The Supply Chain: A Critical (and Often Overlooked)
Dimension of Strategic Planning
by Mike Edie

One of ...
Additionally the profile should address the impact of the            • 95 percent of orders received from suppliers complet...
Supply Chain Financial Plans
The last step in the supply chain strategic planning            • Provide a range of measures...
About Supply Chain Edge
               Supply Chain Edge is a team of seasoned supply chain specialists who are highly ski...
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The Supply Chain: A Critical (and Often Overlooked) Dimension ...

  1. 1. POINT OF VIEW The Supply Chain: A Critical (and Often Overlooked) Dimension of Strategic Planning by Mike Edie One of the most inconsistently executed elements of cor- There are five key steps in the supply chain strategic plan- porate strategic planning today involves the supply chain. ning process to gather and analyze critical data, identify The ability of the end-to-end supply chain to consistently strategic supply chain initiatives and create the financial deliver products and services at a competitive cost is plans to reflect the strategy. The key components of a sup- fundamental to business success—as companies such ply chain strategic planning process include: as Walmart, Zara, Whirlpool, and AstraZeneca have ably demonstrated. Each of these companies owes a large part • A supply chain profile to document the contribution of its success to building the supply chain capabilities that of each supply chain segment fully support the enterprise’s overall business strategy— • An analysis of key trends (industry, markets served, whether it’s providing consumers with the lowest-priced customer requirements, supplier capabilities) and goods, quickly identifying and capitalizing on new fash- potential customer segmentation ion trends, delighting customers with superior service, or most effectively supporting a product’s life cycle from • A review of competitor capabilities and an analysis of conception through retirement. the company’s own supply chain strengths, weak- nesses, opportunities, threats (SWOT) and capacity Yet, in many companies, the supply chain receives little consideration in the strategic planning process, grossly • Definition of key initiatives to be undertaken by the overshadowed by business unit leaders’ attention to the supply chain organization to deliver the strategic sales portfolio (competitive issues, market price trends, capabilities the business requires growth opportunities, market share risk, and new product • Creation of the supply chain financial plan that rollouts). While clearly growth and revenue planning are reflects the strategy, rolls into the business unit crucial segments of a well structured business strategy, financials and forms the foundation for the supply supply chain strategic planning also requires thoughtful chain’s annual operating plan assessment and creativity. This article outlines a framework for addressing supply Supply Chain Profile chain strategic planning as an integral component of the The supply chain profile should define the supply chain overall corporate strategic planning process. (For pur- structure and document the functional contribution of poses of this article, supply chain is defined as including each supply chain segment (e.g., material sourcing, cus- material planning and sourcing, production, demand plan- tomer service, etc.). Describing the end-to-end supply ning and forecasting, distribution, warehousing, transpor- chain linkages gives the business and functional part- tation, and customer service). For many organizations the ners a clear understanding of the service of each func- optimal timeframe for supply chain strategic planning is tion, the supporting financials, supply chain risks and the second quarter of the fiscal year. This provides ample risk management strategies, internal integration require- lead time to enable the supply chain plan to fully contrib- ments and the supply chain’s strategic fit within the over- ute to the business’s annual operating plan development. arching business strategy. 1
  2. 2. Additionally the profile should address the impact of the • 95 percent of orders received from suppliers complete recession on supply chain operations. The global eco- and on-time (perfect order) nomic recession has put massive pressure on companies to become more efficient and to sustain such efficiency • No change in cash-to-cash cycle time in the past year as the “new normal” in a post-recession environment. • 5 percent decrease in the frequency of out-of-stocks In many businesses, supply chain executives must find in the past year ways to bolster year-over-year productivity by as much as five percent to six percent to remain competitive and • 2 percent decrease in inventory carrying costs in aligned with business strategy and annual operating the past year plans. Some are in a position to take advantage of the low cost of capital to invest in assets required to improve The SWOT analysis and capacity analysis of the supply productivity and achieve long-term strategic objectives. chain are crucial inputs to the business unit leaders in In any case, the supply chain profile should consider the the development of market strategies. The credibility and business’s operating environment and its implications strength of the supply chain are essential elements of on supply chain strategy. market strategy execution. The SWOT analysis provides the information to debate and confirm market strategies Key Trends and Segmentation with business unit leaders. Such debate is fundamental The key trends and segmentation work begins with to aligning leadership on the business’s strategic commit- developing current and two-year perspectives on the ment and value proposition. supply chain industry overall, markets to be served, customer supply chain requirements and programs, Key Initiatives and supplier capabilities. These perspectives require Once the competitor comparisons and SWOT informa- careful consideration to map current and future re- tion are complete and reviewed, work begins to define quirements against capabilities so that performance and scope the key initiatives to be undertaken by the gaps and supporting system needs can be identified for supply chain organization to deliver against