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Click to edit title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Electrolux China,“Network Strategy” Project,Final Report Presentation,Beijing, March 10, 1999,Project IntroductionandBackground,CustomerSurvey-Survey Approach-SurveyResults-Findings andOpportunities,LogisticsNetwork-EOQinventory modeling-Logisticsnetwork modeling,Recommendationsand nextsteps,Appendices,- Processflow,- Costanalysis,Contents,MajorBrandsMarket Share in 1999,Electrolux Objectives,Reduceworkingcapital,Increaseturnover,(throughgreater productavailability),Reduceoperating costs,Electrolux China hascommittedtoachieveBest Practice Serviceand Cost, as basis forrapidbusinessgrowth,high inventorycarryingcost,in-storestock-outs,toomanywarehouses:,limited inventoryandservicecontrol:SOPsystemsandproceduresforinventory controlare notsystematicallyinplace/applied,limited know-how andsupport,unclear responsibilitiesand performance criteria,Electroluxssupply chain objectives.,aretoimprovecurrent performance.,todeliver realbottom linebenefits,Electrolux China hasidentified supplychainimprovementsasone of itscorporateprioritiestoimprove customer satisfactionandcostperformance.,Satisfy requirementsoftargetcustomers (betterthancompetition),Achieve fullcontroloftheentire logisticsprocess,Limited visibilityand control, appropriate perforrmancecriterianotinplace,Likelygapsinservice satisfaction.RequiredServiceLevelsand competitorspositionarenot measured,TheoverallobjectiveofElectroluxChinaNetwork Strategy Projectistooptimizethe distributionnetwork configurationintermsof:,-Meetingcustomerservicerequirements;,-Achievingminimumcosts;and,-Controllingtheentireoutboundlogisticsprocess.,IncreasedRevenue,-Improvedproductavailabilityandpromisingcapabilities-Scalabilitytomeetfuturebusinessrequirements.-Improvedresponsivenesstomarketconditions.-Optimizedfillratecapability.-Moreflexible,responsivedeliveryoptions-Morevalue-addedservices.,Reducedlogisticscosts,-Improvedendtoendsupplychainvisibility-Lowercost-to-serveintransportationanddistribution,Improvedassetproductivity,-Fewerstocklocationsthroughrationalizationtoachievehighernetworkproductivity,Reducedworkingcapital,-LowerLDCstocksthroughmoreflow-throughs,smallermorefrequentorders,centralizedslowmovers,betteruseofsupplierstocksetc.,EXPECTEDRESULTS,PROJECTOBJECTIVE:,TheoverallobjectiveofElectroluxNetworkStrategyProjectistodeterminetheleastcostdistributionnetworkconfigurationtosatisfythespecificservicelevelrequirementsofitscurrentandfuturetargetcustomers,ProjectObjectiveandScope,ThescopeoftheNetworkStrategyProjectistoanswerthefollowingquestions:,Whatarethecustomerservicerequirementswhichimpactchanneldesign,logisticprocessandinfrastructure?,Whatisthecurrentperformance(performancemeasureandcustomersatisfaction)ofElectroluxinmeetingtheserequirementsandwhatistheGAPversusthecompetitorsaswellasagainstthe,“,“BestPractice,”,”achievableinChina?,ShouldElectroluxprovideinventorycarryingandtransportationservicestoourclients(withappropriatepriceincrease)?WhatotheradditionallogisticservicescanprovidecompetitiveadvantagetoElectroluxinthemarketplace?,ShouldElectroluxchangethestructureofitsdistributionchannelsinChina(e.g.salestoretailers,vstodistributors?),CanElectroluxgainbyplantdirectshipping?,Howmanydistributioncenters(DCs)shouldElectroluxhave?HowmanyRDCsandLDCs?,WhereshouldtheDCsbelocated?,Whichtypes/locationofcustomersandwhichbranchshouldbeservedbyeachDC?Whichcustomersshouldbeserveddirectly?,ShouldallDCscarryallproductsorshouldtheybespecializedbyproductline?,ShouldElectroluxcontractforwarehousingservicesoroperateitsownDCs?,WhatimpactdodifferenttransportationmodeshaveonElectroluxlogisticsnetworkrequirements?,Whatinventorycontrolprocedures(highlevel)shouldElectroluxestablishinordertosatisfycustomers,minimizecostandmaintaincontrol?,Whatarethesystemsandhumancompetenciesrequirementstoachievetheseobjectives?,IndevelopingtheoptimumsupplychaincapabilityforElectroluxChinaweareutilizingathree-phasedapproachtodevelopingandrolling-outthenewdistributionnetwork-ThisprojectcoversonlyPhaseI,OverallApproachtowardsNetworkOptimization,BuildLogisticsModel,Task5,AssessAlternatives,Task6,ConductReviewSessions,Task7,PresentResults,Recommen-dations&Implemen-tationActionPlans,Task8,ConductVisioningSessions,Task1 