Strategic Supply Chain Management 2E (PB)

by Shoshanah Cohen, Joseph Roussel

Overview

Praise For Strategic Supply Chain Management:

"This book shows convincingly that a robust supply chain strategy is critical for business success in today's uncertain economic environment. Cohen and Roussel explain not only what makes for a good supply chain strategy but also how to put that strategy into practice."
-- Jim Miller, VP, Worldwide Operations, Google

"Strategic Supply Chain Management loudly and clearly makes the case that successful companies' supply chain strategies are closely aligned with their competitive differentiation and operating models. The book uses in-depth examples that bring these concepts to life and demonstrate that one size doesn't fit all. Anyone who thinks operations is just another corporate function needs to read this book."
-- Manish Bhatia, SVP, Worldwide Operations, SanDisk

"The advent of global marketplaces, heightened competition, accelerated pace of product innovation, and fast-changing customer preferences have increased the impact of the supply chain on company profitability and long-term success. But cultural challenges to successful supply chain design remain. Cohen and Roussel's book provides a platform for addressing these challenges and is recommended reading for chief executives, strategy professionals, and supply chain practitioners."
-- Martin Roper, Chief Executive Officer and President, Boston Beer

"The authors present a straightforward path for developing and deploying a global supply chain strategy that addresses the priorities of today's executive management teams."
--Hau Lee, Thoma Professor of Operations, Information and Technology, Stanford Graduate School of Business

The classic guide to supply chain strategy--re-created to help business leaders gain an advantage in today's volatile, globalized arena

The global landscape has changed dramatically since the first edition of Strategic Supply Chain Management established itself as the authority on creating value and achieving competitive advantage from the supply chain. Shorter economic cycles, more-frequent natural disasters, higher costs in low-cost countries, more-restricted access to working capital, and greater focus on sustainability have made effective supply chain management much more challenging--and much more critical to the bottom line.

This second edition is your answer to gaining a strategic advantage in the face of these challenges. Drawing on dozens of new company examples as well as cutting-edge benchmarking research, it shows you how to make your supply chains more agile, flexible, and resilient.

With 80 easy-to-read tables and diagrams, this fully revised book explains how to:

• Develop a supply chain strategy that will help you realize your business goals
• Design a process architecture that maps out the activities of the end-to-end supply chain
• Create the most effective supply chain organization
• Build the most beneficial relationships with your supply chain partners
• Use metrics to assess and drive business success
• Implement transformational change

See how today's best supply chain strategies work in all-new profiles of BASF, Essilor, Haier, Kaiser Permanente, Lenovo, and Schlumberger. Find out what these industry leaders are doing to get the greatest value out of their supply chains.

When value depends on how well you deliver, you need Strategic Supply Chain Management, Second Edition.

Product Details

ISBN-13:	9780071813099
Publisher:	McGraw Hill LLC
Publication date:	06/21/2013
Sold by:	Barnes & Noble
Format:	eBook
Pages:	336
Sales rank:	470,273
File size:	10 MB

About the Author

SHOSHANAH COHEN is director of the Global Supply Chain Management Forum, an academic/industry partnership at Stanford Graduate School of Business. Prior to joining Stanford, she was a senior partner at PRTM Management Consulting, where she led PRTM’s Global Supply Chain Innovation practice. She is a frequent writer and speaker on global operations strategy. She holds a BS in Industrial Engineering from Stanford University, an MA in Technology Strategy from Boston University, and an MBA from Harvard Business School.

JOSEPH ROUSSEL is a partner in PwC's Strategy andOperations practice, where he works with companies in transforming their global operations. Prior to joining PwC, he was a partner at PRTM Management Consulting, where he helped develop the original SCOR model. He regularlyleads executive education in operations innovation and transformation. He is a graduate of Louisiana State University, l'Universite Libre de Bruxelles, and The Fletcher School, Tufts University.

Read an Excerpt

STRATEGIC SUPPLY CHAIN MANAGEMENT

THE FIVE CORE DISCIPLINES FOR TOP PERFORMANCE

---

By SHOSHANAH COHEN, JOSEPH ROUSSEL

The McGraw-Hill Companies, Inc.

