michigan state university, 2007 (all rights reserved) diagnosing greatness: competencies of leading...

Michigan State University, 2007 (All Rights Reserved)

Diagnosing Greatness: Competencies of Leading Supply Chain Companies

Diagnosing Greatness: Competencies of Leading Supply Chain Companies

Morgan L. SwinkProfessor, Operations & Supply Chain MgmtBroad Graduate School of ManagementMichigan State [email protected]

Charles C. Poirier, CSC ConsultingFrank J. Quinn, Supply Chain Management Review

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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 theUnited 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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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.

Eight Dimensions of Supply Chain Competence

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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.

Eight Dimensions of Supply Chain Competence

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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.

Leaders

Followers

Laggards

27%33%

39%

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Quick Comparison:Leaders, Followers, and Laggards

Followers

• Assign responsibility to a willing manager

• Build SC initiatives into meeting business objectives

• Keep best practices within four walls

• Resist sharing data externally

• Base metrics on volume and throughput

• Still working on an enterprise view

Laggards

• Assign supply chain to sourcing or logistics

• Chase cost improvement and call it supply chain

• Don’t document best practices

• Believe that seeking external advice is a weakness

• Metrics support a “push” system stuck in “local” perspective

• Getting internal ops under control

Leaders

• Have an executive in charge of SCM

• Develop a SC plan as part of a business plan

• Spread best practices across the network

• Involve external advisors to enhance processes

• Use metrics that are customer-centric

• Bring global aspect to supply chain

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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?

% 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.

Conclusion: Still not enough senior executive endorsement and involvement

Laggards Followers Leaders

% firms with Exec SC officer

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%

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31%

10%5%

32%

22%

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.

Strongly Disagree

Disagree

Neutral

Agree

Strongly Agree

Ranking of Supply Chain Continuity Concerns

1. Inventory Planning and Inventory Level Strategy

2. Lengthening Global Supply Chain

3. Critical Trading Partner Vulnerabilities

4. Unstable Global Sourcing Points

5. Visibility of Trading Partner Shipments

6. Potential Security Breaches or Terrorist Attack

7. New Import and Customs Regulations

8. Changing European Union Conditions

Organization Pays Sufficient Attention to Supply Chain Vulnerability and Risk Mitigation

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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

• Differences across firms of differing maturity:– 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.

36%

25%

29%

10%

Soft TechHard TechTraningOther

% of Total Investment on:

0

5

10

15

20

25

30

35

40

45

Soft te

ch

Train

ing

Hard te

ch

LeadersFollowersLaggards

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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

Lower Supply Chain Operating Costs

Faster, More Accurate, More Personalized Order Fulfillment

Profitable Sales Growth

Minimize Supply-Demand Imbalances

Manage Longer and More Variable Supply Lines

Streamline Fulfillment Across Multiple Channels

Other

Primary Drivers of Supply Chain Investments

4%

22%

16%16%

13%

6%7%

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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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• 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.

6. Performance: Is SCM Money Spent Wisely?

No Impact

Increased 1-5%

Increased 6-10%

Increased 11-15%

Increased Other

Decreased Other

Don’t Know/Not Sure

No Impact

Reduced 1-5%

Reduced 6-10%

Reduced 11-20%

Reduced 21-25%

Reduced Other

Increased Other

Don’t Know/Not Sure

29%

19%

11%

29%

29%

11%

17%

4%

19%1%

4%

6%

1%

5%

15%

Revenue Increase Cost Savings

3 year impact of SC initiatives

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Differences in Financial Performance

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%

• 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.

• 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.

010203040506070

% Considering themselves to

be a top performer in their industry

Del

iver

to p

rom

ise

Fill

rate

Per

fect

ord

er

Fulfi

ll le

ad ti

me

Res

pons

e tim

e

Pro

dn fl

exib

ility

Tota

l SC

cos

tC

OG

S

Sal

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oyee

War

rant

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stC

ash-

to-c

ash

Inve

ntor

y da

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sset

turn

s

Fore

cast

acc

urac

yC

onfo

rman

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Des

ign

qual

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Pro

duct

relia

bilit

y

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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.

LaggardsLaggards

FollowersFollowers

LeadersLeadersForecast accuracyFill rateTotal costProductivityAsset turns Order lead time

Perfect orderInventory daysCash-to-cashAsset turns

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Key Performance Drivers

• Certain competencies and technology investments were strongly correlated with each area of supply chain performance.

Fulfillment

ProductQuality

AssetUtilization

FlexibleResponse

CostManagement

StrategicAlignment

CustomerIntegration

InternalIntegration

PlanningProcess

SC NetworkIntegration

TacticalPlanning

RelationshipManagement

Competencies SC Performance Technologies

ExecutionSystems

SupplierIntegration

Supply ChainSegmentation

StrategicPlanning

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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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Supplier Integration– Developing relationships to build on key

supplier capabilities– Exchanging operational information– Synchronizing activities with suppliers– Continuously exploring new working

relationships

Better Product Quality– Product conformance– Product design

(performance and features)– Product reliability


service trade-offs

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Supply Chain Segmentation– Continuously updating customer

segmentation strategy– Segmenting products based on profit

contributions and lifecycle stage

Better Asset Utilization– Cash-to-cash cycle– Inventory days of

supply– Asset turns– Forecast accuracy

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

SC Network Integration Technology

– Dist order management

– Event management– Enterprise app

integration– RFID

Strategic Planning Technology

– Bus & SC intelligence– PLM– Network optimization

Tactical Planning Technology

– S&OP– APS– Distribution planning

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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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Better Cost Performance– Supply chain cost– COGS– Warranty & returns

processing cost

Customer Integration– Relationships beyond sales transactions– Planning for individual customer requirements– Synchronizing activities with customers– Continuously exploring new working

relationships


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

Execution Systems Technology

– WMS– TMS– ERP– eProcurement– JIT/Kanban

04/21/23 25

Who are perceived as the Best-in-Class Companies?

Best in Class SCM Companies

05

1015202530354045

Dell

WalM

art

P&G

Toyot

a

Fed E

xUPS

Best B

uy J&J

HP

Targe

t

Amaz

on

Apple

Boeing

Cisco

GE

Home D

epot

Moto

rola

Zara

Nu

mb

er o

f ci

tati

on

s

248 citations of companies

79 companies named

04/21/23 26

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?

04/21/23 29

QUESTIONS? COMMENTS?

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