Supply Chain Strategy This page intentionally left blank Strategy Using SCM to Create Greater Corporate Efficiency and Profits

Alexandre Oliveira Anne Gimeno Associate Publisher: Amy Neidlinger Executive Editor: Jeanne Glasser Levine Operations Specialist: Jodi Kemper Cover Designer: Chuti Prasertsith Managing Editor: Kristy Hart Project Editor: Andy Beaster Copy Editor: Keith Cline Proofreader: Sarah Kearns Indexer: Lisa Stumpf Senior Compositor: Gloria Schurick Manufacturing Buyer: Dan Uhrig © 2014 by Alexandre Oliveira and Anne Gimeno Upper Saddle River, New Jersey 07458 For information about buying this title in bulk quantities, or for special opportunities (which may include electronic versions; custom cover designs; and content particular to your , training goals, focus, or branding interests), please contact our corporate sales department at [email protected] or (800) 382-3419. For government sales inquiries, please contact [email protected] . For questions about sales outside the U.S., please contact [email protected] . Company and names mentioned herein are the trademarks or registered trademarks of their respective owners. All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America First Printing June 2014 ISBN-10: 0-13-376437-0 ISBN-13: 978-0-13-376437-6 Pearson Education LTD. Pearson Education Australia PTY, Limited. Pearson Education Singapore, Pte. Ltd. Pearson Education Asia, Ltd. Pearson Education Canada, Ltd. Pearson Educación de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd. Library of Congress Number: 2014934929

Contents

Preface ...... xii

Chapter 1 Supply Chain and Shareholder Value ...... 1 Supply Chain and Value ...... 5 Supply Chain Master Plan ...... 9 Cash-Management Cycle...... 15 Purchase-to-Pay Cycle ...... 16 Manufacturing-to-Revenue Cycle ...... 17 Integrated Perspective ...... 19

Chapter 2 Enabling Business Value ...... 21 Enabling Sales Volume Growth ...... 22 Enabling Customer Experience ...... 24 Enabling Margin Growth ...... 24 Simultaneous Policies ...... 26 Business Value Impact Chart ...... 27

Chapter 3 Enabling Sales Volume Growth ...... 33 Enabling Market-Share Growth ...... 37 Reducing Revenue Cycle ...... 40 Reducing Lost Sales ...... 41 Supporting Marketing and Sales Initiatives ...... 44

Chapter 4 Enabling Customer Experience ...... 47 Improve Customer Perception ...... 54 Manage Cost to Serve ...... 58 Offering Packages ...... 61

Chapter 5 Enabling Margin Growth ...... 71 Reducing Cost of Sales ...... 72 Balancing ...... 73 Balancing Service Level and Cost Structure ...... 76 Expert Opinion ...... 78

Chapter 6 Applying the SNAR Model ...... 83 Planning ...... 83 Demand Planning and ...... 84 and Purchase ...... 91 vi SUPPLY CHAIN MANAGEMENT STRATEGY

Stock and Inventory Control ...... 93 Production Planning ...... 97 Synchronous Operations ...... 98 Transportation ...... 98 Warehousing ...... 99 Manufacturing...... 101 ...... 102 International Logistics ...... 104 Supply Chain Governance ...... 106 Customer Service ...... 106 Supply Chain Projects ...... 108 Information Technology ...... 110 ...... 112 Sustainability ...... 113 Business Integration ...... 115 External Supply Chain ...... 117

Chapter 7 Connecting Strategies ...... 121 Supply Chain ...... 127 Economic Value Added ...... 131 Sales and Operation Planning ...... 133 Case 1: Medium-Size Multinational Pharmaceutical Company ...... 145 Case 2: Large Multinational Beverage Company ...... 146 Case 3: Large Multinational Pharmaceutical Company ...... 147 Case 4: Large Multinational Pharmaceutical Company ...... 148 Case 5: Large Multinational Food Company ...... 149 Case 6: Large Multinational Brewery ...... 149 Case 7: Large Multinational Chemical Company ...... 151 Case 8: Business Discontinuity ...... 152

Index ...... 155 Acknowledgments

As mentioned in the Authors’ Note, we are currently writing five books for Pearson, all of which benefit from contributions by a large number of individuals from both academic and business sectors. Our special thanks to Professor Martin Christopher, Emeritus Professor of Marketing & Logistics at Cranfield School of Manage- ment, Cranfield University, United Kingdom, whose contributions are present in all five of our books. We also wish to express our kind- est appreciation to Mark Barratt, Associate Professor in Supply Chain Management at Marquette University, USA, and expert in collabora- tion and visibility across supply chains, for his contribution during the early stages of our academic background. We would also like to thank Professor Milton Mori (State Univer- sity of Campinas, Unicamp, Brazil), Professor Mauro Sampaio (Uni- versity Center, FEI, Brazil), Professor Richard Wilding (Cranfield University, UK), Lecturer Carla Corte (State University of Campinas, Unicamp, Brazil), Professor Armando Dal Colleto ( São Paulo, BSP, Brazil), and Senior Lecturer Melvin Peters (Cran- field University, UK) for their contributions to our development over the last 20 years. In our books, business cases/expert opinions were provided by the following: Bernardo Faria: Operations Development at Cielo, Brazil; Cesar Righetti, Operations Director at Cielo, Brazil; Dr Alan Smart, Senior Lecturer at Cranfield School of Management, UK; Enrique Motilla, founding partner at Quad Tree S.A. de C.V., Mexico; Fikri Dweiri, Associate Professor in IndusOperation Engineering and Manage- ment Department and Vice Dean of College of Engineering at the University of Sharjah (UoS), UAE; Gianluca S. Cesare, Director at Lombardia Informatica, Italy; Kimmochi Eguchi, Executive Director, International Marketing Institute, Japan; Lucas Costa: Operations viii SUPPLY CHAIN MANAGEMENT STRATEGY

Planning at Cielo, Brazil; Luciano Bortoncello, Development Direc- tor at Transmiro, Brazil; Marcelo Pereira, Transport Manager at Transmiro, Brazil; Mauricio Ajzenberg, General Director at SPDL, Brazil; Robin Parsons, Supply Chain Manager, Maxinutrition (a GSK company), UK; Sharfuddin Ahmed Khan, lecturer in IndusOperation Engineering & Management Department at University of Sharjah (UoS), UAE; Shogo Kurokawa, President, Nippon Logistech Corpo- ration, Japan. This project would have proven impossible without the inspira- tion from our colleagues active in several professional networks. The governance team of the Brazilian Institute of Supply Chain Profes- sionals ( www.ibpsc.net/IBS ), together with all associates, creates a unique technical environment that keeps us up-to-date on the best practices. Although we want to thank all IBS members, it is impos- sible to list anything more here than the : Daniel Mello, Daines Toledo, Marcelo Alencar, Maricea dos Santos, Sérgio Romero, Daniel Okino, Ralph Martins, Cláudio de Sá, Alex Rocha, Luis Gonzaga, Marcelo Torres, William Marques, Antonio Berna, Carlos Pavanelli, Eduardo Junqueira, Antonio Souza, Luciano Bortoncello, Gelber Abe, Fabio Miranda, Luis Silva, Carlos Cirillo, Plínio Márcio, Luiz Ribeiro, Daniel Hermeto, Luiz Ferreira, Marco Palmeira. We also want to thank our colleagues at CEBRALOG who have collaborated to develop and organize a significant part of the knowl- edge shared in our books: Andre Moraes, Eraldo Bertagnoli, Fernanda Silva, Adriana Freitas, Mauricio Cortes, Mirella Gomes, Francismar Lemos, Lucas Casagrande, and Fernando Fedato. The Operations and Supply Chain Academic Group at Linked- In (with nearly 20,575 members) was another important source of inspiration. My kindest thanks to my editor, Jeanne Levine, and to Barry Render, who believed in and supported this book project from the ACKNOWLEDGMENTS ix early stages, and to Heather Simpkins, my proofreader, without whom this work would not be readable! Finally, we wish to thank our relatives who have been a constant source of wisdom: our grandparents Pedro, Antônia, Ouriques, Clau- dina, David, Conchita, Leopoldo, and Clara; our parents Gerusa, Jorge, Lluis, and Maria Helena; our brothers Alan, Amanda, Andre, and Arnau; our sons Gabriel and Pedro; our nieces Mariana and Maria Paula; and our dearest Ana Claudia, Cristina, Maria Eduarda, Maria Etienne, and Rayder. About the Authors

