1、Electrolux China “Network Strategy” Project,Final Report Presentation,Project Introduction and BackgroundCustomer Survey - Survey Approach - Survey Results - Findings and OpportunitiesLogistics Network - EOQ inventory modeling - Logistics network modelingRecommendations and next stepsAppendices- Pro
2、cess 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 growt
3、h,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 ch
4、ain 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 competi
5、tion),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
6、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 fut
7、ure 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 dis
8、tribution 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 RESUL
9、TS,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 ScopeThe scope of the Network Strat
10、egy 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 G
11、AP 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
12、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 loca
13、ted? 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
14、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 ob
15、jectives?,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,Build Logistics Model,Task 5,Assess Al
16、ternatives,Task 6,Conduct Review Sessions,Task 7,Present Results, Recommen- dations & Implemen- tation Action Plans,Task 8,Conduct Visioning Sessions,Task 1 a.,Initiate Data Collection,Review Current Operations,Task 2,Under-stand Service Require- ments,Task 3,Initiate Detailed Project Planning,Task
17、1,Task 4,Full-Scale Implementation Rollout,Phase I,Phase II,Phase III,Distribution Network Process 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,2a
18、. Understand current network setup,2b. Review current network logistics strategy,2c. Review current customer service strategy,3,Understand Service Requirements (customer interviews and analysis),3a. Create customer segmentation frameworks,5,Identify Alternatives,5a. Perform demand aggregation analys
19、is,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,3k. Analyze Cost to Serve and Strategic Attractiveness,3l. Develop Recommende
20、d 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
21、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 6,5b. Selection of 5-8 “best options”,Project Workplan,Project Introduction and BackgroundCustomer Survey - Survey Approach - Survey Res
22、ults - Findings and OpportunitiesLogistics Network - EOQ inventory modeling - Logistics network modelingRecommendations and next stepsAppendices- Process flow- Cost analysis,Contents,The sample for the customer survey targeted a representation of Electroluxs current operations in China, and its curr
23、ent and future market,- Customer Sampling Methodology -,Historical Sales,Market Growth & Trends,Current Logistics Operation,Where were the highest demand areas? Where are the customers located, which has significant contribution to Electrolux revenue? What are the current customer types? Where are t
24、he key account customers? What is the current sales regions?,Where would be the potential high growth areas for refrigerators? What will be the emerging channel for white goods? What are the service requirements from the emerging channel players?,What is the current logistic service pattern, with re
25、gard to the LDCs” distribution and the customers which are being served?,The project team focused on obtaining as much customer data through direct interviews. A customer survey was faxed out to broaden geographic coverage,- Customer Survey Approach -,Fax Out Survey,Focused on several AC/Electrolux
26、chosen locationsBeijing, Tianjin, Shanghai, Guangzhou, Changsha, Chengdu, Shenyang, ShenzhenCustomer TypesDistributors: Provincial level, city level Retailers: Department store, home appliance store, chain storeKey Accounts: International chain stores,Broad geographic coverage to include areas where
27、 direct interviews could not be conducted Still aimed to achieve representative sampling of distributors and retailers,Direct Interviews,In total, 81 customer survey questionnaires were collected representing a broad cross section of Electrolux customers,- Customer Survey Breakdown -,Distributors,Re
28、tailers,Key Accounts,Provincial Level,7,28,International Chain Store,City Level,12,13,3,Department Store,Home Appliance,Multiple Format,10,Chain Store,7,Total,81,Sub Total,19,59,3,Super Market,1,- Customer Survey Breakdown -,Regions,NC,EC,GZ,West,Central,CS,NE,Interviewed,Survey,2,12,1,9,5,7,4,4,10,
29、7,6,0,6,8,Total,41,40,Total,6,22,8,15,5,13,12,81, and also Electroluxs markets,Changsha,Beijing,Shenyang,Shanghai,Chengdu,Guangzhou,Qingdao,Suzhou,Tianjin,Dalian,Kunming,NC,NE,Central,EC,GZ,w,CS,Project Introduction and BackgroundCustomer Survey - Survey Approach - Survey Results - Findings and Oppo
30、rtunitiesLogistics Network - EOQ inventory modeling - Logistics network modelingRecommendations and next stepsAppendices- Process flow- Cost analysis,Contents,8. Are you being served by Electrolux directly? Yes NoAll responses were in the “Yes” category,Question 8,Why were non-Electrolux Customers n
31、ot covered by the survey?Due to new survey regulations which were recently released (Dec. 1999) by the State Statistical Bureau (SSB), a company must obtain permission and approval for all market surveys conducted (this approval covers survey scope, approach and also a review and approval of the sur
32、vey results by the SSB before they are released clients). The obstacles put in place by the regulations (e.g. applying for permission, having a survey reviewed and approved, etc.) could have added several weeks to the project commencement date and additional time before the results can be released.
