1
SupplyChainStrategy
JarrodGoentzel©2016MITCTL
JarrodGoentzel©2016MITCTL
"Allgoodstrategyeventuallydegeneratesintowork."
PeterDrucker
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Sessionoutline
• FirmobjecMves• Excellentsupplychains• Strategyalignment• SupplychainstrategyformaMon
JarrodGoentzel©2016MITCTL
FIRMOBJECTIVES
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WhatwereyourgoalsinthesimulaMon?
JarrodGoentzel©2016MITCTL
TwoGoalsoftheCEO
• ProvideShareholderValue• …andstayoutofjail
JarrodGoentzel©2016MITCTL
4
GoaloftheCEO
• ProvideShareholderValue
• DriversofShareholderValue– RevenueGrowth– OperaMngMargin– AssetUMlizaMon
JarrodGoentzel©2016MITCTL
Supplychainprofessionalscanaffectallthree!
JarrodGoentzel©2016MITCTLSource:h]p://www.maaw.info/ArMcleSummaries/ArtSumKaplanNorton2001.htm
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JarrodGoentzel©2016MITCTL
Source:website,TradeDynamics,LLC
JarrodGoentzel©2016MITCTL
Source:website,FinlisMcsSoluMons
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Deloi]eEnterpriseValueMap
JarrodGoentzel©2016MITCTL
DriversofShareholderValue
JarrodGoentzel©2016MITCTL
RevenueGrowth
AssetU;liza;on
Opera;ngMargin
Risk
Leverage
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JarrodGoentzel©2016MITCTL
JarrodGoentzel©2016MITCTL
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JarrodGoentzel©2016MITCTL
Source:Higgins,R.AnalysisforFinancialManagement.10thed.McGraw-HillIrwin,2011
“Acompany’sfinancesandoperaMonsareintegrallyconnected.”
PopularCorporateFinanceTextbook
Firm’svalueproposiMon
JarrodGoentzel©2016MITCTL
Div
iden
d
Financial Assets
STOCKHOLDERS INVEST ELSEWHERE
Investors(Equity)
Firm
STOCKHOLDERS INVEST IN FIRM
Investors(Debt)
Operational Assets
Firm invests
Future cash flows: revenues, expenses, etc.
Future portfolio returns
Firm leverages debt
Financing
Investment
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Financeandsupplychainworktogethertocreateshareholdervalue
JarrodGoentzel©2016MITCTL
Div
iden
dInvestors(Equity)
Firm
Investors(Debt)
Operational Assets
Firm invests
Future cash flows: revenues, expenses, etc.
OperaMons/supplychain:usefundstogeneratereturns
Finance:acquirefunds
Finance:allocatefunds
Howdoessupplychainperformancemakeanimpactonshareholdervalue?
• Tradeoffsexist• Whichonedoyoufocuson?
JarrodGoentzel©2016MITCTL
AssetU;liza;onOpera;ngMargin
RevenueGrowth
Responsiveness(productavailability)Capability(newmarkets)
Leanness(reduceassets)Agility(adaptcapaci<es)
Leanness(reducecost)Segmenta<on(iden<fyopportuni<es)
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JarrodGoentzel©2016MITCTL
DupontAnalysis
assets TotalSalesoverAsset turn =
SalesincomeNet marginNet =
overAsset turn margin Net ROA ×=
Equityassets Totalleverage Financial =
leverage FinancialoverAsset turnmarginNet ROE ××=
InventoryTurnover,anarrowerfocusthanAssetTurnover,isomenametricforsupplychainprofessionals
GrossorOperaMngMarginisamorecommonmetricforsupplychainprofessionalsthanNetMargin
JarrodGoentzel©2016MITCTL
DupontAnalysisassessestheMargin–AssetUMlizaMontradeoffatahighlevel
AssetU;liza;onOpera;ngMargin
RevenueGrowth
“ProfitPath” “TurnoverPath”
SameDes;na;on:ROA
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DoyouseeanyextremeexamplesofProfitPathandTurnoverPath?
JarrodGoentzel©2016MITCTL
Source:Higgins,R.AnalysisforFinancialManagement.10thed.McGraw-HillIrwin,2011.