Copyright © 2013 McGraw-Hill Education
All rights reserved.
ISBN: 978-0-07-181308-2

---

Excerpt

CHAPTER 1

DISCIPLINE 1: ALIGN YOUR SUPPLY CHAIN WITH YOUR BUSINESS STRATEGY

Management teams are under intense pressure from their boards and shareholders to develop business strategies that can be executed in the real world. Key to any actionable business strategy is a supply chain strategy that is robust enough to support all aspects of operations, yet nimble enough to address today's rapidly changing market conditions. This is a tall order, but the right approach can make your company's supply chain a true source of competitive differentiation.

Few would dispute that we are in a world of slower economic growth, unpredictable swings in demand, and volatility in the prices of key inputs such as commodities. Many prominent economists refer to this period of ongoing economic uncertainty as the "new normal." While broader macroeconomic adjustments are needed to return to sustained growth, it is also necessary for every company to take action, on multiple fronts.

In this new normal, the supply chain has become a critical asset for any company pursuing global growth and profitability. Yet many companies think about their supply chains only when something is broken—high inventory levels, dissatisfied customers, or supplier problems, for example. Or perhaps a benchmarking analysis showed supply chain performance lagging behind that of others in the industry. The best-performing companies are harnessing their supply chains for competitive advantage. They constantly search for new ways for their supply chains to add value and push the boundaries of performance. Moreover, they keep making refinements so that their supply chains—and their overall business performance—stay one step ahead of the competition.

Of the various disciplines needed for strategic supply chain management, the most important is supply chain strategy. Companies with highperforming supply chains understand that their supply chain strategy should be closely aligned with their overall business strategy. They know that their supply chain strategy decisions will, to a large degree, determine decisions regarding all the other core disciplines: process, organization, collaboration, and performance measurement and management.

Developing a good supply chain strategy requires addressing a fundamental paradox. Although it can take years to fully implement a supply chain strategy, companies must be able to respond quickly to changes in the business environment. This balance of long-term and short-term considerations can be extremely difficult to achieve. But by thoughtfully laying out the elements central to the strategy, companies can navigate issues whenever they arise, while building a supply chain that will support differentiation over the long term.

THE CORE STRATEGIC VISION

An effective business strategy begins with a core strategic vision that establishes the boundary conditions for your business: what you are, what you'll do, and—just as important—what you are not and what you won't do (Figure 1.1).

The core strategic vision answers three key questions: What are your company's overall strategic objectives? What value does it deliver to customers? How does your company differentiate itself in the marketplace? The answers must inform your supply chain strategy decisions, or your supply chain will be operating in a vacuum.

HOW COMPANIES USE THEIR SUPPLY CHAIN TO COMPETE

Companies compete on the basis of innovation, customer experience, quality, and cost. While all four factors are important, leading companies choose one to be their primary basis of competition in a chosen market and use the others to support that competitive positioning. The key is to excel at the basis of competition that really matters for the customer and that provides a strong means of differentiation versus the competition. A supply chain can play a major role in this endeavor, provided the company's basis of competition informs the supply chain strategy and the supporting disciplines of process architecture, organization, collaboration, and performance measurement and management (Table 1.1).

The best companies understand that they can't be all things to all people. Make sure that your company's supply chain strategy supports the company's primary basis of competition, but remember that strategy is a balancing act. No cost leader can afford to ignore customer experience, nor can an innovator ignore the price ceiling of a market. Companies with top-performing supply chains understand the trade-offs among service levels, lead times, working capital, and costs, and they make decisions that best fit their overall strategic mission. The key is to choose where to focus and then to achieve best-in-class supply chain performance in those areas.

COMPETING ON INNOVATION

Companies that compete on innovation develop the must-have products and services in their industry. Innovation leaders like Apple, BMW, and Alstom have a finger on the pulse of their customers and consistently launch products that outsell those of the competition.

