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Northeast Supply Chain Conference
Strategic Supply Chain Management: The Five Disciplines for Top Performance
For further information, please contact:
Brad Householder, DirectorSupply Chain ManagementPRTM1050 Winter StreetWaltham, MA 02451Tel: +1 781 [email protected]
September 20, 2005
Leading thinkingfor lasting results
© Copyright 2005 PRTM10362MV / 09/20/2005
2
Outline
Emergence of Strategic Supply Chain Management: The Five Core Disciplines The 5 Core Disciplines and Performance:Insights From Benchmark Data Adopting the 5 Core DisciplinesWrap Up / Q&AAbout PRTM
Northeast Supply Chain Conference
Emergence of Strategic Supply Chain Management:The Five Core Disciplines
Leading thinkingfor lasting results
© Copyright 2005 PRTM10362MV / 09/20/2005
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Supply Chain Management Has Evolved From A Technology Focus To A Strategic Focus
Adoption of new processes and
technology
Functional “SCM”
Production and Production and inventory control skillsinventory control skills
Robust processes
Technological SCM
RobustRobustprocesses (plan, processes (plan,
source, make, deliver, source, make, deliver, return)return)
Strategic SCM
Adoption of new Adoption of new processes and processes and
technologytechnology
Ability to rapidly align supply chains to new
strategies –“anywhere… ...anytime”
80s–early 90s 1990s–early 2000 2003
Functional efficiencySupply chain
scorecard withefficiency focus
SCS integrated intocorporate performance
management
Price of EntryPrice of Entry
CompetitiveDifferentiator
Key Metrics
© Copyright 2005 PRTM10362MV / 09/20/2005
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Trends Showed the Emergence of Five “Core Disciplines” of Strategic SCM
Observed Trends “Core Disciplines”
Executive Team attention to SCFormal SC strategy processes
View your supply chain as a strategic asset
SC process standards (e.g. SCOR)Focus on simplificationIntegration of SC and other enterprise processes
Develop an end-to-end process architecture
Shift from transactions to business managementGlobal SC core operations unitsSC career paths
Design your organization for performance
Formal SC scorecardsSupplier and customer metricsSC on the corporate balanced scorecard
Use metrics to drivebusiness success
Fewer “one-off” collaborative pilots Technology maturity and standardizationRemoval of the “weakest links”
Build the right collaborative model
© Copyright 2005 PRTM10362MV / 09/20/2005
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But Do Companies That Follow The Five Disciplines Have Better Supply Chain and
Business Performance?
How?
Northeast Supply Chain Conference
The 5 Core Disciplines and Performance:Insights From Benchmark Data
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© Copyright 2005 PRTM10362MV / 09/20/2005
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The Answer Starts With a Clear Definition of Supply Chain Practice Maturity Levels
Operational Maturity
Perfo
rman
ce
Stage 3: Integration ExternalStage 2:
Internal Integration
Stage 1:Functional
Focus
Stage 4:Cross-
Enterprise Collaboration
&Optimization
Deg
ree
of IT
Ena
blem
ent
The Performance Measurement Group (PMG)Supply Chain Maturity Model
Perf
orm
ance
High Maturity Practices
Low Maturity Practices
© Copyright 2005 PRTM10362MV / 09/20/2005
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PRTM’s Benchmarking Has Long Shown That Practice Maturity Improves Performance
Companies with high supply chain practice maturity have better supply chain performance…• 17% lower inventories• 11% better delivery performance• 16% lower supply chain management costs
…which translates into better business performance• 4x greater sales growth• 40% higher profitability
© Copyright 2005 PRTM10362MV / 09/20/2005
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Defining the Impact of Strategic SCM Practices on Performance
Collected quantitative and qualitative data
across 89 supply chains from 65
companies in PMG’sbenchmark database
Collected quantitative and qualitative data
across 89 supply chains from 65
companies in PMG’sbenchmark database
Evaluated maturity for selected
practices in the Maturity Model that
represent the 5 Core Disciplines
Evaluated maturity for selected
practices in the Maturity Model that
represent the 5 Core Disciplines
Evaluated quantitative
performance of High Maturity vs. Low
