presentation for the productie werkgroep process industrie PGWP, what is supply chain management, the link with strategy, the link with finance, the link between supply chain strategy and finance

1. Supply Chain Strategy
and Financial Metrics

2. My name is Bram …My name is Bram …My name is Bram …My name is Bram …
• Academic
• 1998, Master in Mathematics, Gent
• 2002-2004, Executive MBA, Vlerick Business School, Gent
• 2006-2009, PhD in Operations Research, University Gent, “safety stock optimization in multi-echelon supply chains”
• 2010-…, Adjunct Professor at the Vlerick Business School, teaching ‘statistics’, ‘decision sciences’, ‘supply chain’ in Masters and
MBA courses
• 2010-…, Visiting Professor at Peking University, teaching ‘statistics’, ‘decision sciences’
• Business
• 1998 - 2003: IT manager, Arcelor-Mittal, Gent (Sidmar)
• 2003 - 2016: Partner Strategy – SupplyChain – Operations, MÖBIUS Consulting
• 2010 - …: CEO, Solventure, S&OP software and advanced analytics
• Sector experience: aftermarket, chemical/pharma, consumer goods, discrete/high-tech, metals, retail, recycling, SME's (+50
companies)
• Contact info
• bram_desmet@solventure.eu, +32.497.58.28.60
• be.linkedin.com/pub/bram-desmet/1/788/823/
• @bram_desmet

3. Available May 5th, 2018
More info on www.bramdesmet.com
On pre-order from Koganpage and Amazon websites

4. AgendaAgendaAgendaAgenda
• What is Supply Chain Management?
• How to link Supply Chain & Strategy?
• How to link Supply Chain & Finance?
• How to link Supply Chain, Strategy & Finance?

5. What is Supply Chain Management?

6. SCM =SCM =SCM =SCM = balancingbalancingbalancingbalancing thethethethe SCSCSCSC triangletriangletriangletriangle of service,of service,of service,of service, costcostcostcost and cashand cashand cashand cash

7. SCM =SCM =SCM =SCM = balancingbalancingbalancingbalancing thethethethe SCSCSCSC triangletriangletriangletriangle of service,of service,of service,of service, costcostcostcost and cashand cashand cashand cash
e.g. reduce cost by
sourcing in far East

8. SCM =SCM =SCM =SCM = balancingbalancingbalancingbalancing thethethethe SCSCSCSC triangletriangletriangletriangle of service,of service,of service,of service, costcostcostcost and cashand cashand cashand cash
e.g. increase market
share by extending
product portfolio

9. SCM =SCM =SCM =SCM = balancingbalancingbalancingbalancing thethethethe SCSCSCSC triangletriangletriangletriangle of service,of service,of service,of service, costcostcostcost and cashand cashand cashand cash
e.g. reduce inventory
by lowering safety
stocks

10. SCM =SCM =SCM =SCM = balancingbalancingbalancingbalancing thethethethe SCSCSCSC triangletriangletriangletriangle of service,of service,of service,of service, costcostcostcost and cashand cashand cashand cash
Focus/incentives in a
typical production
company …

11. SCM =SCM =SCM =SCM = balancingbalancingbalancingbalancing thethethethe SCSCSCSC triangletriangletriangletriangle of service,of service,of service,of service, costcostcostcost and cashand cashand cashand cash
Resulting pressure in
the triangle

12. BalancingBalancingBalancingBalancing thethethethe triangletriangletriangletriangle ==== optimizingoptimizingoptimizingoptimizing ROCEROCEROCEROCE
Aligning the supply
chain triangle is about
maximizing ROCE
Top-line
EBIT
ROCE

13. How to link Supply Chain & Strategy?

14. 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

15. 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

16. Product Leadership
highest complexity, highest risk
Customer intimacy
controlled complexity
Operational Excellence
simplicity drives efficiency
service
inventory cost
Higher
turns
Lower
cost
Higher
service

17. 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

18. 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
Different strategies lead to different trade-offs in the Supply Chain Triangle!!!

20. How to link Supply Chain & Finance?

21. Cost
Direct Material
Direct Labour
Indirect labour
COGS
Sales
Logistics
Write-Offs
SG&A
Cash / Capital Employed
DSO
DPO
DIOH
Working Capital
Investments
Fixed Assets
Depreciation
Service/Strategy/Value
Order LT
(Responsiveness)
OTIF
(Reliability)
Flexibility/Adaptability
(Agility)
Product
Access
Price
Service
Specifications vs Avg
Satisfaction Rate
Pricepoint vs Avg
Experience
ProductPortfolio (#SKU)