ChemicalIndustryFinancialAnalysis
JarrodGoentzel©2016MITCTL
Datasource:Compustat-CapitalIQ;Analysis:JarrodGoentzel
FiveYearAverage(2010-2014)
RDS.A XOM BASFY DOW DDRevenueGrowth 4.3% 2.5% 2.0% 2.2% 2.6%OperatingMargin 11.1% 15.3% 14.7% 12.2% 17.0%AssetTurnover 1.25 1.17 1.15 0.82 0.74
ROA 13.9% 18.0% 16.9% 10.1% 12.5%
Source:ManagementDayInvestorHandout,RoyalDutchShell,3-4November2015.
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0.05
0.10
0.15
0.20
0.25
2010 2011 2012 2013 2014
ROA(E
BIDT
A/To
talA
ssets)
RDS.A
XOM
BASFY
DOW
DD
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ChemicalIndustryFinancialAnalysis
JarrodGoentzel©2016MITCTL
Datasource:Compustat-CapitalIQ;Analysis:JarrodGoentzel
-
0.05
0.10
0.15
0.20
0.25
2010 2011 2012 2013 2014
ROA(E
BIDT
A/To
talA
ssets)
RDS.A
XOM
BASFY
DOW
DD
0.50
0.70
0.90
1.10
1.30
1.50
0.07 0.09 0.11 0.13 0.15 0.17 0.19AssetT
urno
ver
Opera/ngMargin
RDS.A
XOM
BASFY
DOW
DD
Isoquant
FinalPeriod
ROAforShellChemicals
JarrodGoentzel©2016MITCTLSource:ManagementDayInvestorHandout,RoyalDutchShell,3-4November2015.
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FinancialAnalysisforPharmaceuMcals,WholesalersandRetailers(AnnualReports2007-2011)
JarrodGoentzel©2016MITCTL
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2
4
6
8
10
12
14
16
18
20
0.000 0.200 0.400 0.600 0.800 1.000
Inve
ntor
y Tu
rnov
er
Gross Margin
GMROI Lastest Period
GSK
Merck
Novartis
Pfizer
RiteAid
CVS
McKesson
Cardinal
Amerisource
Walgreen
• Pharmamarginsaredroppingandtheyneedtoincreaseinventoryturns,i.e.reduceinventory.
• WholesalersdonothavethemargintotakeonaddiMonalinventory.Manufacturers
Wholesalers
Retailers
PharmaCoInventoryExample
JarrodGoentzel©2016MITCTL
0
10
20
30
40
50
60
70
80
90
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
Janu
ary-
10
Febr
uary
-10
Mar
ch-1
0
Apr
il-10
May
-10
June
-10
July
-10
Aug
ust-1
0
Sep
tem
ber-
1
Oct
ober
-10
Nov
embe
r-1
Dec
embe
r-1
Janu
ary-
11
Febr
uary
-11
Mar
ch-1
1
Apr
il-11
May
-11
June
-11
July
-11
Aug
ust-1
1
Sep
tem
ber-
1
Oct
ober
-11
Nov
embe
r-1
Dec
embe
r-1
Day
s of
Inve
ntor
y
Volu
me
Sales (Monthly)
Average Inventory (Monthly)
Days of Inventory
Policy Recommended 24 days
• HighvariabilityininventoryposiMonforstablesales• AverageinventoryhigherthaninventorypolicyrecommendaMon
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CommonBondtoManagetheTradeoff
JarrodGoentzel©2016MITCTL
AssetU;liza;onOpera;ngMargin
RevenueGrowth
Source:DominicDoddandKenFavaro.“ManagingtheRightTension,”HarvardBusinessReview,Vol.84/12,December2006,pp.62-74.
WhatwereyourgoalsinthesimulaMon?
JarrodGoentzel©2016MITCTL
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JarrodGoentzel©2016MITCTL
TotalMargin
JarrodGoentzel©2016MITCTL
MEANForecast without optionForecast with optiondifference with option
Total Margin without optionTotal Margin with optiondifference with option
30 30 30 3030 26 29 29
0 -4 -1 -1
2,700$ 2,700$ 2,700$ 2,700$ 2,700$ 2,340$ 2,755$ 2,610$
-$ (360)$ 55$ (90)$
YEAR 1 OPTIONS
Price without optionCost without optionUnit Margin without option
Price with optionCost with optionUnit Margin with optionUnit Margin difference with option
CONSENSUSForecast without optionForecast with optiondifference with option
Total Margin without optionTotal Margin with optiondifference with option
WAP Color Stylish Infrared240$ 240$ 240$ 240$ 150$ 150$ 150$ 150$
90$ 90$ 90$ 90$
270$ 255$ 250$ 243$ 180$ 165$ 155$ 152$
90$ 90$ 95$ 90$ -$ -$ 5$ -$
33 33 33 3334 34 31 33
1 1 -2 0
2,970$ 2,970$ 2,970$ 2,970$ 3,060$ 3,060$ 2,945$ 2,970$
90$ 90$ (25)$ -$
Model B
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JarrodGoentzel©2016MITCTL
TotalMarginconsiderstheOperaMngMargin–AssetUMlizaMontradeoff
AssetU;liza;onOpera;ngMargin
RevenueGrowth
TotalM
argin
Howdoesthiscommercialstrategyapproachfitwiththevaluetriangle?
