the strategy-driven supply chain
TRANSCRIPT
The Strategy-DrivenSupply Chain Contact person: Prof.dr. Bram Desmet
+32 497 58 28 60
My observations from 20 years of Supply Chain
• Supply Chain Management is poorly understood
• Supply Chain Management is grossly undervalued
• Supply Chains are designed for minimum cost and cash
• S&OP (or IBP) is still a supply chain party
• Supply Chain is there to execute
Any volunteers to work in supply chain??
What about the next 20 years in supply chain?
How to surf this wave ???
The 5 key concepts of theStrategy-Driven Supply Chain
• Supply Chain Triangle
• Strategy impacts the balance in the triangle
• Better connect strategy and supply chain
• Integrate different planning layers
• The future role of Supply Chain
Awareness Envision Engage Design Implement Improve Sustain
1. Supply Chain = Balancing the triangle
CASH COST
SERVICE
VP Sales/Mkt
VP Ops
Mfg’ Cost
VP Purch
Purch’Cost
Logistics Cost
VP SC
Working Capital
VP SCCFO
1. Balancing the triangle = optimizing ROCE
CAPITAL EMPLOYED
COST
SERVICE REVENUE
RETURN ON CAPITAL EMPLOYED (ROCE)
EBIT(operating
income)
2. Strategy = making choices
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Market leaders are ‘extremely disciplinedand focused’ on 1 of 3 strategic options
Treacy & Wiersema, 1995
Operational Excellence Product Leadership Customer Intimacy
• Best Total Cost • Best Product • Best Total Solution
• 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
2. Strategy = making choices
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Market leaders are ‘extremely disciplinedand focused’ on 1 of 3 strategic options
Treacy & Wiersema, 1995
Operational Excellence Product Leadership Customer Intimacy
• Best Total Cost • Best Product • Best Total Solution
2. Strategy impacts the balance in triangle
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Higher service
Lower costLower capitalemployed
As measured bygross margin
As measured by SG&A
Differentiation
Lowest Price
EBIT
EBIT
CapitalEmployed
= =ROCE =
3. Strategy-Driven Supply Chain Design
Capital Employed• Fixed Assets• Working Capital
Service
ROCE
Cost• COGS• SG&A
Market Analysis• Price • Psychological Access• Physical Access• Services• Product Quality• Assortment• Experience→Who is at par? Differentiate? Dominate?
Business Model / Business Strategy
Strategic Value proposition
Define Value Proposition• Dominate on 1• Differentiate on 2nd
• Play at par on the restVariability
• Product• Portfolio• Innovation
• Volume• Mix• Innovation
ComplexityResponsiveness• Lead time• Reliability• Volume flexibility• Mix flexibility• Innovation flexibility
Strategy-Driven Supply Chain
Key Metrics Responsive EfficientGross Margin 50% 25%SG&A% 30% 20%EBIT% 20% 5%Capital Empl% 100% 25%ROCE 20% 20%
Value Model
4. Integrated Value Planning & Execution
Integrated Value Planning & Execution
(IVP&E)
IBP
S&OP
S&OE
Strategic Target Setting:• define how you will generate ROCE, in which combination of EBIT and Capital Employed• define intermediate steps to go from current ROCE to best-in-class (e.g. 20%)
Strategic Planning:• make a plan on a customer-product segment: grow, turnaround, divest, acquire• how will individual segments contribute to the overall objective
Financial Planning / Budgeting:• fix next years ambition, allocate resources
Sales & Operations Planning:• 18 month rolling horizon, detect and solve imbalances 3-18 months out
Sales & Operations Execution:• 12 week rolling horizon, detect and solve imbalance 3-12 weeks out
12 wks
Execution
3-5 yrs
Long-term targets and milestones
18 mth
Monitor & adjust
3-5 yrs
Bottom-up planning starting from customer-product segments
12 mth
Fix next year
5. The Future Role of Supply Chain
Finance Operations+ VP Supply Chain
Sales
CEO + Strategy Office
Strategic planning
Financial planning
S&OP (Operational Planning)
Customer ServiceLogistics
FREE CASH FLOW COST/EFFICIENCY
GROWTH
ROCE
Strategic planning
Financial planning
S&OP (Operational Planning)
Customer Service
Logistics
Finance Operations
Sales
CEO
CSCO
CONFLICT - DRIVEN STRATEGY & VALUE - DRIVEN
Deliver the right product at the right time at the right
customer in the right quantityat minimal cost and with
minimal inventory?
To drive value, as measured by ROCE, by better balancing service, cost and capital employed through better integrated and better balanced strategic, financial and
operational planning while managing the Total Value at risk (TVaR) within end-to-
end value chains on sustainable basis.
www.bramdesmet.com www.strategydrivensupplychain.com
Research on S&OP success rates & drivers
Other recommendations
• 2 roundtables on S&OP• 12u30 – 13u00: Chemical & Process en Semi-Process
• 13u00 – 13u30: Food & Beverage en FMCG
• Student that will do research on• S&OP success
• Success drivers
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