2015-supply chain visioning & toolkit
TRANSCRIPT
Supply Chain Strategy (Visioning & Diagnostics) Half Day Workshop & Handbook
Strategic Questions, Tools and techniques
John Gregg, Nagivate Consulting
July 26th, 2014
Visioning Fundamentals
A collection of statements of intent regarding the key elements of a supply chain that will enable a business to meet it’s specified goals
It should cover:
• principles and policies
• key differentiating features
• main attributes required
• the levels of performance this will deliver
All at a level of detail such that the implied changes in reaching the vision are tangible
• what key changes will be required
• what this will mean to individuals and to departments
Critical get rights or goals for the supply chain, e.g. reliable production combined with sales and operations planning
Physical flow map
Process (information) flow map
Process definitions, to include
• Work flow descriptions
• Decision making mechanism
• Roles and responsibilities along the supply chain
Target performance levels, e.g. leadtime, product availability, cost etc
Organisation principles
Implementation issues
Key definitions (to avoid confusion)
A vision should include:A vision for the supply chain
2
What drives the solution for the supply chain?
The supply chain solution must be rooted in the “Go to Market Strategy” of the business
The Go to Market strategy must be driven by the needs of the customer (both current and future - needs and desires)
The customer proposition needs to define
• channel and product (and or service) configurations
• the product delivery mode (off shelf - design to order)
• volume and growth projections
• customer numbers, types, and service requirements
• product availability levels / lead time requirements
• value added services
• information sharing / joint activities
• financial terms
3
Infrastructure Questions
Physical Structure – What facilities will be required (how
many and where)
– What will be the role of each facility
– What manufacturing will be required
– How will product be distributed, I.e. where will inventory be held, how will service be maintained
– What bottlenecks exist in the business and how will these be reduced, eliminated, managed
– How can you optimise both tax/fiscal flows and physical flows
Integration & Synchronisation– How will the business interface with customers
– How will the supply points be linked to demand, e.g. global eye, VMI etc to ensure economies of scale (EOS) benefits are maximised.
– How will the decoupled part of the supply chain be buffered from demand fluctuations -with stock, leadtime, excess capacity
– What will the drum beat be
– What will drive activity in the supply chain -> orders / forecasts (or a combination)
– How will new products / events be integrated with the ongoing supply chain activity
– What mechanisms will be put in place to control the proliferation of products
Sourcing – Are there further scale opportunities at the
industry level
– What supply chain activities should you own, control or hand over to a third party
– With whom will you partner in order to achieve full EOS opportunities
– How will we use third party providers / JV’s
– What are the high level processes for supplier management
– What are the critical supply items and how will these be sourced
– What type of relationship, with the co-partners in the supply chain, will be required
4
Enabler QuestionsPerformance management questions– What are the goals of the supply chain
– What measures are required to link individual behaviour to the overall business goals
– What is the appropriate level of detail to measure performance
– How can the information be collected and presented
– How will the reward mechanisms be linked to the supply chain metrics
– What measures will ensure optimisation of the end to end supply chain
Supporting Technology Questions– What type of interface will we use with customers and what technology
will this require,
– What are the critical supply chain decisions and how will these be supported by systems
– How will product development systems integrate with ongoing production control
– How “real time” does the data need to be
– What information needs to flow to / from trading partners and how will this happen e.g. via Internet
People capabilities questions– What specific skills will be required to create the desired
customer interfaces. In particular what is the role of account managers and logistics managers in managing the relationship with customers
– What behaviour will be required to support either a responsive or efficient supply chain
– What skills will be required to ensure events are managed more effectively.
– What unique skills are required to operate JVs / partnership working
– What skills will be needed to manage suppliers
Organisation design questions– What organisational design will provide the best alignment with the
external customers without jeopardising the efficiency of the organisation
– Who will be responsible for service, cost, cash
– Will the supply chain be a shared service or dedicated to line of business
– At what point will responsibility move from “development” to regular supply chain
– What will be the basis / rules for the decisions
– Who will be responsible for the relationship with suppliers
5
SUPPLY CHAIN STRATEGY TOOLS & TECHNIQUES
Core tools & Techniques– Supply chain matrix
– Analysis plan
– Industry analysis
– Value based management
– Supply Chain Insight Framework (SCIF)
– Core competency analysis
– Scale analysis
– Experience curve
– Regression analysis
– Supplier spend analysis
– Trade off analysis
– Synchronisation analysis
– Maturity Profiles
– Supply chain mapping
– Why/Why & Root cause analysis
– Visioning templates
– Project portfolio analysis
6
CAVEATS:
• It does not provide an answer to the clients problem but rather helps define the scope of the problem
• The axis should be modified to reflect the clients view of the supply chain and the key business metrics
PURPOSE: It is used to highlight how each aspect of Supply Chain Management can influence the performance of the business in each of the key dimensions of cost, cash, customer satisfaction and growth.
