supply chain management strategy: using scm to create...
TRANSCRIPT
Supply Chain Management Strategy
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Supply Chain Management Strategy
Using SCM to Create Greater Corporate Efficiency and Profits
Alexandre Oliveira Anne Gimeno
Associate Publisher: Amy Neidlinger Executive Editor: Jeanne Glasser Levine Operations Specialist: Jodi Kemper Cover Designer: Chuti Prasertsith Managing Editor: Kristy Hart Project Editor: Andy Beaster Copy Editor: Keith Cline Proofreader: Sarah Kearns Indexer: Lisa Stumpf Senior Compositor: Gloria Schurick Manufacturing Buyer: Dan Uhrig
© 2014 by Alexandre Oliveira and Anne Gimeno Upper Saddle River, New Jersey 07458
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All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher.
Printed in the United States of America
First Printing June 2014
ISBN-10: 0-13-376437-0 ISBN-13: 978-0-13-376437-6
Pearson Education LTD. Pearson Education Australia PTY, Limited. Pearson Education Singapore, Pte. Ltd. Pearson Education Asia, Ltd. Pearson Education Canada, Ltd. Pearson Educación de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd.
Library of Congress Control Number: 2014934929
Contents
Preface ..............................................................................xii
Chapter 1 Supply Chain and Shareholder Value ...............................1
Supply Chain and Value ....................................................... 5Supply Chain Master Plan .................................................... 9Cash-Management Cycle.................................................... 15
Purchase-to-Pay Cycle .............................................. 16
Manufacturing-to-Revenue Cycle ............................ 17
Integrated Perspective .............................................. 19
Chapter 2 Enabling Business Value .................................................21
Enabling Sales Volume Growth ......................................... 22Enabling Customer Experience ......................................... 24Enabling Margin Growth ................................................... 24Simultaneous Policies ......................................................... 26Business Value Impact Chart ............................................. 27
Chapter 3 Enabling Sales Volume Growth ......................................33
Enabling Market-Share Growth ......................................... 37Reducing Revenue Cycle ................................................... 40Reducing Lost Sales ............................................................ 41Supporting Marketing and Sales Initiatives ....................... 44
Chapter 4 Enabling Customer Experience ......................................47
Improve Customer Perception ........................................... 54Manage Cost to Serve ......................................................... 58Offering Service Packages .................................................. 61
Chapter 5 Enabling Margin Growth .................................................71
Reducing Cost of Sales ....................................................... 72Balancing Asset Management ............................................ 73Balancing Service Level and Cost Structure ..................... 76Expert Opinion ................................................................... 78
Chapter 6 Applying the SNAR Model ..............................................83
Planning Logistics ............................................................... 83
Demand Planning and Forecasting .......................... 84
Procurement and Purchase ...................................... 91
vi SUPPLY CHAIN MANAGEMENT STRATEGY
Stock and Inventory Control .................................... 93
Production Planning ................................................. 97Synchronous Operations ..................................................... 98
Transportation ........................................................... 98
Warehousing ............................................................. 99
Manufacturing......................................................... 101
Distribution ............................................................. 102
International Logistics ............................................ 104Supply Chain Governance ................................................ 106
Customer Service .................................................... 106
Supply Chain Projects ............................................ 108
Information Technology ......................................... 110
Human Resources ................................................... 112
Sustainability ........................................................... 113Business Integration ......................................................... 115External Supply Chain ...................................................... 117
Chapter 7 Connecting Strategies ....................................................121
Supply Chain Risk Management ...................................... 127Economic Value Added .................................................... 131Sales and Operation Planning .......................................... 133
Case 1: Medium-Size Multinational Pharmaceutical Company ..................................... 145
Case 2: Large Multinational Beverage Company ............................................................... 146
Case 3: Large Multinational Pharmaceutical Company ............................................................... 147
Case 4: Large Multinational Pharmaceutical Company ............................................................... 148
Case 5: Large Multinational Food Company ........ 149
Case 6: Large Multinational Brewery .................... 149
Case 7: Large Multinational Chemical Company ............................................................... 151
Case 8: Business Discontinuity .............................. 152
Index ...............................................................................155
Acknowledgments
As mentioned in the Authors’ Note, we are currently writing five books for Pearson, all of which benefit from contributions by a large number of individuals from both academic and business sectors.
Our special thanks to Professor Martin Christopher, Emeritus Professor of Marketing & Logistics at Cranfield School of Manage-ment, Cranfield University, United Kingdom, whose contributions are present in all five of our books. We also wish to express our kind-est appreciation to Mark Barratt, Associate Professor in Supply Chain Management at Marquette University, USA, and expert in collabora-tion and visibility across supply chains, for his contribution during the early stages of our academic background.
We would also like to thank Professor Milton Mori (State Univer-sity of Campinas, Unicamp, Brazil), Professor Mauro Sampaio (Uni-versity Center, FEI, Brazil), Professor Richard Wilding (Cranfield University, UK), Lecturer Carla Corte (State University of Campinas, Unicamp, Brazil), Professor Armando Dal Colleto (Business School São Paulo, BSP, Brazil), and Senior Lecturer Melvin Peters (Cran-field University, UK) for their contributions to our development over the last 20 years.
In our books, business cases/expert opinions were provided by the following:
Bernardo Faria: Operations Development at Cielo, Brazil; Cesar Righetti, Operations Director at Cielo, Brazil; Dr Alan Smart, Senior Lecturer at Cranfield School of Management, UK; Enrique Motilla, founding partner at Quad Tree S.A. de C.V., Mexico; Fikri Dweiri, Associate Professor in IndusOperation Engineering and Manage-ment Department and Vice Dean of College of Engineering at the University of Sharjah (UoS), UAE; Gianluca S. Cesare, Director at Lombardia Informatica, Italy; Kimmochi Eguchi, Executive Director, International Marketing Institute, Japan; Lucas Costa: Operations
viii SUPPLY CHAIN MANAGEMENT STRATEGY
Planning at Cielo, Brazil; Luciano Bortoncello, Development Direc-tor at Transmiro, Brazil; Marcelo Pereira, Transport Manager at Transmiro, Brazil; Mauricio Ajzenberg, General Director at SPDL, Brazil; Robin Parsons, Supply Chain Manager, Maxinutrition (a GSK company), UK; Sharfuddin Ahmed Khan, lecturer in IndusOperation Engineering & Management Department at University of Sharjah (UoS), UAE; Shogo Kurokawa, President, Nippon Logistech Corpo-ration, Japan.
This project would have proven impossible without the inspira-tion from our colleagues active in several professional networks. The governance team of the Brazilian Institute of Supply Chain Profes-sionals ( www.ibpsc.net/IBS ), together with all associates, creates a unique technical environment that keeps us up-to-date on the best practices. Although we want to thank all IBS members, it is impos-sible to list anything more here than the advisory board:
Daniel Mello, Daines Toledo, Marcelo Alencar, Maricea dos Santos, Sérgio Romero, Daniel Okino, Ralph Martins, Cláudio de Sá, Alex Rocha, Luis Gonzaga, Marcelo Torres, William Marques, Antonio Berna, Carlos Pavanelli, Eduardo Junqueira, Antonio Souza, Luciano Bortoncello, Gelber Abe, Fabio Miranda, Luis Silva, Carlos Cirillo, Plínio Márcio, Luiz Ribeiro, Daniel Hermeto, Luiz Ferreira, Marco Palmeira.
We also want to thank our colleagues at CEBRALOG who have collaborated to develop and organize a significant part of the knowl-edge shared in our books: Andre Moraes, Eraldo Bertagnoli, Fernanda Silva, Adriana Freitas, Mauricio Cortes, Mirella Gomes, Francismar Lemos, Lucas Casagrande, and Fernando Fedato.
The Operations and Supply Chain Academic Group at Linked-In (with nearly 20,575 members) was another important source of inspiration.
My kindest thanks to my editor, Jeanne Levine, and to Barry Render, who believed in and supported this book project from the
ACKNOWLEDGMENTS ix
early stages, and to Heather Simpkins, my proofreader, without whom this work would not be readable!