How does the supply chain support a company that competes on innovation? Time to market is critical because the window of opportunity before fast followers start taking market share can be small. Success depends on integrating the supply chain with the design chain—that is, integrating all of the activities inside and outside the enterprise that are involved in the design of a new product or service. This degree of integration entails coordinated management of processes, physical assets, and information.

Time to volume is also important. For an innovation-driven company, creating strong demand for a new product and then being unable to produce enough volume to meet that demand is one of the worst things that can happen. Close collaboration between the design chain and the supply chain helps to ensure that when demand cranks up, the whole supply chain is ready.

Consider Zara, a Spanish clothing retailer that competes on innovation while keeping a close eye on costs.

Many apparel manufacturers keep costs down by outsourcing production to Asia. Contract manufacturers' use of fixed production schedules, however, can limit retailers' ability to change, on short notice, the types and volumes of the products they order. This is especially problematic in a sector like fashion, where consumer preferences shift rapidly. With too many of the wrong garments on hand, retailers can end up with marked-down inventory and eroded margins.

Zara uses a very different model. The retailer, owned by global giant Inditex, positions itself as the purveyor of "fast fashion," designer clothes for the trendsetting but price-conscious consumer. To deliver on that strategy, Zara manufactures almost 50 percent of its garments nearby, in Spain, Portugal, and Morocco. Although production costs are 15 percent to 20 percent higher than those of the competition, Zara more than makes up for the cost differential by taking steps to ensure that the products that customers want are available when they want them. Point-of-sale information from stores worldwide makes it possible to identify best-selling items and get them produced and delivered to stores quickly. The result: more full-priced sales and fewer markdowns. From 2005 through 2011, Inditex's annual revenue doubled; in 2011, Zara's profit margins were 19.3 percent, substantially higher than competitors'.

COMPETING ON CUSTOMER EXPERIENCE

Companies that compete on this factor provide an experience that meets their customers' specific needs. They use a deep understanding of customer preferences to tailor the associated supply chains. Research conducted by PwC's Performance Measurement Group (PMG) indicates that companies that provide exceptional customer experience average almost 5 percent higher earnings before interest, taxes, depreciation, and amortization (EBITDA) than the competition. They also average a compound annual growth rate of sales that is more than 8 percent higher.

Why does superior customer experience lead to such striking financial gains? Companies that excel in customer experience understand the relationship between cost to serve and profitability, and can assess the cost of offering customized services. They know not only when to offer lots of choices to customers but also when not to. By getting products and services to customers when and where customers want them, they avoid the costs related to both expedited production and customer churn. That's why companies that compete on customer experience report lower account turnover, reduced customer-retention costs, and a stronger bottom line.

The Internet has made it easier for business-to-consumer companies to enhance the customer experience. Take, for example, the apparel industry, where a number of online start-ups now offer custom-made clothes for a fraction of what bespoke clothing once cost. One U.S.-based company, J. Hilburn, took a different tack, developing a buying process that is part online, part offline. First, the customer places an order online; then, a sales consultant goes to the customer's home to take measurements and share fabric swatches. After the order has been delivered, the consultant returns to make sure the clothes fit correctly. J. Hilburn keeps the customer measurements in a file online so that the customer can easily log on and place new orders. This innovative supply chain—custom orders placed in the United States, fabrics designed and woven in Italy, and clothing produced in China—has allowed J. Hilburn to offer custom-fitted clothes for the cost of off-the-shelf garments.

Customer experience is an important source of competitive advantage in the business-to-business arena as well. In many industries, companies have created customized services that are invoiced according to their contribution to the customer's ability to generate revenue. Take the mining industry, for example, where 24-7 operations require tools to be constantly available, and where reliability and safety are paramount. A drill needs to run for years in extreme conditions as deep as 10,000 feet underground, drilling up to 100 miles every year.

Sandvik Mining, a part of the Sandvik Group, is a leading supplier to the mining industry and is known for its reliability and leading-edge technology. Its offerings include rock drilling, exploration drilling, cutting, and crushing, as well as materials handling for surface and underground mining. "Service has become the key differentiator in the rapidly changing global mining business," explains Sandvik's president of drilling, exploration, and rock cutting, Gerald Elliott. "More and more mining companies are now more focused on productivity, as opposed to upfront equipment and spare-parts costs."