WHEN TO USE: Throughout an assignment but probably most applicable at project kick off or when explaining SCM to non SCM people
DEFINITION: The SCM matrix is a very simple representation of Value Based Management. It simply is used to articulate the relationship between key aspects of the supply chain and the key business metrics
SUPPLY CHAIN MATRIXBusiness Parameters
Supply
Chain
Ele
ments
Demand Management
Distribution
Manufacturing
NPI
Supply
Supply
Chain
Inte
gra
tors
Cost Cash Customer Satisfaction
Growth
Impacts
Questions
Insights
Performance Management
People capability and competencies
Organisation Design
Supporting Technology
7
HOW TO USE - SUPPLY CHAIN MATRIX
Step Data Required Source(s)
1. Identify the entry point I.e. initial point of concern
2. Assess whether problem is along horizontal or vertical axis
3. As opportunity develops use to identify other areas on which to focus
•Standard performance reporting packs
• Interviews with functional heads
• Interviews with customers
•Clients view of current problem
•KPI data on key business drivers
•Views from individuals from within the business
8
ANALYSIS PLAN
CAVEATS:
• Be aware that the analysis plan must be flexible and that the analyses to be conducted and the deliverables to be produced may change during the course of the project
PURPOSE: To lay out problem-solving process in depth/detail and identify the analyses which need to be undertaken to validate the selected hypotheses
WHEN TO USE: Hypothesize key issues
DEFINITION: Ties issues to end products and final presentation
CLIENT EXAMPLE: HYPOTHESIS/ANALYTICAL PLAN
Hypothesis Analysis Info. Required Info. Source End Products
Overall HypothesisOrganizational philosophy needs to be modified
Supporting HypothesisExisting organization does not adequately support the business strategy
•Define business system, operating environment
•Define CSFs, organizational requirements along business system
•Define how existing organization supports business system, CSFs
•Key activities, processes by LOB
•CSFs along business system by LOB
•Existing organizational elements impacting business system
•Management interviews
•Secondary research•HR documents
Business System Diagrams
Activity
CSF
~~~~~~~~
~~~~~~~~
~~~~~~~~
~~~~~~~~
~~~~~~~~
~~~~~~~~
Even after adjusting for asset write-up, financial performance has not met corporate expectations or competitive standards due to an inappropriate organization (and cost) structure
•Financial performance vs. competitors, budget/plans
•Overview of cost structure (e.g., fixed vs. variable costs)
•ROA, NI adjusted for asset write-ups
•Historic and projected financial data
•Asset write-up information
•Summary cost, volume info for production units
•Annual reports, 10Ks, 10Qs, etc.
•Company financial reports
•Financial department interviews
Financial Metrics
The increasing complexity of business and the evolving importance of, and coordination required between specialized expertise requires changes in the decision-making process and information flows
•Define actual vs. perceived vs. “real” organization chart, decision-making process/responsibilities; identify gaps
•Define expertise, info required to make decision, organizational requirements
•Define evolving nature of organization and information flows
•Key decisions•Key individuals
involved in decision-making process
•Information flows
•Management interviews
•Organization charts•Memos/documents
on management processes
•System flow charts
Data/Info FlowsOrg Charts
9
HOW TO CREATE - ANALYSIS PLANSTEP DATA REQUIRED SOURCE(S)
1. Define an issue on which a specific action depends and phrase it as a “yes” or no” question
2. Establish a hypothesis, a statement of likely resolution of the issue including the reasons for answering “yes” or “no”
3. Develop an analysis statement that outlines the “models” that will be explored in order to prove or disprove the hypothesis
4. Identify the likely location or means of obtaining data to accomplish the analysis
5. Develop end products (presentations) to graphically represent the output of the analysis
• Identified issues and hypotheses • Project team
10
CAVEATS:
• Use the model as a starting point for understanding a market’s attractiveness: The structural conditions alone do not provide a quantification of total future market profitability or the viability of a company
• Be sure to ask “so what”
• Do a reality check to make sure it models what is really happening in the market
• Provide company specific insights
PURPOSE: To evaluate a market’s structure and the trends affecting a market’s profitability.