Maturity companies using a set of SCOR®-
compliant metrics
Evaluated quantitative
performance of High Maturity vs. Low
Maturity companies using a set of SCOR®-
compliant metrics
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG
InnovationCost
ServiceQuality
InnovationCost
ServiceQuality
Process Architecture
OrganizationPerformance Management
Strategy
Collaborative Model Cash-to-cash Cycle Time
Inventory Days of Supply
Total SCM Cost
Net Asset Turns
Production Flexibility
Order Fulfilment Lead Time
Delivery Performance
Total Returns Processing Cost
Relationship of Strategic SCM Practices to Quantitative Performance
© Copyright 2005 PRTM10362MV / 09/20/2005
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The Core Disciplines Lead to Significant Performance Advantage in Key SCM Metrics
Companies that follow mature practices for: Achieve:
By Using These Best Practices:
Developing End-to-End Process Architectures 28% Lower Inventories
Actively involve partners in planning processesIntegrate IT integration with suppliers and customersJoint Service Agreements
Design Their Organization for Performance
10% Better Delivery to Requestddd
Actively identify key skills, develop and upgrade to get themAlign org structure to key processes and incentives
Developing Strong Collaborative Models 19% Shorter Cash Cycles Align supply chain partners with
Basis of Competition
Using Metrics to Drive Business Success 13% Lower Supply Chain
Costsddddd
Openly share performance data with suppliers, customersRegular external benchmarking
© Copyright 2005 PRTM10362MV / 09/20/2005
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Aligning the Supply Chain Strategy, and Maturity in All 5 Disciplines Drive Profitability
60 70 80 90 100 110 120 130 140
Strategy
ProcessArchitecture
Organization
Collaboration
PerformanceManagement
Profitability as a % of Industry Avg.
High Maturity
Low Maturity
Higher is Better
EBIT as % of revenue data were normalized to industry averages to remove effects of industry profitability differences.
Overall, EBIT as % of revenues were:
BICC 12.7%All Others 6.5%
Industry Average
Profitability vs. Industry Average
Strategic SCM companies use their supply chains as strategic assets to achieve almost double the profitability of their competitors
Northeast Supply Chain Conference
Adopting the 5 Core Disciplines
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© Copyright 2005 PRTM10362MV / 09/20/2005
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The Five Core Disciplines are the foundation for Strategic Supply Chain Management
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG
Develop an end-to-end process architecture
2
Design your organization for performance
Use metrics to drivebusiness success
5
3
View your supply chain as a strategic asset
1
Build the right collaborative model
4
InnovationCost
ServiceQuality
© Copyright 2005 PRTM10362MV / 09/20/2005
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Discipline 1: View Your Supply Chain as a Strategic Asset
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG
View your supply chain as a strategic asset
1
InnovationCost
ServiceQuality
Design the supply chain around a defined basis of competition to enable
the overall business strategy
Design the supply chain around a defined basis of competition to enable
the overall business strategy
© Copyright 2005 PRTM10362MV / 09/20/2005
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A Good Supply Chain Strategy Meets Four Basic Criteria
1. It is aligned with the business strategyEach business strategy requires a distinct supply chain structure, processes, systems, and skills
2. It is aligned with customer needsUnderstand each segment’s requirements and configure the supply chain appropriately
If necessary, create separate or multiple supply chains
3. It is aligned with the company’s power positionBefore making big changes, understand who has the power in the supply chain
4. It is adaptiveSupply chains have a shelf life and should be continuously evaluated to see if change is needed
© Copyright 2005 PRTM10362MV / 09/20/2005
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Discipline 2: Develop an End-to-End Process Architecture
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG
Develop an end-to-end process architecture
2
InnovationCost
ServiceQuality
Develop integrated supply chain processes and systems that interface
efficiently with the rest of the enterprise
