Strategy Alignment Lapide.ppt - Amazon Web Servicescloimage.s3.ap-northeast-2.amazonaws.com/prevdb/241_cfile3.uf.18… · Strategy Alignment (= Supply Chain Excellence) SCM Global

Strategy Alignment(= Supply Chain Excellence)

SCM Global ConferenceSeoul, Korea

24 June 2010

Larry Lapide, Ph.D.Research Affiliate, MIT-CTLFormer Project Director, MIT Supply Chain 2020 [email protected] @

Lapide 2010Page 1

Introduction: Supply Chain 2020 Methodology

Scenario 2Scenario n

Scenario 1Scenario 2

Scenario n

Scenario 1 Scenario 1

BusinessBusiness

Business Strategy

Supply Chain

NetworkBusiness Business EnvironmentEnvironment

Business Capabilities

Supply Chain Strategy

Network Design

Strategy Alignment

Scenario Planning

S ppl Chain Strateg De elopment

2

Supply Chain Strategy Development

Agenda

• SC2020 Excellence Supply Chain ResearchSC2020 Excellence Supply Chain Research

• Excellent Supply Chain Framework

• Illustrations and Case Studies

• Strategy Alignment Process and Takeaways

Lapide 2009Page 3

SC2020 Excellence Research: What is an excellent supply chain?

Some myths on what is an excellent supply chain:

• Is part of a profitable company

• Is not part of an unprofitable company

• Is comprised of supply chain “best practices”

Lapide 2010Page 4

SC2020 Excellence Research: It’s about focusing on doing a few things well, not merely copying best practices

Lapide 2010Page 5

SC2020 Excellence Research: ..it’s also about aligning to Corporate Strategy, not necessarily leveraging the ‘best practices’ de jour

Lapide 2010Page 6

Agenda





Lapide 2009Page 7

SC2020 Excellence Research: Excellent Supply Chain FrameworkQualitative research on 21 companies and 9 industries supports that an excellent supply chain: *

Corporate Competitive Strategy

Excellent Supply Chain

Strategy1. Supports, enhances, and is an integral part of a

company’s competitive business strategy.2. Leverages a (not necessarily unique) supply chain

Operating Model

Operational Performance Objectives

g ( y q ) pp yoperating model to sustain competitiveness

3. Executes well against a balanced set of operational performance objectives/metrics

Tailored Business Practices• Fit• Principles leveraged

4. Focuses on a few “tailored” business practices that reinforce each other to support the operating model

d b t hi ti l bj ti• Principles leveraged

* L. Lapide, “MIT’s SC2020 Project: The Essence of Excellence”, Supply Chain Management Review, A i 2006

and best achieve operational objectives.

April 2006

Lapide 2010Page 8

1. Supports, enhances, and is an integral part of a company’s competitive business strategy

Example supply chain-related competitive strategy elements (support, enhance and is an integral part)• Lowest prices• Highest margin products• Highest qualityg q y• Fastest customer response• Most innovative• Highest Return-on-Assets• Broadest product line• Best customer serviceBest customer service • Best post-sales support• Most environmentally responsible

Lapide 2010Page 9

2. Leverages a (not necessarily unique) supply chain operating model to sustain competitiveness

Performance Management

Product Portfolio Management

Relationship Management Supply Chain Governance &

Partner Relationships

Design Source Make Sell Deliver ServiceReturn RecycleBusiness Practices

Order Promising & Fulfillment

Inventory Replenishment

Supply–Demand Alignment

Supply Chain Design and Capacity Planning

Post-sales Support

Product Launch

Product Phase out& FulfillmentReplenishment SupportLaunch

Technology & Info/Funds Flows

Phase-out

$$$$

Contract Manufacturer

Contract Manufacturer Virtual OEMVirtual OEM Web

StoreWeb Store

Operating model is the design of the SC including:

CustomersCustomers

Operating Models SupplierSupplier

ManufacturerManufacturer

RetailerRetailerE-marketplace

StoreStore

DistributorOEM

• Where to Source / Make /Deliver

• Push-pull points

Off h i• Offshoring

• Outsourcing

Lapide 2010Page 10

2. Leverages a (not necessarily unique) supply chain operating model to sustain competitiveness

SC-Related Competitive Strategy Elements Example Characteristics of Operating Model Aligned To Support and Enhance

• Lowest prices • Lowest operating costs

i h i d i il bili i f l• Highest margin products • Maximum availability at point of sale• Lowest operating cots

• Highest quality • Highest quality of suppliers• Strongest manufacturing quality controls

• Fastest customer response • Shortest order-to-delivery cycle• Fastest request-to-promise date

• Most innovative • Most efficient new product launch

• Highest Return-on-Assets • Highest plant utilization• Highest Return-on-Assets • Highest plant utilization• Lowest inventories

• Broadest product line • Best inventory management• Shortest manufacturing changeover and setups

• Best customer service • Specific service for each customer segment• Best customer service • Specific service for each customer segment• Maximum availability at point of sale

• Best post-sales support • Maximum availability of service parts

• Most environmentally responsible • Minimize waste and maximize recycling

Lapide 2010Page 11

3. Executes well against a balanced set of operational performance objectives/metrics

Customer Response (customer-facing)• Order cycle times• Perfect order fulfillment• Quality • New product time-to-market(Do not relate to financial statements)

?