USER NOTES:
WHEN TO USE: Potential - Assess external environment; Assess business strategy
DEFINITION: Analysis of the forces affecting a market: Degree of rivalry of competitors; threat of new entrants; power of buyers, power of suppliers; threat of substitution; government, technological and environmental factors
PORTER’S FIVE FORCES ANALYSISDRIVERS OF MARKET ATTRACTIVENESS
POTENTIAL ENTRANTS
Entry barriers are high if there are:
• Economies of scale
• Product differentiation
• Capital requirements
• Limited access to distribution channels
• Restrictive government policies
• Potential retaliatory reaction of incumbents
INDUSTRY COMPETITORS
Rivalry is intense if:
• Competitors are numerous or roughly equal in
power or size
• Industry growth is slow
• There are high fixed costs or the product is
perishable
• The product lacks differentiation or switching costs
• Capacity is augmented in large increments
• Exit barriers are high
• Rivals are diverse in strategies, origins, and
"personalities"
SUBSTITUTES
Threat of substitutes is high if:
• There is an abundance of products or services that serve the
same function
• The price-performance tradeoff of substitutes is attractive
SUPPLIERS
Bargaining power of suppliers is greater if:
• The supply industry is dominated by a
few companies or is more concentrated
than the buying industry
• The supply product is differentiated or
there are high switching costs
• There are few substitutes
• The buying industry is not an important
customer of the supply industry
• The supply industry poses a credible
threat of forward integration
BUYERS
Bargaining power of customers is
greater if:
• The customer group is concentrated
or buys in large volume
• Products purchased are
undifferentiated
• Products purchased represent a
significant portion of the customer's
cost
• Customers earn low profits, creating
incentive to lower purchasing costs
• The product purchased is
unimportant to the quality of the
customer's product
• Switching costs are low
• Customer group poses a credible
threat of backward integration
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STEP DATA REQUIRED SOURCE(S)
1. Collect data
2. Evaluate strength of key forces, using factors considered in sample (previous page)
3. Qualitatively assign a high, medium or low score to each key force
4. Assess the overall effect of the forces on industry attractiveness and strategic implications
HOW TO CREATE - PORTER’S FIVE FORCES ANALYSIS
• Industry growth
• Number of competitors,
• Cost structure
• Product attributes (e.g. commodity, differentiated)
• Size, strength and number of customer groups
• Price sensitivity
• Substitute products
• Size, strength, number suppliers
• Economies of scale
• Capital requirements
• Access to distribution
• Differentiation of supplier inputs
• Technological development
• Government regulation
• ASX company reports
• Standard & Poor’s Industry Surveys
• Hoover’s Handbook
• Dun & Bradstreet
• Trade Journals and Periodicals
• Moody’s News Reports
12
CAVEATS:
• This tool is mainly used to understand a company’s internal situation. One must use other frameworks to understand how the company fares vis-a-vis its competitors and what potential changes may occur in the industry as a whole.
PURPOSE: To understand where companies deliver value across their business systems. Can also be used to determine where a company possesses strategic advantage or disadvantage.
WHEN TO USE: Potential -Assess internal baseline
DEFINITION: Analysis of the business processes and activities that companies undertake in order to deliver value to customers in the form of products and/or services
VALUE CHAIN/BUSINESS SYSTEM
SellMakeCreate
Service
Product &
Customer
Sell
Product
Distribute
Product
Manufacture
Product
Produce
Raw
Material
Design
Product
Obtain
TechnologyEx:
Primary
Activities:
• :
• • • • • •
Critical
Success
Factors:
Strength
s:Weaknesses:
•
• • • • • •
13
STEP DATA REQUIRED SOURCE(S)
1. Break the company’s business into the appropriate components contributing to the “create, make or sell” process and characterize the company’s approach in each component
2. List the primary activities performed in each component
3. Identify the critical success factors for each component and evaluate the company’s strengths/weaknesses for each
HOW TO CREATE - VALUE CHAIN/BUSINESS SYSTEM
• The various components of the company’s business systems, and the primary activities performed in each component
• Interviews with senior management
• Interviews with company’s management in each component of the value chain
• Interviews with people familiar with the company
• Internal documents
14
CAVEATS:
• As a framework the method can be used in a number of ways and circumstances, but it does not pretend to be definitive.
PURPOSE: The purpose of the SCIF is to understand the underlying drivers of supply chains. The aim of the framework is to formalise and make more systematic the mental approach that many people already have ‘in their heads’ for understanding why businesses are different.
WHEN TO USE: Potential - Develop vision and value proposition: Strategy - Define optionsFor a proposal and/or for a assignment, For a strategic review and/or a process review, As a diagnostic tool and/or a visioning toolDEFINITION: SCIF is a tool for understanding how various supply chains work and what is different about how various supply chains work and what are the underlying drivers of this difference (typically features of the business economics or of the business’ market)
SUPPLY CHAIN INSIGHT FRAMEWORK
What should the customer interface look like?
How critical are new
products?
What economies of scale are driving the
supply chain?
Where should the
supply chain be
decoupled?
How closely should
suppliers be
integrated?
What should the customer interface look like?
How critical are new
products?
What economies of scale are driving the
supply chain?
Where should the
supply chain be
decoupled?
How closely should
suppliers be
integrated?
Should the supply chain be geared to responsivene
ss or efficiency?
15
HOW TO CREATE - SUPPLY CHAIN INSIGHT FRAMEWORKStep Data Required Source(s)
1. Set the scene Introduce model Collect information
2. Strategic assessment Evaluate and challenge client to
examine if current strategy is optimal. Does the company have the right positioning.
If sub-optimal strategy explore with client the optimal strategy. Is a new positioning more appropriate for the business.
Evaluate benefits and risks of changing strategy
3. Process Assessment Identify critical “get rights” from
optimal strategy. Does the company focuses on the right processes.
Use maturity profiles and compare with . (What is the level of maturity of the processes)
Best practice Direct competition
4. Define the level of maturity the company should reach for each process.
• Interviews with client staff
• Experts from within PwC
• Industry experts outside the firm
• Current operating paradigms
16
Marketing
Example: McDonald’s
CustomerRefill Support
Sales/Distribution
OtherCustomer Service
Critical Strategic Capabilities (SC) - The capabilities in which a company is a leader. These capabilities are the source of competitive advantage.
Critical Enabling Capabilities (EC) - The capabilities in which a company is competitively equivalent to other market leaders. These capabilities are often the source of a barrier to entry.
