the strategy-driven supply chain

The Strategy-DrivenSupply Chain Contact person: Prof.dr. Bram Desmet

bram_desmet@solventure.eu

+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

8

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

9

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

10

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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Thank you!

Prof.dr. Bram Desmet

bram_desmet@solventure.eu

+32 497 58 28 60