supplychainforesight

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1 Survey conceptualised and initiated by FMCG/Retail Report Integration Strategic Global Supply Chain Dynamics Measuring the Butterfly Effect for South Africa supplychainforesight

2 Strategic The Butterfly Effect The supplychainforesight report for 2009, true to tradition for this benchmark piece of South African strategic supply chain research, is right up to the minute in offering insights into supply chain strategy and operations in the global recession and economic crisis. Last year s research focused on those companies that were earning competitive advantage from their supply chains in a global context of economic growth and market diversity. However, the macro-economic situation in which the research takes place this year could not be more different. The global growth boom was enabled by the building out of global supply chains into an intricately intertwined network of supply and demand all over the world. Now, the global recession means that an industry decision on the other side of the world to put the brakes on growth plans could mean serious consequences for suppliers in South Africa. We ve called this the Butterfly Effect the phenomenon where a small change at one place in a complex system can have large effects elsewhere. The 2009 supplychainforesight survey has been conducted by respected international research company Frost and Sullivan, and continues to be conceived and sponsored by Barloworld Logistics. In this year s overall report we delved into the impact of the Butterfly Effect in different areas of urgent relevance for SA s supply chains, including the move to localisation, the relationship between business strategy and supply chain strategy, and the latest views of the industry on outsourcing and environmental agendas all with the trenchant comment and insight the market has come to expect from the research. Also true to tradition is the quality and depth of the response to the questionnaire with around 250 senior executives and supply chain managers in most of SA s major companies across key industries taking part. This maintains the focus of the research, established over the past six years, on large multinational companies whose strategies shape much of the country s economy. Each year the research is taken from these key industries and presented back as a focused insight into the industry concerned. As part of this exercise, each key SA industry is compared to the overall view of supply chain management and senior executive viewpoints given in the main report. For the FMCG/Retail supply chain this year, different responses were measured from both the supply side and the retail side. Throughout the report, these are compared and contrasted. Apart from this, the 2009 edition of supplychainforesight for the FMCG/Retail industry is structured according to many of the key themes and findings that appeared in the main report, but focuses specifically on the following ways in which South Africa s major FMCG supply chains are responding to the global economic meltdown: Short-term FMCG supply chain objectives and challenges: Tracking industry trends and strategies, including responses to the economic crisis and the focus on aligning the supply chain strategy with the business strategy. Since supplychainforesight has been tracking the FMCG/Retail industry since the inception of the research six years ago, we also draw some comparative conclusions about the strategic trend in the sector. 1

3 Outsourcing revisited: an in-depth look at the outsourcing question in the FMCG/Retail sector reveals a characteristic maturity about the reasons for and the value of outsourcing in accordance with the picture in the overall research this year. Industry investment: where the senior supply chain executives in FMCG are planning to invest, and why. Speaking the same language Private and Public sector co-operation: This section addresses a perennially difficult issue for the FMCG/Retail industry, which is often dependent on complex physical distribution networks the challenges presented to the private sector by the public sector s supply chain and logistics initiatives, especially the physical logistics infrastructure of the country. The Real Green issues: An in-depth look at the levels of awareness and business thinking in SA around sustainable environmentally-friendly business practices reveals that South Africa Inc has a long way to go on the issue. This is, surprisingly, especially true for the FMCG/Retail sector, which, despite indirectly or directly servicing the consumer market, is fairly non-committal about the value of investment in environmental sustainability. FMCG Objectives and Challenges In this section we present the trend-tracking section of the survey, which takes place every year and provides our findings with some context how senior executives and supply chain managers in the sector view their supply chain objectives and challenges for the coming year. The short term (1-2 years) objectives of the FMCG sector have become realigned to the restrictive market conditions in a very interesting way. A graphic depiction of these objectives can be seen here. Fig 1: Key Short-term Objectives of FMCG Sector Alignment with business objectives 2% 30% 9% 12% 5% Demand driven production 16% 16% Procurement optimisation 3% 6% Vertical Integration of ERP and P&F tools 5% 12% 5% 9% 9% Inventory management 5% 16% 23% 12% 5% 0% 20% 40% 60% Critical High Significant Medium Low 2 supplychainforesight 2009

