Presentation from Value Chain Supply Chain Innovations 2017. Explaining the link between strategy, supply chain and financial KPIs. With cases from Food Retail and High-Tech. Material for a book on 'Supply chain Strategy and financial metrics', based on the supply chain triangle.

1. How to define a
Supply Chain Strategy? Contact person: Prof.dr. Bram Desmet
bram_desmet@solventure.eu
+32 497 58 28 60

2. What is Strategy?

3. Market leaders are
‘extremely disciplined
and focused’ on 1 of 3
strategic options
Treacy & Wiersema,
1995
Operational Excellence Product Leadership Customer Intimacy
• ‘Best price’ • ‘Best product’ • ‘Best total solution’
• 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

4. What is Supply Chain?

5. SCM = balancing the SC triangle of service, cost and cash

6. SCM = balancing the SC triangle of service, cost and cash
e.g. reduce cost by
sourcing in far East

7. SCM = balancing the SC triangle of service, cost and cash
e.g. increase market
share by extending
product portfolio

8. SCM = balancing the SC triangle of service, cost and cash
e.g. reduce inventory
by lowering safety
stocks

9. SCM = balancing the SC triangle of service, cost and cash
Focus/incentives in a
typical production
company …

10. SCM = balancing the SC triangle of service, cost and cash
Resulting pressure in
the triangle

11. Balancing the triangle = optimizing ROCE
Aligning the supply
chain triangle is about
maximizing ROCE
Top-line
EBIT
ROCE

12. Impact of Strategy on Supply Chain

13. Supply Chain Triangle in 3 dimensions
service
inventory cost
Higher
turns
Lower
cost
Higher
service

14. Measuring Service by Gross Margin
service
inventory cost
Higher
turns
Higher service
As measured by
Gross Margin
Lower cost
(excl.COGS)

15. Mapping Treacy & Wiersema to Service
Product Leadership
highest spec driving highest margin
Customer intimacy
expertise in solutions drives a premium
Operational Excellence
excel in the basics
service
inventory cost
Higher
turns
Lower cost
(excl.COGS)
Higher service
As measured by
Gross Margin

16. Mapping Treacy & Wiersema to Cost
service
inventory cost
Higher
turns
Lower cost
(excl.COGS)
Higher service
As measured by
Gross Margin
Product Leadership
high cost in R&D and in sales
Customer intimacy
solution development is a cost of sales
Operational Excellence
cost leader in every fibre of the organization

17. Mapping Treacy & Wiersema to Inventory
service
inventory cost
Higher
turns
Lower cost
(excl.COGS)
Higher service
As measured by
Gross Margin
Product Leadership
highest complexity, highest risk
Customer intimacy
controlled complexity
Operational Excellence
simplicity drives efficiency

18. Mapping Treacy & Wiersema to the Supply Chain Triangle
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
Higher service
As measured by
Gross Margin
Lower cost
(excl.COGS)

19. Mapping Treacy & Wiersema to the Supply Chain Triangle
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
Capital
employed
cost
Lower capital
employed
Higher service
As measured by
Gross Margin
Lower cost
(excl.COGS)
EBIT
ROCE

20. Examples from Food Retail

21. 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

22. Company Gross Profit% SG&A% Inventory Turns
30%+ gross profit 32,56% 26,03% 15,80
20-29% gross profit 23,95% 17,44% 11,29
<20% gross profit 11,63% 11,58% 25,60

23. Company Gross Profit% SG&A% Inventory Turns CCC
30%+ gross profit 32,56% 26,03% 15,80 7,93
20-29% gross profit 23,95% 17,44% 11,29 2,83
<20% gross profit 11,63% 11,58% 25,60 (27,58)

24. Company Gross Profit% SG&A% Fixed Asset
Turns
30%+ gross profit 32,56% 26,03% 3,29
20-29% gross profit 23,95% 17,44% 4,22
<20% gross profit 11,63% 11,58% 7,42

25. Company Gross Profit% SG&A% Fixed Asset
Turns
EBIT
30%+ gross profit 32,56% 26,03% 3,29 4,46%
20-29% gross profit 23,95% 17,44% 4,22 3,84%
<20% gross profit 11,63% 11,58% 7,42 0,95%

26. Company Gross Profit% SG&A% Fixed Asset
Turns
EBIT ROCE
30%+ gross profit 32,56% 26,03% 3,29 4,46% 16,28%
20-29% gross profit 23,95% 17,44% 4,22 3,84% 17,11%
<20% gross profit 11,63% 11,58% 7,42 0,95% 12,02%

27. Example from Hi-Tech

28. Pre-crisis Crisis Post-crisis

29. Pre-crisis Crisis Post-crisis

30. Pre-crisis Crisis Post-crisis

31. Good quality, low price watches High quality, fashionable watches
Operational Excellence Product Leadership

32. What did we learn today?

33. Lessons Learned
1. The cost and the capital employed in your supply
chain, really depend on your strategy
2. Strategies that require a higher cost and capital
employed, can typically compensate this by
generating a higher gross margin
3. Different strategies are different ways to come to the
same return on capital employed, or ‘bang for the
buck’

34. Thank you!
Prof.dr. Bram Desmet
bram_desmet@solventure.eu
+32 497 58 28 60