Alexandre Oliveira is a founding-partner at CEBRALOG (www. cebralog.com), a supply chain consultancy and training company headquartered in Brazil since 2001. Alexandre has also been Presi- dent of the Brazilian Institute of Supply Chain Professionals (I.B.S.) since 2007. He offers courses for MBA programs at Business School São Paulo and is a regular contributor to seminars, conferences, and congresses. Alexandre began his career at Procter and Gamble, where he gained executive experience in manufacturing, quality assurance, and logistics in assignment in Brazil and in Europe, but for the past 15 years, he has developed his career as consultant. Alexandre has worked as a senior consultant, trainer, and expert advisor for compa- nies such as GE, 3M, Sony, Bayer, Pepsico, Pernod Ricard, Unilever, Avon, Adidas, John Deere, Eaton, Walmart, Motorola, and several others. Alexandre holds a Bachelor of Arts degree in Chemical Engi- neering and a Master in degree from the State University of Campinas (Unicamp, Brazil) and a Master of Science (Honors) degree in Logistics and Supply Chain Management from Cranfield’s University School of Management, United Kingdom. Since 2001, Alexandre has actively influenced logistics thinking in several supply chain . He chaired the Logistics Commit- tee at the American Chamber of Commerce (Amcham, Brazil, 2001– 2004), chaired the Supply Chain Committee at the British Chamber of Commerce (Britcham, Brazil, 2006–2007), and he was Regional Vice-President of former Brazilian Logistics Association (2002–2003). He has lectured in MBA courses since 2004 in top regional universi- ties such as State University of Campinas (Unicamp) and State Uni- versity of São Paulo (USP). ABOUT THE AUTHORS xi

Alexandre has published in the International Journal of Physical Distribution and Logistics Management and coordinates the Opera- tions and Supply Chain Academic group at LinkedIn, which currently has nearly 20,000 members (March 2014). Anne Gimeno is a founding-partner at CEBRALOG, a supply chain consultancy and training company headquartered in Brazil since 2001. Anne has also been the Managing-Director of the Brazil- ian Institute of Supply Chain Professionals (I.B.S.) since 2007. Anne began her career at Procter and Gamble, where she gained executive experience in materials planning, sales, and customer ser- vice. For the past 15 years, she has worked as a senior consultant for companies such as GE, 3M, Bayer, Pepsico, Pernod Ricard, and several others. Anne holds a Bachelor of Arts degree in Chemical Engineering and a Master of Science (Honors) degree in Logistics and Supply Chain Management from Cranfield University’s School of Manage- ment, United Kingdom. She served as the director of the former Bra- zilian Logistics Association (2002–2003).

About I.B.S.

The Brazilian Institute of Supply Chain Management Profession- als, a leading regional professional association since 2007, benefits its members via technical events, courses, and an annual congress in São Paulo, Brazil. I.B.S. promotes knowledge transfer with other knowledge cen- ters around the world. The Committee for International Cooperation (CCI) is the structure that builds for technical coopera- tion and knowledge exchange with foreign institutions. Ideal partners are national or regional professional associations or universities. You can find more information about I.B.S. at www.ibpsc.net/ IBS . Preface

What should any company expect from the chief supply chain officer (or equivalent within the )?

• Enabling sales volume growth • Enabling market-share growth • Reducing revenue cycle • Reducing lost sales • Supporting marketing and sales initiatives • Enabling customer experience by improving customer’s perception • Managing the cost to serve • Offering differentiated service packages • Enabling margin growth • Reducing cost of sales • Balancing asset management • Balancing service level and cost structure

Despite all barriers involved, delivering products/services on time has not been considered a differentiation attribute for many years. The perfect order fulfillment enables customer satisfaction, but yet, it is not enough. Absolutely no company survives based exclusively on customer satisfaction, because customer satisfaction is only part of the business environment equation. Today, successful organizations must create long-term business profitability to compete with complex and fluid supply networks. The ability to create value for shareholders is paramount. The chief supply chain officer (CSCO) must understand market nuances while interacting with peers from commercial areas, finance, information technology, and human resources. The CSCO is usually PREFACE xiii a seat on the and is expected to contribute to the company’s long-term strategy. This book covers a number of strategies and policies to guide senior executives in the mission to deliver value to shareholders by selling more, selling for more, and selling at a reduced cost. The Business Network Value Model (BV Model) suggests a structured approach to connect these drivers to expected deliverables.

Authors’ Note

Over the years, the common understanding of world-class operations has evolved from the simplistic, focused management of functional silos to a comprehensive approach of supply network man- agement as the driver to deliver ultimate shareholder value. Although many commentators have tried to describe this evolution, most have failed to properly address the supply chain’s fundamental building block: . Therefore, their analyses also over- looked the only element that delivers long-term sustainable share- holder value: people. We are writing five books for Pearson that cover the most impor- tant features of this evolutionary journey. These books will provide detailed roadmaps and models to diagnose, implement, and sustain world-class supply chain network management in organizations of all types:

• A Guide to Supply Chain Management: The Evolution of SCM Models, Strategies, and Practices (an e-book) introduces the core concept of knowledge management as the only strategy capable of steering supply chains networks management to suc- cessfully compete in highly competitive markets. This introduc- tory work reviews supply chain practice from its earliest stages and presents reference models that support our view of this discipline as a business driver to deliver shareholder value. xiv SUPPLY CHAIN MANAGEMENT STRATEGY

This book introduces the Supply Network Alignment Reference Model (SNAR Model), which organizes the supply chain net- works into knowledge areas that enable accurate decision mak- ing from the strategic level to daily management decisions. This book also introduces the Supply Network Knowledge Man- agement Maturity Roadmap (SKMap). Before the develop- ment of a supply network reference model, it was necessary to understand the intermediate evolutionary stages of knowledge management within the supply chain. The SKMap organizes and correlates several strategies and practices according to a unique structure that allows you to understand how to face the future challenges of managing supply chain networks in fluid and complex environments. • Supply Chain Management Strategy: Using SCM to Create Greater Corporate Efficiency and Profits (this book) explores how supply chain management delivers shareholder value. The introduction covers topics such as the supply chain master plan, cash-management cycle, purchase-to-pay cycle, and manufac- turing-to-revenue cycle. This book introduces the Supply Net- work Business Value Model (SNValue Model) and discusses the supply chain mechanisms that generate value for the busi- ness. It addresses the following topics: enabling sales volume growth, enabling market-share growth, reducing revenue cycle, reducing lost sales, supporting marketing and sales initiatives, enabling customer experience by improving customer percep- tion, managing the cost to serve, offering differentiated service packages, enabling margin growth, reducing cost of sales, bal- ancing asset management, and balancing service level and cost structure. This book also presents the Business Value Impact Chart (BV Chart) and the Balanced Control Panel (BC Panel). The third part of the book covers how each of the SNAR Model knowl- edge areas can contribute to each of the factors that enable PREFACE xv

shareholder value. The tool used to establish these relation- ships is the BV Chart. • Executing the Supply Chain: Modeling Best-in-Class Processes and Performance Indicators covers the supply network gov- ernance cycle and explains the mechanisms needed to under- stand the business though process mapping, risk analysis, and the definition and use of performance indicators for all areas directly or indirectly related to supply chain management. The second part of the book presents how each of the SNAR Model knowledge areas can be monitored and controlled by perfor- mance indicators. Other chapters present real-world metrics from companies of different sizes, sectors, and countries, and discuss benchmarking techniques. • Customer Service Supply Chain Management: Models for Achieving Customer Satisfaction, Supply Chain Performance, and Shareholder Value focuses on the role of customer service as a strategic integrator for differentiated supply chain manage- ment. This book presents the Customer Model (CSM Model), a dynamic mechanism developed to eval- uate the interactions present in the customer service environ- ment. The model presents four pillars and provides a quantita- tive approach to understand the connection between them: 1. Customer Service Level Expectation 2. Supplier Service Level: Hired Performance 3. Customer Service Level Perception 4. Supplier Service Level: Delivered Performance Although the book discusses some traditional customer service elements such as pre-transactional, transactional, and post- transactional service, the most important topics are customer service strategies, managing service levels, and customer ser- vice , respectively. xvi SUPPLY CHAIN MANAGEMENT STRATEGY

• Managing Supply Chain Networks: Building Competitive Ad- vantage in Fluid and Complex Environments presents a solid roadmap for managing knowledge within organizations across all industries. You learn how to build, implement, and sustain long-term knowledge management as a consistent strategy to deliver business value through supply chain innovation leader- ship.

