Presentation for SCELP, the Supply Chain Executive Leadership Platform at Nyenrode Business University. Using the Supply Chain Triangle to define which metrics we need to balance, how to link them to the business strategy, using the triangle to show the SCOR model is missing the dimensions of product complexity and product portfolio complexity. Proposing a new holisitic KPI framework that shows strategic trade-offs and their impact on the supply chain.

1. Strategic Target Setting
using the Supply Chain Triangle
Prof.dr. Bram Desmet
bram_desmet@solventure.eu
+32.497.58.28.60
be.linkedin.com/pub/bram-desmet/1/788/823/
@bram_desmet

2. My name is Bram …
• Business
• 2009 - …: Managing Director, Solventure, S&OP software and software based services
• 2003 - …: Consultant Strategy – SupplyChain – Operations, MÖBIUS
• 1998 - 2003: IT manager, Arcelor-Mittal, Gent (Sidmar)
• Sector experience: aftermarket, chemical/pharma, consumer goods, discrete/high-tech,
metals, retail, recycling, SME's (+50 companies)
• Academic
• 2010-…, Adjunct Professor at the Vlerick Business School, Supply Chain and Operations
• 2006-2009, PhD in Operations Research, Gent, Multi-Echelon Inventory Optimization
• 2002-2004, Executive MBA, Vlerick Business School
• 1998, Master in Mathematics, Gent University
• Contact info
• bram_desmet@solventure.eu, +32.497.58.28.60
• be.linkedin.com/pub/bram-desmet/1/788/823/
• @bram_desmet
2

3. How much inventory do
we really need??
3

4. 4

5. 5

6. 6

7. 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
7

8. STRENGTH
BALANCE
RESILIENCE
8

9. 9

10. e.g. reduce cost by
sourcing in far East
10

11. e.g. increase market
share by extending
product portfolio
11

12. e.g. reduce inventory
by lowering safety
stocks
12

13. Focus/incentives in a
typical production
company …
13

14. Resulting pressure in
the triangle
14

15. Aligning the supply
chain triangle is about
maximizing ROCE
Top-line
EBIT
ROCE
15

19. 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

20. 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

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

22. 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

23. 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!!

24. Product
Leadership
Customer
Intimacy
Operational
Excellence

25. Product
Leadership
Customer
Intimacy
Operational
Excellence
Leaders
Average
Lagards
Improve on both dimensions at the
same time by applying best practices
Rely on ‘breakthrough’ innovations
to ‘shift the best practice frontier’

26. Product
Leadership
Customer
Intimacy
Operational
Excellence
Leaders
Average
Lagards
Improve on both dimensions at the
same time by applying best practices
Rely on ‘breakthrough’ innovations
to ‘shift the best practice frontier’
Exercise: identify key drivers that
bring customer value factors to a
higher maturity level Multi-echelon planning
Remove ‘bad complexity’
SiOP (Sales, Inventory & Operations Planning)
Postponement & Modular Design

27. Product
Leadership
Customer
Intimacy
Operational
Excellence
Leaders
Average
Lagards
Improve on both dimensions at the
same time by applying best practices
Rely on ‘breakthrough’ innovations
to ‘shift the best practice frontier’
From ‘top-notch’ and ‘niche’ to ‘good
enough’ and ‘mid-market’
Which is different from “strategic
shifts”
From ‘embrace complexity’ to ‘war on
complexity’

28. 28
Service
Cash + Fixed Assets =
Capital Employed
Cost

29. 29
Product Leadership
Customer intimacy
Operational Excellence

30. 30
Product Leadership
Customer intimacy
Operational Excellence

31. 31
Product Leadership
Customer intimacy
Operational Excellence

32. 32
Product Leadership
Customer intimacy
Operational Excellence

33. 33
Product Leadership
Customer intimacy
Operational Excellence

34. 34
Product Leadership
Customer intimacy
Operational Excellence

35. 35
Product Leadership
Customer intimacy
Operational Excellence

36. 36
Product Leadership
Customer intimacy
Operational Excellence

37. 37
Product Leadership
Customer intimacy
Operational Excellence
Exercise 1:
• Choose a specific PMC strategy
• Choose 1 of the following customer value factors: Reliability, Responsiveness or Cost
• Identify key drivers that bring us to a higher level of maturity (more service with less
cash and cost)

38. BREAK
38

39. 39
Product Leadership
Customer intimacy
Operational Excellence
Exercise 2:
• How to treat complexity in this customer value framework?

