Transcript Diagnosing Greatness: Competencies of Leading Supply Chain Companies Morgan L. Swink Professor, Operations & Supply Chain Mgmt Broad Graduate School of Management Michigan State University 517.432.6327 [email protected] Charles C.

Diagnosing Greatness:
Competencies of Leading
Supply Chain Companies
Morgan L. Swink
Professor, Operations & Supply Chain Mgmt
Broad Graduate School of Management
Michigan State University
517.432.6327
[email protected]
Charles C. Poirier, CSC Consulting
Frank J. Quinn, Supply Chain Management
Review
 Michigan State University, 2007 (All Rights Reserved)
Overview
• A new approach was taken to document what constitutes true supply
chain value.
• The 2007 survey confirms companies continue steady progress in
terms of supply chain competence.
• There still remain high levels of variance in how SC operations are
defined, strategic integration of SC activities, and planning
effectiveness
• Using eight dimensions of competence, there are sizeable gaps
between leaders and the rest of the field in terms of priorities,
investments and performance
• These gaps indicate the steps that laggards need to take in order to
catch up with leaders
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2007 Survey — Methodology
• Survey sent to supply chain
professionals around the world.
• Names were drawn from CSC’s client
base, readers of Supply Chain
Management Review, and a special
mailing from Michigan State University.
• A total of 179 respondents — majority
from North America, mainly the
United States.
• Twenty-one industries are represented.
•Organizationally: 51 percent corporations; 28 percent wholly-owned
subsidiaries or strategic business units; and 21 percent groups or
multiple divisions.
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Eight Dimensions of Supply Chain Competence
1. Business Strategy Alignment – We have clear SCM goals that are
aligned with corporate strategy, and the corporate strategy
leverages our unique supply chain capabilities while recognizing
our constraints.
2. Strategic Customer Integration – We are constantly pursuing
relationships with customers that go beyond sales transactions in
order to explore ways to meet individual customer requirements.
3. Strategic Supplier Integration – We exchange operational
information and synchronize activities with suppliers in order to
make the most of their unique capabilities.
4. Cross-functional Integration – We have reorganized our internal
functional groups around core processes in ways that facilitate
operational information sharing, cross-functional planning, and
seamless execution.
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Eight Dimensions of Supply Chain Competence
5. Supply Chain Responsiveness – We have reduced lead-times and
improved responsiveness to the point that most of our operational
activities are triggered by customer orders rather than by
schedules which are based on forecasts.
6. Supply Chain Rationalization/Segmentation – We have developed
separate pricing, service, and inventory policies along with
dedicated channels for meeting demands for different
product/market segments in the overall portfolio.
7. Planning/Execution Process and Technology – We use formalized,
disciplined planning processes in most supply chain areas, which
include variance analysis and what-if scenario planning.
8. Risk Management – We anticipate and analyze potential root
causes for failures and disruptions in the supply chain, and
develop contingency plans accordingly.
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Leaders, Followers, and Laggards
• The companies tend to fall into one of three
major groups based on their scores across the
eight dimensions of supply chain competence.
• Leaders outscored all other companies in every
dimension of competence.
• Followers outscored all laggards in every
dimension of competence.
• Further comparisons showed strong differences
across the groups in terms of their priorities,
investments, and levels of performance.
27%
33%
39%
 Leaders
 Followers
 Laggards
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Quick Comparison:
Leaders, Followers, and Laggards
Leaders
Followers
Laggards
• Have an executive in
charge of SCM
• Assign responsibility
to a willing manager
• Assign supply chain
to sourcing or logistics
• Develop a SC plan as
part of a business plan
• Build SC initiatives
into meeting business
objectives
• Chase cost
improvement and call
it supply chain
• Spread best practices
across the network
• Keep best practices
within four walls
• Don’t document best
practices
• Involve external advisors
to enhance processes
• Resist sharing data
externally
• Believe that seeking
external advice is a
weakness
• Use metrics that are
customer-centric
• Base metrics on
volume and
throughput
• Metrics support a
“push” system stuck in
“local” perspective
• Bring global aspect to
supply chain
• Still working on an
enterprise view
• Getting internal ops
under control
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Major Topics Addressed in the Survey
1. Supply Chain Management Scope and Spend
2. Supply Chain Top Management Involvement
3. Supply Chain Continuity
4. Investments and Performance
5. Tools and Initiatives
6. Performance: Fulfillment, Quality, Asset Utilization, Flexibility, Cost
We will summarize the findings in each area in the light of SCM
competencies and point out differences across leaders,
followers, and laggards.