This book presents the Supply Network Governance Diamond Model (SNG Diamond) which is executed through...people! The SNG Diamond Model is a common governance structure focused on the long-term success of the entire supply network that connects knowledge management and risk management and reviews policies that promote the innovative environment required to face the challenges of managing fluid and complex supply networks. 1

Supply Chain and Shareholder Value

People are the hidden gem in the virtuous cycle. Through people, sophisticated information networks find the adequate architecture required to help companies achieve both their intermediate and ulti- mate goals. Only through the adequate engagement of people does an orga- nization trigger the virtuous cycle that creates and sustains a value- added innovative environment. This environment leads the business to its ultimate goal: delivering value to shareholders (see Figure 1.1 ).

People

Knowledge The Virtuous Management Cycle

Visibility Decision Action Innovation Value Understanding Figure 1.1 Virtuous cycle

Knowledge management enables visibility, which becomes tangible by understanding the processes and thus enables efficient decision-making mechanisms. The Supply Network Knowledge Man- agement Maturity Roadmap (SKMap), shown in Figure 1.2 , intro- duces the various levels at which organizations perceive the strategic contribution of supply chain management (SCM). 1 2 SUPPLY CHAIN MANAGEMENT STRATEGY

SUPPLY NETWORK KNOWLEDGE MANAGEMENT MATURITY ROADMAP SKMap

SUPPLY CHAIN SUPPLY CHAIN SUPPLY CHAIN SUPPLY CHAIN EARLY MATURITY EXCELLENCE INNOVATION STAGE STAGE STAGE STAGE

SELECTED EXTENDED SUPPLY FUNCTIONAL BUILDING TACTIC SUPPLY CHAIN INTEGRATED SUPPLY CHAIN SUPPLY CHAIN NETWORK SILOS BLOCKS INTEGRATION GOVERNANCE BUSINESS MANAGEMENT MANAGEMENT MANAGEMENT L1 L2 L3 L4 L5 L6 L7 L8

BASIC DAILY BASELINE OPERATIONAL BUSINESS SHAREHOLDERS MANAGEMENT RESULTS EFFICIENCY DIFFERENTIATION VALUE 01 02 03 04 05

ABILITY TO MANAGE KNOWLEDGE Figure 1.2 SKMap

The goal of the virtuous cycle is to promote within the organi- zation the ability to decide and implement actions that modify the business and add value to it. Therefore, it is expected that what the organization considers valuable is well known even before the deci- sion-making process begins. Note that the virtuous cycle suggests that innovation is the mecha- nism to enable value as the ultimate goal to be delivered to sharehold- ers and stakeholders. According to Oxford Dictionaries, 1 “ innovation is (1) the action or process of innovation; (2) a new method, idea, product, etc;” whereas innovating is to (1) make changes in some- thing established, especially by introducing new methods, ideas, or products.” The concept of innovation is strongly associated with performing differently. But many people can do many things differently; that’s easy. The difficulty lies in making the change different and, simulta- neously, adding value to the business. What one company considers added value might not hold the same importance for another busi- ness (even for a competitor). In addition, because business priorities change over time, the value-added concept is temporal.

1 www.oxforddictionaries.com/definition/english/innovation , visited on February 5, 2014. CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 3

Adding value to the business may come from entering a new mar- ket, reducing the revenue cycle, reducing accounts payable, increas- ing profitability, or implementing a physical distribution structure capable of responding to demand volatility. What is value for a par- ticular company at a given time? So many knowledge areas influence SCM decisions that execu- tives often find themselves confused. So, we developed the Supply Network Alignment Reference Model (the SNAR Model), which pro- vides a structured approach to these knowledge areas, mapping the extended supply network from different perspectives (see Figure 1.3 ).

SNAR MODEL - Supply Network Alignment Reference Model

SUPPLY NETWORK MANAGEMENT

EXTENDED SUPPLY CHAIN FEW SELECTED COMPETITORS MANAGEMENT SELECTED SUPPLY CHAIN FEW SELECTED NONCOMPETITORS SEVERAL KEY NONCOMPETITORS MANAGEMENT

FEW SELECTED SUPPLIERS SEVERAL KEY SUPPLIERS ALL SIGNIFICANT SUPPLIERS

FEW SELECTED CUSTOMERS SEVERAL KEY CUSTOMERS ALL SIGNIFICANT CUSTOMERS

FEW SELECTED LSPs SEVERAL KEY LSPs ALL SIGNIFICANT LSPs

Supply Chain Foundation SUPPLY CHAIN INTEGRATED TO THE BUSINESS

Planning Logistics OTHER AREAS OF THE ORGANIZATION

DEMAND PURCHASING & STOCK & PRODUCTION PLANNING & PROCUREMENT INVENTORY PLANNING FORECASTING PLANNING PLANNING

SALES SUPPLY CHAIN GOVERNANCE SUPPLY CHAIN RISK MANAGEMENT FINANCE

CONTROLLERSHIP TACTIC HUMAN RESOURCES INFORMATION INTEGRATION BUSINESS PARTNER TECHNOLOGY SUPPLY CHAIN QUALITY ASSURANCE BUSINESS CUSTOMER SUPPLY CHAIN SUSTAINABILITY INTELLIGENCE TACTIC ENGINEERING SERVICES PROJECTS ALIGNMENT R&D

KEY KNOWLEDGE AREAS HS&E

MARKETING

Synchronous Operations IT

HUMAN RESOURCES TRANSPORTATION WAREHOUSING MANUFACTURING REGULATORY

DISTRIBUTION OTHERS

INTERNATIONAL LOGISTICS

Figure 1.3 SNAR Model

The SNAR Model provides a flexible approach to several dimen- sions of supply chain management, especially because of its coding sys- tem (see Figure 1.4 ). This coding system applies to the management 4 SUPPLY CHAIN MANAGEMENT STRATEGY of supply chain strategies (as presented in this book), to process map- ping techniques, and to the use of performance indicators, 2 customer service management,3 and the management of fluid and complex sup- ply networks through knowledge management.4

01 INTERNAL NETWORK 02 EXTERNAL NETWORK 01.01 Planning Logistics 02.01 Preferred Supply Chain 01.01.01 Demand Planning and Forecasting 02.01.01 Preferred Suppliers 01.01.02 Procurement & Purchase 02.01.02 Preferred Customers 01.01.03 Stock and Inventory Control 02.01.03 Preferred Service Providers 01.01.04 Production Planning 02.02 Extended Supply Chain 01.02 Synchronous Operations 02.02.01 Selected Suppliers 01.02.01 Transportation 01.02.02 Selected Customers 01.02.02 Warehousing 01.02.03 Selected Service Providers 01.02.03 Manufacturing 01.02.04 Preferred Noncompetitors 01.02.04 Distribution 02.03 Supply Network Management 01.02.05 International Logistics 02.03.01 All Significant Suppliers 01.03 Tactic Integration 02.03.02 All Significant Customers 01.03.01 Customer Services 02.03.03 All Significant Service Providers 01.03.02 Supply Chain Projects 02.03.04 Selected Noncompetitors 01.03.03 Information Technology 02.03.05 Preferred Competitors 01.03.04 Human Resources 01.03.05 Sustainability 01.04 Other Departments 01.04.01 Sales 01.04.02 Finance 01.04.03 Controllership 01.04.04 Quality Assurance 01.04.05 Engineering 01.04.06 R&D 01.04.07 HS&E 01.04.08 Marketing 01.04.09 IT 01.04.10 Human Resources 01.04.11 Regulatory 01.05 Supply Chain Governance 01.05.01 Key Knowledge Areas 01.05.02 Supply Chain 01.05.03 Supply Chain Risk Management