33、At this stage, we are not aware of any companies which have sought and gained approval (including Gallup). The key problem is that the survey reforms having only recently been implemented and the local branches of the SSB are still establishing the administrative system to deal with it. Therefore, t
34、he most ”practical” approach for conducting the project survey given the current environmental constraints was to cover only our existing customers since it was unlikely that they would report the survey to the SSB.,Electrolux Customer,9. Sales revenue growth in the next 1-2 years 60%Response: 33% 3
35、0% 19% 3% 12%,Question 9,CommentsThe majority of respondents were positive in their sales outlook both for their sales overall (ranging from refrigerators to general home appliances) as well as specifically for Electrolux products. Typically, growth in sales of Electrolux products responses ranged i
36、n the 10 to 30% band.Guangzhou, Western China, Eastern China, North Eastern and the North China regions were anticipated to experience the greatest sales growth in the next two years. Changsha and the Central regions are anticipated to have . And customers who is the new entry into the market expect
37、 higher growth rate than the othersNote: Data limitation since responses were tailored based on the position of the person interviewed (i.e. a general manager of a distributor would have a broader view of sales growth to that of a sales manager only involved in the sales of Electrolux products).,Sal
38、es Revenue Growth,10. What are the key brands of refrigerator in your current business and what is the proportion of these brand sales represent in your total refrigerator sales? Who sell directly? Who supplies you directly ?,Question 10,Refrigerator Sales,Comments 8 out of the 26 customers who dist
39、ribute Electrolux refrigerators only sell Electrolux products. Over 90% of the customers purchase directly from Electrolux and are also directly served by Electrolux Foreign players, such as Carrefour, Ito Yokado, keep low inventory levels, typically less than 5 days. In contrast, the average invent
40、ory level for local players varies from 7 to 30 days. Customers in CS and NE holding higher inventory level than other regions Electrolux has lower inventory level than the competitors at its retailer shop, but has higher inventory level at its distributor sites,Legend D: Distributor R: Retailer,11.
41、 Please specify the amount of the refrigerator sales in 1999,Question 11,CommentsWholesale RetailAverage Volume 1999 4,752 units, 4,640 unitsMarket Share (%) 28% 24%,Refrigerator Sales,Note: These results are only for high level reference(1) Except 8 out of 19 distributors who are purely doing distr
42、ibution sales and 36% of retailers who only have retail sales, the rest are all carry on multiple roles in both distribution and retail sales. (2) The distribution sales is quite low because survey includes a number of new distributors, and the sales number is also skewed by retailers who have weak
43、distribution sales. (3) The retail sales number is skewed by a couple of retailers whose retail sales is even higher than most of distributors sales during a year(4) The market share of retailers looks higher since the data is skewed by some dominant local retail chains and dominant retailers in cou
44、nty level cities.,12. Do you experience the sales fluctuation in different months? Yes, the fluctuation is as follows No Peak months are _, Sales _units/month Normal months are _, Sales _units/month Low months are _, Sales _units/month,Question 12,Survey Results,Comments,92% of respondents confirmed
45、 the seasonal nature of their salesThe period just prior to Chinese New Year and the summer months are the two peak seasons with sales volumes around 80% higher than transitional periods.The 2-3 months after Chinese New Year and November are the low season months with average sales volume 26% lower
46、than transitional periods.May, October and December are the transitional month from normal season to peak season.,Peak seasons,Average Sales (Units / month),Months,Transitional period(s),Low seasons,January (pre-Chinese New Year), June to September,May, October, December,February to April (post New
47、Year) November,849,472,351,Season,Sales Fluctuation,Ordering,Ordering - Table A,Ordering Service Importance and Customer Satisfaction,Ordering - Table A,“Ability to Respond to Urgent Orders”, and “Product Availability” ranked the most important factors from the survey Though above average, the custo
48、mer satisfaction rate towards Electroluxs ability to respond to urgent orders scored relatively the lowest among all the factors. Customers from most of the regions, such as Carrefour Beijing, Guangzhou Department Store complained that there is no differentiation in response levels between the norma
49、l orders and urgent orders The overall customer satisfactory rate towards Electroluxs ordering service level is particularly low in the Guangdong region Most of the retailers showed lack of understanding for minimum order quantity and order frequency as they are presently ordering based on demand and payment credit, and regard minimum order quantity as less important in affecting their business revenues. Several customers indicated “1” as desired minimum order size,
