Best Practices of a Strategy-driven Supply Chain
In this article, I will shine a spotlight on some of the best practitioners of supply chain fundamentals, and take you along their path towards an optimised S&OP.
If you are looking for a more in-depth overview of all the metrics, strategies and best practices of the strategy-driven supply chain, please check out my book, The Strategy-driven Supply Chain.
Barilla manages local business growth with IBP
Barilla is an Italian family-owned food company. Established in 1877, it’s now an international group present in more than 100 countries. Primarily known for its pasta distribution around the world, the organization also combines this with other supply chains, such as bakery products and sauces.
In the past, their S&OP process was different for every local supply chain and business. Now, their general supply chain is organized as an overseeing control tower, managed by a global supply chain officer, covering all the planning processes, network designs and customer service for Barilla worldwide.
The link between Barilla’s strategy, finance and supply chain is key in order to make the right supply chain decisions. The interdependency between volume growth and maintaining value is important for their businesses to grow. To manage this growth through capital expenditure (CapEx) investments, Barilla needs to make a clear correlation between the growth, service, revenue and the capital employed for each of their businesses.
In order to create a transparent overview of these numbers, Barilla has opted for an Integrated Business Planning (IBP) solution. IBP connects the planning functions of each department in their organization to align operations and strategy with financial performance.
In this way, Barilla can manage their supply chain decisions with a clear understanding of the relation between volume and value. The investment in a clear system of KPIs, and a good internal system of retrieving those KPIs in IBP, is crucial to convince the top management of the importance of a strategy-driven supply chain.
Novo Nordisk uses ROCE and benchmarking for balanced supply chain decision-making
Novo Nordisk is a leading global healthcare company with 45,300 employees, founded in 1932 and headquartered in Denmark. Their purpose is to drive change to defeat diabetes and other serious chronic diseases by pioneering scientific breakthroughs, expanding access to their medicines and working to prevent and ultimately cure disease.
Novo Nordisk has products marketed throughout the world, in 169 countries to be exact, and has a total net sales of more than 17 billion euro. Their main product is insulin, of which they supply 50% of the world’s total amount.
Novo Nordisk is a metric-oriented company when it comes to its supply chain management. It uses Return on Capital Employed (ROCE) as a starting point for balanced decision-making. Together with clear benchmarking, this metric helps them understand their high-level inventory terms, look at margins across their benchmark, and get a deeper understanding of the complexity and variability of their supply chain.
These common metrics and statistics offer an amazing opportunity for different departments in their organization to break down silos and come together to align strategy and supply chain response. This way of working has also been turned into a talent development project, during which a group of newly acquired talent of Novo Nordisk created a company-wide approach to a strategy-drive supply chain. In turn, this exercise has given a boost to the internal supply chain dialogue and has helped to integrate the supply chain goals of different departments at Novo Nordisk even better.
BASF gets departments to speak the same supply chain language
BASF is a chemical giant. Their broad portfolio ranges from chemicals, plastics, performance products and crop protection products to oil and gas. Around 110,000 employees contribute to the success of 90,000 customers in nearly all sectors and almost every country in the world, generating sales of around €59 billion in 2020.
From a supply chain point of view, BASF manages around 250 production sites, 2,400 warehouses and more than 270,000 SKUs. In a nutshell, this chemical multinational operates one of the most complex supply chains in the world.
A lot of ideas and concepts of the strategy-driven supply chain are already applied at BASF. The concept provides a powerful framework to integrate different functions and talk the same language across different units, integrating strategy, finance and supply chain to find a joint target.
Considering supply chain is all about balancing the triangle of service, cost and cash, it’s very important for BASF to keep track of it every day. ROCE is a powerful KPI to do this, and allows Finance and Supply Chain to speak a common language. Right now, ROCE is the key KPI at the multinational for all branches of the company. It helps Finance and Business Management connect and helps Supply Chain to get its voice heard.
And when they are heard, Supply Chain still needs to learn to convince the top management at BASF with meaningful targets. Powerful and easy-to-understand multidimensional benchmarking helps their department to achieve just that, as it enables them to create relevant strategy-driven targets.
Last, but not least, the introduction of Integrated Value Planning & Execution has been crucial to drive value. It is the final piece in the puzzle to get Supply Chain a seat at the table and integrate Strategy, Finance and other units of the company. The concept of the strategy-driven supply chain has shown BASF the way forward towards an integrated supply chain strategy, shared by all departments worldwide.
The different roads to a broadly supported supply chain strategy
From these examples, it’s clear that the road towards a strategy-driven supply chain is a challenging one, filled with potholes and stumbling blocks.
The key to overcoming these challenges lies in the cooperation between the many different departments in a company, each with their own supply chain goals.
Thankfully, the role of the supply chain is changing in many companies and its importance at the executive table is gradually increasing as well. What we now see, is that supply chain planning is moving from a semi-operational focus on S&OP, customer service and logistics, to a more central position in the supply chain triangle.
At the heart of this triangle, supply chain brings balance to its 3 sides: sales, finance and operations. Only here can supply chain planning offer its true value, by moderating the debate around your strategic, financial and operational planning (S&OP). This change will eventually bring you to a more strategy- and value-driven organization model instead of a conflict-driven one.
The useful tools and metrics we discussed, like the supply chain triangle, ROCE or benchmarking, can help you to get everyone in your business aligned and make your supply chain voice heard on all levels of company management. Even though they have not reached their supply chains goals yet, Barilla, Novo Nordisk and BASF are working steadily, and continuously, on the way forward. And so can you!