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Better, Faster, Cheaper, Closer! How Supply Chain Management is Changing the Rules of Competition

Better, Faster, Cheaper, Closer! How Supply Chain Management is Changing the Rules of Competition. Professor Martin Christopher. New competitive realities. Input costs are rising but customers’ expectations are for lower prices

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Better, Faster, Cheaper, Closer! How Supply Chain Management is Changing the Rules of Competition

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  1. Better, Faster, Cheaper, Closer!How Supply Chain Managementis Changing the Rules of Competition Professor Martin Christopher

  2. New competitive realities • Input costs are rising but customers’ expectations are for lower prices • New sources of low cost competition mean that downward pressure on price will continue • Continual concentration of markets means that bigger, more powerful customers will demand more from their suppliers

  3. The four pillars of supply chain excellence Supply Chain Excellence Better Faster Cheaper Closer

  4. Focus on customer value BETTER : Superior service quality FASTER : Greater responsiveness through time compression CHEAPER : Lower costs of ownership CLOSER : Create partnerships in the supply chain

  5. Better!

  6. Demand chain management : linkingcustomer value to supply chain strategy

  7. Diminishing brand loyalty “When I find a brand I like, I tend to stick to it” % agreeing Source : BMRB/TGI 2003

  8. The importance of availability In mature markets on-the-shelf availability can transform profitability both for the manufacturer and the retailer. Two thirds of all shopping decisions are taken at the point-of-purchase. Availability can overcome brand loyalty where the shopper selects from a ‘portfolio’ of brands

  9. Shopper behaviour when faced witha stock-out

  10. Actions taken when faced witha stock-out

  11. On average the retailer loses 30% of purchases,and the manufacturer almost half, due to ‘out of stocks’ 21 Consumer responses (%) 37 9 17 16 Buys a different size Returns later Doesn’t buy anything Buys brand elsewhere Buys a different brand 12-31 11-20 4-10 21-65 8-41 Range Source : Roland Berger

  12. 20%+ 7-10% 2% Fresh ready-meals Average Hair care All studies show typical OOS rates inEurope of between 7 and 10% • Each lost family costs the retailer EUR 15K • Each 1% lower OOS a manufacturer can achieve equates to an additional 0.5% of growth • Each 1% lower OOS a retailer can achieve equates to a 0.3% higher growth rate • EUR 4 bn lost across Europe Source : Roland Berger

  13. OOS causes supply chain inefficiencies • Consumer • Brand switch • Store switch • Size switch • Timing delays • Inaccurate Picture to • the Supply Chain of • product mix • product levels • product flow Sends an Source : Gruen, Corsten and Bharadwaj (2002)

  14. Faster!

  15. Cumulative Lead-Time (Procurement to Payment) Raw Material Stock Sub-Assembly Stock Intermediate Stock Product Assembly Finished Stock at Central Warehouse In-Transit Regional Distribution Centre Stock Customer Order Cycle (Order-Cash) How long is the logistics pipeline?

  16. Sales Organisation Component Suppliers Manufacturing Customers ? 30 5 65 35 55 In- Transit 10 Finished Stocks Warehouse Wholesaler Retailer Material Stocks & WIP Total Pipeline Time 200 Days International logistics pipeline

  17. Pathways to time compression Supply Side Internal Demand Side • Strategic sourcing • Synchronised production & sequencing • Co-location • Reduce non-value adding time • Reduce complexity • Postponement • Collaborative planning • Co-managed inventory • Visibility of real demand Manage the extended enterprise

  18. Partners 3 Zara 1 Information flows Product flows Customers are young fashionable professionals 4 2 6 5 Zara’s value net design brings fashion to market …………. fast 3. Textiles are sourced from global suppliers 1. Zara stores are digitally linked to headquarters; employees collect and share input from customers daily 4. Zara’s parent performs the capital-intensive production activities 2. Zara designers sketch new styles based on customer input and “hot spot” trends 6. One distribution centre dispatches product to stores twice weekly 5. Local workshops perform final sewing/assembly Source : Mercer Management Consulting

  19. Cheaper!

  20. Customer profitability % of Total Profit Contribution 100% 100% % of Total Customer

  21. Measuring the ‘cost to serve’ • Logistics cost accounting What costs? - Inventory - Transport - Warehousing - Order processing - etc • All costs incurred from ‘order to collection’ • Logistics cost accounting What measures? - Full costs - Marginal costs - Avoidable costs - etc

  22. Activity based costing • Customers create activity • Activity generates cost • Within each activity centre understand the cost drivers • Analyse customers by the activity they generate • Allocate costs according to relative customer activity

  23. Activity based costing Order Approval & Confirmation Order Entry Order Capture Invoice & Collection Delivery • Understand the order fulfillment process • Identify the cost drivers • Customer cost accounting

  24. Supply chain flows • Products accumulate cost as they flow through the chain • Products consume capacity and create costs differentially • Customers contribute to costs differentially • Conventional average measures are DANGEROUS

  25. Closer!

  26. From transactions to relationships Strategic allianceA planned ongoing relationship where both parties have needs that the other can fulfill, and both firms share values, goals and corporate strategies for mutual benefit. Out-sourcingA specifically defined relationship that is contractually oriented and dependent on the supplier meeting the shipper’s defined performance goals. TransactionA relationship built on a single event, or a series of separate single events. Strategic Alliance Outsourcing Transaction

  27. 7 “I’s” make “We” • Importance - must be strategically significant • Investment - both parties must be willing to invest • Information - must have good exchange of information • Integration - must connect at many levels • Interdependence - cannot exist without each other • Institutionalisation - must have formal mechanisms and structure • Integrity - active respect in the relationship - mutuality and trust Source : Rosbeth Moss Kanter

  28. Supply chain competition “Individual businesses no longer compete as stand-alone entities, but rather as supply chains. We are now entering the era of ‘network competition’ where the prizes will go to those organisations who can better structure, co-ordinate and manage the relationships with their partners in a network committed to better, faster and closer relationships with their final customers.” M G Christopher

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