Figure 1.4 SNAR Model: Coding system

2 Oliveira, A. and Gimeno. 2014. Executing the Supply Chain: Modeling Best-in- Class Processes and Performance Indicators. New York: Pearson. 3 Oliveira, A. and Gimeno. 2014. Customer Service Supply Chain Management: Models for Achieving Customer Satisfaction, Supply Chain Performance, and Shareholder Value. New York: Pearson. 4 Oliveira, A. and Gimeno, 2014. Managing Supply Chain Networks: Build- ing Competitive Advantage in Fluid and Complex Environments. New York: Pearson. CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 5

Supply Chain and Value

Since 2013 (and as of this writing), the Operations and Supply Chain Academic Group at LinkedIn has debated how best to achieve short-term cost-benefit advantage via supply chain management. This LinkedIn group currently has about 20,000 members, and the debate involved academics and executives from countries such as the United States, Brazil, India, Australia, Finland, New Zealand, Turkey, China, England, and Canada. The variety of knowledge areas involved in supply management, as mentioned earlier, reflects the potential complexity of coordinating within the supply chain the efforts to deliver differentiated contribu- tions to the business and to fulfill shareholder expectations. To help you understand these contributions, consider the cate- gorizations shown here under the SNAR Model coding system (see Table 1.1 ).

Table 1.1 SNAR Model Coding System Contributions from Supply Chain Management SNAR Model Coding to Gain Short-Term Cost-Benefit Advantage System 1 Indirect purchasing (indirect materials, 01.01.01 MRO, office, and so on) 2 outsourcing 01.02.02 01.02.03 01.05.01 (Outsourcing) 01.05.03 02.01.03 3 Benchmarks financial performance 01.04.02 01.05.02 01.02.04 02.03.05 4 How your deliveries are matching with 01.02.02 01.02.04 the orders 01.03.01 01.03.03 01.04.09 02.01.02 5 Synchronized planning and scheduling 01.01 6 Risk management 01.05.03 01.04.04 7 Audit the inventory control process 01.01.03 01.02.02 8 The team 01.03.04 01.04.10 9 Simplify/standardize supply chain processes 01.03.02 01.04.05 10 Study the expenditures 01.04.02 01.04.03 6 SUPPLY CHAIN MANAGEMENT STRATEGY

Contributions from Supply Chain Management SNAR Model Coding to Gain Short-Term Cost-Benefit Advantage System 11 Packaging and recycling of the packaging 01.04.06 01.01.02 01.02.01 01.02.02 01.02.04 01.02.04 12 Review of service levels 01.03.01 01.01 01.02 01.02.05 02.01.02 02.01.03 13 Great performance can come only from a 01.03.04 01.04.10 great team 14 Check the costs 01.04.02 01.04.03 15 Integrate demand and supply 01.02 (01.02.x) 02.01 16 Work with sales area 01.04.01 17 Reengineer procurement 01.03.02 01.01.02 18 Check transportation expenses 01.04.02 01.04.03 01.02.01 01.02.04 19 Review procurement contracts 01.01.02 02.01.01 20 Define flow of , documents, and flow of 01.03.02 payment 21 Monitor inventory aging 01.01.03 22 Focus on the major spend areas 01.04.02 01.04.03 01.05 (all 01.05.x) 23 Eliminate unnecessary non-value-added 01.03.02 processes 24 Talk to the front lines 01.03.04

Figures 1.5 and 1.6 show the knowledge areas cited in this pub- lic and spontaneous Operations and Supply Chain Academic Group debate/consultation. Most of the SNAR Model is covered. CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 7

SUPPLY NETWORK MANAGEMENT

EXTENDED SUPPLY CHAIN FEW SELECTED COMPETITORS MANAGEMENT SELECTED SUPPLY CHAIN FEW SELECTED NONCOMPETITORS SEVERAL KEY NONCOMPETITORS MANAGEMENT

FEW SELECTED SUPPLIERS SEVERAL KEY SUPPLIERS ALL SIGNIFICANT SUPPLIERS

FEW SELECTED CUSTOMERS SEVERAL KEY CUSTOMERS ALL SIGNIFICANT CUSTOMERS

FEW SELECTED LSPs SEVERAL KEY LSPs ALL SIGNIFICANT LSPs

Supply Chain Foundation

Planning Logistics OTHER AREAS OF THE ORGANIZATION

DEMAND PURCHASING & STOCK & PRODUCTION PLANNING & PROCUREMENT INVENTORY PLANNING CORPORATE GOVERNANCE FORECASTING PLANNING PLANNING

SALES SUPPLY CHAIN GOVERNANCE SUPPLY CHAIN RISK MANAGEMENT FINANCE

CONTROLLERSHIP TACTIC HUMAN RESOURCES INFORMATION INTEGRATION BUSINESS PARTNER TECHNOLOGY SUPPLY CHAIN QUALITY ASSURANCE BUSINESS CUSTOMER SUPPLY CHAIN SUSTAINABILITY INTELLIGENCE TACTIC ENGINEERING SERVICES PROJECTS ALIGNMENT R&D

KEY KNOWLEDGE AREAS HS&E

MARKETING

Synchronous Operations IT

HUMAN RESOURCES TRANSPORTATION WAREHOUSING MANUFACTURING REGULATORY

DISTRIBUTION LEGAL

INTERNATIONAL LOGISTICS

Figure 1.5 Public consultation: SNAR Model knowledge areas 8 SUPPLY CHAIN MANAGEMENT STRATEGY

PUBLIC CONSULTATION ON SUPPLY CHAIN INITIATIVES According to SNAR Model Low High V.High 01 INTERNAL NETWORK 01.01 Planning Logistics 01.01.01 Demand Planning and Forecasting 01.01.02 Procurement & Purchase 01.01.03 Stock and Inventory Control 01.01.04 Production Planning 01.02 Synchronous Operations 01.02.01 Transportation 01.02.02 Warehousing 01.02.03 Manufacturing 01.02.04 Distribution 01.02.05 International Logistics 01.03 Tactic Integration 01.03.01 Customer Services 01.03.02 Supply Chain Projects 01.03.03 Information Technology 01.03.04 Human Resources 01.03.05 Sustainability 01.04 Other Departments 01.04.01 Sales 01.04.02 Finance 01.04.03 Controllership 01.04.04 Quality Assurance 01.04.05 Engineering 01.04.06 R&D 01.04.07 HS&E 01.04.08 Marketing 01.04.09 IT 01.04.10 Human Resources 01.04.11 Regulatory 01.05 Supply Chain Governance 01.05.01 Key Knowledge Areas 01.05.02 Supply Chain Business lntelligence 01.05.03 Supply Chain Risk Management 02 EXTERNAL NETWORK 02.01 Preferred Supply Chain 02.01.01 Preferred Suppliers 02.01.02 Preferred Customers 02.01.03 Preferred Service Providers 02.02 Extended Supply Chain 02.02.01 Selected Suppliers 01.02.02 Selected Customers 01.02.03 Selected Service Providers 01.02.04 Preferred Noncompetitors 02.03 Supply Network Management 02.03.01 All Significant Suppliers 02.03.02 All Significant Customers 02.03.03 All Significant Service Providers 02.03.04 Selected Noncompetitors 02.03.05 Preferred Competitors Figure 1.6 Public consultation: Intensity chart CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 9

Supply Chain Master Plan

Over the years, various supply chain management models, strat- egies, policies, and practices have been proposed, including the following:

• The efficient supply chain • Vendor managed inventory (VMI) • The lean supply chain • Sales and operations planning (S&OP) • Continuous replenishment program (CRP) • The agile supply chain • Efficient consumer response (ECR) • Collaborative planning (Collaborative Forecasting and Replen- ishment [CFAR] / Collaborative Planning, Forecasting, and Replenishment [CPFR]) • The responsive supply chain • Bullwhip effect • The leagile supply chain • Supply chain risk management • Integrated business planning (IBP) • The resilient supply chain • The customer-driven supply chain • The adaptive supply chain • The wise supply chain

To apply the SCM model concepts to real-world practices, com- panies must establish a long-term strategy called a supply chain master plan (SCMP) (see Figure 1.7 ). 10 SUPPLY CHAIN MANAGEMENT STRATEGY

SUPPLY CHAIN MASTER PLAN (SCMP) Risk Reconciliation (RM)

Supply Chain Risk Management Corporate Governance Supply Chain Management (SCM)

Goals

Strategies

Policies

Action Plans

Figure 1.7 Supply chain master plan5

To build the SCMP, the company must understand the SCM models and evaluate how to create the most suitable balance between them to maximize key variables such as process performance, cus- tomer satisfaction, and shareholder value. The SCMP offers a long-term perspective for the supply chain and should properly address key issues related to the business goals. It also creates the right decision-making process for building accu- rate strategies because it enables executives to start thinking about the interconnectivity between the policies that will rule company’s processes.

