scelp nyenrode - strategic target setting using the supply chain triangle
TRANSCRIPT
Strategic Target Settingusing the Supply Chain Triangle
Prof.dr. Bram [email protected]
+32.497.58.28.60
be.linkedin.com/pub/bram-desmet/1/788/823/
@bram_desmet
My name is Bram …
• Business
• 2009 - …: Managing Director, Solventure, S&OP software and software based services
• 2003 - …: Consultant Strategy – SupplyChain – Operations, MÖBIUS
• 1998 - 2003: IT manager, Arcelor-Mittal, Gent (Sidmar)
• Sector experience: aftermarket, chemical/pharma, consumer goods, discrete/high-tech, metals, retail, recycling, SME's (+50 companies)
• Academic
• 2010-…, Adjunct Professor at the Vlerick Business School, Supply Chain and Operations
• 2006-2009, PhD in Operations Research, Gent, Multi-Echelon Inventory Optimization
• 2002-2004, Executive MBA, Vlerick Business School
• 1998, Master in Mathematics, Gent University
• Contact info
• [email protected], +32.497.58.28.60
• be.linkedin.com/pub/bram-desmet/1/788/823/
• @bram_desmet
2
How much inventory do we really need??
3
4
5
6
Company 2: strong in inventory turns but
out of balance
Company 3: betterbalanced but did not
recover to pre-crisis levels
Company 1: betterbalanced & good
rebound after crisis
7
STRENGTH
BALANCE
RESILIENCE
8
9
e.g. reduce cost bysourcing in far East
10
e.g. increase market share by extendingproduct portfolio
11
e.g. reduce inventoryby lowering safetystocks
12
Focus/incentives in a typical productioncompany …
13
Resulting pressure in the triangle
14
Aligning the supplychain triangle is aboutmaximizing ROCE
Top-line
EBIT
ROCE
15
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema, 1995
Operational Excellence Product Leadership Customer Intimacy
• ‘Best price’ and/or
• ‘Best access’ (‘fast, easy,
painless’)
• ‘Best product’ • ‘Best service’ and/or
• ‘Best connectivity’
(‘relationship
orientation’)
• Efficiency through
process thinking
• Zero-defect service
• Best product through
continuous product
innovation
• Clear innovation strategy:
where to place the bets?
• Understanding the
broader problem
• Having expertise about
the customer’s business
• Customers carefully
selected
• The operations
department drives the
company
• Attention is paid to
process speed and quality
• R&D is key: idea
management
• Marketing is also key:
educate people with a
missionary zeal
• Get engineers, designers,
and marketers
systematically together
• Demonstrate expertise
and experience
• Strengthen the
relationship
• Build loyalty: focus on
customer retention
Product Leadershiphighest cost in R&D, marketing, supply chain
Customer intimacythe extra mile comes at an extra cost
Operational Excellencecost leader in every fibre of the organization
service
inventory cost
Higherturns
Lowercost
Higherservice
Product Leadershiphighest complexity, highest risk
Customer intimacycontrolled complexity
Operational Excellence simplicity drives efficiency
service
inventory cost
Higherturns
Lowercost
Higherservice
Product Leadershipemotion beyond functional service
Customer intimacyan extra mile for a premium
Operational Excellenceexcel in the basics
service
inventory cost
Higherturns
Lowercost
Higherservice
Product Leadershiphighest risk with highest potential payoff
Customer intimacyan extra mile at an extra cost and premium
Operational Excellenceexcel in cost and the service basics
service
inventory cost
Higherturns
Lowercost
Higherservice
EBIT
Remember ROCE principle: lower turns require a higher EBIT!
� EBIT of product leader should be the highest!!
Product
Leadership
Customer
IntimacyOperational
Excellence
Product
Leadership
Customer
Intimacy
Operational
Excellence
Leaders
Average
LagardsImprove on both dimensions at thesame time by applying best practices
Rely on ‘breakthrough’ innovationsto ‘shift the best practice frontier’
Product
Leadership
Customer
Intimacy
Operational
Excellence
Leaders
Average
LagardsImprove on both dimensions at thesame time by applying best practices
Rely on ‘breakthrough’ innovationsto ‘shift the best practice frontier’
Exercise: identify key drivers that bring customer value factors to a higher maturity level Multi-echelon planning
Remove ‘bad complexity’
SiOP (Sales, Inventory & Operations Planning)
Postponement & Modular Design
Product
Leadership
Customer
Intimacy
Operational
Excellence
Leaders
Average
LagardsImprove on both dimensions at thesame time by applying best practices
Rely on ‘breakthrough’ innovationsto ‘shift the best practice frontier’
From ‘top-notch’ and ‘niche’ to ‘goodenough’ and ‘mid-market’
Which is different from “strategic
shifts”
From ‘embrace complexity’ to ‘war on complexity’
28
Service
Cash + Fixed Assets = Capital Employed
Cost
29
Product Leadership
Customer intimacy
Operational Excellence
30
Product Leadership
Customer intimacy
Operational Excellence
31
Product Leadership
Customer intimacy
Operational Excellence
32
Product Leadership
Customer intimacy
Operational Excellence
33
Product Leadership
Customer intimacy
Operational Excellence
34
Product Leadership
Customer intimacy
Operational Excellence
35
Product Leadership
Customer intimacy
Operational Excellence
36
Product Leadership
Customer intimacy
Operational Excellence
37
Product Leadership
Customer intimacy
Operational Excellence
Exercise 1:• Choose a specific PMC strategy• Choose 1 of the following customer value factors: Reliability, Responsiveness or Cost• Identify key drivers that bring us to a higher level of maturity (more service with less
cash and cost)
BREAK
38
39
Product Leadership
Customer intimacy
Operational Excellence
Exercise 2:• How to treat complexity in this customer value framework?