JarrodGoentzel©2016MITCTL
Commercial Value Levers Margin Volume X
Source:EthyleneOxide/GlycolsCOMMERCIALSTRATEGYREFRESH2016-2018,June2015
AssetU'liza'onOpera'ngMargin
RevenueGrowth
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AssetUMlizaMon–supplychain
JarrodGoentzel©2016MITCTL
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20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
2010 2011 2012 2013 2014
DaysofInven
toryOutstan
ding
RDS.A
XOM
BASFY
DOW
DD
Howwouldyouplotthese?
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
2010 2011 2012 2013 2014
DaysofInven
toryOutstan
ding
RDS.A
XOM
BASFY
DOW
DD
AssetUMlizaMon–commercial
JarrodGoentzel©2016MITCTL
T&RChemicals2016-creditmetrics
DSO
Target2015 Target2016
Productline EUAF AMER APME GLOBAL EUAF AMER APME GLOBAL
EOG 35.0 37.8 64.4 49.7 34.6 37.1 64.2 49.5
Overdue%
Target2015 Target2016
Productline EUAF AMER APME GLOBAL EUAF AMER APME GLOBAL
EOG 3.0% 2.5% 0.5% 1.1% 2.7% 2.3% 0.5% 1.2%
Source:EthyleneOxide/GlycolsCOMMERCIALSTRATEGYREFRESH2016-2018,June2015
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AssetUMlizaMon–property,plantandequipment(PP&E)
JarrodGoentzel©2016MITCTL
Source:ShellAnnualReport2014.
ChemicalIndustryFinancialAnalysis
JarrodGoentzel©2016MITCTLDatasource:Compustat-CapitalIQ;Analysis:JarrodGoentzel
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
2010 2011 2012 2013 2014
Mod
ified
AT(=
COGS
/TotalAssets)
RDS.A
XOM
BASFY
DOW
DD
FiveYearAverage(2010-2014)RDS.A XOM BASFY DOW DD
ModifiedAT(=COGS/TotalAssets) 1.06 0.95 0.79 0.66 0.49IT(=COGS/Inv) 13.58 20.97 5.11 5.79 3.22InvInt(=Inv/TotalAssets) 0.08 0.05 0.15 0.11 0.15
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ChemicalIndustryFinancialAnalysis
JarrodGoentzel©2016MITCTLDatasource:Compustat-CapitalIQ;Analysis:JarrodGoentzel
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
2010 2011 2012 2013 2014
Mod
ified
AT(=
COGS
/TotalAssets)
RDS.A
XOM
BASFY
DOW
DD
-
5.00
10.00
15.00
20.00
25.00
30.00
- 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20
InventoryTu
rnover
InventoryIntensity
RDS.A
XOM
BASFY
DOW
DD
Series6
FinalPeriod
RevenueGrowth
JarrodGoentzel©2016MITCTLSource:ManagementDayInvestorHandout,RoyalDutchShell,3-4November2015.
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AssetU'liza'onOpera'ngMargin
RevenueGrowth
JarrodGoentzel©2016MITCTL
HowwouldyouposiMonRDSanditscompeMtors?
FiveYearAverage(2010-2014)
RDS.A XOM BASFY DOW DDRevenueGrowth 4.3% 2.5% 2.0% 2.2% 2.6%OperatingMargin 11.1% 15.3% 14.7% 12.2% 17.0%AssetTurnover 1.25 1.17 1.15 0.82 0.74
ROA 13.9% 18.0% 16.9% 10.1% 12.5%
AssetU'liza'onOpera'ngMargin
RevenueGrowth
JarrodGoentzel©2016MITCTL
HowwouldyouposiMonpetrochemicals,pharma,andmobilephones?
