Supply chain strategy realization

Why do you need supply chain strategy realization?

When we look at supply chain strategy realization, we see that many companies skip the translation from strategy to execution. After the communication of the business strategy by the management team, the rest of the company jumps to execution mode, without understanding what the business strategy means for them. A Franklin Covey study shows that only 15% of the work force could identify their organizations top 3 goals.

The consequence is that many departments just continue with what they are doing. Supply chain focus continues to be on well-known areas like inventory reduction, lead time reduction, delivery performance increase, and freight costs reduction.

Business strategy to execution mode problems

The first problem is that it is unclear if these focus areas have any impact on the competitiveness of the business. The second problem is that other departments work on goals that may contradict. For example when the purchasing department is increasing minimum order quantities causing more inventory, or resourcing materials from vendors outside the region causing longer lead times. Does this sound familiar?

There are various models that support business strategy realization like Hoshin Planning, Management Control and Reporting System (MCRS) and Management by Objectives.

Our expertise is embedded in an approach that executes supply chain strategy in 5 steps:

Where to start with supply chain strategy realization?

We always start our improvement projects with change management to build the critical commitment and engage the key stakeholders. This will increase the adoption of the new ways of working.

To manage the change, you need to think about the change process and how to make it an integrated part of the improvement program. The attitude of the leadership must be critical but ambitious and persevering.

Step 1.
Translate business insights into key supply chain success factors

Competitive business strategies are built around customer needs. There are 3 main types of customer needs:

• Product leadership, where customers are looking for leading edge products – products in this category have unique features that competition cannot offer
• Operational excellence, where costs leadership is the main business game
• Customer intimacy, where customers are looking for tailor made products that can be changed exactly to their requirements

For every business it is important to understand the qualifiers and differentiators.

Qualifiers

A qualifier is a minimum requirement to enter the business. For example your ability to comply with international trade rules.

Differentiators

A differentiator is the reason why a customer would choose your product or service instead of the competitors’ product, for example, the lowest price, best after sales service or a special product feature.

A supply chain must be designed to deliver the business strategy

This seems obvious, but many supply chains are focusing on an operational excellence strategy, even when the business strategy is customer intimacy or product leadership. In these companies, the supply chain contribution to the competitiveness is very limited.

For each differentiator and qualifier it must be clear which supply chain capabilities are involved. This is not always easy and for every business different. This is where professional judgement of the supply chain manager comes in.

If a company has multiple business strategies, it is recommended to segment the supply chain per business strategy. Being competitive with a supply chain design that has to deal with multiple business strategies is challenging.

Step 2.
Target setting

Specific on our approach is that we first set the targets to beat the competition. Benchmarking is used by some companies to define targets for differentiators. However, this will only bring you on par with the competition. The target setting for differentiators and qualifiers must be outside in:

• Targets for differentiators must exceed the benchmark
• For qualifiers the approach for targets is: “good is good enough”

Step 3.
Current state assessment

Focus the assessment on the identified qualifiers and differentiators and check if the process and people capabilities are competitive enough to deliver the differentiators for plan-source-make-deliver-return.

To facilitate fact based discussion, data analysis is vital. Also visualizing the supply chain with geographical flows and thread diagrams supports fact based discussions. It can also be helpful to use a cost modeling tool to provide financial insights.

Step 4.
Define the improvement projects

The improvement projects must have a direct impact on the strategic targets. In the deep dive sessions to create opportunities, the data and flow charts are studied. New stakeholders need to be managed. For example, the people that have to execute the improvements. Project charters are created to clearly define which problem will be solved and which resources are required.

Step 5.
Implementation

The program must be structured and needs leadership to drive towards the target result. Visualize your project plan to enable a good understanding of all stakeholders and embed change management in the project plans. To communicate progress of the projects, map all projects in a tracker. Organize project follow up through a weekly drum beat. The core team attitude must be vigorous. The agreed time lines and goals must be kept.

When the milestone for project closure is reached, celebrate and communicate the success story and evaluate and document lessons learned.

Change management

The challenges of the change process are often underestimated. For bigger projects, we recommend assigning a change manager who ensures that all phases of the change process are successfully completed. After every step of our strategy realization approach, the improvement direction must be validated with the key stakeholders to ensure everybody is on board, and that the intended improvements have a direct impact on the business strategy.

For further information about supply chain strategy realization and support please contact us:

Martin Hutten
Senior Consultant Supply Chain Management
Industry Consulting, Philips Engineering Solutions

Reinier Remmelink
Supply Chain Consultant
Industry Consulting, Philips Engineering Solutions

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