels 100% 98% 96% 94% 92% Example of In-Stock Levels at Major US-Retailer Having the right product - at the right time - at the right location In spite of: Heavy seasonality Customer demand swings 90% 88% 2W1 3W1 3W5 4W4 5W4 GOAL 6W4 7W3 8W3 Retailer A 10W2 11W2 12W2 1W1 Definition: % of store/sku combination in stock with at least 1 unit available at week-end. 13

14 Supply Chain Continues to Deliver through Cost Leverage Total Supply Chain Cost (indexed, 01 =100) Total SCC as % of sales (indexed, 01 =100) Supply chain costs in 07 grew significantly slower than sales Cost up 7% y/y vs. sales growth of 15% Reduction achieved even with rapid growth in retail unit volumes and rising complexity We also benefit from membership in Logistics Services Alliance Transforming our supply chain model to improve customer satisfaction, flexibility and cost Anticipate continued reduction of supply chain cost as a % of sales in 08 Design for supply chain programs impact transportation cost for audio products and help lift margins 14

15 Transportation Management is a Competitive Advantage Supply chain cost segmentation 07 Transportation is the biggest component of supply chain cost We are part of the Logistics Services Alliance (LSA) One of 10 members Volume purchase discounts Still independent contracts Process documentation Benchmarking capability We developed a superior transportation process Door-to-door rates Annual bid process by region Internal quick changeover We avoid fuel, security or currency surcharges thanks to contracted door-to-door rates 15

16 Logitech s s Key Operational Objective Maximize Shareholder Value Profitable Growth Capture & Increase Revenue Control & Reduce Costs Optimize Asset Management Bottom Line: WW Supply Chain continues to contribute to the achievement of these objectives 16

17 How the Supply Chain Impacts the Cash Conversion Cycle DSO/Receivables DSI/Inventory DPO/Payables Factors Channel Inventory/POS Integration Logitech Inventory Optimization Vendor Managed Inventory Demand & Supply Planning Demand & Supply Planning Demand & Supply Planning Processes Processes Processes CPFR = Collaborative Planning Forecasting & Replenishment S&OP = Sales & Operations Planning Enablers PLCM = Product Life Cycle Management Our primary focus is better information integration to achieve lower asset investment and improved ROIC 17

18 CPFR: Tightly Integrating our Partners into the Forecasting Process Intra-enterprise integration of demand forecasting: Sales to production Enterprise Integration Corporate Excellence We are here Partner Collaboration Value Chain Collaboration Full Network Connectivity Integration of the value chain with demand forecasting: End customer to supplier 18

19 CPFR: Collaborative Commerce with Wal-Mart We provide category management to Wal-Mart Sense Demand - Analyze POS data in realtime for demand patterns for the product category (price points, technologies etc.) Shape Demand Manage shelf composition, product pricing, and promotions to optimize match between orders and available supply Understand Demand - Market situation - Customer requests Respond to Demand - Fulfillment of orders Good prediction of demand to optimize order flow and better optimization of supply to enable quicker response 19

20 Sales and Operations Planning (S&OP) Years Strategic & Business Planning Months Budget & Financial Planning Sales & Operations Planning Product Design & Development Demand Planning Master Planning Weeks Production Planning Procurement Days/ Minutes Customer Demand Management Replenishment Planning & Execution Plant Scheduling & Execution 20

21 Sales and Operations Planning Opportunities Why is this relevant? The primary mechanism for keeping in line with market and customer changes High potential ROI in this area was a key driver of the Oracle upgrade that we completed in 07 What is the impact? Synchronized internal communications, reduced inventory, improved service and improved revenue capture Reduced order fulfillment cycle times and improved materials management for long lead time items Bottom Line: It s all about better planning 21

22 PLCM: Taking Product Management to the Next Level New product development New product introduction What is it? Product Lifecycle Management consists of the business processes and techniques that enable product conception, portfolio management, product commercialization and product phase-out Why is this relevant? Introducing, supporting and discontinuing products is fundamental to our business >100 major products introduced each year necessitating phase-out of previous product generation What is the impact? Increased revenue through more timely volume ramps Decreased cost through better execution of phase-in/phase-out Faster product development cycles Improved Logitech brand loyalty 22 Volume ramp Sustaining volumes Product phase-out

23 PLCM: Implementing a Comprehensive Process for the Entire Life Cycle Implementation Stages: Assessment Design Verification Validation Deployment Status map of sub-projects within each PLCM stage: Portfolio renewal Product development Commercialization In-bound marketing Innovation management Portfolio renewal Marketing requirements management Technology and platform management Advanced operations Project management Core engineering techniques Product/system engineering Manufacturing/supply chain engineering & planning Product QA Product launch Quality feedback loop Sustaining engineering Commercialization Phase-in phase-out SKU Complexity Phase / Gate process Project/product information delivery system Process repository 23

24 Drivers for Continuous Improvement Transportation & Logistics Costs Annual RFQ process bringing forwarders & carriers under annual fixed price contracts audited by a 3 rd party freight payment service Leverage best practices for internal DC/JIT Warehouse (3PL) Differentiated delivery models for high customer satisfaction Effective Sales & Operations Planning process Increased revenue capture and higher gross margin through more effective matching of supply and demand Supplier flexibility/vmi CPFR Best-in-Class customer satisfaction (in-stocks, fill rates, and gross margin ROI) Precision New Product Launches Intense focus on 08 launch timeliness and cost targets Design for supply chain - Maximum utilization (pallets/containers/warehouses) PLCM process deployment during 2 nd Half 08 for 09 Information Systems Leverage Drive high ROI for our Oracle investment 24

25 Fulfilling the Supply Chain Challenge Total Supply Chain Cost as % of Revenue Current Supply Chain Efficiency THE END GAME Higher customer satisfaction at lower cost Pushing the Efficiency Envelope Customer Satisfaction Service Level 25