Petrochemicals
Pharma
Mobilephones
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AssetU'liza'onOpera'ngMargin
RevenueGrowth
JarrodGoentzel©2016MITCTL
HowwouldyouposiMonthebusinessunitsforShellChemicals?
Discussinagroupof3-4people.
EXCELLENTSUPPLYCHAINS
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MITResearchonExcellentSupplyChains
• Definedmythsregardinganexcellentsupplychain– Itispartofaprofitablecompany– Itisnotpartofanunprofitablecompany– Itiscomprisedofsupplychain“bestpracMces”
• ConductedqualitaMveresearch– Exploreddrivers,challenges,andsupplychainresponsesfornineindustries
– Profiledsupplychainsof21case-studycompanies– IdenMfiedimportantlinkagesthatexistamongcompeMMvestrategies,operaMngmodels,operaMonalperformanceobjecMves,andbusinesspracMces.
JarrodGoentzel©2016MITCTLSource:LarryLapide.“TheEssenceofExcellence,”SupplyChainManagementReview,April2006,pp.18-24.
MITResearchonExcellentSupplyChains
Researchconfirmedthatanexcellentsupplychain:1. Supports,enhances,andisanintegralpartofa
company’scompeMMvebusinessstrategy.2. Leveragesa(notnecessarilyunique)supplychain
operaMngmodeltosustaincompeMMveness3. ExecuteswellagainstabalancedsetofoperaMonal
performanceobjecMves/metrics4. Focusesonafew“tailored”businesspracMcesthat
reinforceeachothertosupporttheoperaMngmodelandbestachieveoperaMonalobjecMves.
JarrodGoentzel©2016MITCTLSource:LarryLapide.“TheEssenceofExcellence,”SupplyChainManagementReview,April2006,pp.18-24.
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ExcellentSupplyChainFramework
JarrodGoentzel©2016MITCTL
Supports,enhances,andisanintegralpartofacompany’scompeMMvebusinessstrategy
Leveragesa(notnecessarilyunique)supplychainoperaMngmodeltosustaincompeMMveness
ExecuteswellagainstabalancedsetofoperaMonalperformanceobjecMves/metrics
Focusesonafew“tailored”businesspracMcesthatreinforceeachothertosupporttheoperaMngmodelandbestachieveoperaMonalobjecMves
Source:LarryLapide.“TheEssenceofExcellence,”SupplyChainManagementReview,April2006,pp.18-24.
1.Supports,enhances,andisanintegralpartofacompany’scompeMMvebusinessstrategy
SomecompeMMvestrategieslinkedtosupplychainSupplychainmaynotbeintegralwiththeenMrebusinessstrategy,butshouldbepart…otherwise,youhaveyourworkcutoutforyou
LowestpricesHighestmarginproductsHighestqualityFastestcustomerresponseMostinnovaMveHighestReturn-on-AssetsBroadestproductlineBestcustomerserviceBestpost-salessupportMostenvironmentallyresponsible
JarrodGoentzel©2016MITCTLAdaptedfromLarryLapide
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2.LeveragesasupplychainoperaMngmodeltosustaincompeMMveness
JarrodGoentzel©2016MITCTL
Compe;;veStrategy Opera;ngModelLowestprices • LowestoperaMngcosts
Highestmarginproducts • Maximumavailabilityatpointofsale
Highestquality • Highestqualityofsuppliers• Strongestmanufacturingqualitycontrols
Fastestcustomerresponse • Shortestorder-to-deliverycycle• Fastestrequest-to-promisedate
MostinnovaMve • Mostefficientnewproductlaunch
HighestReturn-on-Assets • HighestplantuMlizaMon• Lowestinventories
Broadestproductline • Adeptatmanagingcomplexity
Bestcustomerservice • Specificserviceforeachcustomersegment• Maximumavailabilityatpointofsale
Bestpost-salessupport • Maximumavailabilityofserviceparts
Mostenvironmentallyresponsible • Minimizewasteandmaximizerecycling
2.LeveragesasupplychainoperaMngmodeltosustaincompeMMveness
JarrodGoentzel©2016MITCTL
Company Operating Model Dell Inc. Consumer Direct/ MTO
Zara Speed to Market Intel Copy Exact
Nike, Cisco Virtual Integration/Network Master Agrenco Coordinating Many-to-many Customer/Supplier Network
Nokia Early Detection Systems, Multi-point Relationship etc Whirlpool Direct Fulfillment
Caterpillar Shared Operations Walmart Flow Distribution
AdaptedfromLarryLapide
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JarrodGoentzel©2016MITCTL
3.ExecuteswellagainstabalancedsetofoperaMonalperformanceobjecMves
Source:LarryLapide.“TheEssenceofExcellence,”SupplyChainManagementReview,April2006,pp.18-24.