4 Strategic As can be seen, the top 5 leading short term objectives of the FMCG industry sector, in order of first-rank importance, are: Aligning the supply chain with business strategy Demand-driven production Procurement optimisation Inventory management Vertical integration of ERP and & (P&F) tools. Over the last five years of the supplychainforesight study, some of these same objectives, crucial cornerstones for effective supply chains in the sector, have appeared time and time again. Fig 2A : FMCG Objectives 2004 Fig 2B: FMCG Objectives 2005 Reduce investment in inventory 63% Improve service offered to customers 59% Increase effectiveness of procurement processes 63% Reduce investment in inventory 4 Reduce out of stocks 5 Increase flexibility and responsiveness of manufacturing 42% Improve services offered to customers 5 Improve cooperation/ collaboration in the supply chain 3 Reduce costs of transportation Improve information visibility 3 0% 10% 20% 30% 40% 60% 70% 0% 10% 20% 30% 40% 60% 70% Fig 2C: FMCG Objectives 2006 Fig 2D: FMCG Objectives 2007 Improve service offered to customers 60% Reduce out-of-stocks/ increase shelf availability Increase shelf availability/ reduce out of stocks 31% Improve services offered to customers 15% Improve cooperation/ collaboration in the supply chain 26% Lower warehousing and distribution costs Reduce supply chain costs 24% on-time deliveries Reduce investment in industry 20% Lower the costs of manufacturing 0% 10% 20% 30% 40% 60% 70% 0% 5% 10% 15% 20% 3

5 Fig 2E: FMCG Objectives 2008 Reduce out-ofstocks/increase shelf availability Lower sourcing/ procurement costs 94% 100% Improve service offered to customers 81% Reduce investment in inventory 7 Lower warehousing and distribution costs 74% 0% 10% 20% 30% 40% 60% 70% 80% 90% 100% In almost every instance, the FMCG focus in previous years has been on supplying the right kind of stock at the right service levels to the retail trade service delivery has been paramount, as has the focus on improving collaboration with their downstream retail customers. For the first time since the survey began six years ago, the FMCG sector shows a major shift in their strategic thinking. The top-ranked objective of strategic was in fact ranked as important only by 9% of FMCG respondents last year, as opposed to the 46% of the retail response who rated it as significant. Now, almost a third of the respondents rate it as their first priority, with the traditional areas of inventory management (even though this remains the most widely-ranked factor) and planning and forecasting slipping down the rankings. The fact that demand-driven production and procurement optimisation have moved up in importance as objectives points to a more collaborative attitude with retailers, and a more holistic approach to cost containment and supply chain planning. As far as challenges in the FMCG sector are concerned, the picture is somewhat more practical and tactically oriented. Fig 3: What Challenges are Shaping the Strategies of FMCG? Growing severity of economic slowdown 2% 30% Making supply chain demand-driven 12% 19% 12% 2% Making the supply chain lean 16% 12% 16% 16% Oil price volatility 12% 9% 12% Efficient P&F tools 5% 19% 19% 16% 12% 0% 30% 60% 90% Critical High Significant Medium Low 4 supplychainforesight 2009

6 Strategic The growing severity of the economic slowdown is first on the agenda, though it is regarded slightly less seriously than by the general sample perhaps because the true extent of the slowdown was yet to hit the sector at the time the data was collected followed by the ongoing struggle to make the supply chain demand-driven, and lean. These factors, demand-led and lean supply chains, appear in reverse order of importance in the Retail picture. Finally, the oil price volatility for the FMCG sector also features as a challenge, since it is dependent on fuel-heavy manufacturing and transport operations. The differences between this year s picture and previous years research are again instructive. Without fail the major challenges in the past were related to planning and forecasting accuracy, closely followed by skills shortages and the means to collaborate effectively. Fig 4A: FMCG Challenges 2004 Fig 4B: FMCG Challenges 2006 Improve planning and forecasting capabilities 6 Our planning and forecasting abilities 35% Create supply chain collaboration opportunities The specialised needs of customers 26% Benchmark our supply chain performance and improve our use of existing IT systems Skills and capabilities of our SC staff 26% Improve the core capabilities of our supply chain staff Benchmarking our supply chain performance 26% Change our physical logistics/ distribution network 42% Creating SC collaboration opportunities 24% 0% 10% 20% 30% 40% 60% 70% 0% 5% 10% 15% 20% 30% 35% Our planning and forecasting abilities Fig 4C: FMCG Challenges Our planning and forecasting capabilities Fig 4D: FMCG Challenges Aligning our skills to meet the supply chain strategy 44% The increased complexity of our supply chain 9% The capabilities of our existing IT systems 35% Skills and capabilities of supply chain staff 9% The physical distribution network 35% The diverse needs of our customers The skills/ capabilities of our supply chain staff 33% The increased volume in our supply chain 0% 10% 20% 30% 40% 60% 70% 0% 2% 4% 6% 10% 12% 16% 1 5