CAVEATS:
• There is a risk of defining too narrowly the market in which the client competes, thus focusing on the wrong competency requirements or a subset of the competencies required to effectively compete
PURPOSE: To evaluate a company’s capabilities in each function of the value chain with a hierarchical model which identifies capabilities and the degree to which they provide competitive advantage and can be leveraged.
REFERENCE MATERIALS: Pitney Bowes, Dec. 22, 1995; Gallon Stillman and Coates, Putting Core Competence of Thinking into Practice; Research Technology Management, 1995; Przyblowicz and Faulkner, Kodak Applies Strategic Intent to the Management of Technology, Research Technology Management, Jan-Feb 1993; Prahalad and Hamel,
WHEN TO USE: Potential - Assess internal baseline: Strategy -Define options; Develop and evaluate options
DEFINITION: Analysis which identifies and evaluates the core competencies and critical capabilities a company has
CORE COMPETENCY ANALYSIS
Strategic/Financial Planning
TechnologyDevelopment
ProductDevelopment
Mfg/JointVenture
Core Competence (CC) - A competence which delivers a sustainable competitive advantage in current markets, provides access to a wide variety of markets, and makes a significant contribution to the perceived customer benefits of the end product.
Primary Capabilities (PC) - Minimum functional and technical requirements necessary to participate.
COMPETENCIES MODEL - FRAMEWORK
•Fast, affordable, fun, family
dining experience
• Marketing and brand mgmt.• Training• Franchise mgmt.• Product innovation
• BigMac recipe• High quality, low price
product sourcing• Efficient operation
• Hamburger preparation• Menu selection
17
STEP DATA REQUIRED SOURCE(S)
1. Interview company senior management and business line management as well as competitor management
2. Define company’s business system and activities performed within each function
3. Determine whether each activity is a primary capability, a critical enabling capability, a critical strategic capability, or a core competence, based on the degree to which the activity provides competitive advantage and can be leveraged
HOW TO CREATE - CORE COMPETENCY ANALYSIS
• An understanding of the company’s business system and the activities performed within each component of the business system
• An understanding of how the company compares in capabilities and strengths to other similar companies or functions
• Interviews with company’s senior management and business line management
• Interviews with competitors
• Interviews with industry experts/analysts
18
SCALE CURVE
PURPOSE: To determine benefits driven by economies of scale.
WHEN TO USE: Strategy - Define options; Develop and evaluteoptions
DEFINITION: Evidence of economic benefits from increased volumes
10.0
5.0
1.0
0.5
0.11 2 3 4 5 6 7 8 9 10
1A1A1A
1A 1A1A
1A1A
1A 1A
1A
1A1A1A
1991 NAD Estimate
Key
SUPPORT LABOR SCALE EFFECT - CONVENTIONAL AIRCRAFT EXAMPLE
Ratio of Support
Labor Hours to Touch
Labor Hours
Total Annual Program Touch Labor Hours (000)
NAD base hours
SLOPE = 67%
19
HOW TO CREATE - SCALE CURVE
STEP DATA REQUIRED SOURCE(S)
1. Gather cost information of producing a service or a product at various volumes
2. Display information in scale curve for relevant products or functions
• Cost information for each product/ service/function as needed
• Determine cost at various levels of volume
• Internal interviews
• Company P&L, internal analysis, cost accounting breakdown
20
EXPERIENCE CURVE
CAVEATS:
• Cost figures must be defined in the same manner by all sources of data. If company cost-accounting data is used, it may need to be adjusted for overhead allocations and other costs not considered to be part of the activity, process, or product under study. If price data is used pricing behavior of participants needs to be considered
• Innovation within any functional area (e.g., product, process, distribution) can render the current experience curve useless as a strategy tool. Therefore, it is important to understand the environmental and customer trends in order not to rely too heavily on this analysis
• The experience curve is only an analytical concept, and there is no guarantee that costs will actually decrease according to it. The company must actively manage costs down
PURPOSE: To forecast future trends in cost/labor and to determine the relative cost position of various competitors
REFERENCE MATERIALS:
• Abernathy, William J. and Wayne, Kenneth, “Limits of the Learning Curve,” Harvard Business Review, September-October 1974
• Hammond, John S. and Allen, Gerald B., “Note on the Use of Experience Curves in Competitive Revision Making.” Boston: HBS Case Services 9-175-174
• Kiechel, Walter III, “The Decline of the Experience Curve,” Fortune (October 5, 1981): 139
• Porter, Michael E., “Experience Curve,” Wall Street Journal, 22 October 1979, in Managers Journal
WHEN TO USE: Strategy - Define options; Develop and evalute options
DEFINITION: Assesses the effects of learning as it contributes to cost/labor efficiencies
EXPERIENCE CURVE FOR WIDGETS - PROJECTIONS
50
40
30
20
10200 400 600 800 1000 2000 4000
Unit Volume (Thousands)
Unit Cost($) 1974
19751976
1977 1978
1979 19801981
1982 1983
1984
Slope 20%
21
HOW TO CREATE - EXPERIENCE CURVE
STEP DATA REQUIRED SOURCE(S)
1. Plot accumulated volume for different years against unit cost on a log/log scale (unit cost should be deflated by using a general index such as the GNP deflator, or specific indices for the various parts of cost such as materials and labor)
2. Add a standard regression line to the graph
• Yearly accumulated production volume for the entire indicative and individual competitors