In Sandvik's case, this means charging for the number of hours worked, the number of feet drilled, or, in some cases, the tons of product produced. In return, the company keeps the equipment up and running for its entire life cycle, with the help of service experts deployed at the customer site. This approach allows Sandvik to provide its customers with what matters most: greater output at a lower total cost.

COMPETING ON QUALITY

Companies that compete on quality are best known for their premium products and services, offerings that are consistent and reliable. Lexus automobiles, Louis Vuitton leather goods, and Tropicana juices are three examples that immediately come to mind. Product development is critical to quality, and so are key supply chain processes such as production, sourcing, quality assurance, and return. If a product is fragile or perishable, transportation and storage also play integral roles.

Consider Tropicana, the world's leading producer of branded fruit juices. As the largest single buyer of Florida fruit, Tropicana developed what it calls the "grow to glass" approach, a proprietary system to ensure that fruit is harvested at its peak. The company also uses specially engineered carton and plastic packaging to keep the juice fresh, while state-of-the-art refrigerator trucks and specially designed railcars deliver juice to distribution centers throughout North America.

For many companies competing on quality, the ability to trace a product back to its point of origin, known as traceability, has become a source of differentiation (although for some industries it is a response to regulatory mandates). In industries in which counterfeiting has become a serious threat, such as pharmaceuticals, the integrity of the end-to-end supply chain is essential. To ensure traceability, manufacturers closely control product flows to consumers. Moreover, they use markings and track-and-trace technologies to guarantee that what customers purchase is the "genuine article."

COMPETING ON COST

To be sure, all companies need to keep an eye on costs. But that's not the same thing as competing on cost. Companies that compete on cost offer prices to attract cost-sensitive buyers or to maintain share in a commodity market. This basis of competition demands highly efficient operations. Standardization of products and processes is fundamental, as are supplier and production quality and inventory control. Supply chain performance is measured with efficiency- related metrics such as asset utilization, inventory days of supply, product costs, and total supply chain management costs.

Consider India's number one pharmaceutical company, Dr. Reddy's Laboratories, a vertically integrated maker of proprietary and generic drugs. Dr. Reddy's generics business aims to make pharmaceuticals affordable to people worldwide by offering lower-cost alternatives to high-priced products. The company produces both branded and unbranded generics in its plant in India, while its supply chain manages distribution from its plant in India to customers in more than 100 countries across the globe. The company has honed its supply chain costs so well that it is able to provide products that match those of local competitors on both quality and price.

KEY ELEMENTS OF SUPPLY CHAIN STRATEGY

A supply chain strategy involves many interlocking activities and decisions, large and small. According to Michael Porter, strategy guru and author of Competitive Advantage, successful business strategy relies on the concept of "fit"—that is, a group of activities that support a chosen competitive strategy. Although any single activity can be copied, the activities taken together form a system that is virtually impossible to duplicate.

Porter's concept of fitness holds equally true for supply chain strategy. Five elements of your business—and the choices you make regarding these elements—are fundamental:

* Customer service: What are your objectives in terms of delivery speed, accuracy, and flexibility?

* Sales channels: How will your customers order and receive your goods and services?

* Value system: Which supply chain activities will be performed by your organization and which by your partners?

* Operating model: How will you organize the planning, ordering, production, and delivery processes to provide customer service while still meeting your working capital and cost objectives?

* Asset footprint: Where will you locate your supply chain resources, and what is their scope of action?

Companies often make decisions about each of these elements in isolation, without considering the others. It's possible, for example, to develop a manufacturing footprint that reduces costs, only to fall short of required customer-service levels. To get the full strategic benefit a supply chain can offer, however, it's critical to treat each element as part of an integrated whole (Figure 1.2).

