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Click to edit title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Page,126,Electrolux China,“Network Strategy” Project,Final Report Presentation,Beijing, March 10, 1999,Project Introduction and Background,Customer Survey- Survey Approach- Survey Results- Findings and Opportunities,Logistics Network- EOQ inventory modeling- Logistics network modeling,Recommendations and next steps,Appendices,- Process flow,- Cost analysis,Contents,Major Brands Market Share in 1999,Electrolux Objectives,Reduce working capital,Increase turnover,(through greater product availability),Reduce operating costs,Electrolux China has committed to achieve Best Practice Service and Cost, as basis for rapid business growth,high inventory carrying cost,in-store stock-outs,too many warehouses:,limited inventory and service control: SOP systems and procedures for inventory control are not systematically in place/applied,limited know-how and support,unclear responsibilities and performance criteria,Electroluxs supply chain objectives.,are to improve current performance.,to deliver real bottom line benefits,Electrolux China has identified supply chain improvements as one of its corporate priorities to improve customer satisfaction and cost performance.,Satisfy requirements of target customers (better than competition),Achieve full control of the entire logistics process,Limited visibility and control, appropriate perforrmance criteria not in place,Likely gaps in service satisfaction. Required Service Levels and competitors position are not measured,The overall objective of Electrolux China Network Strategy Project is to optimize the distribution network configuration in terms of:,- Meeting customer service requirements;,- Achieving minimum costs; and,- Controlling the entire outbound logistics process.,Increased Revenue,- Improved product availability and promising capabilities- Scalability to meet future business requirements.- Improved responsiveness to market conditions.- Optimized fill rate capability.- More flexible, responsive delivery options- More value-added services.,Reduced logistics costs,- Improved end to end supply chain visibility- Lower cost-to-serve in transportation and distribution,Improved asset productivity,- Fewer stock locations through rationalization to achieve higher network productivity,Reduced working capital,- Lower LDC stocks through more flow-throughs, smaller more frequent orders, centralized slow movers, better use of supplier stocks etc.,EXPECTED RESULTS,PROJECT OBJECTIVE:,The overall objective of Electrolux Network Strategy Project is to determine the least cost distribution network configuration to satisfy the specific service level requirements of its current and future target customers,Project Objective and Scope,The scope of the Network Strategy Project is to answer the following questions:,What are the customer service requirements which impact channel design, logistic process and infrastructure?,What is the current performance (performance measure and customer satisfaction) of Electrolux in meeting these requirements and what is the GAP versus the competitors as well as against the “Best Practice” achievable in China?,Should Electrolux provide inventory carrying and transportation services to our clients (with appropriate price increase)? What other additional logistic services can provide competitive advantage to Electrolux in the market place?,Should Electrolux change the structure of its distribution channels in China (e.g. sales to retailers, vs to distributors?),Can Electrolux gain by plant direct shipping?,How many distribution centers (DCs) should Electrolux have? How many RDCs and LDCs?,Where should the DCs be located?,Which types/location of customers and which branch should be served by each DC? Which customers should be served directly?,Should all DCs carry all products or should they