22. Cost
Cash / Capital Employed
Direct Material
Direct Labour
Indirect labour
COGS
DSO
DPO
DIOH
Working Capital
Investments
Fixed Assets
Depreciation
Sales
Logistics
Write-Offs
SG&A
Service/Strategy/Value
Order LT
(Responsiveness)
OTIF
(Reliability)
Flexibility/Adaptability
(Agility)
Product
Access
Price
Service
Specifications vs Avg
Pricepoint vs Avg
ProductPortfolio (#SKU)
Bottom-line
Gross Profit
EBIT
Net Profit
Bottom-line
Return
ROCE
ROA
ROE
Return on Capital Employed (ROCE)
Top-line
Net Sales
Market Share
Sales Price
Top-line Growth

23. Top-line
Bottom-line
Return
Cost
Cash / Capital Employed
Process / Diagnostic
Net Sales
Market Share
Sales Price
Gross Profit
EBIT
Net Profit
ROCE
ROA
ROE
Direct Material
Direct Labour
Indirect labour
COGS
DSO
DPO
DIOH
Working Capital
Investments
Fixed Assets
Depreciation
Sales
Logistics
Write-Offs
SG&A
Product Development
Order Fulfillment
Order Generation
After Sales
# NPI
Orderbook
Forecast Accuracy Bias (MPE)
Accuracy
(1-MAPE)
OEE
Cycle Time
First Pass Yield
#returns
# Components
# Promo’s
Plan Adherence
Supplier
Performance
Order LT
OTIF
# Order Lines
Production
Performance
Logistics
Performance
# Pickings
# Shipments
Service/Strategy/Value
Order LT
(Responsiveness)
OTIF
(Reliability)
Flexibility/Adaptability
(Agility)
Product
Access
Price
Service
Specifications vs Avg
Pricepoint vs Avg
ProductPortfolio (#SKU)

24. ROCE
EBIT
Net Sales
1041M€
144M€ vs Y-1
41M€ vs budget
7,53%
2,49% vs Y-1
0,47% vs budget
13,49%
5,17% vs Y-1
0,40% vs budget
%SalesOfNew
33%
8%
Price Point
+23%
2%
COGS
69,95%
1,95%
SG&A
23,84%
0,16%
CCC
127d
23d
Fixed Assets
271M€
1M€
DIOH 117d 13d
DSO 66d 4d
DPO 56d 6d
On time in full
90%
5%
Lead Time
3wk
1wk
Sale 0M€
Depr 10M 0M
Inve 11M 1M
G&A 4,82% ,16%
S&M 11,81% ,31%
R&D 7,20% ,30%
IL 9,55% ,45%
DL 17,9% 1%
DM 42,5% 3%
#NPI
43
2
Supplier OTIF
77%
18%
OEE
88%
10%
Cycle Time
3
1
OEE
88%
10%
Orderbook
222Mi
22Mi

25. How to link Supply Chain, Strategy &
Finance?

26. Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Customer Intimacy Product Leadership
• Hard Discounters • Supermarkets • Fresh food markets
• Good quality at low cost • Mix of quality and price • The best, highest quality,
healthiest
• Lots of private label • Mix of A and B • Locally grown
• Limited Assortment • Everything you daily need • Quality over Quantity
Gross Margin HighMediumLow
Cost HighMediumLow
EBIT HighMediumLow
Capital Employed HighMediumLow
ROCE High High High

27. Service
Cost
Cash/Capital
Employed
Turnover
Margin
Return
Process /
Diagnostic
=
OE
CI
PL
=
OE
CI
PL
=
OE
CI
PL
=
OE
CI
PL
OE
CI
PL
Product Leadership (PL)
Customer Intimacy (CI)
Operational Excellence (OE)
Strategy Supply Chain
Financial Metrics

28. ExampleExampleExampleExample DataDataDataData
(Fixed Asset Turns = Turnover / Fixed Assets)

29. ExampleExampleExampleExample DataDataDataData
Company Gross Profit% EBIT Fixed Asset Turns ROCE
30%+ gross profit 33% 4,46% 3,29 16,28%
20-29% gross profit 24% 3,84% 4,22 17,11%
<20% gross profit 12% 0,95% 7,42 12,02%
• We seem to find some evidence that different strategies are different
ways to drive value for the shareholder
• They have a different balance in the supply chain triangle

30. ConclusionConclusionConclusionConclusion
• What is Supply Chain Management?
• Supply Chain Management is about balancing the triangle of Service, Cost and Capital
Employed
• How to link Supply Chain & Strategy?
• Different strategies lead to a different balance int he triangle
• How to link Supply Chain & Finance?
• Service is a driver for top-line, cost and top-line combine into bottom-line, bottom-line over
capital employed leads to return
• Operational metrics indicate where the financial metrics will be going
• How to link Supply Chain, Strategy & Finance?
• Different strategies are different routes to deliver Return on Capital Employed