Aligning your Supply Chain Operating Strategy with Business

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					Supply Chain Alignment Diagnostic Workshop

Dr. John Gattorna

Introduction – the Business Imperative
 Organisations need to be able to align their operating strategies not only to their corporate or business unit objectives, but also to the dynamic demands of the market place  A competently executed and aligned operating strategy will increase revenue, reduce costs and boost an organisation‟s competitive advantage  This will enable and ensure appropriate responses to diverse and changing customer needs

 We have developed a Rapid Workshop Program (RWP) to assist organisations devise fully aligned operational strategies
 Gattorna 2004

Introduction – our Response

Determine key drivers of customer buying behaviours

Develop appropriate strategic responses for each target customer segment

Our program helps to

Segment customers based on relevant criteria

Recognise internal culture and leadership capabilities necessary for success

Key outputs of our program, designed exclusively for top management teams (TMTs), include an agreed set of focused initiatives that address capability and cultural requirements, and an initial workplan, including suggested implementation timelines
 Gattorna 2004

The Strategic Alignment Model
 The workshop uses the Strategic Alignment model to demonstrate the compelling logic of aligning an organisation with its operating environment
Strategy Competitive Situation Technology Infrastructure

“Rules” “Playing the Game”

Strategy

Human performance

Culture

“Internal Capabilities”
“Shaping & Creating”

Leadership Style

Usefulness  Provides structure: management teams „put themselves into the shoes of their customers‟  Shows the interaction between customers‟ needs, appropriate strategic responses, successful execution of strategies, internal capabilities and leadership styles Prerequisite  Understanding of the customers‟ fundamental needs and buying behaviours that ultimately drive sales, revenues, and profit

 Gattorna 2004

Business Processes

Industry background and corporate strategy
 The workshop typically begins with an overview of the relevant industry

Existing business models

Significant industry changes or trends

New business models

 The broad strategic vision of the overall organisation, including corporate and business unit strategies, will act as important overarching guidelines for all workshop participants
 Gattorna 2004

Start at the customer end: Supply Chain Segmentation
 Understanding the market and the inherent buyer values is critical to segmenting customers and developing an effective operating strategy
 Participants use our proprietary PADI buyer value framework to „map‟ and group their customers‟ buying behaviours  Customers may appear in multiple segments across the range of products and services they require  Customers may migrate between segments in different market situations  A customer may exhibit a number of buyer behaviours – the key is to identify the dominant behaviour for the offering under consideration
I Empathy Caring Interaction Harmony Sensitivity Innovative Creative Flexible Unstructured Freedom Demanding Sense of urgency, action Time sensitive “Movers & shakers” Results rather than processes P D

Reliable Consistent Predictable Planned Process orientation A

Benefits of alignment
 There are many significant benefits associated with improved alignment of customer requirements and internal resources.
 Focus on consistently fulfilling customer requirements; consistently higher DIFOTs  Clear opportunities for premiums on value-added offerings while controlling costs for other customer segments  Focus on advanced functional excellence (eg: collaborative planning) for high value segments with volatile demand  Clear operational focus on each customer segment – Clear operational goals plus simplified and standardised processes – Meaningful customised KPIs for each segment – Accurate requirement specification to 3PLs – Inventories better aligned with specific needs and situations
 Gattorna 2004

Multiple alignment is required in a segmented market
 The PADI strategy framework provides descriptive traits of four possible types of dominant responses to correspond with the dominant buying behaviours
Market
Needs Needs Needs Needs

“Segments ”

• Identify and group like needs and behaviours in the market

Strategy

Service prop.

Service prop.

Service prop.

Service prop.

“Distinct • The firm’s strategic service response to the propositions” market conditions • Internal capabilities to execute this desired alignment through the appropriate subcultures • Leadership styles and models

Culture

Org. / process

Org. / process

Org. / process

Org. / process

“Internal capabilities”

Leadership  Gattorna 2004

Leader

Leader

Leader

Leader

“Shaping & creating”

Culture and leadership style
 Specially developed PADI culture and leadership style frameworks also guide the participants as they work through each component of the strategic alignment model
Culture
Indirect Control
I D

 The frameworks help identify the sub-cultures and leadership styles required for successful delivery of the aligned operational responses for each segment