40. Plugging the ‘Strategy Holes’ in
SCOR
Prof.dr. Bram Desmet
bram_desmet@solventure.eu
+32.497.58.28.60
be.linkedin.com/pub/bram-desmet/1/788/823/
@bram_desmet

41. SCOR and KPI’s
41

42. Reliability
Asset Management Efficiency Costs
CAPITAL
EMPLOYED
Responsiveness
Agility
42

43. Reliability
Asset Management Efficiency Costs
CAPITAL
EMPLOYED
Responsiveness
Agility
RL.1.1 Perfect Order Fulfillment
RS.1.1 Order Fulfillment Cycle Time
AG.1.1 Upside Supply Chain Flexibility
AG.1.2 Upside Supply Chain Adaptability
AG.1.3 Downside Supply Chain Adaptability
AG.1.4 Overall Value At Risk
CO.1.1 Supply Chain Management Cost
CO.1.2 Cost of Goods Sold
AM.1.1 Cash-to-Cash Cycle Time
AM.1.2 Return on Supply Chain Fixed Assets
AM.1.3 Return on Working Capital
43

44. Reliability
Asset Management Efficiency Costs
CAPITAL
EMPLOYED
Responsiveness
Agility
RL.1.1 Perfect Order Fulfillment
RS.1.1 Order Fulfillment Cycle Time
AG.1.1 Upside Supply Chain Flexibility
AG.1.2 Upside Supply Chain Adaptability
AG.1.3 Downside Supply Chain Adaptability
AG.1.4 Overall Value At Risk
CO.1.1 Supply Chain Management
CostCO.1.2 Cost of Goods Sold
AM.1.1 Cash-to-Cash Cycle Time
AM.1.2 Return on Supply Chain Fixed Assets
AM.1.3 Return on Working Capital
RL.2.1. % of Orders Delivered in Full
RL.2.2. Delivery Performance to Customer Commit Date
RL.2.3. Documentation Accuracy
RL.2.4. Perfect Condition
44

45. Reliability
Asset Management Efficiency Costs
CAPITAL
EMPLOYED
Responsiveness
Agility
RL.1.1 Perfect Order Fulfillment
RS.1.1 Order Fulfillment Cycle Time
AG.1.1 Upside Supply Chain Flexibility
AG.1.2 Upside Supply Chain Adaptability
AG.1.3 Downside Supply Chain Adaptability
AG.1.4 Overall Value At Risk
CO.1.1 Supply Chain Management Cost
CO.1.2 Cost of Goods Sold
AM.1.1 Cash-to-Cash Cycle Time
AM.1.2 Return on Supply Chain Fixed Assets
AM.1.3 Return on Working Capital
RL.2.1. % of Orders Delivered in Full
RL.2.2. Delivery Performance to Customer Commit Date
RL.2.3. Documentation Accuracy
RL.2.4. Perfect Condition
RL.3.36. Fill Rate
RL.3.37. Forecast Accuracy
RL.3.49. Schedule Achievement
RL.3.58. Yield
45

46. OK
OK
??
??
??
The SCOR model seems to
miss certain service aspects,
required to model a
customer intimacy or
product leadership
strategy!!
46

47. • Price: lowest price
• Product: highest quality/performance/…
• Service: only a product or combined with a service?
• Access: difficult to reach or easy, effort I need to do
to get access
• Experience: feeling I have during
purchasing/consumption
47

48. Price
CAPITAL
EMPLOYED
Access
Product
VALUE
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility: Upside/Downside Flexibility/Adaptability
Product Portfolio / Assortment
Order Flexibility (timing, quantity, specific requirements)
(RL.1.1)
(RS.1.1)
(AG.1.1-4)
48