Efficiency (internal)• Labor productivity• Supply chain costs

Asset Utilization (internal)• Facility utilization• Inventory turns

? ?

pp y(Relate to income statement)

y• Cash-to-cash cycle(Relate to balance sheet)

Lapide 2010Page 12

Balanced operational objectives vary by industry in absolute terms

High Margin and Short Life Cycle Products•Pharmaceutical

Customer Response

•Fashion apparel•Media & Entertainment

Capital Intensive Industries• Semi-conductor fab

Low Margin and Mature Products• Food & Beverage Semi conductor fab

• Petrochemical• Commodities (steel, paper,

coal)

Food & Beverage• Basic goods retail• Industrial supplies

Asset UtilizationEfficiency

Lapide 2010Page 13

Competing is positioning against industry competitors on a relative basis (best-in-class rather than peer average)*

Relative Objectives

Customer

Absolute Objectives

Customer Response

Best Buy

AppleIBM

Amazon


Dell Wal-Mart

However, the competitive positioning will likely vary by product line as well as supply chain within a companyp y

Lapide 2010Page 14

Positioning is setting operational performance targets to be best-in-class versus performing at a peer (average) level*

Illustrative Balanced Operational Performance Metrics

OperationalMetric

Metric Type

Performance Target

Focus(%)

Order fill rate C Best 50%Customer Response

Product Quality C Best 20%

Plant Utilization A Best 20%

Supplier delivery E Best 10%

Response

pp yperformance

Inventory turns A Peer 0%

Procurement costs E Peer 0%


* L Lapide “The Operational Performance Triangles” Supply Chain Management Review November 2008

Supply chain costs E Peer 0%

* L. Lapide, “The Operational Performance Triangles”, Supply Chain Management Review, November 2008

Lapide 2010Page 15

4. Focuses on a few “tailored” business practices that reinforce each other to support the operating model and best achieve operational objectives.

Tailored (not best) business practices that:

– Align to performance objectivesAlign to performance objectives

– Fit

C i t t ( k t th )• Consistent ( make sense together)• Reinforcing ( support each other)• Cross-optimized (work together to achieve common C p ( g

goals, 1+1=3)

– Leverage underlying operating principles for cost-benefit

Lapide 2010Page 16

Supply Chain Principles Illustrations

Fashion versus Basic Supply Chains:

Service Window Management:Practices

Excess Line Capacity and pp y

LimitedBrands Management:Cisco Systems

O i

Partial ShiftsToyota

Costs of cycle time and inventory tradeoff Constraint Relaxation

Operating Principles

Constraint Relaxation

Lapide 2010Page 17

Agenda





Lapide 2009Page 18

Aligning Corporate Strategy and Operational Performance Objectives

Illustrative Aligned Customer-Focused Corporate Strategy and Operational Performance Objectives

Customer ResponseCustomer-focused

Operational Performance Objectives

performance objectives• Highest supplier quality

standards• Shortest time-to-market• Shortest manufacturing

• Highest quality products• Most innovative• Broadest product line

Customer-focused corporate strategy

• Shortest manufacturing changeover times

• Broadest product line


Lapide 2010Page 19

Aligning Corporate Strategy and Operational Performance Objectives

Illustrative Non-Aligned Customer-Focused Corporate Strategy and Operational Performance Objectives

Customer Response

p j

Efficiency and asset-focused performance objectives:


Customer-focused corporate strategy

• Lowest procurement costs• Highest plant utilization• Lowest inventories

• Broadest product line


L Lapide “GM Was Out of Alignment" Supply Chain Management Review July/August 2009

Lapide 2010Page 20

L. Lapide GM Was Out of Alignment , Supply Chain Management Review, July/August 2009

Tailored Practices Aligned to Operational Performance ObjectivesTailored practices need to align to strategically-aligned SC performance objectives

Customer ResponseSC performance objectives:• Highest supplier quality standards• Shortest time-to-market• Shortest manufacturing changeover

i Customer-focused corporate strategytimes

Tailored Practices


Customer focused corporate strategy

Tailored Practices•Core ‘strategic’ supplier program•Collaborative development and design

•Multi-product production lines with quick changeover


g

Lapide 2010Page 21

‘Old’ Dell Supply Chain Framework

Operating Model• Direct sales to customers via web/phone• Build-to-order manufacturing• Box-level service

