Strategy Alignment= Supply Chain Excellence
Larry Lapide, Ph.D. Research Affiliate, MIT-CTL Former Project Director, MIT Supply Chain 2020 Project
[email protected]
MIT Global SCALE Network Supply Chain And Logistics Excellence
International Supply Chain Management Curriculum taught across the globe (Master & PhD) Platform for cooperative international exchange Support multi-national research collaboration Create professional networks of alumni, industry and academics 3-5 More Centers to be added (Asia, Africa, Middle East) 3
All Rights Reserved. LOGyCA – CLI 2009
CLI Activities
• GC‐LOG (started 2009) • Executive Education (2 per year) • Conferences (3+ per year) • Post‐Docs (started in 2010) • Ph.D. Seminars & Exchanges (planned for 2012)
4
All Rights Reserved. LOGyCA – CLI 2009
• Sustainability • SC Innovation in Emerging Markets • Critical Logistics Enablers • Healthcare • SC Risk • Digital SC
• 17 Academic Partners • 11 Corporate Strategic Partners
Contact Us
CLI Av. Eldorado N° 70 - 16 Bogotá - Colombia PBX: +571 425 4727 FAX: +571 425 4700
[email protected] www.cli-logyca.org
5
All Rights Reserved. LOGyCA – CLI 2009
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
Introduction: Supply Chain 2020 Framework
Scenario n Scenario 2 Scenario 1
Scenario n Scenario 2 Scenario 1
Business Strategy
Business Environment Business Capabilities
Supply Chain Strategy
Strategy Alignment Scenario Planning Supply Chain Strategy Development
Supply Chain Network Design
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
SC2020 Excellence Research: What is an excellent supply chain? Some myths on what is an excellent supply chain:
•
Is part of a profitable company
•
Is not part of an unprofitable company
•
Is comprised of supply chain “best practices”
SC2020 Excellence Research: It’s about focusing on doing a few things well, not merely copying best practices
SC2020 Excellence Research: ..it’s also about aligning to Corporate Strategy, not necessarily leveraging the ‘best practices’ de jour
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Scenario Planning Framework – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
SC2020 Excellence Research: Excellent Supply Chain Framework Qualitative research on 21 companies and 9 industries supports that an excellent supply chain: * Corporate Competitive Strategy Excellent Supply Chain Strategy Operating Model Operational Performance Objectives
Tailored Business Practices • Fit • Principles leveraged
1. Supports, enhances, and is an integral part of a company’s 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.
* L. Lapide, “MIT’s SC2020 Project: The Essence of Excellence”, Supply Chain Management Review, April 2006
1. Supports, enhances, and is an integral part of a company’s 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
2. Leverages a (not necessarily unique) supply chain operating model to sustain competitiveness Supply Chain Governance & Partner Relationships
Relationship Management Performance Management Product Portfolio Management Supply–Demand Alignment
Business Practices
Design
Source
Make
Sell
Deliver
Return
Service
Recycle
Supply Chain Design and Capacity Planning Product Launch
Operating model is the design of the SC including: • Where to Source / Make /Deliver • Push-pull points • Offshoring • Outsourcing
Technology & Info/Funds Flows
Operating Models
Inventory Replenishment
$
Order Promising & Fulfillment
Post-sales Product Support Phase-out
$
$
Contract Manufacturer
$
Web Store
Virtual OEM
Supplier E-marketplace
OEM
Distributor
Retailer
Customers
2. Leverages a (not necessarily unique) supply chain operating model to sustain competitiveness SC-Related Competitive Strategy Elements
Example Characteristics of Operating Model Aligned 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
• Best inventory management • Shortest manufacturing changeover and setups
• 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
3. Executes well against a balanced set of operational performance objectives/metrics 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)
Balanced operational objectives vary by industry in absolute terms High Margin and Short Life Cycle Products •Pharmaceutical •Fashion apparel •Media & Entertainment Customer Response
Low Margin and Mature Products • Food & Beverage • Basic goods retail • Industrial supplies
Efficiency
Capital Intensive Industries • Semi-conductor fab • Petrochemical • Commodities (steel, paper, coal)
Asset Utilization
Competing is positioning against industry competitors on a relative basis (best-in-class rather than peer average)* Relative Objectives
Absolute Objectives
Customer Response
Best Buy Apple IBM Amazon
Asset Utilization
Efficiency Dell
Wal-Mart
However, the competitive positioning will likely vary by product line as well as supply chain within a company
Positioning is setting operational performance targets to be best-in-class versus performing at a peer (average) level*
Illustrative Balanced Operational Performance Metrics
Customer Response
Efficiency
Asset Utilization
Operational Metric
Metric Type
Performance Target
Focus (%)
Order fill rate
C
Best
50%
Product Quality
C
Best
20%
Plant Utilization
A
Best
20%
Supplier delivery performance
E
Best
10%
Inventory turns
A
Peer
0%
Procurement costs
E
Peer
0%
Supply chain costs
E
Peer
0%
* L. Lapide, “The Operational Performance Triangles”, Supply Chain Management Review, November 2008
4. Focuses on a few “tailored” business practices that reinforce each other to support the operating model and best achieve 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 common goals, 1+1=3) – Leverage underlying operating principles for cost-benefit
Supply Chain Principles Illustrations
Practices
Fashion versus Basic Supply Chains: LimitedBrands
Service Window Management: Cisco Systems
Excess Line Capacity and Partial Shifts Toyota
Operating Principles
Costs of cycle time and inventory tradeoff
Constraint Relaxation
Constraint Relaxation
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
Aligning Corporate Strategy and Operational Performance Objectives