Group Internal Focus
Means: Synergy, teamwork, co-operation Ends: Cohesion

Entrepreneurial
Means: Innovation, flexibility, readiness Ends: Growth

External Focus

Hierarchical
Means: Systems, measureme nts, controls Ends: Order

Rational
Means: Action, objectives, energy Ends: Results

A

P

Direct Control  Gattorna 2004

Identifying and prioritising initiatives – step 1
 A key output of the workshop is a set of initiatives identified as necessary for the successful implementation and ongoing execution of the aligned operating strategy
 A number of tools and frameworks such as the organisational pyramid provide a logical route from strategy to operational execution
 Each pyramid element is examined and issues, needs, and capability gaps are documented  Breakout groups consider each issue and propose action plans
Information Systems Customer Value Alignment

Strategic
Channel Design Network Optimisation

Structural
Integrated Planning Facilities & Transport Operations Sourcing, Production & Inventory Management

Operational
Performance Management Organisation Processes

Support

Organisational Pyramid

Identifying and prioritising initiatives – step 2
 The top management team (TMT) can then conduct an initial prioritisation of initiatives and corresponding resource allocations using a prioritisation matrix
 Each initiative is mapped onto the matrix according to the relative business benefit and the relative ease of implementation  This process is in itself an extremely effective way of promoting valuable interactive and focused discussion among the TMT
High

Relative Business Benefit

Immediate priority

Plan delivery

Exploit in time
Easy

Review at later date
Difficult

Low

Relative Ease of Implementation

Prioritisation Matrix

Identifying and prioritising initiatives
1 2 3 Value chain analysis Strategic Alignment Partnership/alignment with company A versus company B 4 Inbound supply network alliance (sourcing, freight) 5 End user segmentation 6 Portals and eMarketplaces 7 Niche import “traders” segment 8 Comprehensive curve 2 initiatives (refer Performance-Capability Continuum) 9 World scale active ingredient manufacturing 10 Toll manufacturing/formulation 11 Global expansion of business
Illustrative
High

3

Relative Business Benefit

Immediate Priority
1

2

9

Plan to Deliver
5
8 11

4 10

6

7

Exploit in Time
Easy

Review at Later Date

Low

Relative Ease of Implementation

Difficult

The workplan – the most important output of the strategic alignment workshop
Illustrative

 The commitment to the initiative program from the TMT is a key differentiating feature of the strategic alignment workshop program in terms of results realisation
Change Initiatives Q3 2004 Q4 Q1 Q2 2005 Q3 Q4 Responsibility

Initiative 1 Initiative 2
Initiative 3 Initiative 4 Initiative 5 Initiative 6

Allocated sponsor from within the top team - responsibility to instigate agreed action in agreed time.

Initiative 7
Initiative 8 Initiative 9 Initiative 10 Initiative 11

Linking the proposed initiatives to tangible value
Strategic Alignment Value Levers
Increase revenues Decrease COGS Reduce selling costs Reduce logistic costs Reduce admin costs Reduce IT Costs
Customer Segmentation; Integrated marketing/Corporate Image; Integrated Account Mgt Crash Program for Difot and Inventory Mgt; Integrated Fulfilment; Short term initiatives with Sourcing Strategy Integrated Account Mgt; Financial Fulfilment

Increase Gross Profit

Increase Net Operating Profits
Decrease Operating Expenses

Integrated Fulfilment, i.e. Warehousing costs, Freight costs, Distribution costs Call Centre Effectiveness/Integration; People matters; Comprehensive KPIs Application Maintenance; Integration Foundation ERP Comprehensive KPIs, i.e. Purchased Goods, WIP, Finished Goods Comprehensive KPIs, i.e. Asset Utilization, Rationalisation

Shareholder Value Creation

Improve Capital Costs & Allocation

Cost of Capital

Working Capital Capital Deployment

Fixed Costs

Outcomes
 Organisations seeking to deliver value to the customer need to consider the benefits of aligning their operating strategy to their overall business strategy and the market place
 Through a facilitated workshop, executives will discover that the purpose of an operating strategy is linked intricately with delivering value to the customer  The workshop process itself goes a long way towards achieving convergence between the disparate views within the TMT  The principles of strategic alignment ensure that customer needs, the operating strategy, organisational capabilities, culture, and leadership style are aligned for the best possible results

 We are so confident of this that part of our value proposition that results from this program are guaranteed