a.,InitiateDataCollection,ReviewCurrentOperations,Task2,Under-stand,ServiceRequire-ments,Task3,InitiateDetailedProjectPlanning,Task1,Task4,Full-Scale Implementation Rollout,Phase I,Phase II,Phase III,DistributionNetworkProcessDesign,DistributionNetwork,StrategyDevelopment,CUSTOMERSURVEY,NETWORKOPTIMIZATION,ProjectApproach,1,InitiateDetailed Project Planning,1.,a Conduct VisioningSessions,2,Review Current Operations,2,a.Understand current network setup,2,b.Review current network logisticsstrategy,2,c.Review current customerservicestrategy,3,Understand Service Requirements(customer interviewsandanalysis),3,a.Create customersegmentationframeworks,5,IdentifyAlternatives,5,a.Performdemand aggregation analysis,6,Assess Alternatives,7,ConductReview Sessions,8,PresentPreliminaryResults& Recommendations,KeyActivities by Week,(assuming 10weeks),1,2,3,4,5,6,7,8,9,10,3h,. Analyze customer requirements andassessElectrolux GAP,3,k. Analyze Cost to Serve andStrategic Attractiveness,3,l. Develop Recommended New ServiceOfferings,3m,. Assess Logistics Warehouse NetwkStrategy Implications,4,Initiate DataCollection,CollectCurrent Warehouse Network Data,a. Facility Operating Costs,b. Transportation Costs,c. InventoryCosts,d. Demand volumes,3,b. Interview Customers in Location1,3,c. Interview Customers in Location2,3,d. Interview Customers in Location3,3,e. Interview Customers in Location4,3,f. InterviewCustomers in Location5,3,g. Interview Customers in Location6,5,b. Selectionof 5-8,“,“best options”,ProjectWorkplan,ProjectIntroductionand Background,Customer Survey- Survey Approach- Survey Results-Findings and Opportunities,Logistics Network-EOQ inventorymodeling- Logisticsnetwork modeling,Recommendations and next steps,Appendices,- Process flow,- Costanalysis,Contents,The sample forthe customersurveytargeted a representation of Electroluxscurrent operations in China, and its current andfuturemarket,-,Customer Sampling Methodology -,Historical Sales,Market,Growth&,Trends,CurrentLogistics Operation,Where were thehighest demand areas?,Where are thecustomers located, which hassignificant contribution toElectrolux revenue?,What are the currentcustomer types?,Where are thekey account customers?,What isthe current sales regions?,Where would bethe potentialhigh growth areas for refrigerators?,What will be the emerging channel for white goods?,What are the servicerequirements from theemerging channel players?,What isthe current logisticservice pattern, with regard to the LDCs”distributionand thecustomers which arebeing served?,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,The project team focused onobtaining as much customer data through direct interviews. A customersurveywas faxed outto broaden geographic coverage,-,Customer Survey Approach -,Fax OutSurvey,Focusedon several AC/Electrolux chosen locations,Beijing, Tianjin, Shanghai,Guangzhou, Changsha,Chengdu, Shenyang, Shenzhen,Customer Types,Distributors:Provincial level, city level,Retailers: Department store, homeappliance store, chain store,Key Accounts:Internationalchainstores,Broad geographic coverage toinclude areaswheredirectinterviews could notbe conducted,Stillaimedto achieve representative sampling of distributors andretailers,DirectInterviews,In total, 81customer survey questionnaires werecollected representinga broad cross section ofElectroluxcustomers,-,Customer Survey Breakdown -,Distributors,Retailers,Key Accounts,Provincial Level,7,28,International Chain Store,City Level,12,13,3,Department Store,Home Appliance,Multiple Format,10,ChainStore,7,Total,81,Sub Total,19,59,3,SuperMarket,1,-,Customer Survey Breakdown -,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, andalso Electroluxsmarkets,Changsha,Beijing,Shenyang,Shanghai,Chengdu,Guangzhou,Qingdao,Suzhou,Tianjin,Dalian,Kunming,NC,NE,Central,EC,GZ,w,CS,Project Introduction andBackground,Customer Survey-Survey Approach-Survey Results-Findings and Opportunities,Logistics Network- EOQinventory modeling- Logistics network modeling,Recommendations and nextsteps,Appendices,- Process flow,- Costanalysis,Contents,8.,Are you being served byElectrolux directly?,Yes,No,All responses werein the “Yes,”,” category,Question 8,Why were non-ElectroluxCustomers not covered