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