• Unit cost data for the entire industry and competitors (use price data if cost data is not available)
• Government agencies
• Trade associations
• Internal company data
22
CAVEATS:
• When performing multiple regressions, it is important to test for autocorrelation between the independent variables by using measures such as the Durbin-Watson statistic
• It is important to have enough data points, a minimum of 15, to produce accurate results and to test for autocorrelation
PURPOSE: To assess the affect of a variety of independent variables (e.g., income, age) on a dependent variable (e.g., sales)
WHEN TO USE: Strategy - Develop and evalute options
DEFINITION: Technique to measure and quantify the relationship between a specified variable and various independent factors
REGRESSION ANALYSIS
Distance travelled vs Trip costs
200
400
600
800
1000
1200
1400
1600
150 200 250 300 350 400 450 500
Cost of transport
Distance travelled
23
HOW TO CREATE - REGRESSION ANALYSIS
STEP DATA REQUIRED SOURCE(S)
1. Plot independent variable(s) against the dependent variable
2. Run regressions using a spreadsheet program (e.g., Excel) or statistical package (e.g., SPSS)
3. Analyze key indicators to assess significance and correlation of data
4. Check for autocorrelation when conducting multiple regressions
5. Identify key independent variables that may be used as predictors
• Multiple data points (e.g., years of data) for dependent variable
• Multiple data points for independent variables
• Internal company information for dependent variables (e.g., sales)
• Government agencies/publications (e.g., census, Economic Report of the President)
• Industry Associations/Publications
24
CAVEATS:
• The model output is dependent on the quality of the relationships between drivers and performance attributes
• Modelling tools are becoming more and more advanced - but they require experts to drive them
PURPOSE: By defining the relationship between these attributes of performance and their drivers it becomes possible to predict how the supply chain will perform under conditions not yet experienced.
WHEN TO USE: Strategy - Develop and evalute options
DEFINITION: A calculation of performance (usually expressed in terms of cost, inventory, service and lead time) for a given portion of the supply chain.
SUPPLY CHAIN MODELLING
Infrastructure
Options
Factory
Assumptions
Investment
Model
Supply Chain Costs to Serve
Manufacturing
Conversion Costs
Transportation
Cost Model
Material
Costs
Overhead
Structure
Trade-Offs
Supply Chain Cost DriversScale
Complexity
Utilisation
Non Linear Elements
Business Plan
Scenarios
Product Range/
Demand
Options
Market /
Product
Projections
Network
Assumptions
Operating cost
scenarios
25
HOW TO CREATE - SUPPLY CHAIN MODELLING
Step Data Required Source(s)
1. Hypothesise the strategic options
2. Determine how you will prove the hypothesis
3. Identify the relationships to model
4. Collect data
5. Calibrate relationships
6. Run options
7. Sense check outputs
8. Test for sensitivities
• Client data
– chart of accounts– management accounts– contract data (for transport)– production line data– sales and marketing data
• External data
– Published industry data
– PwC data from previous studies
– Synthesised data
• Volume (current and future)
• Supply chain flows (what, from where and when)
• Manufacturing and distribution economics
• Differential labour rates
• Technology options
• Transport options
26
CAVEATS:
• Need to consider whether done by product or by supplier
• Sometimes difficult to collect the data
• Does not provide a purchasing strategy - more an approach for managing suppliers
PURPOSE: To matching the various strategies suitable for managing suppliers to the providers of products and services
WHEN TO USE: Potential - Develop vision and value proposition: Strategy - Define options; Develop and evaluate options
DEFINITION: The segmentation of company purchases into four distinct categories.
SUPPLIER SPEND ANALYSIS
Purchasing volume 10 millNumber of items 4.370Number of vendors 200
Ensure supplycontinuity
Handle efficiently
Form allianceswith suppliers
Take advantage ofmarket potential
Purchasing volume 40 millNumber of items 15,000Number of vendors 350
Purchasing volume 80 millNumber of items 250Number of vendors 15
Purchasing volume 70 millNumber of items 380Number of vendors 33
Total: Purchasing volume (total): 200 million Number of parts (total): 20,000 Number of vendors (total): 598
Purchasing volumeEffect on net income
Low High
Techn
ica
l co
mp
lexity/s
up
ply
ris
k
Hig
hLo
w
27
HOW TO CREATE - SUPPLY SPEND ANALYSIS
Step Data Required Source(s)
1. Collect expenditure data
2. Segment
3. Identify current relationship
4. Match against appropriate response
5. Assess gap
6. Recommend improvements
• Purchase ledger
• Accounts payable data
• Annual expenditure
• Supplier portfolio
28
CAVEATS:
• Individual trade offs are usually looked at in isolation whereas the interaction between them is the main issue
PURPOSE: In some instances there is no one right answer for a given aspect of the supply chain design. Trade off analysis examines the alternatives in order to come up with an optimum operating position
WHEN TO USE: Strategy - Define options; Develop and evaluate options
DEFINITION: The examination of dependent variables on one or another aspect of supply chain performance, e.g. the use of stock or capacity to provide service for seasonal product
TRADE OFF ANALYSIS
SUPPLIER PURCHASING MANUFACTURING DISTRIBUTION CUSTOMER
Supplier leadtimes
v. Packaging Stock
Stock
Transport
Co
st
Freq.Delivery
Planning Leadtime
v. Safety Stock
Disruption
Stock
Co
st
Planning LT
Focused v.