Finally, we wish to thank our relatives who have been a constant source of wisdom: our grandparents Pedro, Antônia, Ouriques, Clau-dina, David, Conchita, Leopoldo, and Clara; our parents Gerusa, Jorge, Lluis, and Maria Helena; our brothers Alan, Amanda, Andre, and Arnau; our sons Gabriel and Pedro; our nieces Mariana and Maria Paula; and our dearest Ana Claudia, Cristina, Maria Eduarda, Maria Etienne, and Rayder.
About the Authors
Alexandre Oliveira is a founding-partner at CEBRALOG (www.cebralog.com), a supply chain consultancy and training company headquartered in Brazil since 2001. Alexandre has also been Presi-dent of the Brazilian Institute of Supply Chain Professionals (I.B.S.) since 2007. He offers courses for MBA programs at Business School São Paulo and is a regular contributor to seminars, conferences, and congresses.
Alexandre began his career at Procter and Gamble, where he gained executive experience in manufacturing, quality assurance, and logistics in assignment in Brazil and in Europe, but for the past 15 years, he has developed his career as consultant. Alexandre has worked as a senior consultant, trainer, and expert advisor for compa-nies such as GE, 3M, Sony, Bayer, Pepsico, Pernod Ricard, Unilever, Avon, Adidas, John Deere, Eaton, Walmart, Motorola, and several others.
Alexandre holds a Bachelor of Arts degree in Chemical Engi-neering and a Master in Finance degree from the State University of Campinas (Unicamp, Brazil) and a Master of Science (Honors) degree in Logistics and Supply Chain Management from Cranfield’s University School of Management, United Kingdom.
Since 2001, Alexandre has actively influenced logistics thinking in several supply chain organizations. He chaired the Logistics Commit-tee at the American Chamber of Commerce (Amcham, Brazil, 2001–2004), chaired the Supply Chain Committee at the British Chamber of Commerce (Britcham, Brazil, 2006–2007), and he was Regional Vice-President of former Brazilian Logistics Association (2002–2003). He has lectured in MBA courses since 2004 in top regional universi-ties such as State University of Campinas (Unicamp) and State Uni-versity of São Paulo (USP).
ABOUT THE AUTHORS xi
Alexandre has published in the International Journal of Physical Distribution and Logistics Management and coordinates the Opera-tions and Supply Chain Academic group at LinkedIn, which currently has nearly 20,000 members (March 2014).
Anne Gimeno is a founding-partner at CEBRALOG, a supply chain consultancy and training company headquartered in Brazil since 2001. Anne has also been the Managing-Director of the Brazil-ian Institute of Supply Chain Professionals (I.B.S.) since 2007.
Anne began her career at Procter and Gamble, where she gained executive experience in materials planning, sales, and customer ser-vice. For the past 15 years, she has worked as a senior consultant for companies such as GE, 3M, Bayer, Pepsico, Pernod Ricard, and several others.
Anne holds a Bachelor of Arts degree in Chemical Engineering and a Master of Science (Honors) degree in Logistics and Supply Chain Management from Cranfield University’s School of Manage-ment, United Kingdom. She served as the director of the former Bra-zilian Logistics Association (2002–2003).
About I.B.S.
The Brazilian Institute of Supply Chain Management Profession-als, a leading regional professional association since 2007, benefits its members via technical events, courses, and an annual congress in São Paulo, Brazil.
I.B.S. promotes knowledge transfer with other knowledge cen-ters around the world. The Committee for International Cooperation (CCI) is the structure that builds partnerships for technical coopera-tion and knowledge exchange with foreign institutions. Ideal partners are national or regional professional associations or universities.
You can find more information about I.B.S. at www.ibpsc.net/IBS .
Preface
What should any company expect from the chief supply chain officer (or equivalent within the organizational structure)?
• Enabling sales volume growth
• Enabling market-share growth
• Reducing revenue cycle
• Reducing lost sales
• Supporting marketing and sales initiatives
• Enabling customer experience by improving customer’s perception
• Managing the cost to serve
• Offering differentiated service packages
• Enabling margin growth
• Reducing cost of sales
• Balancing asset management
• Balancing service level and cost structure
Despite all barriers involved, delivering products/services on time has not been considered a differentiation attribute for many years. The perfect order fulfillment enables customer satisfaction, but yet, it is not enough. Absolutely no company survives based exclusively on customer satisfaction, because customer satisfaction is only part of the business environment equation.
Today, successful organizations must create long-term business profitability to compete with complex and fluid supply networks. The ability to create value for shareholders is paramount.
The chief supply chain officer (CSCO) must understand market nuances while interacting with peers from commercial areas, finance, information technology, and human resources. The CSCO is usually
PREFACE xiii
a seat on the board of directors and is expected to contribute to the company’s long-term strategy.
This book covers a number of strategies and policies to guide senior executives in the mission to deliver value to shareholders by selling more, selling for more, and selling at a reduced cost. The Business Network Value Model (BV Model) suggests a structured approach to connect these drivers to expected deliverables.
Authors’ Note
Over the years, the common understanding of world-class operations has evolved from the simplistic, focused management of functional silos to a comprehensive approach of supply network man-agement as the driver to deliver ultimate shareholder value. Although many commentators have tried to describe this evolution, most have failed to properly address the supply chain’s fundamental building block: knowledge management. Therefore, their analyses also over-looked the only element that delivers long-term sustainable share-holder value: people.
We are writing five books for Pearson that cover the most impor-tant features of this evolutionary journey. These books will provide detailed roadmaps and models to diagnose, implement, and sustain world-class supply chain network management in organizations of all types:
• A Guide to Supply Chain Management: The Evolution of SCM Models, Strategies, and Practices (an e-book) introduces the core concept of knowledge management as the only strategy capable of steering supply chains networks management to suc-cessfully compete in highly competitive markets. This introduc-tory work reviews supply chain practice from its earliest stages and presents reference models that support our view of this discipline as a business driver to deliver shareholder value.
xiv SUPPLY CHAIN MANAGEMENT STRATEGY
This book introduces the Supply Network Alignment Reference Model (SNAR Model), which organizes the supply chain net-works into knowledge areas that enable accurate decision mak-ing from the strategic level to daily management decisions.
This book also introduces the Supply Network Knowledge Man-agement Maturity Roadmap (SKMap). Before the develop-ment of a supply network reference model, it was necessary to understand the intermediate evolutionary stages of knowledge management within the supply chain. The SKMap organizes and correlates several strategies and practices according to a unique structure that allows you to understand how to face the future challenges of managing supply chain networks in fluid and complex environments.
• Supply Chain Management Strategy: Using SCM to Create Greater Corporate Efficiency and Profits (this book) explores how supply chain management delivers shareholder value. The introduction covers topics such as the supply chain master plan, cash-management cycle, purchase-to-pay cycle, and manufac-turing-to-revenue cycle. This book introduces the Supply Net-work Business Value Model (SNValue Model) and discusses the supply chain mechanisms that generate value for the busi-ness. It addresses the following topics: enabling sales volume growth, enabling market-share growth, reducing revenue cycle, reducing lost sales, supporting marketing and sales initiatives, enabling customer experience by improving customer percep-tion, managing the cost to serve, offering differentiated service packages, enabling margin growth, reducing cost of sales, bal-ancing asset management, and balancing service level and cost structure.
This book also presents the Business Value Impact Chart (BV Chart) and the Balanced Control Panel (BC Panel). The third part of the book covers how each of the SNAR Model knowl-edge areas can contribute to each of the factors that enable
PREFACE xv
shareholder value. The tool used to establish these relation-ships is the BV Chart.
• Executing the Supply Chain: Modeling Best-in-Class Processes and Performance Indicators covers the supply network gov-ernance cycle and explains the mechanisms needed to under-stand the business though process mapping, risk analysis, and the definition and use of performance indicators for all areas directly or indirectly related to supply chain management. The second part of the book presents how each of the SNAR Model knowledge areas can be monitored and controlled by perfor-mance indicators. Other chapters present real-world metrics from companies of different sizes, sectors, and countries, and discuss benchmarking techniques.
