If companies already have a supply chain strategy, it is often of limited value. A shame, because with a good supply chain strategy, companies can really make a difference. But how do you draw up a good strategy? The Supply Chain Strategy Masterclass provides three answers: choose, choose and choose again. "You can't offer a Bentley customer a Seat service, can you?"
Tijmen Muijs shows Volkswagen's business strategy on the big screen. Participants in the Supply Chain Strategy Masterclass see some eloquent sentences in which the customer relationship seems to be paramount. But then a picture appears showing the German automaker's 12 different brands. "How are you going to translate that business strategy to these 12 different brands? You can't offer a Bentley customer a Seat service, can you? The important thing is to distinguish between the different product-market combinations and make the right choices for each combination," Muijs, BLMC's specialist in supply chain strategy, says.
Implement it consistently
Creating a good supply chain strategy is mainly about making choices, the well-attended master class revealed. Of course, successful companies exist without a supply chain strategy. But companies that choose a clear supply chain strategy thereby create a competitive advantage. And then the chosen strategy must be implemented consistently. The resulting success is reflected in the 'return on capital employed' (ROCE), or the return on capital invested.
Muijs cites two airlines as examples: Emirates and Ryanair. "Which airline do you think has the highest ROCE?" he asks the audience. He gives the answer himself. "That is about the same with both, while the strategy is completely different. Emirates bets high on assets and service, which leads to high costs and a high margin. Ryanair bets low on assets and service, resulting in low costs and low margin. The reason for their success is that both companies have consistently implemented the deployed strategy."
Eleven customer values
So what are the choices that need to be made to achieve a good supply chain strategy? These are the trade-offs between customer values such as quality, speed, flexibility and cost. The Supply Chain Excellence Platform (SCELP), an initiative of BLMC and Nyenrode Business University, has defined a total of 11 customer values. "Companies have to choose between them. They cannot optimise all 11 at once. Take a company that wants to distinguish itself with the lowest cost. If that company additionally increases its flexibility or its speed, that irrevocably leads to higher costs," says Jack van der Veen, professor of supply chain management at Nyenrode Business University.
Van der Veen shows a diagram in which cost and quality are plotted against each other as an example. Ideally, everyone would like to score maximum on both customer values. That would result in a position at the top right of the diagram. "But that is not possible. One always comes at the expense of the other," the professor argues. The trade-off that companies have to make results in a position on a curve running from top left to bottom right. "But where exactly on that curve do you want to be? Closer to quality or to cost? That's strategy."
Three SCELP tools
Three tools have been developed within SCELP to help companies formulate their supply chain strategy. The first tool is a checklist that shows whether the formulated strategy meets all conditions. Is it aligned with the business strategy? Has it been communicated to all stakeholders? "That last point often leaves much to be desired," Van der Veen knows. "Almost all companies do have a strategy, but it has to be shared."
The other two tools help determine the content of the supply chain strategy. In the first tool, companies are given 50 points to distribute across the 11 customer values. The second tool involves forty points, to be divided among six 'value drivers'. These are the factors that determine supply chain design: delivery reliability, responsiveness, flexibility, cost, working capital and sustainability. The key is to have both tools completed by different people. "Because everyone only has a limited number of points to allocate, you see completely different outcomes emerging within companies and even within departments. That gives rise to the discussion needed to get the supply chain strategy in focus. That process is at least as important as just the actual result of that tool," Van der Veen argues, prompting the participants in the room to take action. "These are three simple tools that make strategy clear and discussable. Get started with them."
