This document provides an introduction and background on Prof.dr. Bram Desmet, an expert in supply chain strategy and financial metrics. It discusses the need to balance multiple dimensions like costs, service levels and cash when setting targets, using a company's "max bang-for-the-buck line" as a reference. Different business strategies will define different target positions on this line to optimize return on capital employed. Overall it emphasizes that supply chain and finance objectives should be aligned in maximizing shareholder value.
8. Company 2: strong in
inventory turns but out
of balance
Company 3: better
balanced but did not
recover to pre-crisis levels
Company 1: better
balanced & good
rebound after crisis
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19. 3 Questions
OK … we’ll benchmark in 2 dimensions but …
1. Which metrics to balance?
• service, cost, cash
• in 2 dimensions, this leads to
• Y-axis: margin metrics like EBIT
• X-axis: cash metrics like inventory turns
2. How to set targets?
3. How to account for strategy?
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20. (Max) Bang-for-the-buck line (for company 2)
(combinations of EBIT% and inventory turns
leading to the same bang-for-the-buck)
21. (Max) Bang-for-the-buck line (for company 2)
(combinations of EBIT% and inventory turns
leading to the same bang-for-the-buck)
(Median) Bang-for-the-buck line (for company 2)
(Min) Bang-for-the-buck line (for company 2)
22. Notice the dropback in performance for Company 2 in 2014
How to set targets for 2015?
23. Take the max line as the reference for setting targets.
Which one of the two options would you choose?
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24. 3 Questions
OK … we’ll benchmark in 2 dimensions but …
1. Which metrics to balance?
2. How to set targets?
• Use the ‘max’ line of your company (or the best-in-class
of your industry)
• Connect your AS IS to the ‘max’ line to define ‘balanced
targets’
3. How to account for strategy?
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25. Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• ‘Best price’ and/or
• ‘Best access’ (‘fast, easy,
painless’)
• ‘Best product’ • ‘Best service’ and/or
• ‘Best connectivity’
(‘relationship
orientation’)
• 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
26. Product Leadership
highest cost in R&D, marketing, supply chain
Customer intimacy
the extra mile comes at an extra cost
Operational Excellence
cost leader in every fibre of the organization
service
inventory cost
Higher
turns
Lower
cost
Higher
service
28. Product Leadership
emotion beyond functional service
Customer intimacy
an extra mile for a premium
Operational Excellence
excel in the basics
service
inventory cost
Higher
turns
Lower
cost
Higher
service
29. 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
Lower
cost
Higher
service
EBIT
Remember ROCE principle: lower turns require a higher EBIT!
EBIT of product leader should be the highest!!
36. 3 Questions
OK … we’ll benchmark in 2 dimensions but …
1. Which metrics to balance?
2. How to set targets?
3. How to account for strategy?
• The strategy defines the position on the Max or best
practice curve!
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37. Conclusions …
1. Never benchmark in only 1 dimension (you may end up
with unrealistic and unbalanced targets)
2. Always balance Service, Cost and Cash (or EBIT versus Cash
or Capital Employed in 2 dimensions)
3. Use the Max ‘bang-for-the-buck’ line of your company or
the industry best-in-class to define balanced targets
4. Your strategy will define your target position on the ‘bang-
for-the-buck’ line (make sure to compare yourself to
‘strategy-peers’!!)
5. Supply chain and finance have the same objective:
maximizing shareholder value as defined by ROCE
6. Different strategies are different routes to generate the
shareholder value (different ROCE or bang-for-the-buck)
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