• Customer Service Supply Chain Management: Models for Achieving Customer Satisfaction, Supply Chain Performance, and Shareholder Value focuses on the role of customer service as a strategic integrator for differentiated supply chain manage-ment. This book presents the Customer Service Management Model (CSM Model), a dynamic mechanism developed to eval-uate the interactions present in the customer service environ-ment. The model presents four pillars and provides a quantita-tive approach to understand the connection between them:
1. Customer Service Level Expectation
2. Supplier Service Level: Hired Performance
3. Customer Service Level Perception
4. Supplier Service Level: Delivered Performance
Although the book discusses some traditional customer service elements such as pre-transactional, transactional, and post-transactional service, the most important topics are customer service strategies, managing service levels, and customer ser-vice organization, respectively.
xvi SUPPLY CHAIN MANAGEMENT STRATEGY
• Managing Supply Chain Networks: Building Competitive Ad-vantage in Fluid and Complex Environments presents a solid roadmap for managing knowledge within organizations across all industries. You learn how to build, implement, and sustain long-term knowledge management as a consistent strategy to deliver business value through supply chain innovation leader-ship.
This book presents the Supply Network Governance Diamond Model (SNG Diamond) which is executed through...people! The SNG Diamond Model is a common governance structure focused on the long-term success of the entire supply network that connects knowledge management and risk management and reviews policies that promote the innovative environment required to face the challenges of managing fluid and complex supply networks.
1
1 Supply Chain and Shareholder Value
People are the hidden gem in the virtuous cycle. Through people, sophisticated information networks find the adequate architecture required to help companies achieve both their intermediate and ulti-mate goals.
Only through the adequate engagement of people does an orga-nization trigger the virtuous cycle that creates and sustains a value-added innovative environment. This environment leads the business to its ultimate goal: delivering value to shareholders (see Figure 1.1 ).
People
VisibilityUnderstanding
KnowledgeManagement
The VirtuousCycle
Decision Action Innovation Value
Figure 1.1 Virtuous cycle
Knowledge management enables visibility, which becomes tangible by understanding the processes and thus enables efficient decision-making mechanisms. The Supply Network Knowledge Man-agement Maturity Roadmap (SKMap), shown in Figure 1.2 , intro-duces the various levels at which organizations perceive the strategic contribution of supply chain management (SCM).
2 SUPPLY CHAIN MANAGEMENT STRATEGY
L1
01
BUILDINGBLOCKS
FUNCTIONALSILOS
SUPPLY CHAINEARLYSTAGE
L2 L3
SUPPLY CHAINEXCELLENCE
STAGE
L6 L7
SUPPLY CHAINMATURITY
STAGE
L4 L5
SUPPLY CHAININNOVATION
STAGE
L8
SUPPLYNETWORK
MANAGEMENT
EXTENDEDSUPPLY CHAINMANAGEMENT
SELECTEDSUPPLY CHAINMANAGEMENT
INTEGRATEDBUSINESS
SUPPLY CHAINGOVERNANCE
TACTICINTEGRATION
BASIC DAILYMANAGEMENT
03
OPERATIONALEFFICIENCY
02
BASELINERESULTS
05
SHAREHOLDERSVALUE
04
BUSINESSDIFFERENTIATION
ABILITY TO MANAGE KNOWLEDGE
SUPPLY NETWORK KNOWLEDGE MANAGEMENT MATURITY ROADMAP SKMap
Figure 1.2 SKMap
The goal of the virtuous cycle is to promote within the organi-zation the ability to decide and implement actions that modify the business and add value to it. Therefore, it is expected that what the organization considers valuable is well known even before the deci-sion-making process begins.
Note that the virtuous cycle suggests that innovation is the mecha-nism to enable value as the ultimate goal to be delivered to sharehold-ers and stakeholders. According to Oxford Dictionaries, 1 “ innovation is (1) the action or process of innovation; (2) a new method, idea, product, etc;” whereas innovating is to (1) make changes in some-thing established, especially by introducing new methods, ideas, or products.”
The concept of innovation is strongly associated with performing differently. But many people can do many things differently; that’s easy. The difficulty lies in making the change different and, simulta-neously, adding value to the business. What one company considers added value might not hold the same importance for another busi-ness (even for a competitor). In addition, because business priorities change over time, the value-added concept is temporal.
1 www.oxforddictionaries.com/definition/english/innovation , visited on February 5, 2014.
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 3
Adding value to the business may come from entering a new mar-ket, reducing the revenue cycle, reducing accounts payable, increas-ing profitability, or implementing a physical distribution structure capable of responding to demand volatility. What is value for a par-ticular company at a given time?
So many knowledge areas influence SCM decisions that execu-tives often find themselves confused. So, we developed the Supply Network Alignment Reference Model (the SNAR Model), which pro-vides a structured approach to these knowledge areas, mapping the extended supply network from different perspectives (see Figure 1.3 ).
SNAR MODEL - Supply Network Alignment Reference Model
SELECTED SUPPLY CHAINMANAGEMENT
EXTENDED SUPPLY CHAINMANAGEMENT
FEW SELECTED SUPPLIERS
FEW SELECTED NONCOMPETITORS
FEW SELECTED COMPETITORS
SEVERAL KEY NONCOMPETITORS
ALL SIGNIFICANT SUPPLIERS
ALL SIGNIFICANT CUSTOMERS
ALL SIGNIFICANT LSPs
SEVERAL KEY SUPPLIERS
SEVERAL KEY CUSTOMERS
SEVERAL KEY LSPs
FEW SELECTED CUSTOMERS
FEW SELECTED LSPs
DEMANDPLANNING &
FORECASTING
PURCHASING &PROCUREMENT
PLANNING
STOCK &INVENTORYPLANNING
CUSTOMERSERVICES
SUPPLY CHAINPROJECTS
SUPPLY CHAINBUSINESS
INTELLIGENCE TACTICALIGNMENT
SALES
SUPPLY CHAIN INTEGRATED TO THE BUSINESS
SUPPLY NETWORK MANAGEMENT
OTHER AREAS OF THE ORGANIZATION
CORPORATE GOVERNANCE
FINANCE
CONTROLLERSHIP
QUALITY ASSURANCE
ENGINEERING
R&D
HS&E
MARKETING
IT
HUMAN RESOURCES
REGULATORY
OTHERS
MANUFACTURINGWAREHOUSINGTRANSPORTATION
Synchronous Operations
TACTICINTEGRATION
SUPPLY CHAIN GOVERNANCE
DISTRIBUTION
INTERNATIONAL LOGISTICS
HUMAN RESOURCESBUSINESS PARTNER
PRODUCTIONPLANNING
SupplyChainFoundation
Planning Logistics
SUPPLY CHAIN RISK MANAGEMENT
INFORMATIONTECHNOLOGY
SUSTAINABILITY
KEY KNOWLEDGE AREAS
Figure 1.3 SNAR Model
The SNAR Model provides a flexible approach to several dimen-sions of supply chain management, especially because of its coding sys-tem (see Figure 1.4 ). This coding system applies to the management
4 SUPPLY CHAIN MANAGEMENT STRATEGY
of supply chain strategies (as presented in this book), to process map-ping techniques, and to the use of performance indicators, 2 customer service management, 3 and the management of fluid and complex sup-ply networks through knowledge management. 4
01 INTERNAL NETWORK 02 EXTERNAL NETWORK
Preferred Supply ChainPreferred SuppliersPreferred CustomersPreferred Service ProvidersExtended Supply ChainSelected Suppliers
Selected Service ProvidersPreferred NoncompetitorsSupply Network ManagementAll Significant SuppliersAll Significant CustomersAll Significant Service ProvidersSelected NoncompetitorsPreferred Competitors
Selected Customers
02.0102.01.0102.01.0202.01.0302.0202.02.0101.02.0201.02.0301.02.0402.0302.03.0102.03.0202.03.0302.03.0402.03.05
Planning LogisticsDemand Planning and ForecastingProcurement & PurchaseStock and Inventory ControlProduction PlanningSynchronous OperationsTransportationWarehousingManufacturingDistributionInternational LogisticsTactic IntegrationCustomer ServicesSupply Chain ProjectsInformation TechnologyHuman ResourcesSustainabilityOther DepartmentsSales
FinanceControllershipQuality AssuranceEngineeringR&DHS&EMarketingITHuman ResourcesRegulatorySupply Chain GovernanceKey Knowledge AreasSupply Chain Business IntelligenceSupply Chain Risk Management
01.0101.01.0101.01.0201.01.0301.01.04
01.02.0101.02.0201.02.0301.02.0401.02.05
01.03.0101.03.0201.03.0301.03.0401.03.05
01.04.01
01.04.0201.04.0301.04.0401.04.0501.04.0601.04.0701.04.0801.04.0901.04.1001.04.1101.0501.05.0101.05.0201.05.03
01.04
01.03
01.02
Figure 1.4 SNAR Model: Coding system
2 Oliveira, A. and Gimeno. 2014. Executing the Supply Chain: Modeling Best-in-Class Processes and Performance Indicators. New York: Pearson.