5 Presented by Alexandre Oliveira during Logchem, São Paulo, Brazil, September 2012. CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 11

These strategies have three main dimensions:

1. Sales volume increase 2. Sales revenue increase 3. Margin of contribution increase

These dimensions/strategies do not compete with each other; instead, they should influence the business simultaneously. It is important to realize that the organization will not move for- ward without some level of business integration. It is not possible to execute a long-term SCMP without shaping alliances with other com- panies. The external side of the supply chain is nowadays more deci- sive than ever. In fact, the connection with the external operations of multiple, interconnected supply chains is what makes the management of sup- ply networks so challenging. You can find more information about this in our book titled Managing Supply Chain Networks.6 The potential benefits of enduring alliances include the following:

• Accelerate the development of products, services, or processes: This includes the alliance with preferred product or part suppliers or specialist IT or logistics service providers (LSPs). • Accelerate market entry: The relationship with key accounts of selected distribution channels. • Maintain in the market: Alliances with noncom- peting companies may diversify the portfolio of products or ser- vices to provide a complete solution for your customer. • Set a standard for the segment: The quality of raw material used in a differentiated product may be the result of a long- term with specific suppliers.

6 Oliveira, A. and Gimeno, 2014. Managing Supply Chain Networks: Build- ing Competitive Advantage in Fluid and Complex Environments. New York: Pearson. 12 SUPPLY CHAIN MANAGEMENT STRATEGY

• Minimize risks of R&D: Some industry sectors jointly invest to create and maintain research development centers focused on their specific demand. This occurs in diverse industry sec- tors, including automotive, electronics, pharmaceutical, and banking. • Acquire complementary resources: Automotive industry dealers work closely with the banking industry to offer to final- consumer financial services. Dealers often develop long-term exclusive relationships with finance institutions of various types. • Achieve of scale: External manufacturing is a trend in the pharmaceutical industry. Small laboratories out- source parts of the packaging process to larger laboratories with more assets and industrial overcapacity. • Avoid or overcome barriers: Local distributors usu- ally eliminate or minimize several barriers found by exporters, in particular in new markets. • Share capital resources: Some industries offer long-term contracts to haulers so that these companies can implement a fleet-renewal plan. The long-term contract enables the haulers to plan cash flow, keep a fleet with reduced average age, and offer better customer service. • Acquire or maintain technology: Partnerships with IT solu- tion providers include license or version updates for various applications, such as warehouse management systems, trans- port management systems, routing systems, and so on. • Access restricted markets: Local brokers will offer regional knowledge on how to deal with national laws and intrinsic bureaucracy in some countries (and perhaps even with regard to regulatory agencies/policies within your own country). CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 13

A clear correlation exists between the SCMP and the SKMap (see Figure 1.8 ). The first parallel can be traced soon after the introduc- tion of the concept of supply chain management. According to the SKMap, this moment occurs when knowledge management enables the formation of the following building blocks: Planning Logistics and Synchronous Operations. Further, the SKMap indicates that after the building blocks have been established, it is possible to deliver the baseline results, mostly as a result of offering improved product availability. This minimal operational efficiency is delivered despite various difficulties. The lack of a governance mechanism inhibits the defi- nition of goals, the alignment of strategies, the formulation of poli- cies, and the implementation of practical actions. The lack of visibility slows and weakens the decision-making process. Shortcomings and rework are frequent. In Figure 1.8 , this initial scenario is indicated by arrow 1.

SUPPLY CHAIN MASTER PLAN (SCMP) Risk Financial Management Reconciliation (RM)

Supply Chain Risk Management Corporate Collaborative 2 Supply Chain Governance Planning Management (SCM) 1 Superior Superior 3 Operational 4 Finance Goals Operational Performance Performance Efficiency Strategies

Policies CUSTOMERS SHAREHOLDERS SATISFACTION SATISFACTION Action Plans Time

SKMap SKMap SKMap Baseline Results Operational Efficiency Business Differentiation

Product Business Capability Capital Availability Forecasting Management Figure 1.8 SCMP and the SKMap 14 SUPPLY CHAIN MANAGEMENT STRATEGY

The methodology of the SCMP serves as the foundation of gov- ernance: the processes are mapped; performance indicators are defined, implemented, and used; and there is the involvement of cus- tomer service, human resources, information technology, and . Connections with other company departments such as sales, finance, and marketing are also formed. A little later, the first connections with the external supply chain appear. There is the involvement with preferred suppliers, customers, and service provid- ers. This transition mechanism, which supports the supply chain gov- ernance, is indicated by the arrow 2 in Figure 1.8 . This new environment facilitates collaborative planning. Only through collaborative planning can the company strengthen internal and external processes. The strengthening of processes reduces errors and increases the index of repeatability of operations. Over time, customers perceive the continued good performance. This perception has its origin in the governance structure that allows business-capability forecasting. The company can thus react to busi- ness fluctuations in advance. It can also, due to the recently created business forecasting skills, anticipate some movements. The superior operational performance, illustrated in Figure 1.8 by arrow 3, results in customer satisfaction. But this process has not yet adequately controlled the financial dimension. Despite the customer satisfaction, the cost to serve is still not controlled. The main objective is still product availability. According to the SKMap, the next step is to achieve the busi- ness differentiation and deliver shareholder satisfaction. Reaching the superior finance performance requires a large and coordinated effort. The migration from superior operational performance to superior finance performance is the main focus of this book. The challenge is to identify the correlations between strategies and policies of the sup- ply chain and the effective company’s cash management . CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 15

As Figure 1.9 shows, a difference exists between the stages 4 and 5. Stage 4 (business differentiation) manages to deliver shareholder satisfaction. However, stage 5 innovates and delivers shareholder value. A profound difference exists between shareholder satisfac- tion and shareholder value. The first, shareholder satisfaction, relates to the financial performance in the short to medium term (up to 2 years). The second, shareholder value, relates to the long-term suc- cess of the company (beyond 2 years, with a horizon of up to 10 years).

Supply Chain Knowledge Management Maturity Map – SKMap – The 5 Stages

12345

Early Stage SC Maturity Stage SC Excellence Stage SC Innovation Stage Functional Silos Baseline Results Operational Efficiency Business Differentiation Shareholders Value

Basic Daily Product Business Capability Capital Availability Forecasting Management Management

Figure 1.9 Stages of the SKMap

Cash-Management Cycle

The concept of a cash-management cycle requires a segmented approach:

• The first cycle is defined by the inbound operation of the com- pany. It begins with the definition of the sourcing strategies and ends at the payment made to suppliers and with supplies avail- able at the warehouse for manufacturing. This is the purchase- to-pay cycle. • The second cycle refers to the outbound operation. The man- ufacturing-to-revenue cycle is quite extensive and includes production, storage, and distribution of finished goods and the fulfillment of customer orders until the receipt of the invoiced value. 16 SUPPLY CHAIN MANAGEMENT STRATEGY

The integration of these cycles gives the visibility that the com- pany requires for an efficient cash management of its operations.