Howsupplychainperformancemakesanimpactonshareholdervalue
JarrodGoentzel©2016MITCTL
AssetU;liza;onOpera;ngMargin
RevenueGrowth
Responsiveness(productavailability)Capability(newmarkets)
Leanness(reduceassets)Agility(adaptcapaci<es)
Leanness(reducecost)Segmenta<on(iden<fyopportuni<es)
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BalancedoperaMonalobjecMvesvarybyindustryinabsoluteterms
JarrodGoentzel©2016MITCTL
HighMarginandShortLifeCycleProducts:• PharmaceuMcal• Fashionapparel• Media&Entertainment
LowMargin&MatureProducts:• Food&Beverage• Basicgoodsretail• Industrialsupplies
AssetU;liza;onEfficiency
CustomerResponse
CapitalIntensiveIndustries:• Petrochemical• Semi-conductorfab• CommodiMes(steel,paper,coal)
AdaptedfromLarryLapide
BalancedoperaMonalobjecMvesvarywithinindustryinrelaMveterms
JarrodGoentzel©2016MITCTL
AssetU;liza;onEfficiency
CustomerResponse
PharmaCo2
PharmaCo1
ChemCo2 ChemCo1FoodCo2
FoodCo1
OperaMonalobjecMvesmayfurthervarywithinacompanybybusinessunit
AdaptedfromLarryLapide
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4.Focusesonafew“tailored”businesspracMcesthatreinforceeachothertosupporttheoperaMngmodelandbestachieveoperaMonalobjecMves• Tailored(notbest)businesspracMces• AligntoperformanceobjecMves
– Fit– Consistent(makesensetogether)– Reinforcing(supporteachother)– Cross-opMmized(worktogethertoachievecommongoals)
• LeveragefundamentaloperaMngprinciples/theoryJarrodGoentzel©2016MITCTL
STRATEGYALIGNMENT
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JarrodGoentzel©2016MITCTL
Source:LarryLapide.“TheEssenceofExcellence,”SupplyChainManagementReview,April2006,pp.18-24.
AligningCorporateStrategyandOperaMonalPerformanceObjecMves
JarrodGoentzel©2016MITCTL
AssetU;liza;onEfficiency
CustomerResponse
Customer-focusedperformanceobjec;ves
• Highestsupplierqualitystandards• ShortestMme-to-market• ShortestmanufacturingchangeoverMmes
Customer-focusedcorporatestrategy• Highestqualityproducts• MostinnovaMve• Broadestproductline
Aligned
AdaptedfromLarryLapide
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AligningCorporateStrategyandOperaMonalPerformanceObjecMves
JarrodGoentzel©2016MITCTL
AssetU;liza;onEfficiency
CustomerResponse
• Lowestprocurementcosts• HighestplantuMlizaMon• Lowestinventories
Efficiencyandasset-focusedperformanceobjec;ves:
Customer-focusedcorporatestrategyCustomer-focusedcorporatestrategy• Highestqualityproducts• MostinnovaMve• Broadestproductline
Non-aligned
AdaptedfromLarryLapide
AligningCorporateStrategyandOperaMonalPerformanceObjecMves
JarrodGoentzel©2016MITCTL
AssetU;liza;onEfficiency
CustomerResponse
Customer-focusedperformanceobjec;ves:
• Highestpost-salesupMmes• ShortestproductlaunchcycleMmes• Loweststockouts
Customer-focusedcorporatestrategy• Highestqualityproducts• MostinnovaMve• Broadestproductline
Aligneddifferently
AdaptedfromLarryLapide
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Strategy Alignment Process
JarrodGoentzel©2016MITCTL
BusinessStrategy
SupplyChainStrategy
OperaMngModel
TailoredPracMces
PerformanceObjecMves
Step1• Discusshowsupplychainstrategysupportsbusinessstrategy• IdenMfysupplychaincompeMMvestrategyelements
Step2• DevelopoperaMngmodelthatsupportsSCcompeMMvestrategyelements
• IdenMfyoperaMonalperformancemetricsthatarealignedwithstrategy
Step3• DevelopSCpracMcestailoredtotheoperaMngmodel
• Discusstrade-offsandalignments
Strategy Alignment for Ethylene Oxide/Glycols
JarrodGoentzel©2016MITCTL
CommercialStrategy
SupplyChainStrategy
OperaMngModel
TailoredPracMces
PerformanceObjecMves
Step1• Discusshowsupplychainstrategysupportscommercialstrategy• IdenMfysupplychaincompeMMvestrategyelements
Step2• DevelopoperaMngmodelthatsupportsSCcompeMMvestrategyelements
• IdenMfyoperaMonalperformancemetricsthatarealignedwithstrategy
Step3• DevelopSCpracMcestailoredtotheoperaMngmodel
• Discusstrade-offsandalignments
CompleteSteps1-2forEOG.Discussinagroupof3-4people.