3 Oliveira, A. and Gimeno. 2014. Customer Service Supply Chain Management: Models for Achieving Customer Satisfaction, Supply Chain Performance, and Shareholder Value. New York: Pearson.
4 Oliveira, A. and Gimeno, 2014. Managing Supply Chain Networks: Build-ing Competitive Advantage in Fluid and Complex Environments. New York: Pearson.
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 5
Supply Chain and Value
Since 2013 (and as of this writing), the Operations and Supply Chain Academic Group at LinkedIn has debated how best to achieve short-term cost-benefit advantage via supply chain management. This LinkedIn group currently has about 20,000 members, and the debate involved academics and executives from countries such as the United States, Brazil, India, Australia, Finland, New Zealand, Turkey, China, England, and Canada.
The variety of knowledge areas involved in supply management, as mentioned earlier, reflects the potential complexity of coordinating within the supply chain the efforts to deliver differentiated contribu-tions to the business and to fulfill shareholder expectations.
To help you understand these contributions, consider the cate-gorizations shown here under the SNAR Model coding system (see Table 1.1 ).
Table 1.1 SNAR Model Coding System Contributions from Supply Chain Management to Gain Short-Term Cost-Benefit Advantage
SNAR Model Coding System
1 Indirect purchasing (indirect materials, MRO, office, and so on)
01.01.01
2 Business process outsourcing 01.02.02 01.02.03
01.05.01 (Outsourcing)
01.05.03 02.01.03
3 Benchmarks financial performance 01.04.02 01.05.02
01.02.04 02.03.05
4 How your deliveries are matching with the orders
01.02.02
01.03.01
01.04.09
01.02.04
01.03.03
02.01.02
5 Synchronized planning and scheduling 01.01
6 Risk management 01.05.03 01.04.04
7 Audit the inventory control process 01.01.03 01.02.02
8 The team 01.03.04 01.04.10
9 Simplify/standardize supply chain processes 01.03.02 01.04.05
10 Study the expenditures 01.04.02 01.04.03
6 SUPPLY CHAIN MANAGEMENT STRATEGY
Contributions from Supply Chain Management to Gain Short-Term Cost-Benefit Advantage
SNAR Model Coding System
11 Packaging and recycling of the packaging 01.04.06 01.01.02
01.02.01 01.02.02
01.02.04 01.02.04
12 Review of service levels 01.03.01 01.01
01.02 01.02.05
02.01.02 02.01.03
13 Great performance can come only from a great team
01.03.04 01.04.10
14 Check the costs 01.04.02 01.04.03
15 Integrate demand and supply 01.02 (01.02.x)
02.01
16 Work with sales area 01.04.01
17 Reengineer procurement 01.03.02 01.01.02
18 Check transportation expenses 01.04.02 01.04.03
01.02.01 01.02.04
19 Review procurement contracts 01.01.02 02.01.01
20 Define flow of goods, documents, and flow of payment
01.03.02
21 Monitor inventory aging 01.01.03
22 Focus on the major spend areas 01.04.02 01.04.03
01.05 (all 01.05.x)
23 Eliminate unnecessary non-value-added processes
01.03.02
24 Talk to the front lines 01.03.04
Figures 1.5 and 1.6 show the knowledge areas cited in this pub-lic and spontaneous Operations and Supply Chain Academic Group debate/consultation. Most of the SNAR Model is covered.
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 7
SELECTED SUPPLY CHAINMANAGEMENT
EXTENDED SUPPLY CHAINMANAGEMENT
FEW SELECTED SUPPLIERS
FEW SELECTED NONCOMPETITORS
FEW SELECTED COMPETITORS
SEVERAL KEY NONCOMPETITORS
ALL SIGNIFICANT SUPPLIERS
ALL SIGNIFICANT CUSTOMERS
ALL SIGNIFICANT LSPs
SEVERAL KEY SUPPLIERS
SEVERAL KEY CUSTOMERS
SEVERAL KEY LSPs
FEW SELECTED CUSTOMERS
FEW SELECTED LSPs
DEMANDPLANNING &
FORECASTING
PURCHASING &PROCUREMENT
PLANNING
STOCK &INVENTORYPLANNING
CUSTOMERSERVICES
SUPPLY CHAINPROJECTS
SUPPLY CHAINBUSINESS
INTELLIGENCE TACTICALIGNMENT
SALES
SUPPLY NETWORK MANAGEMENT
OTHER AREAS OF THE ORGANIZATION
CORPORATE GOVERNANCE
FINANCE
CONTROLLERSHIP
QUALITY ASSURANCE
ENGINEERING
R&D
HS&E
MARKETING
IT
HUMAN RESOURCES
REGULATORY
LEGAL
MANUFACTURINGWAREHOUSINGTRANSPORTATION
Synchronous Operations
TACTICINTEGRATION
SUPPLY CHAIN GOVERNANCE
DISTRIBUTION
INTERNATIONAL LOGISTICS
HUMAN RESOURCESBUSINESS PARTNER
PRODUCTIONPLANNING
SupplyChainFoundation
Planning Logistics
SUPPLY CHAIN RISK MANAGEMENT
INFORMATIONTECHNOLOGY
SUSTAINABILITY
KEY KNOWLEDGE AREAS
Figure 1.5 Public consultation: SNAR Model knowledge areas
8 SUPPLY CHAIN MANAGEMENT STRATEGY
PUBLIC CONSULTATION ON SUPPLY CHAIN INITIATIVESAccording to SNAR Model
Planning Logistics
Synchronous Operations
Tactic Integration
Other Departments
Supply Chain Governance
Preferred Supply Chain
Extended Supply Chain
Supply Network Management
01
01.01
01.02
01.03
01.04
01.05
02.01
01.01.01
01.02.01
01.03.01
01.04.01
01.05.01
02.01.01
02.02.01
02.03.0102.03.0202.03.0302.03.0402.03.05
01.02.0201.02.0301.02.04
02.01.0202.01.03
01.05.0201.05.03
01.04.0201.04.0301.04.0401.04.0501.04.0601.04.0701.04.0801.04.0901.04.1001.04.11
01.03.0201.03.0301.03.0401.03.05
TransportationWarehousingManufacturingDistributionInternational Logistics
Customer ServicesSupply Chain ProjectsInformation TechnologyHuman ResourcesSustainability
SalesFinanceControllershipQuality AssuranceEngineeringR&DHS&EMarketingITHuman ResourcesRegulatory
Key Knowledge AreasSupply Chain Business lntelligenceSupply Chain Risk Management
Preferred Suppliers
Selected Suppliers
All Significant SuppliersAll Significant CustomersAll Significant Service ProvidersSelected NoncompetitorsPreferred Competitors
Selected CustomersSelected Service ProvidersPreferred Noncompetitors
Preferred CustomersPreferred Service Providers
01.02.0201.02.0301.02.0401.02.05
Demand Planning and ForecastingProcurement & PurchaseStock and Inventory ControlProduction Planning
01.01.0201.01.0301.01.04
INTERNAL NETWORK
02
02.02
02.03
EXTERNAL NETWORK
Low High V.High
Figure 1.6 Public consultation: Intensity chart
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 9
Supply Chain Master Plan
Over the years, various supply chain management models, strat-egies, policies, and practices have been proposed, including the following:
• The efficient supply chain
• Vendor managed inventory (VMI)
• The lean supply chain
• Sales and operations planning (S&OP)
• Continuous replenishment program (CRP)
• The agile supply chain
• Efficient consumer response (ECR)
• Collaborative planning (Collaborative Forecasting and Replen-ishment [CFAR] / Collaborative Planning, Forecasting, and Replenishment [CPFR])
• The responsive supply chain
• Bullwhip effect
• The leagile supply chain
• Supply chain risk management
• Integrated business planning (IBP)
• The resilient supply chain
• The customer-driven supply chain
• The adaptive supply chain
• The wise supply chain
To apply the SCM model concepts to real-world practices, com-panies must establish a long-term strategy called a supply chain master plan (SCMP) (see Figure 1.7 ).
