Aligning Strategy to Supply Chain Performance Management

1. Strategy Driven
Supply Chain Performance Management
Ikhlaq Kashkari
Supply Chain Training and Consulting
www.sctc.nz

2. Agenda
1. Key Considerations?
2. Establishing Performance measures?
3. Using performance measures to improve
business performance?

3. 1. Key Considerations?

4. Why Measure Performance?
1. Translate business strategy to operational strategy?
2. How do we need to perform from a competitive perspective?
– Formulate strategy
3. Measure performance – How are we doing, how are we
trending?
4. Understand relative performance compared to competitors -
How are we doing compared to our supply chain strategy?
5. Identify and monitor processes that most likely cause the
performance gaps – What improvement targets should we
pursue?

5. Performance Measurements Must
Measurable and quantifiable Metrics
• Avoid 'feel good' metrics. Consider framework-based metrics
Linkage to responsibility
• Ensure the metric is linked to the (right) process owner at the
right level.
Well defined
• Multiple interpretations of a metric may lead to 'workarounds'
and negation of the effort. Frameworks metrics which are pre-
defined; limiting the discussion on metric definitions.

6. Performance Management Pressures
1. Increased customer requirements
2. Pressures to increase revenue and profit
margins
3. Ongoing supply chain complexity
4. Technological advancements

7. 2. Establishing Performance
Measures

8. Six Step Approach
1. Align SC
and Business
Strategy.
2. Segment
Supply Chains
3. Prioritise
Supply Chains
4. Align to
Competitive
Requirements
5. Identify
Performance
Measures
6. Establish
Performance
Targets

9. 1. Align SC & Business Strategy
Business
Strategy
Grow China
New Products
& Services
Divesture
Supply Chain
Strategy
SC
Performance
Measures
• Aligning business and supply chain strategy
outcomes
• Aligning supply chain activities and outcomes to
business strategy
• Measuring impact of supply chain activities on
organisational performance

10. 2. Segment Supply Chains
Products NZ
Consumer
Commercial Customers
Direct Direct Agency
Sales
Govt
Procurement
Product Family 1 –
Branded Product
Product Family 2 –
Bulk Product
Supply Chain segmentation is the dynamic alignment of customer channel demands
and supply response capabilities optimized for net profitability across each
segment………Gartner

11. 3. Prioritise Supply Chains
YOUR COMPANY Supply
Chains
Overall
Rating
Criteria
Supply Chain
Revenue
(Rank)
Gross
Margin %
(Rank)
Number of
SKUs
(Rank)
Unit
Volume
(Rank)
Strategic
Importance
(Opinion)
Weight 10% 30% 15% 15% 30%
Supply Chain 1 4.0 4 2 3 5 6
Supply Chain 2 5.0 5 6 2 6 5
Supply Chain 3 2.7 6 1 1 3 4
Supply Chain 4 3.6 3 5 4 4 2
Supply Chain 5 3.2 2 3 6 2 3
Supply Chain 6 2.5 1 4 5 1 1

12. 4. Align to Competitive Requirements
Performance Attributes
External
1. Reliability
2. Responsiveness
3. Agility
Internal
4. Costs
5. Assets

13. 4. Align to Competitive Requirements
NZ Customer Direct /
Product Family 1
Commercial
Customers Direct /
Product Famiy 2
Customer
Reliability A S
Responsiveness P A
Agility P A
Internal
Costs S P
Asset Efficiency A P

14. 5. Identify Performance Measures
Attribute Key Performance Indicator
Reliability Perfect Order Fulfillment
Responsiveness Order Fulfillment Cycle Time
Agility Upside Supply Chain Flexibility
Supply Chain Adaptability
Cost Supply Chain Management Cost
Cost of Goods Sold
Assets Cash-to-Cash Cycle Time
Return on Supply Chain Fixed Assets
Return on Working Capital
CustomerInternal

15. Key Success Factors
Measurable and quantifiable Metrics
• Avoid 'feel good' metrics. Consider framework-based metrics
Linkage to responsibility
• Ensure the metric is linked to the (right) process owner at the right
level.
Well defined
• Multiple interpretations of a metric may lead to 'workarounds' and
negation of the effort. Frameworks metrics which are pre-defined;
limiting the discussion on metric definitions.

16. 6. Establish Performance Targets
• What performance targets do you need to establish to
achieve strategic and operational outcomes?
• Use benchmarking to establish performance targets.
Comparable vs. non-comparable industries

17. 6. Establish Performance Targets
1. Agree customer and internal facing metrics
2. Identify organisations for benchmarking
3. Collate data for benchmarking
4. Identify performance gaps
5. Identify financial impact of the gaps
6. Conduct defect analysis to identify reasons for the
gaps
7. Prioritise what needs to be done to close gaps

18. Benchmarking Performance
$ 875M – Improvement Opportunity
2-Nov-10
Performance Attribute or
Category
Level 1 Performance
Metrics
Your
Company
Parity
Median of
statistical
sample
Advantage
70th
Percentile of
Population
Superior
90th
Percentile of
Population
Target Gap
Target - Actual
Source
Parity Gap
Value
US$M
Perfect Order Fulfillment 88.2% 90.3% 95.8% 98.4% -10.2% WERC $ 70
Supply Chain
Responsiveness
Order Fulfillment Lead Time 11 18.5 13.2 10.3 2.2 PMG
Supply Chain Response
Time
15 27.0 5.0 2.0 -10.0
PMG/
APQC
Cost of Goods 40.6% 51.3% 47.8% 43.5% 10.7% Hoovers $ (374)
Total Supply Chain
Management Cost (incl.
SG&A)
36.9% 27.6% 21.5% 15.5% -9.3% Hoovers $ 681
Cash-to-Cash Cycle Time 536.7 115.7 106.0 99.4 -421.0 Hoovers
Inventory Days of Supply 497.1 78.0 71.6 69.4 -419.1 Hoovers $ 499
External
Supply Chain Delivery
Reliability
Supply Chain Agility
Supply Chain Asset
Management Efficiency
Internal
Supply Chain Cost

19. 6. Establish Performance Targets
1. Outline SC strategy and set performance targets
2. Agree customer and internal facing performance
metrics
3. Identify organisations for benchmarking
4. Collate data for benchmarking
5. Identify performance gaps
6. Identify financial impact of the gaps
7. Conduct defect analysis to identify reasons for the gaps
8. Prioritise what needs to be done to close gaps
Comparing organisation’s performance with other
organisations that operate in comparable industry

20. Thank you
Q&A
Ikhlaq Kashkari
Supply Chain Coach and Mentor
IK@sctc.nz
+64 21 741 277