Slide 1Measuring CompetitivenessSlide 3Slide 4Slide 5Change (risk) PerspectiveSlide 7Benchmarking: A strategic processSlide 9Define Scope and ObjectivesPerformance metrics and drivers for SCSlide 12Business Administration 331Supply Chain ManagementChapter 3Dr. John E. BellAssociate Professor of Supply Chain Management 343 Stokely Management [email protected] SheetFixed Assets Owner’s Equity Intangibles 5 Net Fixed Assets35 Investments 1040LT Liabilities50Current Assets Cash 10 55 Accounts Receivable30 Current Liabilities Inventory 30 Accounts Payable 25 Miscellaneous5 Short-term loans 5Total Assets 125 OE + L 125IncreaseCustomerServiceReduceTotal CostReduceFixed CapitalReduceWorkingCapitalOPERATIONALEXCELLENCEASSETUTILIZATIONProfit and Loss StatementSales 100Cost of Goods Sold 50 *Materials 30 *Labor 15 *Facility Overhead 5Gross Margin 50SG&A Expenses 20Depreciation 10Total Operating Expense 80EBIT 20 Interest 2EBT 18Taxes 6Net Earnings 12Net Margin 12%A holistic financial perspective must be taken when maximizing overall company competitivenessMeasuring Competitiveness2150030010040010010020005001002000200010100052400600400SALESCOST OF GOODS SOLDVARIABLE EXPENSESFIXED EXPENSESINVENTORYACCOUNTS RECEIVABLE OTHER CURRENT ASSETSGROSS MARGINTOTAL EXPENSESCURRENT ASSETSFIXED ASSETSTOTAL ASSETSSALESSALESNET PROFITNET PROFIT MARGINASSET TURNOVERRETURN ON ASSETS$$$$$$$$$$$$$$$%%Xnet profitnet salesnet salestotal assets-+++-+÷÷( )Strategic Profit Model (Dupont Model)net profittotal assetsxPriceQuantityxCost of goodsQuantityTransportationHandlingStorage Space Promotion,etc.()( )Scenario 1: Base Case314852971003969910020055201232005200512.369956.132.02397595400SALESCOST OF GOODS SOLDVARIABLE EXPENSESFIXED EXPENSESINVENTORYACCOUNTS RECEIVABLE OTHER CURRENT ASSETSGROSS MARGINTOTAL EXPENSESCURRENT ASSETSFIXED ASSETSTOTAL ASSETSSALESSALESNET PROFITNET PROFIT MARGINASSET TURNOVERRETURN ON ASSETS$$$$$$$$$$$$$$$%%Xnet profitnet salesnet salestotal assets-+++-+÷÷( )Strategic Profit Model (Dupont Model)net profittotal assetsxPriceQuantityxCost of goodsQuantityTransportationHandlingStorage Space Promotion,etc.()( )Example: A 0.25% Improvement in Sales, 1% Reduction in Costs, Asset Utilization, Inventory, and DSO Drives Significant Gains in ROA 23.6% Improvement In ROA4Benchmarking: The comparison of metrics and processes with externally focused best practice performance to introduce change and aspire to superior performance standards.Purpose:•To answer the question, “Are we competitive?”•To establish the ground for creative breakthroughs and move away from tradition•To provide externally-oriented performance input that is forward looking as opposed to financially-oriented historical inputNumber of performance elements perceived as better than competitors Non-Benchmarker 15 (50%)Limited Benchmarkers 15 (50%)Extensive Benchmarkers 2 (6.7%)Research that asked logistics managers how well they perceive their firm performs relative to competitors on thirty different measures of performance yielded the following results:BenchmarkingChange (risk) Perspective SatisfiedNeutral Aware Concern CriticalCrisis1 2 3 4 5 6Defensive Curious DecisiveDis covery Diagnose DesignSource: ModusLink adaptation of PRIME Resource GroupLowProbability of ChangeHighProbability of Change“Life is great!” “I’m comfortable” “It could happen” “It is happening” “It’s costing $$$” “I must change!”•Strong feelings of success•See no need to change•No satisfaction or pain•Not exploring problems/change•Discomfort. Problem exist but not directly •Consider future change•See symptoms, problems potentially harmful•Ready to define and explore change•Clear picture of problem•Quantify financial impact•Unacceptable problem cost•No longer avoid change. Ready to decidehttps://www.youtube.com/watch?v=uy7TdpmdSJsNegative PresentChange Positive PresentSustainPositive FutureAttainNegative FutureAvoidBenchmarking helps identify current pain and motivate positive change PresentNegativeFuturePositiveConventional ChangeDesired ThoughtBenchmarkingConventional change processes present solutions for a better future without thoroughly diagnosing the present problem. As a result, personnel recognize the risk of change instead of the risk of not changingSource: 2004 Prime Resource Group* Understand process “As-Is” *Map flows –VPM*Determine key drivers & metrics•*Identify targets•*Map target “should-be”* Model supply chain structure* Quantify current requirements as baseline*Design alternatives solutions*Understand cost trade-offs *Quantify total cost/benefit of alternatives* Develop implementation plan to best alternative Implement* Measure process improvements by key metrics *Quantify results against baseline *Review process for continual improvement Continuous Improvement Conduct Business Systems Analysis Conduct Benchmarking Analysis Conduct Scenario “What If” Analysis Implement Plan Evaluate Change Define Scope and Objectives* Identify trouble areas *Determine scope and objectives for improvement Enterprise-wide focus Intensive fact-finding, data driven process Analysis of total cost of ownership Quantify, quantify, quantify Enterprise-wide focus Intensive fact-finding, data driven process Analysis of total cost of ownership Quantify, quantify, quantifyBenchmarking: A strategic process•Are we competitive? Industry comparison•Looks at how others in the industry are doing things•Can we do it better? Internal comparisons•Can we do it differently? “Best In Class” comparisonBenchmarking TargetsDefine Scope and ObjectivesHow do I increase the competitiveness of my supply chain?Strategic Operational• How should the structure of our supply chain be designed? • How are our business practices and policies affecting our performance and bottom line?• How do we build a networked supply chain and manage our business partners?• How can we extend or further concentrate our areas of business expertise?• Which customers and product mix shall we focus on?• What is the performance of our existing production facilities, warehouses, distribution, etc?• What are the optimal inventory levels given variable customer demand and reduced cycle times?•How can we reduce total cost while simultaneously improving customer service?• How do we assess and measure the
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