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How to define aSupply Chain Strategy? Contact person: Prof.dr. Bram Desmet
+32 497 58 28 60
What is Strategy?
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• ‘Best price’ • ‘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
What is Supply Chain?
SCM = balancing the SC triangle of service, cost and cash
SCM = balancing the SC triangle of service, cost and cash
e.g. reduce cost by
sourcing in far East
SCM = balancing the SC triangle of service, cost and cash
e.g. increase market
share by extending
product portfolio
SCM = balancing the SC triangle of service, cost and cash
e.g. reduce inventory
by lowering safety
stocks
SCM = balancing the SC triangle of service, cost and cash
Focus/incentives in a
typical production
company …
SCM = balancing the SC triangle of service, cost and cash
Resulting pressure in
the triangle
Balancing the triangle = optimizing ROCE
Aligning the supply
chain triangle is about
maximizing ROCE
Top-line
EBIT
ROCE
Impact of Strategy on Supply Chain
Supply Chain Triangle in 3 dimensions
service
inventory cost
Higher
turns
Lower
cost
Higher
service
Measuring Service by Gross Margin
service
inventory cost
Higher
turns
Higher service
As measured by
Gross Margin
Lower cost
(excl.COGS)
Mapping Treacy & Wiersema to Service
Product Leadership
highest spec driving highest margin
Customer intimacy
expertise in solutions drives a premium
Operational Excellence
excel in the basics
service
inventory cost
Higher
turnsLower cost
(excl.COGS)
Higher service
As measured by
Gross Margin
Mapping Treacy & Wiersema to Cost
service
inventory cost
Higher
turnsLower cost
(excl.COGS)
Higher service
As measured by
Gross Margin
Product Leadership
high cost in R&D and in sales
Customer intimacy
solution development is a cost of sales
Operational Excellence
cost leader in every fibre of the organization
Mapping Treacy & Wiersema to Inventory
service
inventory cost
Higher
turnsLower cost
(excl.COGS)
Higher service
As measured by
Gross Margin
Product Leadership
highest complexity, highest risk
Customer intimacy
controlled complexity
Operational Excellence
simplicity drives efficiency
Mapping Treacy & Wiersema to the Supply Chain Triangle
Product Leadership
highest risk with highest potential payoff
Customer intimacy
an extra mile at an extra cost and premium
Operational Excellence
excel in cost and the service basics
service
inventory cost
Higher
turns
Higher service
As measured by
Gross Margin
Lower cost
(excl.COGS)
Mapping Treacy & Wiersema to the Supply Chain Triangle
Product Leadership
highest risk with highest potential payoff
Customer intimacy
an extra mile at an extra cost and premium
Operational Excellence
excel in cost and the service basics
service
Capital
employedcost
Lower capital
employed
Higher service
As measured by
Gross Margin
Lower cost
(excl.COGS)
EBIT
ROCE
Examples from Food Retail
Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Customer Intimacy Product Leadership
• Hard Discounters • Supermarkets • Fresh food markets
• Good quality at low cost • Mix of quality and price • The best, highest quality,
healthiest
• Lots of private label • Mix of A and B • Locally grown
• Limited Assortment • Everything you daily need • Quality over Quantity
Company Gross Profit% SG&A% Inventory Turns
30%+ gross profit 32,56% 26,03% 15,80
20-29% gross profit 23,95% 17,44% 11,29
<20% gross profit 11,63% 11,58% 25,60
Company Gross Profit% SG&A% Inventory Turns CCC
30%+ gross profit 32,56% 26,03% 15,80 7,93
20-29% gross profit 23,95% 17,44% 11,29 2,83
<20% gross profit 11,63% 11,58% 25,60 (27,58)
Company Gross Profit% SG&A% Fixed Asset
Turns
30%+ gross profit 32,56% 26,03% 3,29
20-29% gross profit 23,95% 17,44% 4,22
<20% gross profit 11,63% 11,58% 7,42
Company Gross Profit% SG&A% Fixed Asset
Turns
EBIT
30%+ gross profit 32,56% 26,03% 3,29 4,46%
20-29% gross profit 23,95% 17,44% 4,22 3,84%
<20% gross profit 11,63% 11,58% 7,42 0,95%
Company Gross Profit% SG&A% Fixed Asset
Turns
EBIT ROCE
30%+ gross profit 32,56% 26,03% 3,29 4,46% 16,28%
20-29% gross profit 23,95% 17,44% 4,22 3,84% 17,11%
<20% gross profit 11,63% 11,58% 7,42 0,95% 12,02%
Example from Hi-Tech
Pre-crisis Crisis Post-crisis
Pre-crisis Crisis Post-crisis
Pre-crisis Crisis Post-crisis
Good quality, low price watches High quality, fashionable watches
Operational Excellence Product Leadership
What did we learn today?
Lessons Learned
1. The cost and the capital employed in your supplychain, really depend on your strategy
2. Strategies that require a higher cost and capitalemployed, can typically compensate this bygenerating a higher gross margin
3. Different strategies are different ways to come to thesame return on capital employed, or ‘bang for thebuck’