be specialized by product line?,Should Electrolux contract for warehousing services or operate its own DCs?,What impact do different transportation modes have on Electrolux logistics network requirements?,What inventory control procedures (high level) should Electrolux establish in order to satisfy customers, minimize cost and maintain control?,What are the systems and human competencies requirements to achieve these objectives?,In developing the optimum supply chain capability for Electrolux China we are utilizing a three-phased approach to developing and rolling-out the new distribution network - This project covers only Phase I,Overall Approach towards Network Optimization,BuildLogisticsModel,Task 5,AssessAlternatives,Task 6,Conduct ReviewSessions,Task 7,Present Results,Recommen-dations& Implemen-tationAction Plans,Task 8,ConductVisioningSessions,Task 1 a.,InitiateDataCollection,ReviewCurrentOperations,Task 2,Under-stand,Service Require-ments,Task 3,InitiateDetailedProjectPlanning,Task 1,Task 4,Full-Scale Implementation Rollout,Phase I,Phase II,Phase III,Distribution NetworkProcess Design,Distribution Network,Strategy Development,CUSTOMER SURVEY,NETWORK OPTIMIZATION,Project Approach,1,Initiate Detailed Project Planning,1.,a Conduct Visioning Sessions,2,Review Current Operations,2,a. Understand current network setup,2,b. Review current network logistics strategy,2,c. Review current customer service strategy,3,Understand Service Requirements (customer interviews and analysis),3,a. Create customer segmentation frameworks,5,Identify Alternatives,5,a. Perform demand aggregation analysis,6,Assess Alternatives,7,Conduct Review Sessions,8,Present Preliminary Results & Recommendations,Key Activities by Week,(assuming 10 weeks),1,2,3,4,5,6,7,8,9,10,3h,. Analyze customer requirements and assess Electrolux GAP,3,k. Analyze Cost to Serve and Strategic Attractiveness,3,l. Develop Recommended New Service Offerings,3m,. Assess Logistics Warehouse Netwk Strategy Implications,4,Initiate Data Collection,Collect Current Warehouse Network Data,a. Facility Operating Costs,b. Transportation Costs,c. Inventory Costs,d. Demand volumes,3b. Interview Customers in Location 1,3c. Interview Customers in Location 2,3d. Interview Customers in Location 3,3e. Interview Customers in Location 4,3f. Interview Customers in Location 5,3g. Interview Customers in Location 6,5,b. Selection of 5-8 “best options”,Project Workplan,Project Introduction and Background,Customer Survey- Survey Approach- Survey Results- Findings and Opportunities,Logistics Network- EOQ inventory modeling- Logistics network modeling,Recommendations and next steps,Appendices,- Process flow,- Cost analysis,Contents,The sampleforthe customer surveytargeted arepresentationofElectrolux,s currentoperations inChina, anditscurrent and future market,-,Customer Sampling Methodology-,HistoricalSales,Market,Growth &,Trends,Current Logistics Operation,Wherewerethehighest demandareas?,Wherearethe customers located, which has significantcontribution toElectrolux revenue?,Whatarethecurrentcustomertypes?,Wherearethekeyaccountcustomers?,What is thecurrent sales regions?,Wherewouldbethepotential highgrowth areas forrefrigerators?,What willbethe emerging channelfor white goods?,What aretheservicerequirementsfromtheemergingchannelplayers?,What is thecurrent logistic servicepattern,withregardtothe LDCs,”,” distributionandthe customerswhicharebeingserved?,Interview Areas,Interview Customers,Survey Sample Size and Coverage,Interview Areas,Survey Sample Size and Coverage,Interview Areas,Interview Customers,Survey Sample Size and Coverage,Theprojectteam focusedonobtaining as muchcustomerdatathrough directinterviews.Acustomersurveywas faxed outtobroaden geographiccoverage,-,CustomerSurveyApproach-,FaxOut Survey,Focused on severalAC/Electroluxchosenlocations,Beijing,Tianjin,Shanghai,Guangzhou,Changsha,Chengdu,Shenyang, Shenzhen,CustomerTypes,Distributors:Provincial