Illustrative Aligned Customer-Focused Corporate Strategy and Operational Performance Objectives
Customer-focused performance objectives • Highest supplier quality standards • Shortest time-to-market • Shortest manufacturing changeover times
Efficiency
Customer Response Customer-focused corporate strategy • Highest quality products • Most innovative • Broadest product line
Asset Utilization
Aligning Corporate Strategy and Operational Performance Objectives Illustrative Non-Aligned Customer-Focused Corporate Strategy and Operational Performance Objectives
Customer Response
Efficiency and asset-focused performance objectives: • Lowest procurement costs • Highest plant utilization • Lowest inventories
Efficiency
Customer-focused corporate strategy • Highest quality products • Most innovative • Broadest product line
Asset Utilization
L. Lapide “GM Was Out of Alignment", Supply Chain Management Review, July/August 2009
Tailored Practices Aligned to Operational Performance Objectives Tailored practices need to align to strategically-aligned SC performance objectives SC performance objectives: • Highest supplier quality standards • Shortest time-to-market • Shortest manufacturing changeover times
Customer Response Customer-focused corporate strategy • Highest quality products • Most innovative • Broadest product line
Tailored Practices •Core ‘strategic’ supplier program •Collaborative development and design •Multi-product production lines with quick changeover
Efficiency
Asset Utilization
‘Old’ Dell Supply Chain Framework Operating Model • Direct sales to customers via web/phone • Build-to-order manufacturing • Box-level service
Customer Response
SC performance objectives: 1. Lowest fulfillment costs 2. Lowest inventories 3. Lowest procurement costs
Corporate strategy • Highest value-to-price provider of commodity computers and accessories to price conscious customers
Tailored Practices • Consigned inventory supplier hubs • Demand shaping • Inbound transportation collaboration
Efficiency
Asset Utilization
Principles Illustration: ‘Old’ Dell’s Tailored Practices
Practices
Operating Principles
Inbound Transportation Collaboration
Economies of Scale
Sphere of Influence
Consigned Supplier Inv Hubs
Demand Shaping
Supply Contracts
DemandSupply Matching
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 Operating Model Direct, single face to customer via sales reps Build-to-order manufacturing Extensive pre- and post sales support
Customer Response SC performance objectives: • Highest customer satisfaction • Lowest inventories • Lowest costs Tailored Practices • Consolidated customer fulfillment process • Launch ‘buffer’ manufacturing • Centralized procurement • Consolidated and outsourced logistics
Efficiency
Corporate strategy • Diversified and value-added provider of networked technology solutions to businesses
Asset Utilization
Supports a competitive supply chain strategy for high-end networked computer customers over their lifetime of use
Wal-Mart Supply Chain Framework 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)
SC performance objectives: 1. Efficiency (e.g., supply chain costs) 2. Asset utilization 3. Customer response
Tailored Practices • Vendor collaboration with comanaged inventory programs • Flow logistics distribution including extensive crossdocking, DSD and differentiated flow • Network design incorporating large-sized distribution centers and short-haul private fleets for economies of scale
Customer Response
Corporate strategy • Everyday low pricing for cost-conscious customers
Efficiency
Asset Utilization
Supports a competitive supply chain strategy for price-conscious customer base
LimitedBrands (Victoria’s Secrets) Supply Chain Framework Operating Model • Control supply chain operations from plants to DCs to owned stores • High shelf availability at store level • Offshore sourcing with partial equity-ownership of ‘basics’ plants
SC performance objectives: 1. Customer response (e.g., responsiveness) 2. Asset Utilization/Efficiency
Tailored Practices • Segmented fashion versus basic supply chains • Open innovation model involving four innovation sources • Captive global sourcing company • Captive shared services logistics provider, from plants to stores
Efficiency
Customer Response
Corporate strategy • Sell innovative, technologicallyadvanced high margin fashion products • Reduce risk by balancing basics vs. fashion mix
Asset Utilization
Supports a competitive supply chain strategy for mainstream fashion-oriented customers that want basics too
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
Strategy Alignment Process Go-To Market Strategy Supply Chain Strategy
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
SC Excellence Key Takeaways • Excellence means aligning your supply chain to your corporate competitive strategy • Align SC strategy to support, enhance and be an integral part of corporate strategy • Set operating model and operational performance measures based on what you will excel in, and what you won’t!! • Implement a few tailored practices that reinforce each other
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
Five Macro Factors That Will Most Reshape 2020
1. Aging of Developed Countries 2. Volatility of oil prices 3. Economic/military power shift towards the East 4. Tightly aligned trading blocs (e.g., 3 or 4) 5. Green Laws, globally
#1 Aging of Developed Countries
Source: Joseph F. Coughlin, PhD, Director, MIT Age Lab
#1 Aging of Developed Countries 1. What is the impact on products & services demanded? a. Personalize products (e.g., physically, hearing, and sight challenged) b. Total solutions of services and products c. Health care hubs, in-home service monitoring of diet & health, and home delivery re-emerges
2. What is the impact on supply chain workers? a. Plant and warehouse blue collar workers (e.g., more automation)
– Older – Language-challenged – Mentally & physically handicapped b. Elderly drivers (e.g., dashboard design) c. Elderly, semi-retired white collar knowledge workers