Develop integrated supply chain processes and systems that interface
efficiently with the rest of the enterprise
© Copyright 2005 PRTM10362MV / 09/20/2005
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There Are Four Tests An Effective End-to-end Process Architecture Must Meet
1. Strategic Fit — Enables execution of your supply chain strategy2. End-to-end Focus — Ensures end-to-end vision and management3. Simplicity — Is composed of simple, streamlined processes4. Integrity — Is highly reliable, with robust links between processes, data, and
information systems
Leverage SCOR to set the context for supply chain process improvLeverage SCOR to set the context for supply chain process improvementement
Source: Supply-Chain Council
Internal or External
Data, Applications, and InfrastructureData, Applications, and Infrastructure
Supplier Customer Customer’sCustomer
Supplier’sSupplier
Internal or External
© Copyright 2005 PRTM10362MV / 09/20/2005
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Discipline 3: Design Your Organization for Performance
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG Design your organization for performance
3
InnovationCost
ServiceQualityDevelop and maintain organizational
structure and skills to define and manage the supply chain of the future
Develop and maintain organizational structure and skills to define and
manage the supply chain of the future
© Copyright 2005 PRTM10362MV / 09/20/2005
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Follow Four Design Rules to Align Your Organization to Achieve Your Strategy
Know, grow, and keep your
core capabilities
High-Performance Integrated Supply Chain Organization
Every process needs an
accountable function or individual
Form should follow
function—the organization
should mirror the process
Organize around the skills you
need, not the skills you have
Finance & AdministrationFinance &
Administration Marketing & SalesMarketing & Sales R&DR&D Supply Chain Manager
Supply Chain Manager
GeneralManagerGeneralManager
Supplier ManagementSupplier Management
Order ManagementOrder Management
Order FulfillmentOrder Fulfillment
ManufacturingManufacturing
PurchasingPurchasing
© Copyright 2005 PRTM10362MV / 09/20/2005
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What Skills Will My Supply Chain Need In The Future?
The end-to-end supply chain will need new management skills that most companies do not possess today
Supply Chain ProcessImprovement Manager
Understand and know how to implement supply chain best practices
Supply Chain Performance Analyst
Understand and know how to implement supply chain metrics and continuous improvement programs
PLAN
DELIVERMAKESOURCE
Outsourcing PartnerRelationship ManagerNegotiate alliances and partnershipsInspire collaboration and best-in-class performance
Global CommodityManager
Manage key relationships and global supply at lowest cost
Customer RelationshipManager
Detailed understanding of customer requirements and supply chain process capabilities
© Copyright 2005 PRTM10362MV / 09/20/2005
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Discipline 4: Build the Right Collaborative Model
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG
Build the right collaborative model
4
InnovationCost
ServiceQualityUnderstand core competencies
and choose partners to maximize focus and profitability
Understand core competencies and choose partners to maximize
focus and profitability
© Copyright 2005 PRTM10362MV / 09/20/2005
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Four Basic Models of Collaboration Not One-Size-Fits-All
The Collaboration Spectrum
Transactional Collaboration
Cooperative Collaboration
Coordinated Collaboration
Synchronized Collaboration
Low Return
InfeasibleExtensive Collaboration
Limited Collaboration
Few RelationshipsMany Relationships
Transactional — Efficient execution of transactions between partnersCooperative — Higher-level information sharingCoordinated — Reliance on each other’s capabilitiesSynchronized — Information developed jointly with longer horizon
© Copyright 2005 PRTM10362MV / 09/20/2005
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Collaborative Partnerships Will Continue to Evolve Over Time
Most of today’s collaborative relationships are transactional or cooperativeAs companies move away from traditional vertical integration, the need for deeper collaboration intensifies
Internal
Transactional
Synchronized Cooperative