10 SUPPLY CHAIN MANAGEMENT STRATEGY
SUPPLY CHAIN MASTER PLAN(SCMP)
FinancialReconciliation
RiskManagement
(RM)
Supply ChainRisk
Management
Supply ChainManagement
(SCM)
CorporateGovernance
Goals
Strategies
Policies
Action Plans
Figure 1.7 Supply chain master plan 5
To build the SCMP, the company must understand the SCM models and evaluate how to create the most suitable balance between them to maximize key variables such as process performance, cus-tomer satisfaction, and shareholder value.
The SCMP offers a long-term perspective for the supply chain and should properly address key issues related to the business goals. It also creates the right decision-making process for building accu-rate strategies because it enables executives to start thinking about the interconnectivity between the policies that will rule company’s processes.
5 Presented by Alexandre Oliveira during Logchem, São Paulo, Brazil, September 2012.
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 11
These strategies have three main dimensions:
1. Sales volume increase
2. Sales revenue increase
3. Margin of contribution increase
These dimensions/strategies do not compete with each other; instead, they should influence the business simultaneously.
It is important to realize that the organization will not move for-ward without some level of business integration. It is not possible to execute a long-term SCMP without shaping alliances with other com-panies. The external side of the supply chain is nowadays more deci-sive than ever.
In fact, the connection with the external operations of multiple, interconnected supply chains is what makes the management of sup-ply networks so challenging. You can find more information about this in our book titled Managing Supply Chain Networks. 6
The potential benefits of enduring alliances include the following:
• Accelerate the development of products, services, or processes: This includes the alliance with preferred product or part suppliers or specialist IT or logistics service providers (LSPs).
• Accelerate market entry: The relationship with key accounts of selected distribution channels.
• Maintain leadership in the market: Alliances with noncom-peting companies may diversify the portfolio of products or ser-vices to provide a complete solution for your customer.
• Set a standard for the segment: The quality of raw material used in a differentiated product may be the result of a long-term partnership with specific suppliers.
6 Oliveira, A. and Gimeno, 2014. Managing Supply Chain Networks: Build-ing Competitive Advantage in Fluid and Complex Environments. New York: Pearson.
12 SUPPLY CHAIN MANAGEMENT STRATEGY
• Minimize risks of R&D: Some industry sectors jointly invest to create and maintain research development centers focused on their specific demand. This occurs in diverse industry sec-tors, including automotive, electronics, pharmaceutical, and banking.
• Acquire complementary resources: Automotive industry dealers work closely with the banking industry to offer to final-consumer financial services. Dealers often develop long-term exclusive relationships with finance institutions of various types.
• Achieve economies of scale: External manufacturing is a trend in the pharmaceutical industry. Small laboratories out-source parts of the packaging process to larger laboratories with more assets and industrial overcapacity.
• Avoid or overcome trade barriers: Local distributors usu-ally eliminate or minimize several barriers found by exporters, in particular in new markets.
• Share capital resources: Some industries offer long-term contracts to haulers so that these companies can implement a fleet-renewal plan. The long-term contract enables the haulers to plan cash flow, keep a fleet with reduced average age, and offer better customer service.
• Acquire or maintain technology: Partnerships with IT solu-tion providers include license or version updates for various applications, such as warehouse management systems, trans-port management systems, routing systems, and so on.
• Access restricted markets: Local brokers will offer regional knowledge on how to deal with national laws and intrinsic bureaucracy in some countries (and perhaps even with regard to regulatory agencies/policies within your own country).
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 13
A clear correlation exists between the SCMP and the SKMap (see Figure 1.8 ). The first parallel can be traced soon after the introduc-tion of the concept of supply chain management. According to the SKMap, this moment occurs when knowledge management enables the formation of the following building blocks: Planning Logistics and Synchronous Operations.
Further, the SKMap indicates that after the building blocks have been established, it is possible to deliver the baseline results, mostly as a result of offering improved product availability.
This minimal operational efficiency is delivered despite various difficulties. The lack of a governance mechanism inhibits the defi-nition of goals, the alignment of strategies, the formulation of poli-cies, and the implementation of practical actions. The lack of visibility slows and weakens the decision-making process. Shortcomings and rework are frequent. In Figure 1.8 , this initial scenario is indicated by arrow 1.
SUPPLY CHAIN MASTER PLAN(SCMP)
FinancialReconciliation
RiskManagement
(RM)
Supply ChainRisk
Management
Supply ChainManagement
(SCM)
CorporateGovernance
1
OperationalEfficiency
CollaborativePlanning
SuperiorOperationalPerformance
SuperiorFinance
Performance
CUSTOMERSSATISFACTION
SHAREHOLDERSSATISFACTION
Time
SKMapBaseline Results
Business CapabilityForecasting
SKMapBusiness Differentiation
SKMapOperational Efficiency
CapitalManagement
ProductAvailability
Goals
Strategies
Policies
Action Plans
2
3 4
Figure 1.8 SCMP and the SKMap
14 SUPPLY CHAIN MANAGEMENT STRATEGY
The methodology of the SCMP serves as the foundation of gov-ernance: the processes are mapped; performance indicators are defined, implemented, and used; and there is the involvement of cus-tomer service, human resources, information technology, and project management. Connections with other company departments such as sales, finance, and marketing are also formed. A little later, the first connections with the external supply chain appear. There is the involvement with preferred suppliers, customers, and service provid-ers. This transition mechanism, which supports the supply chain gov-ernance, is indicated by the arrow 2 in Figure 1.8 .
This new environment facilitates collaborative planning. Only through collaborative planning can the company strengthen internal and external processes. The strengthening of processes reduces errors and increases the index of repeatability of operations.
Over time, customers perceive the continued good performance. This perception has its origin in the governance structure that allows business-capability forecasting. The company can thus react to busi-ness fluctuations in advance. It can also, due to the recently created business forecasting skills, anticipate some movements. The superior operational performance, illustrated in Figure 1.8 by arrow 3, results in customer satisfaction.
But this process has not yet adequately controlled the financial dimension. Despite the customer satisfaction, the cost to serve is still not controlled. The main objective is still product availability.
According to the SKMap, the next step is to achieve the busi-ness differentiation and deliver shareholder satisfaction. Reaching the superior finance performance requires a large and coordinated effort.
The migration from superior operational performance to superior finance performance is the main focus of this book. The challenge is to identify the correlations between strategies and policies of the sup-ply chain and the effective company’s cash management .
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 15
As Figure 1.9 shows, a difference exists between the stages 4 and 5. Stage 4 (business differentiation) manages to deliver shareholder satisfaction. However, stage 5 innovates and delivers shareholder value. A profound difference exists between shareholder satisfac-tion and shareholder value. The first, shareholder satisfaction, relates to the financial performance in the short to medium term (up to 2 years). The second, shareholder value, relates to the long-term suc-cess of the company (beyond 2 years, with a horizon of up to 10 years).
Supply Chain Knowledge Management Maturity Map – SKMap – The 5 Stages
Functional SilosEarly Stage
Baseline Results
Basic DailyManagement
ProductAvailability
Business CapabilityForecasting
CapitalManagement
InnovationManagement
SC Innovation StageShareholders Value
SC Excellence StageBusiness Differentiation
SC Maturity StageOperational Efficiency
1 2 3 4 5
Figure 1.9 Stages of the SKMap
Cash-Management Cycle
The concept of a cash-management cycle requires a segmented approach:
• The first cycle is defined by the inbound operation of the com-pany. It begins with the definition of the sourcing strategies and ends at the payment made to suppliers and with supplies avail-able at the warehouse for manufacturing. This is the purchase-to-pay cycle.
• The second cycle refers to the outbound operation. The man-ufacturing-to-revenue cycle is quite extensive and includes production, storage, and distribution of finished goods and the fulfillment of customer orders until the receipt of the invoiced value.
16 SUPPLY CHAIN MANAGEMENT STRATEGY
The integration of these cycles gives the visibility that the com-pany requires for an efficient cash management of its operations.
Purchase-to-Pay Cycle
The activities of this environment happen without a fixed sequence.
The purchasing strategy is a broad discipline. Among other things, it requires strategic planning, risk management, analysis of economic and financial viability, and the strengthening of relationships. A long learning curve applies. The responsibilities are beyond the area of procurement planning (SNAR 01.01.01).
