This document discusses balancing supply chain metrics like inventory turns and service levels with financial metrics like EBIT. It recommends benchmarking companies in two dimensions to identify balanced targets. Companies should set targets on their maximum "bang-for-the-buck" line based on their supply chain strategy - whether it prioritizes operational excellence, product leadership, or customer intimacy. Different strategies imply different optimal positions on the bang-for-the-buck curve to maximize shareholder value as measured by ROCE.

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 in Belgium, Russia, China
• 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 soon available on www.bramdesmet.com
On pre-order from Koganpage and Amazon websites

4. How much inventory do
we really need??

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

9. STRENGTH
BALANCE
RESILIENCE

10. ConclusionsConclusionsConclusionsConclusions …………
1. Never benchmark in only 1 dimension! (You may
end up with unrealistic and unbalanced targets)

11. 3 Questions3 Questions3 Questions3 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?

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

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

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

16. Focus/incentives in a
typical production
company …

17. Resulting pressure in
the triangle

18. Aligning the triangle
is about maximizing
ROCE
Top-line
EBIT
ROCE

19. 3333 QuestionsQuestionsQuestionsQuestions
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?

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?

24. 3 Questions3 Questions3 Questions3 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?

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

27. Product Leadership
highest complexity, highest risk
Customer intimacy
controlled complexity
Operational Excellence
simplicity drives efficiency
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!!

31. 3 Questions3 Questions3 Questions3 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!

32. ConclusionsConclusionsConclusionsConclusions …………
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)