CUSTOMER SERVICE

The first step in developing a supply chain strategy is to define customer service objectives. Offering various levels of delivery speed, accuracy, and flexibility for different types of customers can help distinguish the overall customer experience. Should, for example, deliveries reach all customers in the same amount of time, or should customers who are more valuable receive deliveries faster? Should the ordering process be the same for all customers? Answers to questions like these will be dictated by your company's business strategy and target audience—that is, whether you are addressing B2C or B2B segments.

B2C

In the B2C world, off-the-shelf product availability is often the key service criterion. Customers are willing to wait for hot products from a leading brand—but only up to a point. Retailer Nordstrom introduced an innovation in online retailing when it made the inventory of its 115 brick-and-mortar stores visible to consumers shopping on its online store. Previously, customers saw only what was available in the web warehouse and sometimes found that the product they wanted was not available. The retailer's change in practice led to higher product availability, increased sales, and lower inventories. Approaches such as this one help Nordstrom maintain its reputation for outstanding customer service and overall customer experience.

B2B

In the B2B world, customer service is often synonymous with meeting committed delivery dates, because the customer uses the product or service in revenue-generating activities. But lead-time performance can also be critical.

Consider, for example, a supplier of mining equipment that sells machinery to two very different customer types: companies that own their mines, and contractors that conduct mine development and other activities for those mining companies. Because mining companies have capital investment plans and a fleet to maintain, they typically order equipment far in advance of when they need it, on a predictable timeline. So mining-equipment suppliers typically have six months or more to deliver equipment to mining companies. Contractors, by contrast, typically operate on a very compressed calendar: they wait until they have a contract in hand from a mining company before placing equipment orders, and they need the machines delivered in three months or less.
(Continues...)

---

Excerpted from STRATEGIC SUPPLY CHAIN MANAGEMENT by SHOSHANAH COHEN. Copyright © 2013 by McGraw-Hill Education. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

---

Table of Contents

Preface xi

Acknowledgments xv

Chapter 1 Discipline 1: Align Your Supply Chain with Your Business Strategy 1

The Core Strategic Vision 2

How Companies Use Their Supply Chain to Compete 3

Key Elements of Supply Chain Strategy 9

Tests of a Good Supply Chain Strategy 21

Supply Chain Management Profile

BASF: Increasing Farm Yields Through Innovations in Chemistry 31

Chapter 2 Discipline 2: Develop an End-To-End Process Architecture 41

Designing an Integrated Supply Chain Process Architecture 42

Key Processes for End-to-End Supply Chain Management 48

Tests for a Good Supply Chain Architecture 61

Supply Chain Management Profile

Essilor: Building an Efficient Supply Chain to Serve the Company's Mission 77

Chapter 3 Discipline 3: Design a High-Performing Supply Chain Organization 91

Three Activities Essential for Designing Your Company's Supply Chain Organization 93

Other Defining Characteristics of Exceptional Supply Chain Organizations 108

Supply Chain Management Profile

Haier: Pursuing the Customer-Inspired Supply Chain 117

Chapter 4 Discipline 4: Build the Right Collaborative Model 129

Understanding Collaboration 130

The Path to Successful Collaboration 140

Tests of Successful Collaboration 158

Supply Chain Management Profile

Kaiser Permanente: Thriving Under Pressure 161

Chapter 5 Discipline 5: Use Metrics to Drive Performance 171

Supply Chain Performance Measurement: Selecting the Right Metrics 174

Supply Chain Performance Management: Making Metrics Matter 188

Supply Chain Management Profile Lenovo: Moving Full-Speed Ahead 201

Chapter 6 Benchmarking Results: The Best-In-Class Performance Advantage 213

The Relationship Between Supply Chain Performance and Financial Performance 214

Driving Supply Chain Performance 217

Mastering Complexity for Superior Performance 223

Supply Chain Management Profile Schlumberger: Integrating People and Technology for Service Excellence 231

Chapter 7 Transform Your Supply Chain 243

Setting Improvement Priorities 245

Designing the Transformation Road Map 251

Implementing the Change 258

Notes 269

Bibliography 277

Index 285