GLOBAL SCM EXCELLENCE STUDY
How Supply pp y Chain Management g can boost company performance
Stuttgart, April 2009
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Contents
Page
A B C
OVERVIEW AND KEY RESULTS
3
RESULTS PER INDUSTRY CLUSTER
26
PROCUREMENT CRITERIA
87
? 2008 Roland Berger Strategy Consultants GmbH
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A
OVERVIEW AND KEY RESULTS
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Global study conducted among 234 companies to analyze impact of supply chain fit on overall firm performance
SETUP AND SCOPE ? Global study on excellence in SCM conducted from end of 2007 until end of 2008 in cooperation with WHU, Stanford University and ETH Zürich ?S Surveying i mainly i l stock t k li listed t d manufacturing f t i companies in Europe and USA for information regarding supply chain excellence1) ? Survey results were combined with public available financial data (2004-2006) ? Total sample consists of 234 different companies from total 16 countries, 5 industry groups with average sales of approx. EUR 11.5 bn and approx. 45.000 employees.
1) Focusing on the main product line (sales driver) of the firm
SCM_pressepr?sentation (2).pptx 4 Other AUT 7% CHE 6% 5% UK 9% 13% FRA 28% GER USA 31%
234 Companies
The main objective is to analyse the impact of strategic supply chain fit on firm performance (ROCE1)
OBJECTIVES ? Identify relevant supply chain design characteristics corresponding to the existing product characteristics ? Analyze if companies design their supply chain according their product characteristics – Supply chain fit ? Analyze if companies with supply chain fit achieve higher firm performance (measured in return on capital employed – ROCE) than companies without fit
Product characteristics
Supply chain fit
Firm performance
Supply chain structure
1) ROCE = EBIT / Capital employed (Net fixed assets + current assets – current liabilities)
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Focus on manufacturing companies in various industries – High percentage of large companies with turnover above 1 bn EUR
Overview of study sample
BY COUNTRY
234 Companies
Other AUT 7% CH 6% 5% UK 9% 13% FRA 28% GER Consumer goods Automotive USA 31% Electrical equipment 9% 18% 28% Engineered g products 50-100 mio. 0-50 mio. 4% 100-250 mio. 1-10 bn 7% 8% 35% 500-1,000 mio. 8% 250 500 mio 250-500 mio. 9% 29% 10 bn and more
BY INDUSTRY
BY TURNOVER
21%
23% Process industry
Survey was conducted mainly in USA and Western Europe p
Focus on manufacturing industries
High percentage of blue chips with sales turnover >EUR1 bn
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Blue chips have participated in all industry clusters – Examples
CONSUMER GOODS (49) PROCESS INDUSTRY (54)
ENGINEERED PRODUCTS (66)
ELECTRICAL EQUIPMENT (54)
AUTOMOTIVE PRODUCTS (22)
() Total number of companies per industry segment
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (1)
Key findings
1
According to their product characteristics companies can be classified into those with standardized products respectively customized products ? Standardized products are characterized by – long product life cycles (> 24 months), – low product variety (≤ 50 variants), – low forecast error (≤ 9%) and – a low frequency of customer order changes ? Customized products are characterized by – short product life cycles (≤ 24 months), – high product variety (> 50 variants) – higher g forecast error ( (> 10%) ) and – a higher frequency of customer order changes
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (2)
Key findings
2
According to the design characteristics the supply chain structure of a company can be classified into efficient respectively responsive ? Key design characteristics for an efficient supply chain structure are – minimization of supply chain costs, – high inventory turnover and – high utilization rate ? Among others, key design characteristics for a responsive supply chain structure are – high delivery reliability, – high buffer inventory for parts and components, – high buffer capacity and – high customer service level
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (3)
Key findings
3
Companies that adapt their supply chain structure according to the product characteristics achieve a strategic supply chain fit. Those companies have a significant higher firm performance compared to companies without supply chain fit ? Companies with standardized products achieve a strategic supply chain fit by focusing on an efficient supply chain structure ? Companies with customized products achieve a strategic supply chain fit by focusing on a responsive supply chain structure ? Firm performance is measured in return on capital employed (ROCE) – It compares operating results (EBIT) with operating assets (Working capital, net fixed ed assets) asse s)
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (4)
Key findings
4
The survey shows that 63% of companies with standardized products and 61% of companies with customized products achieve a strategic supply chain fit. The ROCE performance of those companies is 14 to 17 percentage points higher g compared p to companies p without a strategic g supply pp y chain fit. Companies p with a supply chain fit outperform in addition on ROA, sales growth and EBIT margin
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (5)
Key findings
5