Purchase-to-Pay Cycle

The activities of this environment happen without a fixed sequence. The purchasing strategy is a broad discipline. Among other things, it requires , risk management, analysis of economic and financial viability, and the strengthening of relationships. A long learning curve applies. The responsibilities are beyond the area of procurement planning (SNAR 01.01.01). This building block is influenced by areas such as quality assur- ance, engineering, demand forecasting, inventory management, production planning and execution, research and development, and HE&S ( health, safety, and environment). Purchasing has activities at strategic, tactical, and operational layers. At the operational level, the interface with the cited areas of the company sets the order requirements. The order requirements are assumptions for the processes of supplier selection, negotiation, and contracting. Note that both products and services are acquired, as are direct and indirect products, operational services (such as transport and storage), and administrative services (such as travel, health , and banking). There is great diversity in the scope of selection, nego- tiation, and contracting. The interface with the areas of demand planning, production planning, finance, and controllership defines budgeting and forecast- ing policies, practices, and actions. Forecasting the annual purchasing budgeting is quite a challenge because it impacts the forecasted cash flow and therefore the P&L ( and loss ) accounts. CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 17

There is also the ordering, receiving, any discrepancy manage- ment, and invoicing processes prior to cash management that involves the accounts payable team. Figure 1.10 shows how these processes demand interactions within the organization. The image presents the SNAR Model and highlights the knowledge areas that either influence or are influenced by the purchase-to-pay cycle.

SUPPLY NETWORK MANAGEMENT

Purchasing EXTENDED SUPPLY CHAIN MANAGEMENT FEW SELECTED COMPETITORS Strategy SELECTED SUPPLY CHAIN FEW SELECTED NONCOMPETITORS SEVERAL KEY NONCOMPETITORS MANAGEMENT

Budgeting and FEW SELECTED SUPPLIERS SEVERAL KEY SUPPLIERS ALL SIGNIFICANT SUPPLIERS Forecasting

FEW SELECTED CUSTOMERS SEVERAL KEY CUSTOMERS ALL SIGNIFICANT CUSTOMERS

Order FEW SELECTED LSPs SEVERAL KEY LSPs ALL SIGNIFICANT LSPs Requirements

Selecting and Negotiating Planning Logistics OTHER AREAS OF THE ORGANIZATION

DEMAND PURCHASING & STOCK & PRODUCTION PLANNING & PROCUREMENT INVENTORY PLANNING CORPORATE GOVERNANCE Contracting FORECASTING PLANNING PLANNING

SALES SUPPLY CHAIN GOVERNANCE SUPPLY CHAIN RISK MANAGEMENT Ordering FINANCE

CONTROLLERSHIP TACTIC HUMAN RESOURCES INFORMATION INTEGRATION BUSINESS PARTNER TECHNOLOGY SUPPLY CHAIN QUALITY ASSURANCE BUSINESS CUSTOMER SUPPLY CHAIN Receiving SUSTAINABILITY INTELLIGENCE TACTIC ENGINEERING SERVICES PROJECTS ALIGNMENT R&D

KEY KNOWLEDGE AREAS Discrepancy HS&E Management MARKETING

Synchronous Operations IT

HUMAN RESOURCES Invoicing TRANSPORTATION WAREHOUSING MANUFACTURING REGULATORY

DISTRIBUTION LEGAL Cash INTERNATIONAL LOGISTICS Management

Figure 1.10 Purchase-to-pay cycle

Manufacturing-to-Revenue Cycle

This second cycle has a broader scope than the purchase-to-pay. It begins with the movement of materials for manufacturing areas and continues with the production of finished goods. Then it follows to the storage, order receiving and fulfillment, and the cycle of accounts receivable. 18 SUPPLY CHAIN MANAGEMENT STRATEGY

The customer strategy is a fundamental area or role that defines several segmentation strategies in customer service. This segmenta- tion impacts the entire fulfillment process. This affects the planning of physical capabilities of the supply chain and the channels of data treatment and triggers the cost-to-serve patterns. The sales management policies have some parameters that strongly affect the cost to serve. Topics such as drop-size tail, order entry, customer channels, service level, and customer tail are highly complex because there are numerous parameterizations. Closely related to sales management, it is the management of contracts, usu- ally led by the sales team but followed by the customer service team. This requires strong alignment between areas of supply chain, sales, and finance. Any flaw in this alignment will affect the demand response in three basic dimensions: reduction of sales volume, reduc- tion of sales revenue per unit, increase of sales cost per unit. These dimensions are discussed in the next chapter.

SUPPLY NETWORK MANAGEMENT

EXTENDED SUPPLY CHAIN MANAGEMENT FEW SELECTED COMPETITORS Customer Strategy SELECTED SUPPLY CHAIN FEW SELECTED NONCOMPETITORS SEVERAL KEY NONCOMPETITORS MANAGEMENT

FEW SELECTED SUPPLIERS SEVERAL KEY SUPPLIERS ALL SIGNIFICANT SUPPLIERS Contract Management

FEW SELECTED CUSTOMERS SEVERAL KEY CUSTOMERS ALL SIGNIFICANT CUSTOMERS

FEW SELECTED LSPs SEVERAL KEY LSPs ALL SIGNIFICANT LSPs Sales Management

Supply Sales Order Chain Processing Foundation

Planning Logistics OTHER AREAS OF THE ORGANIZATION

DEMAND PURCHASING & STOCK & PRODUCTION PLANNING & PROCUREMENT INVENTORY Credit Check PLANNING CORPORATE GOVERNANCE FORECASTING PLANNING PLANNING

SALES Order SUPPLY CHAIN GOVERNANCE SUPPLY CHAIN RISK MANAGEMENT Fulfillment FINANCE

CONTROLLERSHIP TACTIC HUMAN RESOURCES INFORMATION INTEGRATION BUSINESS PARTNER TECHNOLOGY SUPPLY CHAIN QUALITY ASSURANCE Billing BUSINESS CUSTOMER SUPPLY CHAIN SUSTAINABILITY INTELLIGENCE TACTIC ENGINEERING SERVICES PROJECTS ALIGNMENT R&D

KEY KNOWLEDGE AREAS Customer HS&E Services MARKETING

IT Synchronous Operations Cash HUMAN RESOURCES Collection TRANSPORTATION WAREHOUSING MANUFACTURING REGULATORY

DISTRIBUTION LEGAL Cash

INTERNATIONAL LOGISTICS Management

Figure 1.11 Manufacturing-to-revenue cycle CHAPTER 1 • SUPPLY CHAIN AND SHAREHOLDER VALUE 19

The credit check policy tends to be defined by the finance, con- trollership, or and represents an important filter in the order-entry process. Therefore, it can delay the speed from order entry to fulfillment or even indefinitely interrupt (cancel) the order. Billing and cash collection are separated by the physical order ful- fillment. That depends on warehousing operations, transport strategy, and distribution policies. The deliver confirmation at customer prem- ises enables the cash-collection process to start. The longer it takes to deliver an accepted order, the higher the impact on the cash flow.

Integrated Perspective

The integration of these cycles enables the company to visualize what is needed for (ideally we should preserve the word “visibility”) efficient cash management of its operations. Figure 1.12 shows sev- eral knowledge management areas within the supply chain that influ- ence the company’s cash-to-cash cycle. Therefore, it is clear that supply chain management is not only about physical flows. In fact, the supply chain processes should align physical flows and information flows as a strategy to deliver the ulti- mate goal of capital maximization. To deliver the right product at the right place at the right time with the right quality is necessary, but not enough. None of these add value to the business unless the cash-to-cash cycle delivers the finan- cial results capable of satisfying shareholders. No organization sur- vives without customer satisfaction. Customer satisfaction is a means, a strategy to enhance shareholder value. The following chapters discuss how each knowledge area described in the SNAR Model contributes to the creation of share- holder value. 20 SUPPLY CHAIN MANAGEMENT STRATEGY

SUPPLY NETWORK MANAGEMENT

Purchasing EXTENDED SUPPLY CHAIN FEW SELECTED COMPETITORS Customer Strategy MANAGEMENT Strategy SELECTED SUPPLY CHAIN FEW SELECTED NONCOMPETITORS SEVERAL KEY NONCOMPETITORS MANAGEMENT