3. What if immigration is opened up? Closed?
#2 Volatility of oil prices ($200 to $400/ barrel in 2020?)
Era of Cheap Oil
http://www.eia.doe.gov/emeu/steo/pub/fsheets/real_prices.html
#2 Volatility of oil prices ($200 to $400/ barrel in 2020?) Oil price increases are starting to impact logistics costs
Source: 20th Annual State of Logistics Report, CSCMP, June 2009
#2 Volatility of oil prices ($200 to $400/ barrel in 2020?) Energy Costs Impact Supply Chains in 4 Major Cost Areas: 1. Freight costs • • • •
Inventory versus freight tradeoffs (e.g., JIT) Labor versus freight tradeoffs (e.g., offshore manufacturing) Ocean vs. Air (e.g., offshore sourcing) FOB pricing and on-line free delivery services
2. Material costs (i.e., oil-based materials) 3. Production operating costs 4. Packaging costs (e.g., paper and glass versus plastics)
#3 Economic/military power shift towards the East
U.S. Peak
Source of Data: International Monetary Fund (IMF) website -- http://www.imf.org/external/index.htm (October 2009)
1.
U.S. and Western Europe’s share of worldwide GDP is declining – – –
U.S. peaked in 2001 at 32.3% and GDP share has declined since China surpassed Germany in 2007 to be #3 Will China surpass Japan in 2010-2011?
#3 Economic/military power shift towards the East (Cont’d)
2.
Many ‘largest’ companies now outside EU and U.S.
3.
Rise of middle class in eastern countries creates consuming nations (Will U.S. be able to compete there?)
4.
Future global competition for scarce materials and business opportunities (China ties to Australia, Africa, and Middle East)
5.
China and India producing more engineers and college-educated students: So will major innovation move there too?
6.
China’s unknown future ( the wild card )
“This is not a book about the decline of America but rather about the rise of everyone else”: Fareed Zakaria, The Post-American World, Norton
#4 Tightly aligned trading blocs (e.g., 3 or 4) rather than “The World is Flat” (Author: Tom Friedman)
1. Powerful trading blocks centered around, for example, Europe, US, Japan/Asia, and China 2. Heavy trade barriers into and out of blocks 3. Largely intra-trading among blocs
#5 Green Laws, Globally
1. Energy-efficient transportation operations An EPA report (April 2009) reported that the Transportation sector is the second major source of greenhouse emissions (after Electricity Generation). 2. Reverse logistics 3. Green product design 4. Supply network compliance
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
SC2020 Scenarios Based on Shell Scenarios*
*Source: Shell Global Scenarios to 2025, p12
Scenario Snapshots of the World in 2020
Scenario 1
Scenario 2
Scenario 3
Agenda • Introduction to SC2020 Project • Strategic Alignment – – – –
Excellence Supply Chain Research Excellent Supply Chain Framework Illustrations and Case Studies Strategy Alignment Process and Takeaways
• Supply Chain Futures – Macro Factors – Scenarios
• Analyzing the Implications of an Uncertain Future
Scenario Implications for Winning Supply Chain Strategies
1. Implications for Products and Services 2. Implications for Global Supply Networks 3. Investment in capabilities 4. Organization and Culture
Analyzing Scenarion Implications
Scenario Implications
Contingent Implications
Robust Implications
No Brainer
No Regret
No Gainer
Detailed Review
Risk Management
Sensors in the Ground
Strategy Key Takeaways “The future ain’t what it used to be” Yogi Berra, The Yogi Book, Workman Publishing, New York, 1998
• • •
Revisit your latent assumptions about the future Develop strategies for excellence under each possible future using Strategic Alignment Use Scenario Planning and Risk management to prepare your supply chain for the future
For More Information: • • •
Speaker: Larry Lapide:
[email protected] SC2020 Project Page: www.supplychain2020.net Project Director: Mahender Singh, Ph.D.
[email protected]
Thank You
Questions ?????? Larry Lapide, Ph.D. Research Affiliate, MIT-CTL Former Project Director, MIT Supply Chain 2020 Project
[email protected]
21.05.10
Enter Group Name Here
54