level,city level,Retailers:Department store,home appliancestore,chainstore,KeyAccounts:International chain stores,Broadgeographic coverage to includeareaswheredirect interviewscouldnot be conducted,Stillaimedtoachieve representative sampling of distributorsandretailers,DirectInterviews,Intotal,81customersurvey questionnaires werecollected representinga broad cross sectionofElectroluxcustomers,-,CustomerSurveyBreakdown -,Distributors,Retailers,KeyAccounts,Provincial Level,7,28,International ChainStore,City Level,12,13,3,Department Store,Home Appliance,MultipleFormat,10,ChainStore,7,Total,81,SubTotal,19,59,3,SuperMarket,1,-,CustomerSurveyBreakdown -,Regions,NC,EC,GZ,West,Central,CS,NE,Interviewed,Survey,2,12,1,9,5,7,4,4,10,7,6,0,6,8,Total,41,40,Total,6,22,8,15,5,13,12,81,andalsoElectroluxsmarkets,Changsha,Beijing,Shenyang,Shanghai,Chengdu,Guangzhou,Qingdao,Suzhou,Tianjin,Dalian,Kunming,NC,NE,Central,EC,GZ,w,CS,ProjectIntroductionandBackground,CustomerSurvey-SurveyApproach-SurveyResults-FindingsandOpportunities,LogisticsNetwork-EOQinventorymodeling-Logisticsnetworkmodeling,Recommendationsandnextsteps,Appendices,-Processflow,-Costanalysis,Contents,8.,AreyoubeingservedbyElectroluxdirectly?,Yes,No,Allresponseswereinthe,“,“Yes,”,”category,Question8,Whywerenon-ElectroluxCustomersnotcoveredbythesurvey?,Duetonewsurveyregulationswhichwererecentlyreleased(Dec.1999)bytheStateStatisticalBureau(SSB),acompanymustobtainpermissionandapprovalforallmarketsurveysconducted(thisapprovalcoverssurveyscope,approachandalsoareviewandapprovalofthesurveyresultsbytheSSBbeforetheyarereleasedclients).,Theobstaclesputinplacebytheregulations(e.g.applyingforpermission,havingasurveyreviewedandapproved,etc.)couldhaveaddedseveralweekstotheprojectcommencementdateandadditionaltimebeforetheresultscanbereleased.Atthisstage,wearenotawareofanycompanieswhichhavesoughtandgainedapproval(includingGallup).,ThekeyproblemisthatthesurveyreformshavingonlyrecentlybeenimplementedandthelocalbranchesoftheSSBarestillestablishingtheadministrativesystemtodealwithit.Therefore,themost,”,”practical,”,”approachforconductingtheprojectsurveygiventhecurrentenvironmentalconstraintswastocoveronlyourexistingcustomerssinceitwasunlikelythattheywouldreportthesurveytotheSSB.,ElectroluxCustomer,9.,Salesrevenuegrowthinthenext1-2years,60%,Response:33%30%19%3%12%,Question9,Comments,Themajorityofrespondentswerepositiveintheirsalesoutlookbothfortheirsalesoverall(rangingfromrefrigeratorstogeneralhomeappliances)aswellasspecificallyforElectroluxproducts.Typically,growthinsalesofElectroluxproductsresponsesrangedinthe10to30%band.,Guangzhou,WesternChina,EasternChina,NorthEasternandtheNorthChinaregionswereanticipatedtoexperiencethegreatestsalesgrowthinthenexttwoyears.ChangshaandtheCentralregionsareanticipatedtohave.Andcustomerswhoisthenewentryintothemarketexpecthighergrowthratethantheothers,Note: Datalimitation sinceresponses weretailoredbased on the position of the personinterviewed(i.e. ageneralmanagerofa distributor wouldhavea broader viewof salesgrowthto thatof asales manager onlyinvolvedinthesales ofElectroluxproducts).,Sales Revenue Growth,10.,Whatarethekeybrandsofrefrigeratorinyourcurrentbusinessandwhatistheproportionofthesebrandsalesrepresentinyourtotalrefrigeratorsales?Whoselldirectly?Whosuppliesyoudirectly?,Question10,RefrigeratorSales,Brand Name,Electrolux,Haier,Rong,sheng,Xinfei,Meiling,Changling,Percentage of Total Sales (%),Purchase Directly from Vendor by Retailer,Goods Shipped Directly from Vendor to Retailer,Days Inventory,Siemens,D,R,60%,21%,D,R,23%,27%,D,R,19%,14%,D,R,17%,13%,D,R,9%,9%,D,R,6%,8%,D,R,8%,17%,92%,91%,84%,86%,86%,95%,91%,91%,94%,83%,72%,92%,86%,92%,17,15,N/A,N/A,15,N/A,N/A,D,R,D,R,D,R,D,R,D,R,D,R,D,R,12,18,16,16,16,19,17,Comments,8outofthe26customerswhodistributeElectroluxrefrigeratorsonlysellElectroluxproducts.,Over90%ofthecustomerspurchasedirectlyfromElectroluxandarealsodirectlyservedbyElectrolux,Foreignplayers,suchasCarrefour,ItoYokado,keeplowinventorylevels,typicallylessthan5days.,Incontrast,the