Full Range
Facilities
Capital
TransportFocus
Cost
Distribution
Architecture
Transport
Facility
Cost
# Warehouses
Inventory v.
Customer Service
Lost Sales
Stock
Co
st
Service Level
Customer Service
Customer Stock
Transport
Cost
# Deliveries
Fixed cycle v.
Fully Flexible
scheduling
Stock
Ch/over
Cost
Flexibility
Capacity v.
Stock Build
Stock
Capital
Cost
Capacity
Run Length
Economics
Changeover
Stock
Cost
Cycle Length
Economic
Order
Quantity
Admin.
Stock
Order Size
Cost
v. Supply Leadtime
29
HOW TO CREATE - TRADE OFF ANALYSIS
Step Data Required Source(s)
1. Agree the factors in the trade off
2. Identify the relationship between the variables and the common dependent
3. Capture data regarding known points in the relationship
4. Extrapolate relationships
5. Identify optimum operating point
6. Identify interrelated factors
• Management accounts • Cost data
• Performance data
30
CAVEATS:
• Doesn’t produce an answer in its own right but identifies areas for attention
• Can be difficult to represent all aspects of the supply chain
PURPOSE: To help a client recognise the complexity / cost / waste built into the supply chain that is not evident on a day to day basis
WHEN TO USE: Potential - Assess internal baseline; Strategy - Define options
DEFINITION: The graphical representation of the supply chain showing all relevant data
SUPPLY CHAIN MAPPING
DC
France
(Mix) packing
0-3 days
ProductionChartres
56 SKUs
avg 1.200.000 bottles/month
1 line
3 shifts
(Mix) packing
DC
UK
(Mix) packing
DC
Germany
(Mix) packing
DC
Spain
(Mix) packing
Other
DCs
(Mix) packing
15-25 days 15-25 days
15-25 days
15-25 days
15-25 days
15-25 days
Warehouse
Chartres
1 day
AssemblyCo-packer
max 5 days
Warehouse
Chartres
65 days
labels (10)
skillets
freagrances (6)
40 days
5 days
10-20 days
wick (1)
bottle (1)
caps (1)
Warehouses
Suppliers
daily
every 2-3 days
every 2-3 days
daily 35%
20%
13%
7%
25%
CustomersTypical lead
time suppliers:
15-25 days
Call off
delivery time:
2 days
31
HOW TO CREATE - SUPPLY CHAIN MAPPING
Step Data Required Source(s)
1. Map supply chain flows
2. Add product related data
3. Add information on lead times and service levels
4. Add inventory / stock information
5. Highlight areas with waste, e.g. stocks duplicated at supplier and customer location
• Management accounts
• Interviews with client staff
• Product flows, lead times, inventories, product range, processing times etc
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CAVEATS:
• Does not directly provide answer
• Has to be done diplomatically as it may expose individual / departmental weaknesses
PURPOSE: To help clients get beneath the usual explanation / excuses for why things happen.
WHEN TO USE: Potential - Assess internal baseline: Strategy - Define options; Develop & evaluate options
DEFINITION: The identification of the underlying problems within the supply chain through a systematic analysis of cause and effect, using techniques like Why, Why, fishbone diagrams, influence diagrams
ROOT CAUSE ANALYSIS
Do MRS' accurately
describe market opps?
Inadequate
production test
coverage
Rely on product
inspection
Inadequate level
of inspection
Some problems
caused during
distribution
Often not
involved
in resolution
Poor feedback
on these
Poor analysis of
feedback from
sub-con
Not close to
final end
customer
Product Spec.
incomplete/ has
errors
(Customer see
as faults)
Inability to test
Designer
'freedom'
Inadequate design
verification testing
Integrated product
test is at customer
site
Non-existent/
slow feedback
of field faults
Local rework/ correction
of field problems
Batching-up of
customer problems
CUSTOMERS
FIND
FAULTS
= Fix now
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HOW TO CREATE - ROOT CAUSE ANALYSIS
Step Data Required Source(s)
1. Identify a series of significant events that have happened recently
2. Use why why questioning to understand not only the direct reason but the underlying reasons also
3. Structure the reasons into a logical diagram
4. Agree how the root causes can be addressed
• Interviews with client staff • Recent problems or events
• Reasons why this occurred
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CAVEATS:
• The ranking is based on the judgment of experts and the consultant’s analysis
PURPOSE: To understand which critical success factors present the greatest challenge in order to focus efforts.