Coordinated
Core CompetencyFocused
VerticallyIntegrated
Limited
Extensive
Historical
Theoretical
ActualOptim
al
Col
labo
ratio
n R
equi
red
© Copyright 2005 PRTM10362MV / 09/20/2005
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Discipline 5: Use Metrics to Drive Business Success
SALESR & D
SUPPLYCHAIN
FIN &ACCT
MFG
Use metrics to drivebusiness success
5
InnovationCost
ServiceQuality
Use metrics to measure the health of each core supply chain process and
identify problem areas
Use metrics to measure the health of each core supply chain process and
identify problem areas
© Copyright 2005 PRTM10362MV / 09/20/2005
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Metrics Help Gauge The Health Of Your Supply Chain and Drive Desired Behaviors
Effective metrics are:• Linked to the business strategy• Balanced and comprehensive• Used as a continuous improvement tool• Implemented via a formal implementation plan• Highly visible and monitored at all levels of the company• Based on both internal and external benchmarking• Based on targets that are aggressive, but achievable
© Copyright 2005 PRTM10362MV / 09/20/2005
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SCOR Level 1 Metrics Provide A Starting Point For A Balanced Strategic Supply Chain Scorecard
Key Supply Chain Management Metrics
Delivery Performance
Order Fulfillment Lead Time
Production Flexibility
Total Supply Chain Management Cost
Value-Added Productivity
Inventory Days of Supply
Cash-to-Cash Cycle Time
Net Asset Turns
DeliveryPerformance/
ResponsivenessCostFlexibility Asset
Management
Northeast Supply Chain Conference
Questions?
Leading thinkingfor lasting results
© Copyright 2005 PRTM10362MV / 09/20/2005
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This Presentation Was Based On Prtm’s Book: Strategic Supply Chain Management
McGraw Hill, August 2004ISBN 0-07-143217-5
“Cohen and Roussel effectively capture and communicate the critical elements and roadmap of world-class supply chain management. Put into practice, this book will serve as a timeless tool for those looking to transform their organization’s supply chain into a sustainable competitive advantage.”
—Jim Miller Vice President, Operations
Cisco Systems
© Copyright 2005 PRTM10362MV / 09/20/2005
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PRTM Is An Innovator Of Practical And Highly-valued Supply Chain Solutions
Co-developed the Supply-ChainOperations Reference-model®
SCOR®, adapted by the 750+member Supply-Chain Council
Founding member of the Supply-Chain Council in 1996
(www.supply-chain.org)
Conducted leading benchmarkingstudies since 1985
Founded The Performance Measurement Group, LLC –the leader in Supply Chain Benchmarking
(www.pmgbenchmarking.com)
We “wrote the book” onsupply chain management, Strategic Supply Chain Management
McGraw-Hill, August 2004
PlanSource Make Deliver
Return
PlanSource Make Deliver
Return
Over $5 Billion in documented cost reduction/revenue enhancement
626806
1028
467344
242161996940190
200400600800
10001200
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
More than 1000 supply chain improvement engagementsover the last 10 years
© Copyright 2005 PRTM10362MV / 09/20/2005
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PRTM Is the Leading Management Consulting Firm For Breakthrough Supply Chain Transformation
Communications
Chemicals and EnergyAutomotive and Industrial
Consumer Goods
Life Sciences
More than 1,200 technology-/ product-based clients
Over 6,000 successful projects
90% level of repeat business
Thought Leadership and Innovation
Product And Cycle-time Excellence® (PACE®)
Supply-Chain Operations Reference-model® (SCOR®)
PMG—Web-based benchmarking
Experience and Innovation
Global Footprint
Preeminent Reputation
StamfordChicago
Washington DC
Detroit Tokyo•
••• •Abingdon
Paris FrankfurtGlasgow
•• •• ••••Mountain View
Costa MesaDallas
WalthamSan Francisco•
BackgroundFounded in 1976 with a unique focus
Product- and innovation-based companies
Operational results through hands-on implementation
Technical CompetenceMore than 450 consultants
Technical and business backgrounds
Practical industry experienceProduct And Cycle-time Excellence® and PACE® are the registered trademarks of PRTMSupply-Chain Operations Reference-model® and SCOR® are the registered trademarks of the Supply-Chain Council and were developed by PRTM
Northeast Supply Chain Conference
Thank You!
Leading thinkingfor lasting results