bythe survey?,Due tonew surveyregulationswhichwere recently released (Dec. 1999) by theStateStatisticalBureau(SSB), a companymust obtainpermission and approvalfor all market surveys conducted (this approvalcoverssurvey scope, approachand also a reviewand approvalof the survey results by theSSB before they are released clients).,The obstacles putin place bythe regulations (e.g. applyingfor permission, havinga survey reviewedand approved, etc.) could haveaddedseveral weeks tothe projectcommencementdateand additional time before theresults canbe released. Atthis stage,we arenot aware of anycompanies which have sought and gained approval(including Gallup).,The key problem isthatthe survey reformshaving onlyrecently been implemented andthe local branches of the SSBare still establishingthe administrativesystem to deal with it.Therefore,the most ”practical” approachfor conducting the project survey given the current environmentalconstraintswas to cover onlyour existing customerssinceit wasunlikely that they would report thesurvey to the SSB.,Electrolux Customer,9.,Salesrevenue growth inthe next 1-2years,60%,Response:33%30%19%3%12%,Question 9,Comments,The majorityof respondents were positivein their sales outlook both for their sales overall (rangingfromrefrigerators to generalhomeappliances)as well as specificallyfor Electrolux products.Typically, growth insalesof Electrolux products responses ranged inthe 10 to 30% band.,Guangzhou, WesternChina, Eastern China, North Easternand the North China regions were anticipated toexperiencethe greatestsalesgrowth in the next twoyears.Changsha and theCentral regions are anticipated tohave .And customers whois the newentryinto the market expect highergrowthratethan the others,Note:Datalimitation since responses were tailored based on theposition ofthe person interviewed (i.e. ageneral manager of a distributor would have a broaderviewof sales growth tothatof a sales manageronlyinvolved inthe sales ofElectroluxproducts).,SalesRevenue Growth,10.,What are thekey brandsof refrigerator inyourcurrent business and what is the proportion of these brand sales represent inyour total refrigeratorsales?Who sell directly? Whosupplies youdirectly ?,Question 10,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,8 outof the26 customers whodistribute Electrolux refrigeratorsonly sell Electrolux products.,Over 90% ofthe customers purchase directly fromElectroluxand are alsodirectly served by Electrolux,Foreign players, such asCarrefour,Ito Yokado,keep low inventorylevels, typicallylessthan 5days.,In contrast,the averageinventory level for local players variesfrom 7to 30days.Customersin CSand NEholding higher inventory level thanotherregions,Electrolux has lower inventorylevelthanthe competitors atits retailer shop, buthas higher inventory level atits distributor sites,Legend,D:Distributor,R:Retailer,11.,Pleasespecifytheamountoftherefrigeratorsalesin1999,Question11,Comments,WholesaleRetail,AverageVolume19994,752units,4,640units,MarketShare(%)28%24%,RefrigeratorSales,Note:Theseresultsareonlyforhighlevelreference,(1)Except 8outof19 distributorswhoarepurely doingdistribution salesand36%of retailerswhoonly have retail sales,therest are all carryon multipleroles inboth distribution and retail sales.,(2)Thedistributionsales is quitelowbecausesurvey includesa numberofnewdistributors, and the salesnumber is also skewed byretailers who haveweakdistribution sales.,(3)Theretail salesnumberis skewed bya couple ofretailers whoseretailsales iseven higherthan most of distributors salesduringa year,(4)Themarket shareofretailers lookshigher sincethedata isskewedby somedominantlocal retail chainsanddominant retailersin county levelcities.,12.,Do you experience the salesfluctuationin differentmonths?,Yes,thefluctuationisas follows,No,Peakmonthsare_,Sales _units/month,Normal months are _,Sales _units/month,Lowmonths are _,Sales _units/month,Question12,Survey Results,Comments,92%,of respondents confirmedtheseasonal natureoftheir sales,Theperiod justprior toChineseNewYear and the summermonthsarethetwopeakseasonswith salesvolumesaround 80% higher than transitionalperiods.,The2-3months afterChineseNewYear and November are the low season monthswith average salesvolume 26% lowerthan transitional