Links supply chain change to the key issue of product / service delivery
WHEN TO USE: Agenda - Develop and Evaluate implementation approaches
DEFINITION: An analysis ranking critical success factors against a company’s ability to attain them and their criticality to succeeding with a particular product or service
Call center adaptation(e.g. 7x24)
Source software/agreement
Ensure software
quality and security
Software vendor
contacts
Negotiate contracts with software vendors and distribution channels
Develop product offering mix and
marketing expertise (e.g. non-
traditional distribution; CD-
ROM)
Appropriate Internet interface
Modify software as needed
Obtain strong patents
Evaluate Atlas
software
Market and feasibility
assessments
Financial projections (marketing)
Technical support
Dongle capability and manufacturing
source
Payment method
High Priority Core Challenge
Quick Hit Lowest Priority
Source CD-ROM and disks manufacturers
DIFFICULTY FOR COMPANY TO ATTAIN
Low High
High
CRITICALITYTO
PRODUCTSUCCESS
Source: PW analysis, industry interviews
EXAMPLE:
PROJECT PORTFOLIO ANALYSIS
35
STEP DATA REQUIRED SOURCE(S)
1. Determine the critical success factors to achieve a goal, e.g. to bring a product to market
2. Determine the company's abilities to achieve the critical success factors
3. Determine the gap
4. Rank the critical success factors in terms of their criticality to the product success and in terms of the difficulty for the company to achieve them
5. Map the ranking
• Critical success factors for the relevant goals
• Capabilities assessment of the company in light of its ability to achieve the critical success factors
• An assessment of the critical factors in the gap in terms of their importance to the goal and their difficulty of attainment
• Interviews with senior management
• Interviews with relevant business line management
• Interviews with competitors, industry experts, analysts
• Trade publications
HOW TO CREATE - PROJECT PORTFOLIO ANALYSIS
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Supporting Tools and Techniques
•Supporting tools & techniques
– Logic trees
– Kano model
– Focus groups
– Conjoint analysis
– 7 S model
– SWOT analysis
– Financial analysis (NPV / IRR)
– Economic Value Add (EVA) analysis
37
STEP DATA REQUIRED SOURCE(S)
1. Define/agree with organization’s management how the data will be interpreted to locate key messages
2.* Test survey by running pilot focus groups
3. Define sub-populations -- determine sample size
4. Develop logistics page
5. Communicate the survey to the organization; determine if survey was used previously
6. Distribute surveys
7.* Run concurrent focus groups
8. Analyze survey results:•generate hypotheses•test hypotheses
9. Use results/give feedback
10.* Interviews with personnel from the enterprise sponsoring the survey
11. Assemble summary report to be discussed with the senior management team
12.* Assign task of maintaining the raw data for further analysis at a later date.
HOW TO CREATE - CUSTOMER INSIGHT AND ALIGNMENT
• Questions that will reveal answers to the key questions being asked
• Information needed to understand different categories of respondents
• Past customer surveys
• Executive interviews
*Optional
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CAVEATS:
• Logic trees must be mutually exclusive, collectively exhaustive. There should be no gaps or overlaps in analysis
• The hierarchy of issues identified is very important and must accurately reflect the problem
• Logic trees must be consistent. Any elements/splits reflect logical disaggregation
• Focus on analyses that are actionable
PURPOSE: To structure thinking of the total problem at hand - overall direction, main issues, and key hypotheses. To ensure logical integrity of problem-solving process and break problem down into its component parts
WHEN TO USE: Potential - Develop vision & Value proposition: Strategy - Define Options
DEFINITION: A graphical layout of the linkages between problem definitions and issue analysis
LOGIC TREES (ISSUE MAPS, HYPOTHESIS TREES)LOGIC TREE STRUCTURE - ISSUE MAP
Problem definition: Client should focus on improving profits
Margin improvements the best financial return
Client cannot afford to go on as presently Situation will
worsen as market becomes more hostile
Current financial performance is perilous
Sales and marketing improvements are likely to be limited
Proceeds from the sale of client are unlikely to be attractive
Major reinvestment cannot be justified economically at current and likely future price levels
Cost reductions on existing facilities offer reasonable and sustainable profitability
Parent is in no position to provide additional cash
Will exhaust its cash by end 1988
Prices are likely to decline to cover only the cash costs
Some slight improvement in volume can be anticipated as economy recovers
Client is worth more to its parents than to possible buyers
Competitors are seeking to sell all or parts of their operations
Client is already covering almost the entire potential market
Client is winning more than its fair share in head-to-head competition
Key Issues
Key Issues
Key Issues
Key Issues
Key Issues
Key Issues
Key Issues
Key Issues1. Are reported sales
accurate?2. Are recent trends
sustainable?Key Issues
Key Issues
Hypothesis
39
HOW TO CREATE - LOGIC TREES (ISSUES MAPS, HYPOTHESIS TREES)
Step Data Required Source(s)
1. Identify key issues and define a starting point for the hierarchy of viable options
2. Identify a range of possible outcomes
3. Develop the logic flow by sorting the critical issues defined to chart the path to the options
4. Develop a hypothesis
• Internal company information
• External market research
• Senior management interviews
• Literature searches, secondary research
40
CAVEATS: Focus Group results are not statistically valid and should not be taken as wholly representative of the attitudes or opinions of the larger population from which participants are drawn. In addition, resistance from participants may arise due tomisconceptions over what focus groups are or what they are used for. Clarify that they are not:
•Complaint sessions•“Touchy feely”•Unrelated to company’s operations or project goals•Used to evaluate executives
PURPOSE: To share perceptions or specific topics for organization to get qualitative aspect from numbers of people too large for individual interviews. To generate ideas and consensus. To develop customer requirements, stakeholder issues, or project objectives.