7 Fig 4E: FMCG Challenges 2008 The increased volume in our supply chain Our planning and forecasting abilities 100% 9 Capabilities of our existing IT systems 92% Skills and capabilities of our supply chain staff 7 Our distribution network 7 0% 10% 20% 30% 40% 60% 70% 80% 90% 100% We might conclude from the shift in the challenges picture that the FMCG industry has found a more focused and strategic means of working with the retail sector to move to a demand-driven supply chain as a means to address planning and forecasting accuracy. Outsourcing of supply chain functions may also be assisting in addressing the skills shortages that previously presented a consistent challenge in the sector. Retail Objectives and Challenges For the retail side, a more traditional picture for industry short-term objectives is seen. Inventory management remains the number one priority, with strategic a distant second, and far less of a priority than the FMCG sector. With procurement optimisation appearing in third place, it s clear that the business focus remains on stock availability and cost containment. Fig 5: Key Short-term Objectives of the Retail Sector 2009 Inventory Management 6% 6% Alignment with business objectives 6% Procurement optimisation 9% 6% 6% 6% 3% Demand-driven production 6% 3% 6% Improved collaboration 6% 22% 1 3% 0% 20% 40% 60% Critical High Significant Medium Low 6 supplychainforesight 2009

8 Strategic While the picture in previous years focused on planning and forecasting and collaboration opportunities, the current focus on inventory management and procurement optimisation might be seen as progress on the collaboration front with the FMCG sector, even if the optimisation of procurement may represent a rationalisation of the supplier base. Reduce investment in inventory Increase effectiveness of procurement processes Fig 6A: Retail Objectives % 63% Improve collaboration/ co-operation in the supply chain Reduce investment in inventory Fig 6B: Retail Objectives % 6 Reduce out of stocks 5 Increase shelf availability/ reduce out of-stocks 59% Improve services offered to customers 5 Improve information visibility 4 Reduce costs of transportation Improve service offered to customers 33% 0% 10% 20% 30% 40% 60% 70% 0% 10% 20% 30% 40% 60% 70% 80% Fig 6C: Retail Objectives 2006 Fig 6D: Retail Objectives 2007 Increase shelf availability/reduce out of stocks Improve service offered to customers 12% Improve services offered to customers 39% Reduce out-ofstocks/increase shelf availability 10% Reduce investment in inventory 35% Improve co-operation/ collaboration in the supply chain 10% Improve co-operation/ collaboration in supply chain 30% Redefine our supply chain strategy Reduce warehouse operating costs 30% Improve flexibility and agility of supply chain 0% 5% 10% 15% 20% 30% 35% 40% 45% 0% 2% 4% 6% 10% 12% 7

9 Fig 6E: Retail Objectives 2008 Reduce investment in inventory 100% Improve services offered to customers 89% Reduce out-ofstocks/ increase shelf availability 82% Improve co-operation/ collaboration in supply chain 80% Decreased lead times 60% 0% 10% 20% 30% 40% 60% 70% 80% 90% 100% As far as challenges are concerned, the severity of the slowdown is indicated, but is ranked highly for a relatively low of the sample. A lean supply chain, given the industry is all about high volumes and low margins, remains the first priority. Fig 7: What Challenges are Shaping the Strategies of the Retail Sector 2009 Making the supply chain lean 31% 6% Growing severity of economic slowdown Making supply chain demand-driven 1 6% 3% Efficient P&F tools 6% 2 1 6% Shortcomings of infastructure 3% 3% 6% 0% 30% 60% 90% Critical High Significant Medium Low As with the FMCG sector, this focus on lean supply chain represents a strategic shift from previous years, where the chief challenges came from achieving collaboration with suppliers and, as a result, implementing more effective planning and forecasting. 8 supplychainforesight 2009