Budgeting and FEW SELECTED SUPPLIERS SEVERAL KEY SUPPLIERS ALL SIGNIFICANT SUPPLIERS Sales Forecasting Management

FEW SELECTED CUSTOMERS SEVERAL KEY CUSTOMERS ALL SIGNIFICANT CUSTOMERS

Order FEW SELECTED LSPs SEVERAL KEY LSPs ALL SIGNIFICANT LSPs Contract Requirements Management Supply Chain Selecting and Foundation Sales Order Negotiating Processing Planning Logistics OTHER AREAS OF THE ORGANIZATION

DEMAND PURCHASING & STOCK & PRODUCTION PLANNING & PROCUREMENT INVENTORY PLANNING CORPORATE GOVERNANCE Ordering FORECASTING PLANNING PLANNING Credit Check

SALES SUPPLY CHAIN GOVERNANCE SUPPLY CHAIN RISK MANAGEMENT Order Contracting FINANCE Fulfilment CONTROLLERSHIP TACTIC HUMAN RESOURCES INFORMATION INTEGRATION BUSINESS PARTNER TECHNOLOGY SUPPLY CHAIN QUALITY ASSURANCE BUSINESS CUSTOMER SUPPLY CHAIN Receiving SUSTAINABILITY INTELLIGENCE TACTIC ENGINEERING Billing SERVICES PROJECTS ALIGNMENT R&D

KEY KNOWLEDGE AREAS Discrepancy HS&E Customer Management MARKETING Services

Synchronous Operations IT HUMAN RESOURCES Cash Invoicing TRANSPORTATION WAREHOUSING MANUFACTURING Collection REGULATORY

DISTRIBUTION LEGAL Cash Cash INTERNATIONAL LOGISTICS Management Management

Figure 1.12 Cash-management cycle This page intentionally left blank Index

Numbers sales volume growth, 22 - 23 simultaneous policies, 26 - 27 3PL (third-party logistics), 117 Business Value Impact Chart. See BV Chart (Business Value Impact A Chart) adding business-driven customer service, value to business, 3 51 - 52 , 62 - 63 value to customers, 54 BV Chart (Business Value Impact alliances, SCMP (supply chain master Chart), 27 - 31 plans), 11 - 12 Production Planning, 97 - 98 Ansoff matrix, 37 assemble to order (ATO), 66 C asset management, balancing, 73 - 76 , S&OP (sales ATO (assemble to order), 66 and operations planning), 138 - 140 case studies, S&OP (sales and B operations planning) Balanced Control Panel (BC Panel), business discontinuity, 152 - 153 30 large multinational beverage balancing company, 146 asset management, 73 - 76 large multinational brewery, service level and cost structure, 149 - 151 76 - 78 large multinational chemical baseline results, 115 company, 151 - 152 BC Panel (Balanced Control Panel), large multinational food company, 30 149 BDCS (business-driven customer large multinational pharmaceutical service), 51 - 52 , 62 - 63 company, 147 - 148 BOM (bill of materials), 72 medium-size multinational Brazilian Institute of Logistics pharmaceutical companies, Enhancement, 110 145 - 146 business, adding value to, 3 cash-management cycle, 15 - 16 business differentiation, 115 manufacturing-to-revenue cycle, business discontinuity, S&OP (sales 17 - 19 and operations planning), 152 - 153 perspective, 19 business integration, SNAR Model purchase-to-pay cycle, 16 - 17 (Supply Network Alignment categorizations, SNAR Model (Supply Reference Model), 115 - 117 Network Alignment Reference business value Model), 5 - 6 customer experience, 24 CCI (Committee for International margin growth, 24 - 25 Cooperation), xi reference scenario, 21 155 156 INDEX

CG (correlation grid), 106 customer satisfaction, xii, 14, 18, 48-50 chief supply chain officer (CSCO), xii customer service, supply chain Christopher, Professor Martin, 78 governance, SNAR Model (Supply COGS (cost of goods sold), 58- 60 Network Alignment Reference collaborative planning, forecasting, Model), 106 - 108 and replenishment (CPFR), 80 Customer Service Management Model Committee for International (CSM Model), 52 - 54 Cooperation (CCI), xi Customer Service Model, 107 Committee of Sponsoring customers Organizations (COSO), 76 adding value to, 54 configure to order (CTO), 66 preferred customers, 119 connecting strategies, 121 - 126 cyclic demand patterns, 87 EVA (economic value added), 131 - 132 D S&OP (sales and operations planning), 133 - 145 dead stocks, 95 SCRM (supply chain risk Decline phase, 86 management), 127 - 130 demand patterns, 86 - 87 controls, evaluating, 76 demand planning, S&OP (sales and controls risks, 128 operations planning), 134 - 137 correlation grid (CG), 106 demand planning and forecasting, 89 COSO (Committee of Sponsoring Planning Logistics, 84 - 85 Organizations), 76 demand patterns, 86 - 87 cost of goods sold (COGS), 58- 60 forecasting horizon, 86 cost of sales, reducing, 72 forecasting methods, 87 - 88 cost structure, and service level, , 85 - 86 balancing, 76 - 78 supply network business value cost to serve, managing, 58 - 61 model, 89 - 90 costs demand risks, 127 drivers of cost, 79 - 81 Development and Introduction phase, inventory costs, 81 85 process costs, 80 distribution, synchronous operations, transaction costs, 79 - 80 SNAR Model (Supply Network uncertainty costs, 80 - 81 Alignment Reference Model), CPFR (collaborative planning, 102 - 104 forecasting, and replenishment), 80 diversification, 37 CSM Model (Customer Service DPF (demand planning and Management Model), 52 - 54 forecasting). See demand planning CTO (configure to order), 66 and forecasting customer dissatisfaction, reducing, 49 drivers of cost, 79 - 81 customer experience, 24 , 47 -54 business-driven customer service, E 51 - 52 EBIT (earnings before interest and cost to serve, managing, 58 - 61 ), 60 CSM Model (Customer Service economic value added (EVA), 131 -132 Management Model), 52 - 54 engineering to order (ETO), 66 enabling, 124 environmental risks, 128 flexibility, 61 - 62 errors, forecasting errors, reducing, service packages, 61 - 69 84 - 85 customer perception, 48 - 50 ETO (engineering to order), 66 improving, 54 - 58 EVA (economic value added), 131 -132 OCT (order cycle time), 55 - 56 evaluating controls, 76 order fullfillment, 57 exceptions, management of exceptions (S&OP), 143 - 145 INDEX 157 excess inventory, 93 - 94 inventory external manufacturing suppliers, 120 costs, 81 external supply chains, SNAR Model excess inventory, 93 - 94 (Supply Network Alignment inventory levels, 93 - 94 Reference Model), 117 - 120 inventory policies, 65 ITI (in-transit inventory), 95 F ITMP (information technology master plan), 111 FGs (finished goods), 66 finance, SNAR Model (Supply Network Alignment Reference K Model), 116 knowledge management, 1 financial obligations, 75 financial sanctions, 75 L finish to order (FTO), 66 finished goods (FGs), 66 LCCs (low-cost countries), 123 flexibility, 61 - 62 LFR (line fill rate), 34 - 36 service packages, 68 line fill rate. See LFR (line fill rate) forecasting errors, reducing, 84 -85 logistics service providers (LSPs), 69 forecasting horizon, demand planning lost sales, reducing, 41 - 44 and forecasting, 86 low-cost countries (LCCs), 123 forecasting methods, demand LSPs (logistics service providers), 69 planning and forecasting, 87 - 88 FTO (finish to order), 66 M fulfillment, 40 maintenance, repair, and operations (MRO), 66 G make to order (MTO), 66 governance, supply chains, 68 management of exceptions, S&OP growth (sales and operations planning), market-share growth, 37 - 39 143 - 145 sales volume growth. See sales managing, cost to serve, 58 - 61 volume growth manufacturing, synchronous Growth phase, 86 operations (SNAR Model), 101 -102 manufacturing operation, 66 manufacturing-to-revenue cycle, H 17 - 19 horizontal demand patterns, 86 margin growth, 24 - 25 human resources, supply chain balancing governance (SNAR Model), 112 asset management, 73 - 76 service level and cost structure, I 76 - 78 costs, 78 - 81 I.B.S., xi enabling, 71 , 125 improving customer perception, 54 -58 reducing cost of sales, 72 information technology, supply chain market development, 37 governance (SNAR Model), 110 - 112 market penetration, 37 information technology master plan marketing, SNAR Model (Supply (ITMP), 111 Network Alignment Reference innovation, 2 Model), 117 intensity chart, public consultation, 5 marketing initiatives, supporting, international logistics, synchronous 44 - 45 operations (SNAR Model), 104 - 106 market-share growth, enabling, 37 -39 in-transit inventory (ITI), 95 158 INDEX