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1. Defining the Scope of SCM: Still Quite Narrow
• Procurement, Logistics, Planning,
Inventory Management, and
Software/Technology Investment
are the categories most commonly
included in supply chain spend.
• Surprisingly, only about 35% of
manufacturing firms include
Manufacturing in their supply chain
spend definition.
• Leaders are more likely to include
Marketing and Sales activities
as well as Product Design and
Engineering activities in their scope
of supply chain spend.
What costs are included in supply chain spend?
Procurement
Logistics
Planning
Inventory Management
Marketing Sales
Collaboration
Tech Invest
Manufacturing
Leaders
RFID
Followers
Product Engrg
Laggards
Returns/Repairs
0
20
40
60
80
100
% Firms
that
Include
Category
in Spend
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2. Senior Management Involvement
• How often does the organization review
the supply chain strategic plan? Only as
business conditions dictate!
• Does your firm have an officer
managing all supply chain functions?
61% negative, 39% positive.
• Current level of involvement of financial
managers — only 24% characterize as
“high”.
• Leaders had significantly higher top
manager involvement in supply chain
efforts.
% firms
with Exec
SC officer
Laggards
Followers
Leaders
28%
40%
52%
% firms with high level of involvement from:
Top
Managers
9%
30%
60%
Finance
Managers
20%
15%
42%
Information
Technology
Mgrs
10%
25%
54%
New
Product
Dev Mgrs
9%
19%
35%
Conclusion: Still not enough senior executive endorsement
and involvement
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3. Supply Chain Continuity and Protection
• Risk and vulnerability are critical supply chain issues.
• Survey responses do not reflect appropriate level of attention.
• Only 46% said planning efforts identify contingencies with risk analysis and
scenario evaluations.
• 50% indicated the firm has sufficient executive visibility and accountability for
supply chain continuity.
Organization Pays Sufficient Attention to
Supply Chain Vulnerability and Risk Mitigation
Ranking of Supply Chain Continuity Concerns
5%
1. Inventory Planning and Inventory Level Strategy
10%
2. Lengthening Global Supply Chain
 Strongly Disagree
3. Critical Trading Partner Vulnerabilities
 Disagree
4. Unstable Global Sourcing Points
5. Visibility of Trading Partner Shipments
 Neutral
6. Potential Security Breaches or Terrorist Attack
 Agree
7. New Import and Customs Regulations
 Strongly Agree
32%
31%
22%
8. Changing European Union Conditions
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4. Investment and Supply Chain Competence
• Major supply chain investments
– Soft technologies such as planning and decision
support
– Hard technologies like RFID and material handling
equipment
– Training and workforce development
– Other to be specified
% of Total
Investment on:
10%
36%
29%
Soft Tech
Hard Tech
Traning
Other
25%
45
30
25
Leaders
Followers
Laggards
20
15
10
5
ch
te
H
ar
d
ng
Tr
ai
ni
ec
h
0
tt
– Leaders put a greater percentage of total
investment in soft technologies than laggards do.
– Followers put a greater percentage of total
investment in training than Leaders or Laggards do.
35
So
f
• Differences across firms of differing maturity:
40
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Investment Motivations
• Primary reason for supply chain investments? Cost reduction!
– Leaders listed
• Faster, more accurate, personalized order fulfillment
• Profitable sales growth
• Streamlining fulfillment across multiple channels
– Followers listed
• Minimize supply-demand imbalances
– Laggards listed
• Lower supply chain operating costs
Primary Drivers of Supply Chain Investments
7% 4%
 Lower Supply Chain Operating Costs
6%
22%
13%
 Faster, More Accurate, More Personalized Order Fulfillment
 Profitable Sales Growth
 Minimize Supply-Demand Imbalances
16%
16%
 Manage Longer and More Variable Supply Lines
 Streamline Fulfillment Across Multiple Channels
 Other
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5. Tools and Technologies
• Leaders excel at
– Execution systems (WMS, TMS, and ERP)
– Relationship management (CPFR, CRM, SRM)
– Strategic planning (business and supply intelligence)
– Supply Chain network solutions (distributed order management,
RFID)
• Followers were more heavy users (than laggards) of planning
systems, including demand, inventory and production planning.