10 Strategic Improve planning and forecasting capabilities Fig 8A: Retail Challenges Our planning and forecasting abilities Fig 8B: Retail Challenges Create supply chain collaboration opportunities Creating supply chain collaboration opportunities 52% Benchmark our supply chain performance and improve our use of existing IT systems The logistics channel 36% Improve the core capabilities of our supply chain staff Benchmarking our supply chain preformance 36% Change our physical logistics/distribution network 42% Our sourcing and procurement practices 33% 0% 10% 20% 30% 40% 60% 70% 0% 10% 20% 30% 40% 60% 70% 80% Fig 8C: Retail Challenges 2006 Fig 8D: Retail Challenges 2007 and forecasting abilities 46% Achieving a common supply chain vision 13% Creating supply chain collaboration opportunities Our planning and forecasting capabilities 12% Integration of our IT systems 35% The increased volume in our supply chain Benchmarking and auditing our supply chain performance Capabilities of our existing IT systems Capabilities of our existing IT systems Creating supply chain collaboration opportunities 0% 10% 20% 30% 40% 60% 0% 2% 4% 6% 10% 12% Fig 8E: Retail Challenges 2008 Capabilities of IT systems 100% Integration of IT system 8 Achieving a common supply chain vision 8 Warehouse management capabilities Creating supply chain collaboration opportunities 59% 62% 0% 10% 20% 30% 40% 60% 70% 80% 90% 100% 9

11 Overall, the objectives and challenges of SA s FMCG and Retail sectors are less focused than most of the sample on the economic slowdown, although this remains an urgent issue. This may be because the consumer impact and falling demand had not yet properly filtered through to the market at the time of the study being done. More pertinently, the objectives and challenges of both sides of the supply chain seem much more aligned with each other than in previous years, which seems to indicate a more effective collaborative approach to planning and inventory management in particular. Outsourcing Revisited One noteworthy aspect of last year s overall national research was the growing realisation in large SA companies that the lack of available skills to provide resources to service the growth and diversity in supply chains was harming productivity and profitability. Once more, the most successful companies in the 2008 study were those who were early adopters of smart outsourcing, that is, working with supply chain partners who could provide more sophisticated skills and resource for the management of complex global supply chain operations. FMCG views on outsourcing In the FMCG sector, the pattern follows that of the general research sample however, with a significantly higher proportion giving as their reason for outsourcing most of their supply chains that they wish to focus on core competencies (83% versus 5 in the general sample), and also a higher proportion giving cost reduction as a reason (63% versus 39% in the general sample). Fig 9A: FMCG Outsourcing Revisited 19% Do not outsource 44% Minimal outsourcing 3 Outsource most of SCM Keeping up with competition 36% Lack of suitable supplier 33% % Sceptical outlook on information sharing 22% 1 22% 2 Source of competitive advantage 22% 44% Strong internal SCM skills 2 39% 22% Low cost-efficiency 6% % 22% 0% 20% 40% 60% 80% 100% Critical High Significant Medium Low 10 supplychainforesight 2009

12 Strategic Fig 9B: FMCG Outsourcing Revisited 19% Do not outsource 44% Minimal outsourcing 3 Outsource most of SCM Focusing on core competencies 13% 2% 63% Reducing logistics costs 19% 56% Gaining competitive advantage 13% 31% 31% Not a source of competitive advantage 13% 31% 31% 31% Lack of inhouse skills 31% 6% 3 Keeping up with competition 1 0% 20% 40% 60% 80% 100% Critical High Significant Medium Low Also in common with the overall sample, areas which are kept in-house and not outsourced relate to customer demands and inventory management, the two key areas in which the sector relates directly to their retail customers. Warehousing is notable for the extent of its outsourcing, understandable in the context of the way in which retail demand controls the flow of inventory. 11