Customer Response

Box level service

SC performance objectives:1. Lowest fulfillment costs2 Lowest inventories

Corporate strategy• Highest value-to-price

provider of commodity

2. Lowest inventories 3. Lowest procurement costs

Tailored Practicesprovider of commodity computers and accessories to price conscious customers

• Consigned inventory supplier hubs

• Demand shaping• Inbound transportation

collaboration


Lapide 2010Page 22

Principles Illustration: ‘Old’ Dell’s Tailored Practices

Consigned Supplier Inv

Hubs

Demand Shaping

Inbound Transportation Collaboration

PracticesHubsCollaboration

Sphere of Influence

Supply Contracts

Demand-Supply

Matching

Economies of Scale

Operating Principles

Practices and principles support a competitive supply chain strategy focused on low-costs, low inventories, and minimum cash-to-cash cycle

Lapide 2010Page 23

IBM Supply Chain Framework

Operating ModelDirect, single face to customer via

sales repsBuild-to-order manufacturing Extensive pre- and post sales support

Customer ResponseCorporate strategy• Diversified and value-added

provider of networked h l l i

Extensive pre and post sales support

SC performance objectives:• Highest customer satisfaction• Lowest inventories technology solutions to

businesses

Lowest inventories• Lowest costs

Tailored Practices• Consolidated customer

f lfill tfulfillment process• Launch ‘buffer’

manufacturing• Centralized

procurement• Consolidated and

Asset UtilizationConsolidated and outsourced logistics Efficiency

Supports a competitive supply chain strategy for high-end networked computer c stomers o er their lifetime of secustomers over their lifetime of use

Lapide 2010Page 24

Wal-Mart Supply Chain Framework

Operating Model• Lowest cost brick and mortar retailer with

supplier to retailer DC to store flows• Large-format stores carrying a wide variety of

products (not necessarily brands and SKUs)Customer Response

Corporate strategy

SC performance objectives:1. Efficiency (e.g., supply chain costs)2 Asset utilization

products (not necessarily brands and SKUs)

• Everyday low pricing for cost-conscious customers

2. Asset utilization3. Customer response

Tailored Practices


• Vendor collaboration with co-managed inventory programs

• Flow logistics distribution including extensive cross-docking, DSD and differentiated flow

S t titi l h i t t f i i t b

differentiated flow• Network design incorporating

large-sized distribution centers and short-haul private fleets for economies of scale

Supports a competitive supply chain strategy for price-conscious customer baseLapide 2010

Page 25

LimitedBrands (Victoria’s Secrets) Supply Chain Framework

C t

Operating Model• Control supply chain operations from plants to DCs

to owned stores• High shelf availability at store level• Offshore sourcing with partial equity-ownership of Customer

Response

SC performance objectives: 1 C stomer response (e g

Corporate strategy• Sell innovative,

technologically-advanced high margin

g p q y p‘basics’ plants

1. Customer response (e.g., responsiveness)

2. Asset Utilization/Efficiency

fashion products• Reduce risk by

balancing basics vs. fashion mix

Tailored PracticesTailored Practices• Segmented fashion versus basic

supply chains• Open innovation model involving

four innovation sources• Captive global sourcing company


Supports a competitive supply chain strategy for mainstream fashion-oriented t th t t b i t

• Captive shared services logistics provider, from plants to stores

Lapide 2010Page 26

customers that want basics too

Agenda





Lapide 2009Page 27

Strategy Alignment Process

Go-To Market Strategy

Supply ChainStrategy

Step 1• Discuss how supply chain strategy supports business strategy• Identify supply chain competitive strategy elements

OperatingModel Step 2

• Develop operating model that supports SC

Performance Objectives

competitive strategy elements• Identify operational performance metrics

that are aligned with strategy

Tailored Practices

Step 3• Develop SC practices tailored to the

operating model• Discuss trade offs and alignments• Discuss trade-offs and alignments

Lapide 2010Page 28

SC Excellence Key Takeaways

• Excellence means aligning your supply chain to your corporate competitive strategyco po e co pe ve s egy

• Align SC strategy to support, enhance and be an integral part of corporate strategy

• Set operating model and operational performance measures based on what you will excel in, and what you won’t!!you won t!!

• Implement a few tailored practices that reinforce each other

Lapide 2010Page 29

Thank You

Questions??????

Larry Lapide, Ph.D.Research Affiliate, MIT-CTLFormer Project Director, MIT Supply Chain 2020 [email protected]

Lapide 2010Page 30

p @

Strategy Alignment Lapide.ppt - Amazon Web Servicescloimage.s3.ap-northeast-2.amazonaws.com/prevdb/241_cfile3.uf.18… · Strategy Alignment (= Supply Chain Excellence) SCM Global

Documents