49. Price
CAPITAL
EMPLOYED
Access
Product
VALUE
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility: Upside/Downside Flexibility/Adaptability
Product Portfolio / Assortment
Order Flexibility (timing, quantity, specific requirements)
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Purchasing Cost
Manufacturing Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
(RL.1.1)
(RS.1.1)
(AG.1.1-4)
(CO.1.2)
(CO.1.1)
(AM.1.1)
49

50. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility: Upside/Downside Flexibility/Adaptability
Product Portfolio / Assortment
Order Flexibility (timing, quantity, specific requirements)
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Purchasing Cost
Manufacturing Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
50

51. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
(AM.1.2, AM.1.3)
51

52. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Impact of Strategy: from Opex to
Customer Intimacy
1. From Service to Cost and Cash
52

53. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex to
Customer Intimacy
1. From Service to Cost and Cash
2. From Service to Top-Line, Bottom-
Line and ROCE
=
53

54. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex to
Customer Intimacy
1. From Service to Cost and Cash
2. From Service to Top-Line, Bottom-
Line and ROCE
3. Second Order Effects
=
54

55. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex to
Customer Intimacy
1. From Service to Cost and Cash
2. From Service to Top-Line, Bottom-
Line and ROCE
3. Second Order Effects
=
55

56. Price
Access
Product
Service
Experience
Reliability: Perfect Order Fulfillment
Responsiveness: Order Fulfillment Cycle Time
Agility
Product Portfolio / Assortment
Order Flexibility
Cost of Goods Sold (COGS)
Direct Labor Cost
Direct Material Cost
Indirect Cost Related to Production
Selling, General & Administrative (SG&A)
Sales Cost
Transport & Warehousing Cost
R&D Cost
Inventory Write-Offs
Working Capital: Cash Conversion Cycle (CCC)
Accounts Receivable: Days Sales Outstanding (DSO)
Accounts Payable: Days Payables Outstanding (DPO)
Inventory
Fixed Assets
Days of Inventory On Hand (DIOH)
Inventory Turns
% Slow Moving and Obsolete Inventory (Slob/Smoi/…)
Inventory Balance
Forecast Accuracy
Period Accuracy: Mean Absolute
Percentage Error (MAPE)
Bias: Mean Percentage Error (MPE)
Inventory Accuracy
(First Pass) Yield (Variability)
Cycle Time (Variability)
# New Product Introductions
# Promotions
Diagnostic Metrics
VALUE
CAPITAL
EMPLOYED
Return on Capital Employed (ROCE)
Return on Assets (ROA)
Resulting “Profitability” Metrics Gross Margin (as % of sales)
EBITDA, EBIT (as % of sales)
Resulting “Bottom-Line” Metrics
Net Profit (as % of sales)
Net Sales
Growth
Resulting “Top-Line” Metrics
Market Share
Impact of Strategy: from Opex to
Customer Intimacy
1. From Service to Cost and Cash
2. From Service to Top-Line, Bottom-
Line and ROCE
3. Second Order Effects
=
56

57. Key Takeways
• Never benchmark in only 1 dimension
• Make sure to balance Service, Cost and Cash: the
Supply Chain Triangle
• Different strategies lead to different targets
• Remember ROCE principle: lower turns should be
compensated by a higher EBIT!
• The SCOR model contains ‘holes’ when it comes to
strategy
• SCOR misses complexity measures for product, product
portfolio and service
• It is focused on the ‘results’, not the ‘causes’
57

58. Want to know more?
• Cfr. http://www.slideshare.net/BramDesmet/
• Cfr. Solventure Youtube channel for video blogs
https://www.youtube.com/channel/UCzyuODMMCk2vXkcQLawJVkg
58

59. Thank You!!
Prof.dr. Bram Desmet
bram_desmet@solventure.eu
+32.497.58.28.60
be.linkedin.com/pub/bram-desmet/1/788/823/
@bram_desmet