13 Fig 10: FMCG Main Reasons for Outsourcing 100% 80% 60% 40% 20% 0% Supplier selection Transportation & shipping Manufacturing & production 4% Distribution 1 Customer demands Inventory management 29% 5 33% 56% 12% 12% 12% 29% 4% 1 9% 9% % 29% Sourcing demographics 73% 13% Warehouse management Lack of qualified personnel/resources Availability of strong capability among current partners Dependence on downstream participants (distributors/customers) Dependance on upstream participants (suppliers) Lack of visibility across supply chain Other Retail outsourcing revisited For the retail sector the picture is also the same as the general report, but the differences in emphasis are instructive. For those who outsource most of their supply chain functions, the overwhelming reason is to focus on core competencies. Also notable is the much lesser degree to which cost reduction is given as a key reason for outsourcing (23% versus 39% in the general sample), and how much more of the retail response see outsourcing offering competitive advantage (4 versus 35% in the general sample). 12 supplychainforesight 2009

14 Strategic Focusing on core competencies Fig 11: Retail Outsourcing Revisited 2% 23% 69% Reducing logistics costs 15% 23% 3 23% Gaining competitive advantage 31% 15% 46% Not a source of competitive advantage 23% 3 23% Lack of in-house skills 15% 31% 15% 31% Keeping up with competition 36% % 20% 40% 60% 80% 100% Critical High Significant Medium Low Minimal outsourcing 42% Outsource most of SCM 36% Do not outsource 22% Strong internal SCM skills 29% Source of competitive advantage 5 Low cost efficiency Lack of suitable supplier Sceptical outlook on information sharing 36% Keeping up with competition 3 31% 15% 0% 10% 20% 30% 40% 60% 70% 80% 90% 100% Critical High Significant Medium Low 10 13

15 What this may indicate, again, is the extent to which collaboration with manufacturers and distributors has improved and the extent to which, in the retail trade, the control of inventory itself is a core competency. Industry Investment The picture on current and short-term sectoral investment in fact bears out the contention that the FMCG and retail components of the industry are collaborating more productively than seemed the case in previous years. FMCG In the FMCG sector, the short-term investment focus is on customer relationship management, alongside better co-ordination both upstream and downstream in the value chain. This indicates both a focus on cost containment upstream with component and material suppliers or manufacturers, as well as a wish to offer better value to retailers downstream in a hypercompetitive value chain. Fig 12A: FMCG Investment Plans Customer Relationship Management: Improve customer focus 26% 4 23% 5% Coordination with upstream value chain participants 26% 30% 30% 5% 9% Higher functional integration 44% 16% 16% 9% 3% Batch size reduction 2 4 Coordination with downstream value chain participants 23% 40% 19% 2% 16% New systems for collaboration with logistics service providers 2 2 2% 2 Global risk management system 30% 6% 12% 12% 39% New technologies for improved visibility eg RFID 19% 23% 23% 0% 20% 40% 60% 80% 100% Implemented Short term (1-2 years) Medium term (3-4 years) Long term (5-6 years) No plans 14 supplychainforesight 2009

16 Strategic Retail For the retail sector the picture is focused on upstream value chain participants, the FMCG sector, as well as on the consumers, with plans to invest in customer relationship in the short term leaping to 7 of the sample. With the crucial focus on inventory management in the sector, much focus is also placed on investment in improved supply chain visibility, with 61% of the sample planning investment in new technologies in this area. Fig 12B: Retail Investment Plans Customer Relationship Management: Improve customer focus 22% 56% 6% Coordination with upstream value chain participants % Higher functional integration 36% 19% 22% Batch size reduction 16% 19% 13% 53% Coordination with downstream value chain participants 1 31% 2 1 New systems for collaboration with logistics service providers 1 31% 22% 19% Global risk management system 16% 6% 16% 63% New technologies for improved visibility eg RFID 19% 42% 1 0% 20% 40% 60% 80% 100% Implemented Short term (1-2 years) Medium term (3-4 years) Long term (5-6 years) No plans Speaking the same language: Public and Private Sector Co-operation FMCG In the FMCG sector there was a surprisingly high degree of lack of awareness of Transnet s investments in SA logistics infrastructure, with 2 of the sample saying they were unaware. This may indicate the extent to which the sector deals with transportation and import/export issues directly, and the extent to which their value chain is regionally or domestically located. In common with the general sample, however, there is agreement among those who are aware that investment and private sector involvement in logistics planning and execution will improve matters. 15