This building block is influenced by areas such as quality assur-ance, engineering, demand forecasting, inventory management, production planning and execution, research and development, and HE&S ( health, safety, and environment ). Purchasing has activities at strategic, tactical, and operational layers.
At the operational level, the interface with the cited areas of the company sets the order requirements. The order requirements are assumptions for the processes of supplier selection, negotiation, and contracting.
Note that both products and services are acquired, as are direct and indirect products, operational services (such as transport and storage), and administrative services (such as travel, health insurance, and banking). There is great diversity in the scope of selection, nego-tiation, and contracting.
The interface with the areas of demand planning, production planning, finance, and controllership defines budgeting and forecast-ing policies, practices, and actions. Forecasting the annual purchasing budgeting is quite a challenge because it impacts the forecasted cash flow and therefore the P&L ( profit and loss ) accounts.
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 17
There is also the ordering, receiving, any discrepancy manage-ment, and invoicing processes prior to cash management that involves the accounts payable team.
Figure 1.10 shows how these processes demand interactions within the organization. The image presents the SNAR Model and highlights the knowledge areas that either influence or are influenced by the purchase-to-pay cycle.
SELECTED SUPPLY CHAINMANAGEMENT
EXTENDED SUPPLY CHAIN MANAGEMENT
FEW SELECTED SUPPLIERS
FEW SELECTED NONCOMPETITORS
FEW SELECTED COMPETITORS
SEVERAL KEY NONCOMPETITORS
ALL SIGNIFICANT SUPPLIERS
ALL SIGNIFICANT CUSTOMERS
ALL SIGNIFICANT LSPs
SEVERAL KEY SUPPLIERS
SEVERAL KEY CUSTOMERS
SEVERAL KEY LSPs
FEW SELECTED CUSTOMERS
FEW SELECTED LSPs
DEMANDPLANNING &
FORECASTING
PURCHASING &PROCUREMENT
PLANNING
STOCK &INVENTORYPLANNING
CUSTOMERSERVICES
SUPPLY CHAINPROJECTS
SUPPLY CHAINBUSINESS
INTELLIGENCE TACTICALIGNMENT
SALES
SUPPLY NETWORK MANAGEMENT
OTHER AREAS OF THE ORGANIZATION
CORPORATE GOVERNANCE
FINANCE
CONTROLLERSHIP
QUALITY ASSURANCE
ENGINEERING
R&D
HS&E
MARKETING
IT
HUMAN RESOURCES
REGULATORY
LEGAL
MANUFACTURINGWAREHOUSINGTRANSPORTATION
Synchronous Operations
TACTICINTEGRATION
SUPPLY CHAIN GOVERNANCE
DISTRIBUTION
INTERNATIONAL LOGISTICS
HUMAN RESOURCESBUSINESS PARTNER
PRODUCTIONPLANNING
Planning Logistics
SUPPLY CHAIN RISK MANAGEMENT
INFORMATIONTECHNOLOGY
SUSTAINABILITY
KEY KNOWLEDGE AREAS
PurchasingStrategy
Budgeting andForecasting
OrderRequirements
Selecting andNegotiating
Contracting
Ordering
Receiving
DiscrepancyManagement
Invoicing
CashManagement
Figure 1.10 Purchase-to-pay cycle
Manufacturing-to-Revenue Cycle
This second cycle has a broader scope than the purchase-to-pay. It begins with the movement of materials for manufacturing areas and continues with the production of finished goods. Then it follows to the storage, order receiving and fulfillment, and the cycle of accounts receivable.
18 SUPPLY CHAIN MANAGEMENT STRATEGY
The customer strategy is a fundamental area or role that defines several segmentation strategies in customer service. This segmenta-tion impacts the entire fulfillment process. This affects the planning of physical capabilities of the supply chain and the channels of data treatment and triggers the cost-to-serve patterns.
The sales management policies have some parameters that strongly affect the cost to serve. Topics such as drop-size tail, order entry, customer channels, service level, and customer tail are highly complex because there are numerous parameterizations. Closely related to sales management, it is the management of contracts, usu-ally led by the sales team but followed by the customer service team.
This requires strong alignment between areas of supply chain, sales, and finance. Any flaw in this alignment will affect the demand response in three basic dimensions: reduction of sales volume, reduc-tion of sales revenue per unit, increase of sales cost per unit. These dimensions are discussed in the next chapter.
SELECTED SUPPLY CHAINMANAGEMENT
EXTENDED SUPPLY CHAIN MANAGEMENT
FEW SELECTED SUPPLIERS
FEW SELECTED NONCOMPETITORS
FEW SELECTED COMPETITORS
SEVERAL KEY NONCOMPETITORS
ALL SIGNIFICANT SUPPLIERS
ALL SIGNIFICANT CUSTOMERS
ALL SIGNIFICANT LSPs
SEVERAL KEY SUPPLIERS
SEVERAL KEY CUSTOMERS
SEVERAL KEY LSPs
FEW SELECTED CUSTOMERS
FEW SELECTED LSPs
DEMANDPLANNING &
FORECASTING
PURCHASING &PROCUREMENT
PLANNING
STOCK &INVENTORYPLANNING
CUSTOMERSERVICES
SUPPLY CHAINPROJECTS
SUPPLY CHAINBUSINESS
INTELLIGENCE TACTICALIGNMENT
SALES
SUPPLY NETWORK MANAGEMENT
OTHER AREAS OF THE ORGANIZATION
CORPORATE GOVERNANCE
FINANCE
CONTROLLERSHIP
QUALITY ASSURANCE
ENGINEERING
R&D
HS&E
MARKETING
IT
HUMAN RESOURCES
REGULATORY
LEGAL
MANUFACTURINGWAREHOUSINGTRANSPORTATION
Synchronous Operations
TACTICINTEGRATION
SUPPLY CHAIN GOVERNANCE
DISTRIBUTION
INTERNATIONAL LOGISTICS
HUMAN RESOURCESBUSINESS PARTNER
PRODUCTIONPLANNING
SupplyChainFoundation
Planning Logistics
SUPPLY CHAIN RISK MANAGEMENT
INFORMATIONTECHNOLOGY
SUSTAINABILITY
KEY KNOWLEDGE AREAS
CustomerStrategy
ContractManagement
SalesManagement
Sales OrderProcessing
Credit Check
OrderFulfillment
Billing
CustomerServices
CashCollection
CashManagement
Figure 1.11 Manufacturing-to-revenue cycle
CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 19
The credit check policy tends to be defined by the finance, con-trollership, or accounting and represents an important filter in the order-entry process. Therefore, it can delay the speed from order entry to fulfillment or even indefinitely interrupt (cancel) the order.
Billing and cash collection are separated by the physical order ful-fillment. That depends on warehousing operations, transport strategy, and distribution policies. The deliver confirmation at customer prem-ises enables the cash-collection process to start. The longer it takes to deliver an accepted order, the higher the impact on the cash flow.
Integrated Perspective
The integration of these cycles enables the company to visualize what is needed for (ideally we should preserve the word “visibility”) efficient cash management of its operations. Figure 1.12 shows sev-eral knowledge management areas within the supply chain that influ-ence the company’s cash-to-cash cycle.
Therefore, it is clear that supply chain management is not only about physical flows. In fact, the supply chain processes should align physical flows and information flows as a strategy to deliver the ulti-mate goal of capital maximization.
To deliver the right product at the right place at the right time with the right quality is necessary, but not enough. None of these add value to the business unless the cash-to-cash cycle delivers the finan-cial results capable of satisfying shareholders. No organization sur-vives without customer satisfaction. Customer satisfaction is a means, a strategy to enhance shareholder value.
The following chapters discuss how each knowledge area described in the SNAR Model contributes to the creation of share-holder value.
