Supply Chain Master Plan
Over the years, various supply chain management models, strategies, 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 Replenishment [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, companies must establish a long-term strategy called a supply chain master plan (SCMP) (see Figure 1.7).
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, customer 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 accurate strategies because it enables executives to start thinking about the interconnectivity between the policies that will rule company’s processes.
These strategies have three main dimensions:
- Sales volume increase
- Sales revenue increase
- 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 forward without some level of business integration. It is not possible to execute a long-term SCMP without shaping alliances with other companies. The external side of the supply chain is nowadays more decisive than ever.
In fact, the connection with the external operations of multiple, interconnected supply chains is what makes the management of supply 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 leadership in the market: Alliances with noncompeting companies may diversify the portfolio of products or services 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 partnership with specific suppliers.
- 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 sectors, 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 economies of scale: External manufacturing is a trend in the pharmaceutical industry. Small laboratories outsource parts of the packaging process to larger laboratories with more assets and industrial overcapacity.
- Avoid or overcome trade barriers: Local distributors usually 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 solution providers include license or version updates for various applications, such as warehouse management systems, transport 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).
A clear correlation exists between the SCMP and the SKMap (see Figure 1.8). The first parallel can be traced soon after the introduction 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.
Figure 1.8 SCMP and the SKMap
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 definition of goals, the alignment of strategies, the formulation of policies, 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.
The methodology of the SCMP serves as the foundation of governance: the processes are mapped; performance indicators are defined, implemented, and used; and there is the involvement of customer service, human resources, information technology, and project management. 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 providers. This transition mechanism, which supports the supply chain governance, 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 business 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 business 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 supply chain and the effective company’s cash management.
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 satisfaction 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 success of the company (beyond 2 years, with a horizon of up to 10 years).
Figure 1.9 Stages of the SKMap