WHEN TO USE: Potential - Assess External Environment
DEFINITION: A controlled and monitored discussion involving a small group of people representative of a larger population (e.g. customers, employees, etc.) designed to determine group characteristics, reactions to ideas, etc., which can direct further research efforts
FOCUS GROUPS
Sample Questions:
To assess product/service:• What characteristics do you want most in a product/service of this
type?• How would you rate this product against those characteristics?• What other attributes would you like this product to have?
To assess organization:
• What are some good things about working here?• What have been the highest and lowest points in this organization?• What must people do to get ahead in this organization?
To assess change readiness:
• Are there a lot of change initiatives going on right now?• What would you change? What would make you believe this
change is necessary?• What are the barriers to change?
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STEP DATA REQUIRED SOURCE(S)
1. Prepare logistics necessary to run focus groups
•Select participants and facilitators•Choose site•Choose a moderator and scribe
2. Conduct focus group
3. Analyze the results •Organize data in meaningful way•Generate hypotheses
4. Use results/give feedback
HOW TO CREATE - FOCUS GROUPS
• Meaningful and objective questions to use during the focus group
• Understanding of relevant population (organization, customer segments, etc.) in order to best choose focus group participants
• Past focus group data and/or surveys
42
CAVEATS:
• Limited number of attributes can be compared
• Attributes to be compared must be at same level of importance (e.g., cannot compare “on-time delivery” with “attractiveness of delivery truck”)
• Variables should represent controllable items (e.g., things that can be changed during implementation)
PURPOSE: To diagnose/assess the relative importance of certain product/service attributes to customers.
WHEN TO USE: Potential - Assess External Environment
DEFINITION: A survey research method which provides a quantification of customer preferences among various product/service attributes
CONJOINT ANALYSIS
INTERNAL VS. EXTERNAL ATTRIBUTE IMPORTANCE RATING
60
50
40
30
20
20 30 40 50 60
•Low price
•Support/service
•Training
•Patient/doctor database
•Medical text writer
•Treatment guidelines
•Link to pharmacy/lab
•Object orientation
Internal underestimation of customer needs
Good understanding of customer needs
Internal overestimation of customer needs
Scale of Importance to
Clinician Respondents
Scale of Importance to Glaxo Respondents
ILLUSTRATIVE
43
STEP DATA REQUIRED SOURCE(S)
1. Conduct focus groups with internal employees as well as customers to determine/validate attributes to be used in survey
2. Design survey comparing pairs of attributes or scenarios
3. Calculate conjoint scores for each attribute or scenarios
4. Identify strategic opportunities
HOW TO CREATE - CONJOINT ANALYSIS
• Understanding of the product/service and its key features
• Interviews with company senior management
• Industry research: analyst reports, trade associations, etc.
44
CAVEATS:
• May be overly simplistic
PURPOSE: To identify market opportunities facing a company, competitor issues, and key success factors to leverage.
WHEN TO USE: Potential - Assess External Environment, Assess internal baseline
DEFINITION: Determination of the strengths, weaknesses, opportunities, and threats facing an organization
SWOT ANALYSIS
Opportunities to Increase Revenue
• Leverage existing client relationships
• New areas of business –Content management–Digital asset management–Internet applications
• Increased demand for current services–Cost reduction–Change management–revenue enhancement–new business opportunities–infrastructure development
• Growth through acquisition or alliance
• Increased consultancy needs due to regulatory changes
Threats
• Competition aggressively targeting EMC industry clients
• Building of resources slower than market growth
• Limited ability to quickly recruit and effectively deploy qualified consultants with deep industry experience
• Potential conflicts of interest as client list grows
• Shrinking client base due to industry consolidation
Strengths
• Entertainment industry expertise and thought leadership –EMC 2000–Technology Forecast–ETC–Publications
• Functional experience–Financial systems–Strategy development
• Large, existing client base in entertainment
• Concentrated focus through EMC practice, marketing and PR efforts
• Broad range of consulting services
• International network of partners and consultants
• Strong vendor relationships (e.g., Oracle, SAP) to leverage
• High visibility with CFOs gained through financial systems projects
Weaknesses
• Not enough consultants with industry expertise and functional experience to meet demand
• Minimum media client experience
• Internal competition for industry vs. functional resources
• Limited visibility in the “business issues” market on the CEO and COO level
• Inconsistent client management and consulting skills
• Limited ability to respond quickly
• No software package to leverage
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STEP DATA REQUIRED SOURCE(S)
1. Interview company management
2. Perform competitive analysis
3. List strengths and weaknesses of company
4. Determine opportunities and threats the company faces
HOW TO CREATE - SWOT ANALYSIS
• Internal interviews
• Expert opinions
• Interviews with senior management
• Interviews with business line management
• Industry experts/analysts
• Trade publications options
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