Companies without a strategic supply chain fit lack a sufficient focus on the relevant key design characteristics 37% of companies with standardized products do not have a strategic supply chain fit. They have a lower focus on minimization of supply chain costs, high inventory y turnover and high g utilization rate 39% of companies with customized products do not have a strategic supply chain fit. They do not focus enough on responsiveness, e.g. high buffer capacity, it buffer b ff inventory i t and d quick i k response capability. bilit On O the th other th hand h d those th companies focus too much on efficient design criteria like minimization of supply chain costs and increase of inventory turnover
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (6)
Key findings
6
Across all companies in the last two years the main focus of supply chain optimization was on cost reduction and purchasing/sourcing optimization. For the future companies see the highest focus on improving demanded planning and forecasting
7
Companies without a strategic supply chain fit have recognized their deficits and will therefore focus in the next two years on the relevant improvement areas ? Companies with standardized products will focus on demand planning and forecast improvement and inventory reduction to build up a more efficient supply chain ? Companies with customized products will focus on demand planning and forecast improvement and cost reduction to build up a responsive supply chain
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Key findings – Supply chain fit is a significant performance driver, companies need to adapt their supply chain (7)
Key findings
8
Regarding the main supply chain optimization areas the survey looked more deeply into sourcing related priorities with the result that supplier selection and information sharing are essential elements to achieve sourcing flexibility. More over the results of the survey indicate that companies with supply chain fit also consider this fit in optimizing their supplier base ? Fit companies i with ith an efficient ffi i t supply l chain h i focus f less l on flexibility fl ibilit and d more on efficient supply processes ? Fit companies with a responsive supply chain build up highly flexible supplier processes
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1
Companies have been classified according to their product characteristics
Criteria for supply chain fit
PRODUCT CHARACTERISTICS
Product life cycle Product variants F Forecast t error Frequency of order changes
STANDARDIZED PRODUCTS
>24 months ≤ 50 variants ≤ 9% extremely low – low
CUSTOMIZED PRODUCTS
<24 months >50 variants >10% medium – extremely high
COMPANY EXAMPLES1) (MAIN PRODUCT LINE)
1)
Classification based on main product line and its characteristics as responded in the questionnaire. Therefore classification represents the selfperception of potentially one business segment of a company
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2
Supply chain structures have been classified according to their design characteristics
Classification according to design characteristics
DESIGN CHARACTERISTICS1)
Supply chain cost minimization Inventory turnover Utilization rate Delivery reliability B ff inventory Buffer i t 2) Buffer capacity Customer service level Demand reaction capability Product launch frequency
EFFICIENT SUPPLY CHAIN
RESPONSIVE SUPPLY CHAIN
HIGH
low
low
HIGH
1) 2)
High/low indicates the importance of the respective characteristic for strategic supply chain design On a component level
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3
Companies adapting supply chain structure to product characteristics achieve supply chain fit and higher performance
SUPPLY CHAIN FIT
PRODUCT CHARACTERISTICS
Standardized products Customized products
INCREASE FIRM PERFORMANCE
OPTIMIZE ROCE DRIVER Fixed assets Inventory Supply chain costs
Asset turn
Efficient
FIT
X
ROCE
SUPPLY CHAIN STRUCTURE
Responsive
FIT
EBIT margin
Service level
ROCE = EBIT / Capital employed (Net fixed assets + current assets – current liabilities) Assets are not considering goodwill and intangible assets
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4
Supply chain fit for approx. 60% of companies – ROCE significantly higher
SUPPLY CHAIN FIT FIRM PERFORMANCE
Avg. g ROCE ( (2004-2006) )
PRODUCT CHARACTERISTICS
Standardi Standardized products Customized products
PRODUCT CHARACTERISTICS
Standardi Standardized products Customized products
Efficient
114 (63%)
21 (39%)
Efficient
25%
14%
SUPPLY CHAIN Responsive STRUCTURE
TOTAL
Supply chain fit
66 (37%)
33 (61%)
SUPPLY CHAIN STRUCTURE
Responsive
11%
31%
180
54
TOTAL
+14%
+17%
Source: Framework adopted from Fisher (1997)
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4
Companies with a supply chain fit outperform in addition on ROA, sales growth and EBIT margin
ROA, sales growth, EBIT margin 2004-2006 [%]
RETURN ON ASSETS (ROA)
PRODUCT CHARACTERISTICS
Standardized products Customized products
SALES GROWTH
PRODUCT CHARACTERISTICS
Standardized products Customized products
EBIT MARGIN
PRODUCT CHARACTERISTICS
Standardized products Customized products
Efficient
11%
5%
Efficient
14%
8%
Efficient
10%
8%
SUPPLY CHAIN STRUCTURE
Responsive Δ ROA
5%
9%
SUPPLY CHAIN STRUCTURE
Responsive Δ Sales growth
6%
13%
SUPPLY CHAIN STRUCTURE
Responsive Δ EBIT margin
6%
10%
+6%
+4%
+8%
+5%
+4%
+2%
Supply chain fit
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4
Overall the ratio of Supply Chain Fit standardized companies is higher than of customized companies – Except: Eng. Pro
Cross industry benchmark – Supply Chain Fit
SUPPLY CHAIN FIT
% Fit custom.responsive 80
(73%/78%)
COMMENTS
? Highest Supply Chain Fit ratio for both standardized and CUSTOMIZED companies in Consumer Goods industry
60
(56%/60%) (63%/61%) (64%/53%)
40 50
Automotive1)
(67%/36%) (64%/--)
80
Consumer Goods Electrical Equipment
% Fit standardefficient
Engineered Products Process Industries Overall
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1) No firms with customized products