17 Fig 13A: FMCG Awareness Transnet Initiatives Improved rail infastructure 1 71% 13% Encourage usage of rail and sea modes 71% 13% Decreased road congestion 1 13% Improved port infastructure 71% Logistics cost reduction 13% 46% 33% 0% 20% 40% 60% 80% 100% Strongly disagree Disagree Undecided Agree Strongly agree Fig 13B: FMCG Awareness Transnet Initiatives Not aware at all 2 Partly aware of the initiative Aware of the initiative 30% Retail For the retail sector, the lack of awareness of the Transnet investment plans is less, and more in line with the general sample. Interestingly, there is less confidence here that the investments will have an impact on improved rail and port traffic, again perhaps because there is a more domestic focus for the industry. Where there is a difference is in the much greater conviction, with 32% of the sample strongly agreeing (compared to for the general sample) that the investment will decrease road congestion. This is a particularly troublesome area for the management of inventory for retailers, since it affects deliveries both on the roads and as congestion at delivery bays and distribution centres. 16 supplychainforesight 2009

18 Strategic Improved rail infrastructure Fig 14A: Retail Awareness Transnet Initiatives 61% 1 Encourage usage of rail and sea modes 4% 61% Decreased road congestion 32% Improved port infrastructure 1 Logistics cost reduction 39% 4% 0% 20% 40% 60% 80% 100% Strongly disagree Disagree Undecided Agree Strongly agree Fig 14B: Retail Awareness Transnet Initiatives Not aware at all 13% Partly aware of the initiative 3 Aware of the initiative 49% The Real Green Issues: The Environment and Economic Sustainability The debate in the SA market, such as there has been, around environmentally-friendly business practices has largely been confined to the Corporate Social Investment (CSI) agenda. This section of this year s research sought to drill down into the awareness and attitudes among SA supply chain practitioners and senior executives about the environment and sustainability. With the business tide moving in the direction of the Obama administration s strong new stance on reversing the impact of global trade on the environment, the time is right to start a strategic business dialogue about doing business in a more environmentally friendly SA. Of course, the current priorities of cost reduction and business survival militate strongly against moving green business practices up the agenda, but this section of the study uncovered some interesting views. Disappointingly, the FMCG Retail sector as a whole is not seeing environmental sustainability as a serious business issue. 17

19 FMCG For the FMCG sub-group, lack of awareness, or lack of prioritisation for the issue, extends to almost half the sample. Similarly, ROI is not expected from investment in environmentally-aware business practices, and the whole thing is seen as building brand value rather than having any concrete or even longer-term balance sheet implications. In terms of what areas of the business the FMCG sector intends to address for environmental sustainability, strengthening reverse logistics and shortening the globalised supply chain stand out. It is possible to argue that these are crucial cost containment elements in the FMCG sector anyway, and that the motivation for addressing them is cost reduction rather than environmental benefit. Fig 15A: FMCG Environmental Awareness End-user s Perceptions on the Seriousness of Climate Change 24% Not serious/ somewhat serious 42% Serious 33% Very serious Awareness about the Issue of green footprint 19% Priority in branches outside SA 33% Major country wide initiative 19% Aware but not a priority 30% Unaware/limited awareness Importance of an environment-friendly Supply Chain 3% Not relevant 30% Somewhat important 39% Important 2 Very important/critical 18 supplychainforesight 2009

