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Professor Martin Christopher

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1 Professor Martin Christopher
Better, Faster, Cheaper, Closer! How Supply Chain Management is 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
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 : linking customer 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 with a stock-out

10 Actions taken when faced with a stock-out

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

12 All studies show typical OOS rates in Europe of between 7 and 10%
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 % 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 How long is the logistics pipeline?
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)

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

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

19 Cheaper!

20 Customer profitability
% of Total Profit Contribution 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’ What measures? - Full costs - Marginal costs - Avoidable costs

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
Understand the order fulfillment process Identify the cost drivers Customer cost accounting Delivery Invoice & Collection Order Capture Entry Approval & Confirmation

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 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 Source : Rosbeth Moss Kanter
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 M G Christopher 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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