averageinventory level forlocalplayers variesfrom 7to30days.CustomersinCSandNEholdinghigherinventory level thanotherregions,Electrolux haslowerinventorylevelthanthecompetitorsatits retailer shop, buthashigher inventorylevelatitsdistributorsites,Legend,D:Distributor,R:Retailer,11.,Pleasespecifytheamount of therefrigeratorsalesin1999,Question11,Comments,WholesaleRetail,Average Volume19994,752units,4,640 units,MarketShare(%)28%24%,RefrigeratorSales,Note:Theseresultsareonlyforhighlevelreference,(1)Except 8out of 19 distributorswhoare purelydoingdistributionsalesand 36%ofretailerswho onlyhaveretailsales, therest areallcarryonmultiplerolesinbothdistributionand retailsales.,(2)The distributionsalesisquitelowbecausesurveyincludesanumberofnew distributors,and thesalesnumberisalsoskewedbyretailers whohave weakdistribution sales.,(3)The retailsalesnumberisskewed by acouple of retailerswhoseretailsalesisevenhigherthanmost of distributorssalesduringayear,(4)The marketshareofretailerslookshigher since thedata is skewedbysome dominant local retailchainsand dominant retailersincountylevelcities.,12.,Doyouexperiencethesalesfluctuationindifferent months?,Yes, thefluctuationisasfollows,No,Peak monthsare_,Sales _units/month,Normalmonths are_,Sales _units/month,Lowmonths are_,Sales_units/month,Question12,SurveyResults,Comments,92%,ofrespondentsconfirmedthe seasonal natureoftheirsales,Theperiod justpriortoChineseNewYearandthe summermonthsare thetwopeakseasons withsalesvolumesaround80% higherthan transitionalperiods.,The2-3 monthsafterChinese NewYear andNovemberarethe lowseasonmonths withaveragesalesvolume26% lower thantransitional periods.,May, Octoberand December arethetransitional month fromnormal seasontopeak season.,Peakseasons,AverageSales,(Units /month),Months,Transitionalperiod(s),Lowseasons,January(pre-ChineseNewYear),JunetoSeptember,May,October, December,FebruarytoApril (postNewYear),November,849,472,351,Season,Sales Fluctuation,Ordering,Ordering- TableA,OrderingServiceImportanceandCustomerSatisfaction,Product,Availability,Ability to,Respond to,Urgent Orders,Order,Frequency,Minimum,Order Size,1.4,1.3,1.2,1.1,Ordering,1.,Items,No.,Satisfaction,(Electrolux),Importance,4.1,4,2,1,3,5,4.1,4,2,1,3,5,3.6,4,2,1,3,5,Satisfaction,Generally,3.9,4,2,1,3,5,4.1,4,2,1,3,5,4.3,4,2,1,3,5,4.6,4,2,1,3,5,4.6,4,2,1,3,5,4.0,4,2,1,3,5,3.5,3.5,4,2,1,3,5,3.7,4,2,1,3,5,3.7,4,2,1,3,5,3.6,4,2,1,3,5,3.8,4,2,1,3,5,4,2,1,3,5,a,Rate from Electrolux Sales Managers,Rate from Electrolux customers,A,3.7,4.9,3.8,3.3,4.4,1.9,4.0,3.8,Ordering- TableA,“,Abilityto Respond to UrgentOrders”, and “Product Availability”rankedthemostimportant factors fromthesurvey,Though aboveaverage, the customer satisfactionratetowardsElectroluxs ability torespondtourgent orders scoredrelativelythelowest amongallthefactors. Customersfrom most of the regions, suchas CarrefourBeijing, GuangzhouDepartment Storecomplainedthatthere is nodifferentiationinresponselevelsbetweenthenormal orders and urgentorders,Theoverallcustomersatisfactory rate towards Electroluxsorderingservicelevel is particularly low in the Guangdongregion,Mostoftheretailers showedlack ofunderstanding for minimum orderquantity and orderfrequency asthey are presentlyorderingbased on demandandpaymentcredit,andregardminimumorder quantityas lessimportant inaffecting theirbusiness revenues.Several customersindicated “1,”,” asdesiredminimumorder size,OrderingServiceImportanceandCustomerSatisfaction,Ordering- Comments,OrderingService- Best,OrderingService- Competitor Feedback fromSurveys,Ordering- Competitor,1.,MinimumOrder Size,BestWorst,Electrolux4 (2-EC),Haier33 (2-W),Siemens3 (2-W),Xinfei2,Best-,Overall,Electroluxdoeshave the most answers for best,buttheresponses werequite spreadoutgeographically.Electroluxappearstobe slightlystrongerinEasternChina, whileSiemensappearstobe