Plugging the ‘Strategy Holes’ in SCOR
Prof.dr. Bram [email protected]
+32.497.58.28.60
be.linkedin.com/pub/bram-desmet/1/788/823/
@bram_desmet
SCOR and KPI’s
41
Reliability
Asset Management Efficiency Costs
CAPITAL EMPLOYED
Responsiveness
Agility
42
Reliability
Asset Management Efficiency Costs
CAPITAL EMPLOYED
Responsiveness
Agility
RL.1.1 Perfect Order Fulfillment
RS.1.1 Order Fulfillment Cycle Time
AG.1.1 Upside Supply Chain Flexibility
AG.1.2 Upside Supply Chain Adaptability
AG.1.3 Downside Supply Chain Adaptability
AG.1.4 Overall Value At Risk
CO.1.1 Supply Chain Management Cost
CO.1.2 Cost of Goods Sold
AM.1.1 Cash-to-Cash Cycle Time
AM.1.2 Return on Supply Chain Fixed Assets
AM.1.3 Return on Working Capital43
Reliability
Asset Management Efficiency Costs
CAPITAL EMPLOYED
Responsiveness
Agility
RL.1.1 Perfect Order Fulfillment
RS.1.1 Order Fulfillment Cycle Time
AG.1.1 Upside Supply Chain Flexibility
AG.1.2 Upside Supply Chain Adaptability
AG.1.3 Downside Supply Chain Adaptability
AG.1.4 Overall Value At Risk
CO.1.1 Supply Chain Management CostCO.1.2 Cost of Goods Sold
AM.1.1 Cash-to-Cash Cycle Time
AM.1.2 Return on Supply Chain Fixed Assets
AM.1.3 Return on Working Capital
RL.2.1. % of Orders Delivered in Full
RL.2.2. Delivery Performance to Customer Commit Date
RL.2.3. Documentation Accuracy
RL.2.4. Perfect Condition
44
Reliability
Asset Management Efficiency Costs
CAPITAL EMPLOYED
Responsiveness
Agility
RL.1.1 Perfect Order Fulfillment
RS.1.1 Order Fulfillment Cycle Time
AG.1.1 Upside Supply Chain Flexibility
AG.1.2 Upside Supply Chain Adaptability
AG.1.3 Downside Supply Chain Adaptability
AG.1.4 Overall Value At Risk
CO.1.1 Supply Chain Management Cost
CO.1.2 Cost of Goods Sold
AM.1.1 Cash-to-Cash Cycle Time
AM.1.2 Return on Supply Chain Fixed Assets
AM.1.3 Return on Working Capital
RL.2.1. % of Orders Delivered in Full
RL.2.2. Delivery Performance to Customer Commit Date
RL.2.3. Documentation Accuracy
RL.2.4. Perfect Condition
RL.3.36. Fill Rate
RL.3.37. Forecast Accuracy
RL.3.49. Schedule Achievement
RL.3.58. Yield
45
OK
OK
??
??
??
The SCOR model seems tomiss certain service aspects, required to model a customer intimacy or product leadershipstrategy!!
46
• Price: lowest price
• Product: highest quality/performance/…
• Service: only a product or combined with a service?
• Access: difficult to reach or easy, effort I need to do
to get access
• Experience: feeling I have during
purchasing/consumption
47
Price
CAPITAL EMPLOYED
Access
Product
VALUE
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility: Upside/Downside Flexibility/Adaptability
Product Portfolio / Assortment
Order Flexibility (timing, quantity, specific requirements)
(RL.1.1)
(RS.1.1)
(AG.1.1-4)
48
Price
CAPITAL EMPLOYED
Access
Product
VALUE
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility: Upside/Downside Flexibility/Adaptability
Product Portfolio / Assortment
Order Flexibility (timing, quantity, specific requirements)
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Purchasing Cost
Manufacturing Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
(RL.1.1)
(RS.1.1)
(AG.1.1-4)
(CO.1.2)
(CO.1.1)
(AM.1.1)
49
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility: Upside/Downside Flexibility/Adaptability
Product Portfolio / Assortment
Order Flexibility (timing, quantity, specific requirements)
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Purchasing Cost
Manufacturing Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
50
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
(AM.1.2, AM.1.3)
51
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Impact of Strategy: from Opex toCustomer Intimacy1. From Service to Cost and Cash
52
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex toCustomer Intimacy1. From Service to Cost and Cash2. From Service to Top-Line, Bottom-
Line and ROCE
=53
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex toCustomer Intimacy1. From Service to Cost and Cash2. From Service to Top-Line, Bottom-
Line and ROCE3. Second Order Effects
=54
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex toCustomer Intimacy1. From Service to Cost and Cash2. From Service to Top-Line, Bottom-
Line and ROCE3. Second Order Effects
=55
Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex toCustomer Intimacy1. From Service to Cost and Cash2. From Service to Top-Line, Bottom-
Line and ROCE3. Second Order Effects
=56
Key Takeways
• Never benchmark in only 1 dimension
• Make sure to balance Service, Cost and Cash: the Supply Chain Triangle
• Different strategies lead to different targets
• Remember ROCE principle: lower turns should be compensated by a higher EBIT!
• The SCOR model contains ‘holes’ when it comes tostrategy
• SCOR misses complexity measures for product, product portfolio and service
• It is focused on the ‘results’, not the ‘causes’
57
Want to know more?
• Cfr. http://www.slideshare.net/BramDesmet/
• Cfr. Solventure Youtube channel for video blogs https://www.youtube.com/channel/UCzyuODMMCk2vXkcQLawJVkg
58
Thank You!!
Prof.dr. Bram [email protected]
+32.497.58.28.60
be.linkedin.com/pub/bram-desmet/1/788/823/
@bram_desmet