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Supply Chain and Shareholder Value

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Alexandre Oliveira and Anne Gimeno introduce their book, Supply Chain Management Strategy: Using SCM to Create Greater Corporate Efficiency and Profits.
This chapter is from the book

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 ultimate goals.

Only through the adequate engagement of people does an organization 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).

Figure 1.1

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 Management Maturity Roadmap (SKMap), shown in Figure 1.2, introduces the various levels at which organizations perceive the strategic contribution of supply chain management (SCM).

The goal of the virtuous cycle is to promote within the organization 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 decision-making process begins.

Note that the virtuous cycle suggests that innovation is the mechanism to enable value as the ultimate goal to be delivered to shareholders and stakeholders. According to Oxford Dictionaries,1innovation is (1) the action or process of innovation; (2) a new method, idea, product, etc;” whereas innovating is to (1) make changes in something 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, simultaneously, adding value to the business. What one company considers added value might not hold the same importance for another business (even for a competitor). In addition, because business priorities change over time, the value-added concept is temporal.

Adding value to the business may come from entering a new market, reducing the revenue cycle, reducing accounts payable, increasing profitability, or implementing a physical distribution structure capable of responding to demand volatility. What is value for a particular company at a given time?

So many knowledge areas influence SCM decisions that executives often find themselves confused. So, we developed the Supply Network Alignment Reference Model (the SNAR Model), which provides a structured approach to these knowledge areas, mapping the extended supply network from different perspectives (see Figure 1.3).

Figure 1.3

Figure 1.3 SNAR Model

The SNAR Model provides a flexible approach to several dimensions of supply chain management, especially because of its coding system (see Figure 1.4). This coding system applies to the management of supply chain strategies (as presented in this book), to process mapping techniques, and to the use of performance indicators,2 customer service management,3 and the management of fluid and complex supply networks through knowledge management.4

Figure 1.4

Figure 1.4 SNAR Model: Coding system

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 contributions to the business and to fulfill shareholder expectations.

To help you understand these contributions, consider the categorizations shown here under the SNAR Model coding system (see Table 1.1).

Table 1.1 SNAR Model Coding System

Contributions from Supply Chain Management to Gain Short-Term Cost-Benefit Advantage

SNAR Model Coding System

1

Indirect purchasing (indirect materials, MRO, office, and so on)

01.01.01

2

Business process 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 the orders

01.02.02

01.03.01

01.04.09

01.02.04

01.03.03

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

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 great team

01.03.04

01.04.10

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 goods, documents, and flow of payment

01.03.02

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 processes

01.03.02

24

Talk to the front lines

01.03.04

Figures 1.5 and 1.6 show the knowledge areas cited in this public and spontaneous Operations and Supply Chain Academic Group debate/consultation. Most of the SNAR Model is covered.

Figure 1.5

Figure 1.5 Public consultation: SNAR Model knowledge areas

Figure 1.6

Figure 1.6 Public consultation: Intensity chart

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