slightlystrongerinWesternChina.,Worst-,Haierclearly has the most mentionsandit appearsto be weakestin the West.,Data-,Datais scattered acrossanswers.Minimum order size is 1,but it isverymuchdependenton who thecustomeris.Similarlyfor the worse,2. OrderFrequency,BestWorst,Haier22,Electrolux2,Best& Worse -,Scatteredresults acrossseveral playerswithno clearindicationof best players,Slimleadsby Haierand Electroluxbothrated2 mentions inthe best category.,Interesting note, isthatHaier,s responses inEC rates it asthe best by onedistributor while it isthe worseby the retailer,Data-,No specifics,3.,Ability torespond to Urgent Orders,BestWorst,Electrolux3,Haier42(2-EC),Samsung32,Xinfei2,Rongsheng2,Best-,Haierhasthe most mentions with 4(which arespread throughout China). Electrolux next has 3mentions but all focusedon EC(2 retailers,1 distributor).Samsungalsoappears moderately betterwith3 mentions overall,2 being in EC.,Worse-,Mostof the worse case mentions were fairly distributedwiththeexceptionof Haier whichhad 2mentionsin EC.,4. Product Availability,BestWorst,Electrolux2,Haier3 (2-SC)7 (4-EC,),Xinfei2 (2-EC),Siemens4(2-CS)Rongsheng2,Best-,Moderatefeedback with bestforElectrolux,Haier and Xinfei.Haier appears slightly strongerforproductavailabilityinSC whileXinfeiis strongerin EC.,Worst -,Haier appears tohave the worseproblemswith product availability,particularlyinEC.Siemensalso appears tohave some problems(focusing onCS).,Data-,Onlyseveralpiecesof datagiven for best (ranges from70 to 100%),13.,Whatisyoucurrentorder transmission mode,Fax,Telephone,Email,Other_,Ordering- Question 13,OrderTransmissionMode,SurveyResult,Comments,Many customershave apreferenceforutilizing “interactive”(i.e.telephoneorface to face) ordering modes so thattheycanget aclearideaofproduct availability,Currently,norespondentsusee-mailtoplaceorders.PresumablythisisbecauseofthelowlevelofITinfrastructureinChinaandthatvendorshavenotdevelopedthistypeofservice.CustomersinGuangzhouregionaremoreopentoadoptingnewtechnologiesthanthoseintheNorthChinaandCentralareas.,Customersand sales staff indicatedproblemswith currentorderprocessingrelated to theheavily manualwork processinvolved,multiplehand-offs(betweenElectroluxlogisticsand sales depts)andproblemswithoutdatedinventoryinformationonproductavailabilityinLDC.,14.,What is theorderfulfillmentperformanceofElectrolux?,Orderfulfill rate_88%,Back order rate_8%,Orderunfulfilledrate_4%,SurveyResults,Comments,Theaverageorderfill rateis88%,therateofback order is 8%,andthe unfulfilled rateis4%.,CSregionhas thehighest order fulfillrateat92%, enhanced by itscloseproximitytothe manufacturingbase.,SincetheLDCsinNEregionusuallyhave large inventoryanduse LDCstoservealmost allthecustomers,theorderfulfillrate is alsoveryhigh.,Theorderfulfillrate in GZ region(Guangdong,Fujian, Guangxi) ranks thelowestat73%,duetothelack of effectiveandefficient communicationonbothlocalinventoryleveland inventorylevelinRDC.,Orderfulfillmentperformanceisrelatively betterinbigcities.Almostall theresponsesfromShanghaisaid thefulfill rateis100%.,Keyaccounts, suchasCarrefour experienced higherrate of backorders duringtheweekendwhen Electroluxhas no persontake careoflogistics service, andtheyusually keeplowerinventory level,(SalesManagersinbothGuangzhouand Shenzhen wereconcerned about thelack of availableandtimely inventoryinformationintheRDC,sincethey could onlyreceivetheinformationonamonthly basis).,OrderFulfillment,Ordering- Question 14,Electrolux Stockouts- Frequency,Ordering -Question15,15.,How oftendo you experience stockout ofElectroluxproducts?(frequency andthenumber ofunits),Survey Result,Comments,Respondentsindicatedthatmoststockoutsoccurduringpromotionalperiodsandnewproductlaunch.,Outof16responseswhoregisteredstockout,3aredistributors,9areretailers,and4aremultipleretailformats,Generallyspeaking,customersexperiencedstockoutrangingfro
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