the stra- further analysis. tegic capabilities needed to accomplish business and market strategies (see Figure 1 for an example). In this It is also appropriate to address the complexities and step, the leaders of the supply chain organization cre- cost burden of providing the same level of service to ate specific work plans and timelines for key initiatives. all customer channels and customer segments. Assess- Of critical importance here is to create the plans in a ing the true supply chain cost of serving multiple mar- collaborative environment versus in isolated “silos.” kets and channels is a key step in providing information There is tremendous real value to be generated in the to the business unit leaders to consider differentiated linkages across the supply chain versus within indepen- strategies, market investments, and segmented profit- dent functions, and without collaboration and integra- ability plans. The “new normal” operating environment tion that value will remain untapped. in most industries underscores the reality that compa- nies can no longer be all things to all customers. Competitor Comparisons and SWOT Analysis Figure 1: Strategic Initiative: Increase production in Asia The trends and segmentation work is the platform for pre- paring key competitor comparisons and a detailed SWOT Rationale Stronger ability to respond to market analysis of the company’s supply chain. As part of com- demand with better pricing petitor and SWOT analysis, it’s useful to benchmark each business against best-in-class companies along five key Key The company will not miss the opportunity to performance criteria. According to research by Aberdeen Benefits earn additional business in growing markets Group, in 2009 best-in-class companies delivered the fol- lowing performance: Potential Capital investment necessary; human Issue resources needed for turnaround • 96 percent of orders delivered to customers complete and on-time (perfect order) 2
  3. 3. Supply Chain Financial Plans The last step in the supply chain strategic planning • Provide a range of measures encompassing both process is to create the supply chain financial plans cost and service activities that will feed the business unit financials and form the foundation for the upcoming year’s annual operating • Support root-cause analysis where gaps in plan. The financial plan should be clear and explicit on targeted performance must be investigated assumptions, supplier commitments, commodity risk Supply chain capability has reached an important mile- plans, and productivity benchmarks. stone in global business through the effort and inno- When developing the financial plan, a company must vation of talented supply chain professionals. Sound clearly identify the correlation between the strategic supply chain strategic planning, using a simple but initiatives and assumptions and the resulting financial thorough process as just described, ensures that sup- outcomes. Performance measures establish the link be- ply chain performance fully contributes to the overall tween performance and accountability. It is imperative value proposition of the business. to select key performance indicators (KPIs) that: • Monitor the financial and operational results Mike Edie is chief operating officer of Supply Chain Edge, a team of experienced against agreed-upon targets supply chain advisors focused on helping companies accelerate year-over-year productivity improvement, improve operational performance, drive best practices • Highlight performance capability gaps in process across the entire organization, and realize long-term and sustainable results. To compliance or issues with planning and execution learn more about Supply Chain Edge, visit www.supplychainedge.com. 3 www.supplychainedge.com
  4. 4. About Supply Chain Edge Supply Chain Edge is a team of seasoned supply chain specialists who are highly skilled in identifying, quantifying, and capitalizing on opportunities that drive performance improvements in key areas such as business growth, earnings per share, return on capital, margins, cash-to-cash cycle times, and customer service. Supply Chain Edge is unique in two important ways: Our extensive experience in numerous supply chain initiatives with dozens of companies enables us to bring best practices used by other enterprises to every project while working collaboratively with a client’s existing internal talent. And, we don’t simply advise clients what they should do, but instead, help them execute more effectively and efficiently to realize tangible, quantifiable financial gain. To that end, Supply Chain Edge can help companies realize dramatic performance improvement in the following key supply chain areas: • Sourcing and procurement processes and strategies • Domestic and international transportation • Freight policies and customer-based profitability analysis • Demand planning and forecasting • Inbound and outbound transportation • Inventory control strategies and SKU rationalization • Capacity planning • Lead time and cash-to-cash cycle time strategies • Order management and production scheduling • Warehousing, distribution center and site location optimization • “Lean” supply chain strategies and processes • Customer service policies, processes, and strategies • Private or dedicated fleet rationalization • Internal and external benchmarking analysis • Supply chain disruption, contingency planning, and risk mitigation strategies • Dashboard and operational metrics As globalization and competition become more intense and unpredictable, logistics and supply chain strategies, processes, and cost drivers will play an even larger role in an organization’s success. Supply Chain Edge is uniquely qualified to help companies accelerate cost-reduction initiatives, improve operational performance, drive best practices across the entire organization, and realize long-term and sustainable results. Maximize Your Profits and Increase Your Competitive Edge. Supply Chain Edge is a team of experienced supply chain advisors. SCE delivers improvements to key business metrics such as business growth, earnings per share, margins, return on capital, cash-to-cash cycle times, and expanded margins Cost Savings p. 440.937.5151 • c. 440.653.0352 and profits to those clients we serve. and Process w w w.supplychainedge.com Improvement Accelerators