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6. Performance: Is SCM Money Spent Wisely?
• Reported revenue increases vary from 1% to 20% or more, with most firms in the
1% to 10% area.
• Reported cost savings range from 1% to 20% or more of supply chain costs, with
most firms in the 1% to 10% area.
3 year impact of SC initiatives
Cost Savings
Revenue Increase
 No Impact
1%
4%
19%
17%
29%
19%
 Increased 11-15%
 Increased Other
 Decreased Other
 Don’t Know/Not Sure
 No Impact
1%
No Impact
 Increased 1-5%
 Increased 6-10%
11%
4%
Reduced
Reduced
1 – 1-5%
5%
15%
5%
29%
6%
6 – 6-10%
10%
Reduced
Reduced
Reduced 16 – 20%
 Reduced 11-20%
Reduced 21 – 25%
Reduced
Reduced
21-25%
Other
11%
29%
Other
Increased
Reduced
Other
Don't Know/Not Sure
 Increased Other
 Don’t Know/Not Sure
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Differences in Financial Performance
• Leaders outperformed followers and laggards 3-year revenue gain from
SC initiatives.
• Leaders and followers outperform laggards in 3-year cost improvement
from SC initiatives.
Laggards
Followers
Leaders
% showing at least 6% 3-year revenue
gain from SC initiatives
23%
30%
50%
% showing at least 16% 3-year cost
improvement gain from SC initiatives
3%
20%
25%
• Comparison across groups for a small subset (N=32) on six SC financial
performance metrics from annual reports showed one significant
difference: Return on Sales
– Leaders and followers on-average scored 3% above their industry median
scores
– Laggards on-average scored 3% below their industry median scores
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Operational Performance Levels
• Ratings on 17 performance metrics corresponding to SCOR categories, plus product
quality
– Most respondents positive about delivery and quality performance.
– Only 22% were positive on sales forecast accuracy.
– Higher performing firms are using S&OP, segmentation strategy, greater
collaboration with suppliers and customers, and greater enterprise
interaction to build higher forecast reliability.
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performer in
their industry
70
60
50
40
30
20
10
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Stages in Operational Performance Improvement
• Leaders outperformed laggards in all categories of supply chain performance
except product design quality.
• Early competence growth is associated with gains in efficiency, accuracy, and
reliability.
• More mature competence growth is associated with even better efficiencies
plus improved customer service.
Leaders
Forecast accuracy
Fill rate
Total cost
Productivity
Asset turns
Laggards
Followers
Order lead time
Perfect order
Inventory days
Cash-to-cash
Asset turns
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Key Performance Drivers
• Certain
competencies and
technology
investments were
strongly correlated
with each area of
supply chain
performance.
Competencies
Strategic
Alignment
Customer
Integration
SC Performance
Technologies
Fulfillment
SC Network
Integration
Product
Quality
Internal
Integration
Supplier
Integration
Supply Chain
Segmentation
Planning
Process
Tactical
Planning
Strategic
Planning
Asset
Utilization
Flexible
Response
Relationship
Management
Execution
Systems
Cost
Management
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Competency / Performance Relationships
Customer Integration
–
–
–
–
Relationships beyond sales transactions
Planning for individual customer requirements
Synchronizing activities with customers
Continuously exploring new working
relationships
Better Fulfillment
Performance
– Delivery to promise
– Fill rate
– Perfect order fulfillment
Internal Integration
–
–
–
–
–
X-functional awareness of responsibilities
Common prioritization of customers
Common product roadmaps
Sharing of operational information
Performance metrics that promote cost /
service trade-offs
SC Network Integration
Technology
– Dist order management
– Event management
– Enterprise app
integration
– RFID
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Competency / Performance Relationships
Internal Integration
–
–
–
–
–
X-functional awareness of responsibilities
Common prioritization of customers
Common product roadmaps
Sharing of operational information
Performance metrics that promote cost /
service trade-offs
Supplier Integration
Better Product Quality
– Product conformance
– Product design
(performance and features)
– Product reliability
– Developing relationships to build on key
supplier capabilities
– Exchanging operational information
– Synchronizing activities with suppliers
– Continuously exploring new working
relationships
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Competency / Performance Relationships
Strategic Planning
Technology
Supply Chain Segmentation
– Continuously updating customer
segmentation strategy
– Segmenting products based on profit
contributions and lifecycle stage
– Bus & SC intelligence
– PLM
– Network optimization
Planning Effectiveness
– Formalized, disciplined processes
