t1s1-supply chain excellence

8/9/2019 T1S1-Supply Chain Excellence

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Supply Chain Ex c el lenc e =St ra t egy Al ignm ent

Track 1 Session 1


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Lar ry Lap ide , PhDDirector, Demand Management

MIT Center for Transportation & [email protected]

2 0 0 7 M A T E R I A L H A N D L I N G & L O G I S T I C S C O N F E R E N C E S P O N S O R E D B Y H K S Y S T E M S
mailto:[email protected]:[email protected]


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Abstract

MIT Supply Chain 2020 Projects research on excellent supplychains found that focusing on achieving corporate customer

objectives rather than just reducing costs and inventories canhave a greater overall impact on financial performance. It alsofound that excellent supply chains are those that support,enhance and are an integral part of a competitive corporate

strategy. Dr. Lapide will cover the Strategic Alignmentmethodology and show how it can be used to tailor your supplychain to compete in the market.


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Agenda

SC2020 Excellence Supply Chain Research

Excellent Supply Chain Framework

Illustrations and Case Studies

Strategy Alignment Process and Takeaways


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SC2020 Excellence Research: What is an excellent supplychain?

Is part of a profitable company

Is not part of an unprofitable company

Is comprised of supply chain best practices

Some myths on what is an excellent supply chain:


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Corporate Competitive Strategy

Excellent Supply Chain

Strategy

Operating Model

OperationalPerformance Objectives

Tailored Business Practices

Fit

Principles leveraged

SC2020 Excellence Research: Excellent Supply ChainFramework

Qualitative research on 21 companies and 9 industries supports that an excellentsupply chain: *

* L. Lapide, MITs SC2020 Project: The Essence of Excellence, Supply Chain Management Review,

April 2006

1. Supports, enhances, and is an integral part of acompanys competitive business strategy.

2. Leverages a (not necessarily unique) supply chain

operating model to sustain competitiveness

3. Executes well against a balanced set of operational

performance objectives/metrics

4. Focuses on a few tailored business practices that

reinforce each other to support the operating model

and best achieve operational objectives.


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Agenda


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1. Supports, enhances, and is an integral part of acompanys competitive business strategy

Example supply chain-related competitive strategy elements

(support, enhance and is an integral part)

Lowest prices

Highest margin products

Highest quality

Fastest customer response

Most innovative

Highest Return-on-Assets

Broadest product line

Best customer service

Best post-sales support

Most environmentally responsible


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CustomersCustomers

Design Source Make Sell Deliver ServiceReturn Recycle

OperatingModels

BusinessPractices

Performance Management

Order Promising& Fulfillment

InventoryReplenishment

SupplyDemand Alignment

Supply Chain Design and Capacity Planning

Product Portfolio Management

Relationship Management

Post-salesSupport

Supply ChainGovernance &

PartnerRelationships

ProductLaunch

Technology &Info/Funds Flows

ProductPhase-out

$$$$

SupplierSupplier

ContractManufacturer

ContractManufacturer

RetailerRetailer

Virtual OEMVirtual OEM

E-marketplace

WebStoreWebStore

DistributorOEM

2. Leverages a (not necessarily unique) supply chainoperating model to sustain competitiveness

Operating model is

the design of the SCincluding:

Where to Source /

Make /Deliver

Push-pull points

Offshoring

Outsourcing


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2. Leverages a (not necessarily unique) supply chainoperating model to sustain competitiveness

SC-Related Competitive Strategy Elements Example Characteristics of Operating ModelAligned To Support and Enhance

Lowest prices Lowest operating costs

Highest margin products Maximum availability at point of sale

Lowest operating cots

Highest quality Highest quality of suppliers

Strongest manufacturing quality controls

Fastest customer response Shortest order-to-delivery cycle

Fastest request-to-promise date

Most innovative Most efficient new product launch

Highest Return-on-Assets Highest plant utilization

Lowest inventories

Broadest product line Adept at managing complexity

Best customer service Specific service for each customer segment

Maximum availability at point of sale

Best post-sales support Maximum availability of service parts

Most environmentally responsible Minimize waste and maximize recycling


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Customer Response (customer-facing) Order cycle times Perfect order fulfillment Quality New product time-to-market(Do not relate to financial statements)

Efficiency (internal) Labor productivity

Supply chain costs(Relate to income statement)

Asset Utilization (internal) Facility utilization

Inventory turns Cash-to-cash cycle(Relate to balance sheet)

?

?

?

3. Executes well against a balanced set of operationalperformance objectives/metrics

B l d ti l bj ti b i d t ( i


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Asset UtilizationEfficiency

CustomerResponse

Capital Intensive Industries Semi-conductor fab

Petrochemical

Commodities (steel, paper,

coal)

Low Margin and Mature Products Food & Beverage

Basic goods retail

Industrial supplies

High Margin and Short LifeCycle ProductsPharmaceutical

Fashion apparel

Media & Entertainment

Balanced operational objectives vary by industry ( inabsolute terms )

Competing is positioning against industry competitors on a


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Relative Objectives


CustomerResponse

Competing is positioning against industry competitors on arelative basis (best-in-class rather than peer average)

Dell

Apple

IBM

Amazon

Best Buy

Wal-Mart

However, the competitive positioning will likely vary by product line as well assupply chain within a company

Absolute Objectives

4 Focuses on a few tailored business practices that


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4. Focuses on a few tailored business practices thatreinforce each other to support the operating model and bestachieve operational objectives.