20 SUPPLY CHAIN MANAGEMENT STRATEGY
SELECTED SUPPLY CHAINMANAGEMENT
EXTENDED SUPPLY CHAINMANAGEMENT
FEW SELECTED SUPPLIERS
FEW SELECTED NONCOMPETITORS
FEW SELECTED COMPETITORS
SEVERAL KEY NONCOMPETITORS
ALL SIGNIFICANT SUPPLIERS
ALL SIGNIFICANT CUSTOMERS
ALL SIGNIFICANT LSPs
SEVERAL KEY SUPPLIERS
SEVERAL KEY CUSTOMERS
SEVERAL KEY LSPs
FEW SELECTED CUSTOMERS
FEW SELECTED LSPs
DEMANDPLANNING &
FORECASTING
PURCHASING &PROCUREMENT
PLANNING
STOCK &INVENTORYPLANNING
CUSTOMERSERVICES
SUPPLY CHAINPROJECTS
SUPPLY CHAINBUSINESS
INTELLIGENCE TACTICALIGNMENT
SALES
SUPPLY NETWORK MANAGEMENT
OTHER AREAS OF THE ORGANIZATION
CORPORATE GOVERNANCE
FINANCE
CONTROLLERSHIP
QUALITY ASSURANCE
ENGINEERING
R&D
HS&E
MARKETING
IT
HUMAN RESOURCES
REGULATORY
LEGAL
MANUFACTURINGWAREHOUSINGTRANSPORTATION
Synchronous Operations
TACTICINTEGRATION
SUPPLY CHAIN GOVERNANCE
DISTRIBUTION
INTERNATIONAL LOGISTICS
HUMAN RESOURCESBUSINESS PARTNER
PRODUCTIONPLANNING
SupplyChainFoundation
Planning Logistics
SUPPLY CHAIN RISK MANAGEMENT
INFORMATIONTECHNOLOGY
SUSTAINABILITY
KEY KNOWLEDGE AREAS
PurchasingStrategy
Budgeting andForecasting
OrderRequirements
Selecting andNegotiating
Contracting
Ordering
Receiving
DiscrepancyManagement
Invoicing
CashManagement
CustomerStrategy
ContractManagement
SalesManagement
Sales OrderProcessing
Credit Check
OrderFulfilment
Billing
CustomerServices
CashCollection
CashManagement
Figure 1.12 Cash-management cycle
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Index
Numbers 3PL (third-party logistics), 117
A adding
value to business, 3 value to customers, 54
alliances, SCMP (supply chain master plans), 11 - 12
Ansoff matrix, 37 assemble to order (ATO), 66 asset management, balancing, 73 - 76 ATO (assemble to order), 66
B Balanced Control Panel (BC Panel),
30 balancing
asset management, 73 - 76 service level and cost structure,
76 - 78 baseline results, 115 BC Panel (Balanced Control Panel),
30 BDCS (business-driven customer
service), 51 - 52 , 62 - 63 BOM (bill of materials), 72 Brazilian Institute of Logistics
Enhancement, 110 business, adding value to, 3 business differentiation, 115 business discontinuity, S&OP (sales
and operations planning), 152 - 153 business integration, SNAR Model
(Supply Network Alignment Reference Model), 115 - 117
business value customer experience, 24 margin growth, 24 - 25 reference scenario, 21
155
sales volume growth, 22 - 23 simultaneous policies, 26 - 27
Business Value Impact Chart. See BV Chart (Business Value Impact Chart)
business-driven customer service, 51 - 52 , 62 - 63
BV Chart (Business Value Impact Chart), 27 - 31
Production Planning, 97 - 98
C capacity management, S&OP (sales
and operations planning), 138 - 140 case studies, S&OP (sales and
operations planning) business discontinuity, 152 - 153 large multinational beverage
company, 146 large multinational brewery,
149 - 151 large multinational chemical
company, 151 - 152 large multinational food company,
149 large multinational pharmaceutical
company, 147 - 148 medium-size multinational
pharmaceutical companies, 145 - 146
cash-management cycle, 15 - 16 manufacturing-to-revenue cycle,
17 - 19 perspective, 19 purchase-to-pay cycle, 16 - 17
categorizations, SNAR Model (Supply Network Alignment Reference Model), 5 - 6
CCI (Committee for International Cooperation), xi
156 INDEX
CG (correlation grid), 106 chief supply chain officer (CSCO), xii Christopher, Professor Martin, 78 COGS (cost of goods sold), 58 - 60 collaborative planning, forecasting,
and replenishment (CPFR), 80 Committee for International
Cooperation (CCI), xi Committee of Sponsoring
Organizations (COSO), 76 configure to order (CTO), 66 connecting strategies, 121 - 126
EVA (economic value added), 131 - 132
S&OP (sales and operations planning), 133 - 145
SCRM (supply chain risk management), 127 - 130
controls, evaluating, 76 controls risks, 128 correlation grid (CG), 106 COSO (Committee of Sponsoring
Organizations), 76 cost of goods sold (COGS), 58 - 60 cost of sales, reducing, 72 cost structure, and service level,
balancing, 76 - 78 cost to serve, managing, 58 - 61 costs
drivers of cost, 79 - 81 inventory costs, 81 process costs, 80 transaction costs, 79 - 80 uncertainty costs, 80 - 81
CPFR (collaborative planning, forecasting, and replenishment), 80
CSM Model (Customer Service Management Model), 52 - 54
CTO (configure to order), 66 customer dissatisfaction, reducing, 49 customer experience, 24 , 47 - 54
business-driven customer service, 51 - 52
cost to serve, managing, 58 - 61 CSM Model (Customer Service
Management Model), 52 - 54 enabling, 124 flexibility, 61 - 62 service packages, 61 - 69
customer perception, 48 - 50 improving, 54 - 58 OCT (order cycle time), 55 - 56 order fullfillment, 57
customer satisfaction, xii, 14, 18, 48-50 customer service, supply chain
governance, SNAR Model (Supply Network Alignment Reference Model), 106 - 108
Customer Service Management Model (CSM Model), 52 - 54
Customer Service Model, 107 customers
adding value to, 54 preferred customers, 119
cyclic demand patterns, 87
D dead stocks, 95 Decline phase, 86 demand patterns, 86 - 87 demand planning, S&OP (sales and
operations planning), 134 - 137 demand planning and forecasting, 89
Planning Logistics, 84 - 85 demand patterns, 86 - 87 forecasting horizon, 86 forecasting methods, 87 - 88 product lifecycle, 85 - 86 supply network business value
model, 89 - 90 demand risks, 127 Development and Introduction phase,
85 distribution, synchronous operations,
SNAR Model (Supply Network Alignment Reference Model), 102 - 104
diversification, 37 DPF (demand planning and
forecasting). See demand planning and forecasting
drivers of cost, 79 - 81
E EBIT (earnings before interest and
taxes), 60 economic value added (EVA), 131 - 132 engineering to order (ETO), 66 environmental risks, 128 errors, forecasting errors, reducing,
84 - 85 ETO (engineering to order), 66 EVA (economic value added), 131 - 132 evaluating controls, 76 exceptions, management of exceptions
(S&OP), 143 - 145
INDEX 157
excess inventory, 93 - 94 external manufacturing suppliers, 120 external supply chains, SNAR Model
(Supply Network Alignment Reference Model), 117 - 120
F FGs (finished goods), 66 finance, SNAR Model (Supply
Network Alignment Reference Model), 116
financial obligations, 75 financial sanctions, 75 finish to order (FTO), 66 finished goods (FGs), 66 flexibility, 61 - 62
service packages, 68 forecasting errors, reducing, 84 - 85 forecasting horizon, demand planning
and forecasting, 86 forecasting methods, demand
planning and forecasting, 87 - 88 FTO (finish to order), 66 fulfillment, 40
G governance, supply chains, 68 growth
market-share growth, 37 - 39 sales volume growth. See sales
volume growth Growth phase, 86
H horizontal demand patterns, 86 human resources, supply chain
governance (SNAR Model), 112
I I.B.S., xi improving customer perception, 54 - 58 information technology, supply chain
governance (SNAR Model), 110 - 112 information technology master plan
(ITMP), 111 innovation, 2 intensity chart, public consultation, 5 international logistics, synchronous
operations (SNAR Model), 104 - 106 in-transit inventory (ITI), 95
inventory costs, 81 excess inventory, 93 - 94
inventory levels, 93 - 94 inventory policies, 65 ITI (in-transit inventory), 95 ITMP (information technology master
plan), 111
K knowledge management, 1
L LCCs (low-cost countries), 123 LFR (line fill rate), 34 - 36 line fill rate. See LFR (line fill rate) logistics service providers (LSPs), 69 lost sales, reducing, 41 - 44 low-cost countries (LCCs), 123 LSPs (logistics service providers), 69
M maintenance, repair, and operations
(MRO), 66 make to order (MTO), 66 management of exceptions, S&OP
(sales and operations planning), 143 - 145
managing, cost to serve, 58 - 61 manufacturing, synchronous