20 Strategic Fig 15B: FMCG Environmental Sustainability Strategies Increasing transportation efficiency 26% 15% 9% Use of lean logistics 22% 41% 19% Waste/packaging reduction 56% 9% 3% 6% Shorter supply chain by reducing the globalisation of supply chain 1 33% Use of RFID technology for monitoring moving goods 29% Recycling used products and strengthening reverse logistics 1 55% 15% 3% 9% Use of Fleet Management Systems (FMS) for better fleet utilisation 33% 2 33% Hazardous material treatment 42% 5% 5% 26% Outsourcing to more environmental-friendly third-party logistics providers 9% 2 9% 55% Strategic placement of warehouses and distribution centres 29% 19% 29% 10% Emerging green assets like hybrid vehicles, environmentally friendly warehouses, etc 5% 20% 45% 30% 0% 20% 40% 60% 80% 100% Implemented Short term (1-2 years) Medium term (3-4 years) Long term (5-6 years) No plans Retail The same picture is, if anything, even more exaggerated in the retail sector. Here, the major areas for addressing carbon footprint are transportation efficiency and the use of lean logistics, which, again, are areas of the business listed as key strategic objectives anyway. 19

21 Fig 16A: Retail Environmental Awareness End-user s Perceptions on the Seriousness of Climate Change 2 Not serious/ somewhat serious 41% Serious Awareness about the Issue of green footprint 31% Very serious Importance of an environment-friendly Supply Chain 15% Not relevant 31% Important Priority in branches outside SA 22% Aware but not a priority 33% Major country wide initiative 34% Unaware/ limited awareness Very important/critical 2 Somewhat important Fig 16B: Retail Environmental Sustainability Strategies Increasing transportation efficiency 19% 54% 12% 4% 12% 5% Use of lean logistics 16% 4 Waste/packaging reduction 2 3 4% 23% Shorter supply chain by reducing the globalisation of supply chain 29% 29% Use of RFID technology for monitoring moving goods 29% 29% Recycling used products and strengthening reverse logistics 15% % Use of Fleet Management Systems (FMS) for better fleet utilisation % Hazardous material treatment 15% 23% 54% Outsourcing to more environmental-friendly third-party logistics providers 33% 1 Strategic placement of warehouses and distribution centres 6% 56% 2 Emerging green assets like hybrid vehicles, environmentally friendly warehouses, etc 10% 5% 19% 3 29% 0% 20% 40% 60% 80% 100% Implemented Short term (1-2 years) Medium term (3-4 years) Long term (5-6 years) No plans 20 supplychainforesight 2009

22 Strategic The industry s relative lack of emphasis and importance given to environmental issues in its supply chain operations is puzzling for a sector that is centrally concerned with consumers. Brand value apart, one would assume that sustainable environmentally-friendly business practices in the consumer goods sector might be a smart long-term investment. Conclusion Out of Crisis, Opportunity Fig 17: Supply Chain Butterfly Effect Low Business Competitiveness High Industries Focusing on Efficiency & Cost Effective & Leverage Modal Advantages Leverage Modal Advantages Effective & Industries Focusing on Efficiency & Cost Low Supply Chain Sophistication High The FMCG and Retail sector s current strategic supply chain trajectory looks something like this. Achieving a responsible supply chain balance in the upper right quadrant, between profitability and sustainability in a world where most resources are thinly stretched _ is no mean feat, and currently the industry, like many others, is focused on cost containment and on efficiency in a tight economic environment. For the sector that means inventory management and demand-driven production, components of the combined supply chain that require strong and effective collaboration between suppliers and retailers. By and large the sector seems to be achieving this smart collaboration, which puts it in good stead for seeing out the recessionary conditions the market is currently experiencing. It is far more difficult in an environment like today s, where survival is the watchword and the potential for failure is the compelling event that drives most businesses on. The world s explosion in cross border and international trade and consistent growth over the past few years has been shown to be fragile at its heart. And yet, the Butterfly Effect say, for example, the sub-prime housing crisis in the US bringing down a global financial network intricately linked by information-based supply chains - can be combated and contextualised. For the FMCG and Retail sectors a positive outcome of the crisis may be a more long-term view of strategic between the business and its supply chains. The more collaborative attitude demonstrated this year will help in further reducing costs, and managing and optimising inventory in an even more volatile global economy. 21

23 Survey conceptualised and initiated by Research conducted by