addressing both long and short term
planning
– Contingency and risk analysis with
scenario evaluations
– Feedback loops addressing variances
– Vulnerability and continuity planning
Supplier Integration
– Developing relationships to build on
key supplier capabilities
– Exchanging operational information
– Synchronizing activities with suppliers
– Continuously exploring new working
relationships
Better Asset Utilization
– Cash-to-cash cycle
– Inventory days of
supply
– Asset turns
– Forecast accuracy
Tactical Planning
Technology
– S&OP
– APS
– Distribution planning
SC Network Integration
Technology
– Dist order
management
– Event management
– Enterprise app
integration
– RFID
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Competency / Performance Relationships
Strategic Alignment
– Clear SC goals and objectives driven by
business strategy
– Business strategy exploits SC capabilities
and constraints
– Strategies communicated to all employees
Better Flexibility
– Order fulfillment lead time
– Supply chain response time
– Production flexibility
Supplier Integration
– Developing relationships to build on key
supplier capabilities
– Exchanging operational information
– Synchronizing activities with suppliers
– Continuously exploring new working
relationships
Planning Effectiveness
– Formalized, disciplined processes addressing
both long and short term planning
– Contingency and risk analysis with scenario
evaluations
– Feedback loops addressing variances
– Vulnerability and continuity planning
Relationship Management
Technology
–
–
–
–
CPFR
CRM
SRM
Supplier Performance
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Competency / Performance Relationships
Customer Integration
–
–
–
–
Relationships beyond sales transactions
Planning for individual customer requirements
Synchronizing activities with customers
Continuously exploring new working
relationships
Internal Integration
–
–
–
–
–
X-functional awareness of responsibilities
Common prioritization of customers
Common product roadmaps
Sharing of operational information
Performance metrics that promote cost /
service trade-offs
Planning Effectiveness
– Formalized, disciplined processes addressing
both long and short term planning
– Contingency and risk analysis with scenario
evaluations
– Feedback loops addressing variances
– Vulnerability and continuity planning
Better Cost Performance
– Supply chain cost
– COGS
– Warranty & returns
processing cost
Execution Systems
Technology
–
–
–
–
–
WMS
TMS
ERP
eProcurement
JIT/Kanban
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Who are perceived as the Best-in-Class Companies?
Number of citations
Best in Class SCM Companies
45
40
35
30
25
20
15
10
5
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248 citations of companies
79 companies named
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Steps Going Forward – Lessons from the Leaders
• Work to make SCM an integral part of the overall business strategy.
• Put someone in charge—a chief supply chain officer reporting to the
CEO.
• Take down any remaining stovepipes that are hindering your supply
chain advancement.
• Intensify the focus on customer needs. Move your system from “push”
to “pull” to “on-demand” (if can be effective).
• Use S&OP effectively to better match supply with demand and reduce
reliance on forecasts.
• Establish an economic target for supply chain improvement—work to
capture that 5-8 points of new profit!
• Create a plan for including trusted business allies in building the
innovative supply chain model – share the risk!
Key messages: Partner. Trust. Emphasize core competencies. And share
the risk
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Questions for Future Research
• How do we account/control for differences in how firms define and
conceptualize their supply chain management activities?
• Are strategic alignment and top management involvement drivers of
SCM competence, or necessary preconditions?
• Do firms integrate with customers and suppliers easier than achieving
internal integration?
• What organizational structures are needed to facilitate internal
integration?
– How can we measure internal integration?
• Growth in SCM competence seems to be reflected in a shift from cost
improvement to top line growth.
– Is this progression normative?
– Is top-line, customer focus a good proxy for SCM maturity?
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Questions for Future Research
• How should risks associated with globally extended supply chains be
categorized and managed?
• What roles do soft and hard technologies play in the evolution toward
supply chain management maturity? How is the integration of IT and
SCM functions best managed?
• Which competencies and technologies are most strongly associated
with each dimension of performance?
• What theory perspectives should guide our expectations?
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QUESTIONS? COMMENTS?
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