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SUPPLYCHAINSTRATEGYFORMATION
SupplyChainStrategyAudit
1. Whatlevelsofservice(a)doourcustomersexpect?(b)doourcompeMtorsprovide?2. HowdocompeMtorsachievetheservicelevelsthatwethinktheyachieve?3. Throughhowmanyoutletsshouldwedistributeourproducts?Ofwhattype?Where?4. Areourplantslocatedandfocusedproperlytosupportcorporatestrategy?5. WhereisourcompanyonthelogisMcslifecycleforalloraporMonofitsbusiness?6. HavewetakenadvantageofthefullpotenMalforpostponementandspeculaMon,
standardizaMon,consolidaMon,anddifferenMaMoninourlogisMcsprograms?7. Towhatextenthaveweassuredourselvesthatourstrategymeetsdesiredlevelsof
costsandserviceswhereitcountsmost,totheend-user?8. Towhatextenthaveweemployed“channelvision”indeterminingwhoshoulddo
what,when,where,andhowinourchannelsofdistribuMon?HavewetakenstepstoensurethatallparMescarryouttheirfuncMonsasplanned?
9. WhatimplicaMonsdotechnologicaltrendshaveforourcompany?10. WhatimplicaMonsdoregulatorytrendshaveforus?11. DoesourlogisMcsstrategysupportourcorporatestrategy?Towhatextentshouldour
strategybelogisMcs-oriented?
JarrodGoentzel©2016MITCTL
Source:Heske],J.L.(1977)."LogisMcs--essenMaltostrategy.”HarvardBusinessReview55(6):85-96.
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1. Corporatestrategyalignment:financialstructure/objecMves,productlifecycle,marketsegments
2. CompeMtorstrategy3. Servicetoend-users/servicetocustomers(bundleofproductsANDrelatedservices)4. ChannelsofdistribuMon:funcMonalallocaMon,coordinaMon,…5. GeographyofdistribuMon:retail,warehouselocaMons,…6. Sourcingstrategy:plantlocaMons,supplierselecMon,…7. Inventorypolicies&processes8. TransportaMonpolicies&processes9. InnovaMvepracMces10. Trends:technological,regulatory,market11. OrganizaMonalcapability,culture,andcommunicaMon
SexngSupplyChainStrategy
Tailored
Segmented
Adaptedfrom:Heske],J.L.(1977)."LogisMcs--essenMaltostrategy.”HarvardBusinessReview55(6):85-96.Shapiro,R.D.(1984)."GetleveragefromlogisMcs."HarvardBusinessReview62(3):119-126.
JarrodGoentzel©2016MITCTL
SupplyChainSegmentaMon
SupplyChainSegmentaMoncreatesclearandmeaningfulgroupsofproductsandcustomersforthepurposeof
strategicsupplychainmanagement.
• ThesupplychainprioriMesandoperaMngstrategiesthatsupporttheneedsofeachsegmentwillbedifferent.
• Thisdoesnotimplyseparatephysicalchains.ThesupplychainsthatservethesegmentswilllikelyshareresourcesandacMviMes.
JarrodGoentzel©2016MITCTL
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SegmenMngforLogisMcs
Source:Fuller,J.B.,etal.(1993)."TailoredLogisMcs:TheNextAdvantage."HarvardBusinessReview71(3):87-98.
JarrodGoentzel©2016MITCTL
SegmenMngforLogisMcs
JarrodGoentzel©2016MITCTL
Source:“HowManySupplyChainsDoYouNeed?”A.T.KearneyReport,2004.