materials requirement planning. product development, 37 See MRP (materials requirement product lifecycle, demand planning planning) and forecasting, Planning Logistics, materials transfers, 75 85 - 86 Maturity phase, 86 product-availability mechanisms, 96 models, SCRM-SOX Adherence Production Planning, SNAR Model Model, 130 (Supply Network Alignment MRO (maintenance, repair, and Reference Model), 97 operations), 66 profitability, 39 MRP (materials requirement public consultation planning), 38 , 72 intensity chart, 5 MTO (make to order), 66 SNAR Model (Supply Network Alignment Reference Model), 5 O purchase-to-pay cycle, cash-management cycle, 16 - 17 OCT (order cycle time), 33 , 40 customer perception, 55 - 56 on-time in full (OTIF), 55 Q operational efficiency, 115 quality assurance, SNAR Model order cycle time. See OCT (order (Supply Network Alignment cycle time) Reference Model), 116 order fulfillment customer perception, 57 R OTIF (on-time in-full), 55 raw material (RM), 66 reconciliation of inventory, 74 P reducing packaging material (PM), 66 cost of sales, 72 patterns, demand patterns, 86 - 87 customer dissatisfaction, 50 perception, customer perception, forecasting errors, 84 - 85 48 - 50 lost sales, 41 - 44 performance, 14 revenue cycle, 40 - 41 performance indicators, OCT (order reference scenario, business value, 21 cycle time), 40 revenue cycle, reducing, 40 - 41 perspective, cash-management cycle, risk classification, 128 - 129 19 risk management, 126 Planning Logistics, 83 SCRM (supply chain risk demand planning and forecasting, management), 127 - 130 84 - 85 risk management attributes, 128 demand patterns, 86 - 87 RM (raw material), 66 forecasting horizon, 86 forecasting methods, 87 - 88 S product lifecycle, 85 - 86 supply network business value S&OP (sales and operations planning), model, 89 - 90 133 - 145 planning logistics, 63 capacity management, 138 - 140 PM (packaging material), 66 case studies preferred customers, 119 business discontinuity, 152 - 153 preferred service providers, 118 large multinational beverage preferred supply chains, 68 company, 146 process costs, 80 large multinational brewery, process risks, 128 149 - 151 procurement and purchase, SNAR large multinational chemical Model (Supply Network Alignment company, 151 - 152 Reference Model), 91 - 93 INDEX 159

large multinational food SNAR Model (Supply Network company, 149 Alignment Reference Model), 63 large multinational Tactic Integration, 67 pharmaceutical company, TCO (total cost of ownership), 65 147- 148 transportation, 67 medium-size multinational service providers, preferred service pharmaceutical companies, providers, 118 145 - 146 shareholder value, 126 demand planning, 134 - 137 simultaneous policies, business value, management of exceptions, 143 - 145 26 - 27 safety stock, 95 SKMap (Supply Network Knowledge sales, SNAR Model (Supply Network Management Maturity Roadmap), 1 Alignment Reference Model), 116 SCMP (supply chain master plans), sales and operation planning. See 13 - 15 S&OP (sales and operations stages of, 15 planning) SKUs (stock-keeping units), 72 sales initiatives, supporting, 44- 45 SNAR Model (Supply Network sales management policies, 18 Alignment Reference Model), 3 - 4 sales volume growth, 22 - 23 , 33 - 36 business integration, 115 - 117 enabling, 124 categorizations, 5 - 6 lost sales, reducing, 41 - 44 external supply chains, 117 - 120 market-share growth, enabling, Planning Logistics, 83 37 - 39 demand planning and revenue cycle, reducing, 40 - 41 forecasting, 84 - 85 SNValue Model (Supply Network procurement and purchase, 91 - 93 Business Value Model), 34 Production Planning, 97 supporting marketing and sales public consultation, 5 initiatives, 44 - 45 service packages, 63 Sarbanes-Oxley Act (SOX), 74- 75 stock and inventory control, 93 - 97 sawtooth graphs, 95 supply chain governance SCMP (supply chain master plans), customer service, 106 - 108 9- 15 , 74 human resources, 112 alliances, 11 - 12 information technology, SKMap (Supply Network 110 - 112 Knowledge Management Maturity supply chain projects, 108 - 109 Roadmap), 13 - 15 sustainability, 113 - 114 strategies, 10 - 11 synchronous operations SCRM (supply chain risk distribution, 102 - 104 management), 127 - 130 international logistics, 104 - 106 controls risks, 128 manufacturing, 101 - 102 demand risks, 127 warehousing, 99 - 101 environmental risks, 128 synchronous operations process risks, 128 transportation, 98 - 99 supply risks, 127 - 128 SNValue Model (Supply Network SCRM-SOX Adherence Model, 130 Business Value Model), 21 , 29 seasonal demand patterns, 87 sales volume growth, 34 segmentation, 63 SOX (Sarbanes-Oxley Act), 74 -75 , 130 service packages, 64 speculative stocks, 95 service level and cost structure, stages of SKMap (Supply Network balancing, 76 - 78 Knowledge Management Maturity service packages, 61 - 69 Roadmap), 15 flexibility, 68 stock segmentation, 64 dead stocks, 95 safety stock, 95 speculative stocks, 95 160 INDEX

stock and inventory control, SNAR international logistics, 104 - 106 Model, 93 - 97 manufacturing, 101 - 102 stocking-keeping units (SKUs), 72 transportation, 98 - 99 strategies, SCMP (supply chain warehousing, 99 - 101 master plans), 10 - 11 synchronous operations and supply chain governance, 68 segmentation, 66 SNAR Model (Supply Network Alignment Reference Model) T customer service, 106 - 108 human resources, 112 Tactic Integration, service packages, information technology, 67 110 - 112 TCO (total cost of ownership), 61 supply chain projects, 108 - 109 service packages, 65 sustainability, 113 - 114 transaction costs, 79 - 80 supply chain management, 76 transportation supply chain master plans. See SCMP service packages, 67 (supply chain master plans) synchronous operations, SNAR supply chain processes, inadequate Model (Supply Network controls, 74 - 75 Alignment Reference Model), supply chain projects, supply chain 98 - 99 governance (SNAR Model), 108 - 109 trend demand patterns, 87 supply chain risk management (SCRM). See SCRM (supply chain U risk management) uncertainty, 38 supply chain structures, 76 uncertainty costs, 80 - 81 supply chains unplanned barriers, 126 preferred supply chains, 68 value and, 5 Supply Network Alignment Reference V Model. See SNAR Model (Supply value Network Alignment Reference adding to business, 3 Model) adding to customers, 54 Supply Network Business Value shareholder value, 126 Model. See SNValue Model (Supply supply chains and, 5 Network Business Value Model) virtuous cycle, 1 - 2 supply network business value model, demand planning and forecasting, W-X-Y-Z Planning Logistics, 89 - 90 warehouse Supply Network Knowledge (WMS), 101 Management Maturity Roadmap. warehousing, synchronous operations, See SKMap (Supply Network SNAR Model (Supply Network Knowledge Management Maturity Alignment Reference Model), Roadmap) 99 - 101 supply risks, 127 - 128 weighting process, 130 supporting WIP (work in progress), 66 marketing initiatives, 44 - 45 WMS (warehouse management sales initiatives, 44 - 45 system), 101 sustainability, supply chain work in progress (WIP), 66 governance (SNAR Model), 113 -114 write-offs of stocks, 74 sustainable shareholder value, 115 synchronous operations, SNAR Model (Supply Network Alignment Reference Model) distribution, 102 - 104