operations (SNAR Model), 101 - 102 manufacturing operation, 66 manufacturing-to-revenue cycle,
17 - 19 margin growth, 24 - 25
balancing asset management, 73 - 76 service level and cost structure,
76 - 78 costs, 78 - 81 enabling, 71 , 125 reducing cost of sales, 72
market development, 37 market penetration, 37 marketing, SNAR Model (Supply
Network Alignment Reference Model), 117
marketing initiatives, supporting, 44 - 45
market-share growth, enabling, 37 - 39
158 INDEX
materials requirement planning. See MRP (materials requirement planning)
materials transfers, 75 Maturity phase, 86 models, SCRM-SOX Adherence
Model, 130 MRO (maintenance, repair, and
operations), 66 MRP (materials requirement
planning), 38 , 72 MTO (make to order), 66
O OCT (order cycle time), 33 , 40
customer perception, 55 - 56 on-time in full (OTIF), 55 operational efficiency, 115 order cycle time. See OCT (order
cycle time) order fulfillment customer
perception, 57 OTIF (on-time in-full), 55
P packaging material (PM), 66 patterns, demand patterns, 86 - 87 perception, customer perception,
48 - 50 performance, 14 performance indicators, OCT (order
cycle time), 40 perspective, cash-management cycle,
19 Planning Logistics, 83
demand planning and forecasting, 84 - 85
demand patterns, 86 - 87 forecasting horizon, 86 forecasting methods, 87 - 88 product lifecycle, 85 - 86 supply network business value
model, 89 - 90 planning logistics, 63 PM (packaging material), 66 preferred customers, 119 preferred service providers, 118 preferred supply chains, 68 process costs, 80 process risks, 128 procurement and purchase, SNAR
Model (Supply Network Alignment Reference Model), 91 - 93
product development, 37 product lifecycle, demand planning
and forecasting, Planning Logistics, 85 - 86
product-availability mechanisms, 96 Production Planning, SNAR Model
(Supply Network Alignment Reference Model), 97
profitability, 39 public consultation
intensity chart, 5 SNAR Model (Supply Network
Alignment Reference Model), 5 purchase-to-pay cycle,
cash-management cycle, 16 - 17
Q quality assurance, SNAR Model
(Supply Network Alignment Reference Model), 116
R raw material (RM), 66 reconciliation of inventory, 74 reducing
cost of sales, 72 customer dissatisfaction, 50 forecasting errors, 84 - 85 lost sales, 41 - 44 revenue cycle, 40 - 41
reference scenario, business value, 21 revenue cycle, reducing, 40 - 41 risk classification, 128 - 129 risk management, 126
SCRM (supply chain risk management), 127 - 130
risk management attributes, 128 RM (raw material), 66
S S&OP (sales and operations planning),
133 - 145 capacity management, 138 - 140 case studies
business discontinuity, 152 - 153 large multinational beverage
company, 146 large multinational brewery,
149 - 151 large multinational chemical
company, 151 - 152
INDEX 159
large multinational food company, 149
large multinational pharmaceutical company, 147- 148
medium-size multinational pharmaceutical companies, 145 - 146
demand planning, 134 - 137 management of exceptions, 143 - 145
safety stock, 95 sales, SNAR Model (Supply Network
Alignment Reference Model), 116 sales and operation planning. See
S&OP (sales and operations planning)
sales initiatives, supporting, 44 - 45 sales management policies, 18 sales volume growth, 22 - 23 , 33 - 36
enabling, 124 lost sales, reducing, 41 - 44 market-share growth, enabling,
37 - 39 revenue cycle, reducing, 40 - 41 SNValue Model (Supply Network
Business Value Model), 34 supporting marketing and sales
initiatives, 44 - 45 Sarbanes-Oxley Act (SOX), 74- 75 sawtooth graphs, 95 SCMP (supply chain master plans),
9 - 15 , 74 alliances, 11 - 12 SKMap (Supply Network
Knowledge Management Maturity Roadmap), 13 - 15
strategies, 10 - 11 SCRM (supply chain risk
management), 127 - 130 controls risks, 128 demand risks, 127 environmental risks, 128 process risks, 128 supply risks, 127 - 128
SCRM-SOX Adherence Model, 130 seasonal demand patterns, 87 segmentation, 63
service packages, 64 service level and cost structure,
balancing, 76 - 78 service packages, 61 - 69
flexibility, 68 segmentation, 64
SNAR Model (Supply Network Alignment Reference Model), 63
Tactic Integration, 67 TCO (total cost of ownership), 65 transportation, 67
service providers, preferred service providers, 118
shareholder value, 126 simultaneous policies, business value,
26 - 27 SKMap (Supply Network Knowledge
Management Maturity Roadmap), 1 SCMP (supply chain master plans),
13 - 15 stages of, 15
SKUs (stock-keeping units), 72 SNAR Model (Supply Network
Alignment Reference Model), 3 - 4 business integration, 115 - 117 categorizations, 5 - 6 external supply chains, 117 - 120 Planning Logistics, 83
demand planning and forecasting, 84 - 85
procurement and purchase, 91 - 93 Production Planning, 97 public consultation, 5 service packages, 63 stock and inventory control, 93 - 97 supply chain governance
customer service, 106 - 108 human resources, 112 information technology,
110 - 112 supply chain projects, 108 - 109 sustainability, 113 - 114
synchronous operations distribution, 102 - 104 international logistics, 104 - 106 manufacturing, 101 - 102 warehousing, 99 - 101
synchronous operations transportation, 98 - 99
SNValue Model (Supply Network Business Value Model), 21 , 29
sales volume growth, 34 SOX (Sarbanes-Oxley Act), 74 - 75 , 130 speculative stocks, 95 stages of SKMap (Supply Network
Knowledge Management Maturity Roadmap), 15
stock dead stocks, 95 safety stock, 95 speculative stocks, 95
160 INDEX
stock and inventory control, SNAR Model, 93 - 97
stocking-keeping units (SKUs), 72 strategies, SCMP (supply chain
master plans), 10 - 11 supply chain governance, 68
SNAR Model (Supply Network Alignment Reference Model)
customer service, 106 - 108 human resources, 112 information technology,
110 - 112 supply chain projects, 108 - 109 sustainability, 113 - 114
supply chain management, 76 supply chain master plans. See SCMP
(supply chain master plans) supply chain processes, inadequate
controls, 74 - 75 supply chain projects, supply chain
governance (SNAR Model), 108 - 109 supply chain risk management
(SCRM). See SCRM (supply chain risk management)
supply chain structures, 76 supply chains
preferred supply chains, 68 value and, 5
Supply Network Alignment Reference Model. See SNAR Model (Supply Network Alignment Reference Model)
Supply Network Business Value Model. See SNValue Model (Supply Network Business Value Model)
supply network business value model, demand planning and forecasting, Planning Logistics, 89 - 90
Supply Network Knowledge Management Maturity Roadmap. See SKMap (Supply Network Knowledge Management Maturity Roadmap)
supply risks, 127 - 128 supporting
marketing initiatives, 44 - 45 sales initiatives, 44 - 45
sustainability, supply chain governance (SNAR Model), 113 - 114
sustainable shareholder value, 115 synchronous operations, SNAR
Model (Supply Network Alignment Reference Model)
distribution, 102 - 104
international logistics, 104 - 106 manufacturing, 101 - 102 transportation, 98 - 99 warehousing, 99 - 101
synchronous operations and segmentation, 66
T Tactic Integration, service packages,
67 TCO (total cost of ownership), 61
service packages, 65 transaction costs, 79 - 80 transportation
service packages, 67 synchronous operations, SNAR
Model (Supply Network Alignment Reference Model), 98 - 99
trend demand patterns, 87
U uncertainty, 38 uncertainty costs, 80 - 81 unplanned barriers, 126
V value
adding to business, 3 adding to customers, 54 shareholder value, 126 supply chains and, 5
virtuous cycle, 1 - 2
W-X-Y-Z warehouse management system
(WMS), 101 warehousing, synchronous operations,
SNAR Model (Supply Network Alignment Reference Model), 99 - 101
weighting process, 130 WIP (work in progress), 66 WMS (warehouse management
system), 101 work in progress (WIP), 66 write-offs of stocks, 74