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LogisMcallyDisMnctBusinesses
JarrodGoentzel©2016MITCTL
IMATELexample
Source:Fuller,J.B.,etal.(1993)."TailoredLogisMcs:TheNextAdvantage."HarvardBusinessReview71(3):87-98.
JarrodGoentzel©2016MITCTL
Source:“HowManySupplyChainsDoYouNeed?”A.T.KearneyReport,2004.
LogisMcallyDisMnctBusinesses
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JarrodGoentzel©2016MITCTL
FrameworkforDisMnctSupplyChains
Source:Shapiro,R.D.(1984)."GetleveragefromlogisMcs."HarvardBusinessReview62(3):119-126.
JarrodGoentzel©2016MITCTL
FrameworkforDisMnctSupplyChains
• Strategyischoicesabout– customerintegraMon– value-addfocus– supplierstructure&relaMonship
– capacity– assetdeployment
Source:“HowManySupplyChainsDoYouNeed?”A.T.KearneyReport,2004.
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GroceryRetailer–onestorebutcomplexoperaMons• Products
– Dairy,meat,produce,frozen,floral,bakery,deli,health&beauty,generalmerchandise,pharmacy
– CommonordisMnctDCs?– MulM-tempordisMncttrucks?
• Services– DirectStoreDelivery(Coca-Cola,Frito-Lay,…)– PromoMonalitems,storedisplays– Returns(packaging,product)
• Fulfillment– Cross-dockreplenishmentfrommanufacturer– StockatDC
JarrodGoentzel©2016MITCTL
GroceryRetailerSegmentaMon
Segment1:DrygoodsthataresuppliedinhighvolumesonpalletstolargeurbanstoresSegment2:DrygoodsthataresuppliedonpalletstoruralstoresSegment3:ColdchainitemsforurbanandruralstoresSegment4:ShortshelflifeitemsforurbanandruralstoresSegment5:ProductssupplieddirectlybysupplierstostoresSegment6:PlannedadverMsedorpromoMonalitemsandspecialbuysforurbanandruralstores,etc.
JarrodGoentzel©2016MITCTL
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FordPartsSupplyChain:IniMalSegmentaMon
JarrodGoentzel©2016MITCTL
Stock Orders
Service Orders
Emergency Orders
Slow movers
• 60k SKUs stocked at all Regional DCs • Once per week on truck route • Dealer carries high inventory
• 60k SKUs stocked at all Regional DCs • Twice per week on truck route • Dealer carries low inventory
• From Regional DC or National Replenishment Center • On request from Dealer for “critical” repairs • Express shipment
• 140k SKUS stocked only at the National Depot • Shipped directly to Dealer via LTL
8 regional distribution
centers
Replenishment center
Dealers
Suppliers
Packagers
Product segment 1 Product segment
2
"large, one-size-fits-all local warehouses
carrying high volumes of a broad selection of
parts”
Oil change Water pump, bumper A/C on luxury car Out-of-
production
Service segment 1
Service segment 2
Service segment 3
FordPartsSupplyChain:FinalSegmentaMon
JarrodGoentzel©2016MITCTL
High Volume
Low Volume /
Low Cube High Cube
• 19 HVCs carrying fewer SKUs • Smaller, high-volume parts • Delivered daily to dealers
• 1 LV/LCC • Small, slow-moving parts based on critical orders available within 24 hours (express not LTL)
• 3 HCCs • Large-size inventory items (e.g. sheet metal, bumpers) provided to dealers within 24 to 48 hours
3 HCCs
Daily Parts Advantage (DPA) program
LV/LCC
19 HVCs
Replenishment center
Dealers
Suppliers
Packagers
Three distinct fulfillment approaches to give the same next-day service to dealers
38
1. Corporatestrategyalignment:financialstructure/objecMves,productlifecycle,marketsegments
2. CompeMtorstrategy3. Servicetoend-users/servicetocustomers(bundleof
productsANDrelatedservices)
SegmentaMon
JarrodGoentzel©2016MITCTL
DefinethedisMnctsegmentsofproductsandservicesforShellChemicals.Discussinagroupof3-4people.
SupplyChainStrategy
JarrodGoentzel©2016MITCTL
AssetU'liza'onOpera'ngMargin
RevenueGrowth
CommercialStrategy
SupplyChainStrategy
OperaMngModel
TailoredPracMces
PerformanceObjecMves
SEGMENTATION(products,services)