periods.,May,OctoberandDecember are the transitional monthfrom normalseasonto peakseason.,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 fromthe,survey,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 -,Haier clearly has the most mentionsandit appears to beweakestintheWest.,Data-,Dataisscattered acrossanswers. Minimum ordersize is1,butit is very muchdependent onwhothecustomer is. Similarlyfortheworse,2.OrderFrequency,BestWorst,Haier22,Electrolux2,Best &Worse-,Scatteredresultsacrossseveralplayers withnoclearindicationofbest players,Slim leads by Haier andElectrolux bothrated2mentionsinthebestcategory.,Interestingnote,isthat Haier,s responsesinECratesitasthebestbyonedistributorwhileitisthe worse by theretailer,Data -,Nospecifics,3.,Ability to respondtoUrgent Orders,BestWorst,Electrolux3,Haier42 (2-EC),Samsung32,Xinfei2,Rongsheng2,Best -,Haierhasthe mostmentionswith4 (whicharespread throughoutChina).Electroluxnext has3 mentions butallfocusedonEC(2retailers, 1distributor).Samsungalso appearsmoderatelybetterwith3 mentions overall, 2beinginEC.,Worse-,Most of theworsecase mentions werefairly distributed withthe exceptionofHaierwhichhad2mentionsinEC.,4.ProductAvailability,BestWorst,Electrolux2,Haier3(2-SC)7(4-EC,),Xinfei2(2-EC),Siemens4(2-CS)Rongsheng2,Best -,Moderatefeedbackwith bestfor Electrolux, Haier andXinfei.HaierappearsslightlystrongerforproductavailabilityinSCwhileXinfei is stronger in EC.,Worst-,Haierappears to havethe worse problems withproductavailability, particularlyinEC.Siemensalsoappears to havesomeproblems(focusingonCS).,Data -,Only severalpieces of datagivenfor best(rangesfrom 70 to 100%),13.,What is youcurrent order transmissionmode,Fax,Telephone,Email,Other_,Ordering -Question13,OrderTransmission Mode,Survey Result,Comments,Manycustomershavea preference for utilizing “interactive”(i.e. telephone orfaceto face)ordering modesso that they can geta clear idea of productavailability,Currently,no respondentsusee-mail toplaceorders.Presumablythisis because ofthe low level of ITinfrastructurein Chinaand that vendors have notdevelopedthistypeof service. Customers in Guangzhou region are more open toadoptingnew technologies than those intheNorthChina andCentral areas.,Customersand salesstaffindicatedproblemswithcurrent order processingrelated totheheavily manualworkprocess involved, multiple hand-offs (between Electrolux logistics and sales depts)and problems with outdated inventory information on productavailability inLDC.,14.,Whatis the order fulfillmentperformance ofElectrolux?,Orderfulfill rate_88%,Backorderrate_8%,Orderunfulfilled rate_4%,Survey Results,Comments,The average order fill rate is88%,therateof back order is 8%,andthe unfulfilledrateis 4%.,CS regionhas the highestorder fulfillrateat 92%, enhanced byits closeproximityto the manufacturingbase.,SincetheLDCsin NEregion usuallyhavelarge inventory anduseLDCsto serve almostallthe customers,the orderfulfill rate isalsoveryhigh.,The orderfulfill rate inGZ region(Guangdong, Fujian,Guangxi)ranksthelowest at73%,due to thelack ofeffectiveand efficient communication onbothlocal inventory level and inventory level inRDC.,Orderfulfillment performanceis relatively betterin big cities.Almost all theresponsesfromShanghaisaidthe fulfill rate is100%.,Key accounts, such as Carrefour experienced higherrateof back ordersduring the weekendwhenElectroluxhasno persontakecareof logistics service, andthey usuallykeeplowerinventorylevel,(Sales Managersin both Guangzhou and Shenzhen were concerned about the lack ofavailableand timelyinventoryinformation intheRDC,sincetheycould only receivethe informationon amonthly basis).,Order Fulfillment,Ordering- Question14,Electrolux Stockouts- Frequency,Ordering- Question15,15.,Howoften doyouexperiencestockoutofElectrolux products?(frequencyandthenumber of units),Survey Result,Comments,Respondentsindicated that moststockouts occurduring promotional periods and new product launch.,Outof 16 responseswhoregistered stockout, 3aredistributors, 9areretailers, and 4aremultiple retailformats,Generally speaking,customers experienced stockoutrangingfromonce tomore than 10 times,respectively. And the unitsforeach stockoutranged from1 to200each time.,Thestock out happens mo
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