Tailored (not best) business practices that:

Align to performance objectives

Fit

Consistent ( make sense together)

Reinforcing ( support each other)

Cross-optimized (work together to achieve commongoals, 1+1=3)

Leverage underlying operating principles for cost-benefit


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Supply Chain Principles Illustrations

Fashion versus BasicSupply Chains:Limited Brands

Costs of cycle time and

inventory tradeoff

Service Window Management:Amazon and Cisco

Constraint Relaxation

Practices

Operating

Principles


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Agenda

Aligning Corporate Strategy and Operational Performance


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Customer ResponseCustomer-focusedperformance objectives

Highest supplier quality

standards

Shortest time-to-market Shortest manufacturing

changeover times

Highest quality products

Most innovative Broadest product line

Illustrative Aligned Customer-Focused Corporate Strategy and

Operational Performance Objectives

Aligning Corporate Strategy and Operational PerformanceObjectives

Customer-focused corporate strategy

Aligning Corporate Strategy and Operational Performance


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Asset Utilization

Customer Response

Efficiency

Aligning Corporate Strategy and Operational PerformanceObjectives

Lowest procurement costs

Highest plant utilization

Lowest inventories

Efficiency and asset-focusedperformance objectives:

Illustrative Non-Aligned Customer-Focused Corporate Strategy and

Operational Performance Objectives


Most innovative Broadest product line


Tailored Practices Aligned to Operational Performance


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Customer Response

Tailored practices need to align to strategically-aligned SC performanceobjectives

Tailored Practices Aligned to Operational PerformanceObjectives

SC performance objectives:

Highest supplier quality standards Shortest time-to-market

Shortest manufacturing changeover

times

Tailored PracticesCore strategic supplier program

Collaborative development and

design

Multi-product production lines

with quick changeover


Most innovative

Broadest product line


D ll S l Ch i F k


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Dell Supply Chain Framework


Customer Response

Corporate strategy Highest value-to-price

provider of commodity

computers and accessories to

price conscious customers

Operating Model Direct sales to customers via web/phone

Build-to-order manufacturing

Box-level service

SC performance objectives:1. Lowest fulfillment costs

2. Lowest inventories

3. Lowest procurement costs

Tailored Practices Consigned inventory

supplier hubs

Demand shaping

Inbound transportation

collaboration


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Sphere of

Influence

ConsignedSupplierInv Hubs

Supply

Contracts

Principles Illustration: Dells Tailored Practices

DemandShaping

InboundTransportationCollaboration

Demand-

Supply

Matching

Economies of

Scale

Practices

Operating

Principles

Practices and principles support a competitive supply chain strategy focused on

low-costs, low inventories, and minimum cash-to-cash cycle

IBM Supply Chain Framework


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IBM Supply Chain Framework

Asset Utilization

Customer Response

Corporate strategy Diversified and value-addedprovider of networked

technology solutions to

businesses

Operating ModelDirect, single face to customer via

sales reps

Build-to-order manufacturing

Extensive pre- and post sales support

SC performance objectives:1. Highest customer satisfaction

2. Lowest inventories

3. Lowest costs

Tailored Practices Consolidated customer

fulfillment process

Launch buffer

manufacturing

Centralized

procurement

Consolidated andoutsourced logistics

Efficiency

Supports a competitive supply chain strategy for high-end networked computer

customers over their lifetime of use

Wal Mart Supply Chain Framework


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Wal-Mart Supply Chain Framework

Asset Utilization

Customer Response

Corporate strategy Everyday low pricing for

cost-conscious customers

SC performance objectives:1. Efficiency (e.g., supply chain

costs)

2. Asset utilization

3. Customer response

Efficiency

Supports a competitive supply chain strategy for price-conscious customer base

Tailored Practices Vendor collaboration with co-

managed inventory programs

Flow logistics distribution

including extensive cross-

docking, DSD and

differentiated flow Network design incorporating

large-sized distribution centers

and short-haul private fleets for

economies of scale

Operating Model Lowest cost brick and mortar retailer with

supplier to retailer DC to store flows

Large-format stores carrying a wide variety of

products (not necessarily brands and SKUs)

A d


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Agenda

Strategy Alignment Process


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Strategy Alignment Process

Go-To Market

Strategy

Supply ChainStrategy

Step 1 Discuss how supply chain strategy supports business strategy

Identify supply chain competitive strategy elements

Operating

Model

Performance

Objectives

Step 2 Develop operating model that supports SC

competitive strategy elements

Identify operational performance metrics

that are aligned with strategy

Tailored

Practices

Step 3 Develop SC practices tailored to the

operating model

Discuss trade-offs and alignments


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Key Takeaways

Excellence means aligning your supply chain to yourcorporate competitive strategy

Align SC strategy to support, enhance and be anintegral part of corporate strategy

Set operating model and operational performance

measures based on what you will excel in, and whatyou wont!!

Implement a few tailored practices that reinforce each

other


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Food for Thought

What should Dell and Wal-Mart move to?

Thank you

Larry Lapide, Ph.D.

Director, Demand Management, [email protected]


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Quest ions?

t1s1-supply chain excellence

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