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

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Presentation on theme: "Better, Faster, Cheaper, Closer! How Supply Chain Management is Changing the Rules of Competition Professor Martin Christopher."— Presentation transcript:

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

2 Page 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 Page 3 The four pillars of supply chain excellence BetterCloserCheaperFaster Supply Chain Excellence

4 Page 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 Page 5 Better!

6 Page 6 Demand chain management : linking customer value to supply chain strategy

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

8 Page 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 Page 9 Shopper behaviour when faced with a stock-out

10 Page 10 Actions taken when faced with a stock-out

11 Page 11 On average the retailer loses 30% of purchases, and the manufacturer almost half, due to ‘out of stocks’ Consumer responses (%) 16 17 9 37 21 Buys a different size Returns later Doesn’t buy anything Buys a different brand Buys brand elsewhere Range 12-3111-204-1021-658-41 Source : Roland Berger

12 Page 12 All studies show typical OOS rates in Europe of between 7 and 10% Source : Roland Berger 7-10% 20%+ 2% Average Fresh ready-meals Hair care ● 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

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

14 Page 14 Faster!

15 Page 15 How long is the logistics pipeline? Cumulative Lead-Time (Procuremen t 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)

16 Page 16 International logistics pipeline Material Stocks & WIP Finished Stocks WarehouseWholesalerRetailer Manufacturing Component Suppliers Sales Organisation Customers ?305653555 10 In- Transit Total Pipeline Time 200 Days

17 Page 17 Demand SideInternalSupply 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 Pathways to time compression

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

19 Page 19 Cheaper!

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

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

24 Page 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 Page 25 Closer!

26 Page 26 From transactions to relationships Strategic alliance A 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-sourcing A specifically defined relationship that is contractually oriented and dependent on the supplier meeting the shipper’s defined performance goals. Transaction A relationship built on a single event, or a series of separate single events. Strategic Alliance Outsourcing Transaction

27 Page 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 Page 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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