End-to-End Supply Chain Management - 2nd edition - E-Book

Joris J.A. Leeman

• Herausgeber: Books on Demand
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 527

Veröffentlichungsjahr: 2020

Beschreibung

The purpose of this book is to help you with the development and implementation of a successful End-to-End Supply Chain Management - Strategy: optimising your processes from manufacturer to retailer. This book answers four questions: - How to develop an end-to-end supply chain - strategy? - How to create the necessary supply chain infrastructure? - How to make collaboration work between the partners in the network? - How to plan and manage the supply chain flows? It will enable you to: - Systematically improve your sales productivity in the retail stores; - Enhance the operational / qualitative performance of your processes and those of your partners in the supply chain; - More effectively balance the trade-off Time v Costs. This book provides you with: - A Supply Chain System - Model: a framework to develop your End-to-End Supply Chain; - 10 Strategic Building Blocks which can be used as a toolkit; - 50 Lessons Learned based on experiences from practice; - A strategic roadmap: to plan, organise, lead and control your supply chain. The 2nd edition (in hardcover and color) has many new cases, toolboxes and a new chapter on process management. In addition, more attention is given to topics like procurement, demand planning, omnichanneling and supply chain-design, -planning and -execution. For whom has this book been written? This book is useful for thinkers and practitioners! For everyone who wants to learn more about supply chain management and the development and implementation of an end-to-end supply chain strategy. This book is also available as paperback in black and white with the title Supply Chain Management, 2nd edition.

Leseprobe

For

Mai-Lan

Table of contents

Foreword

Preface

Acknowledgments

About the author

Market and Strategy

1.1 Strategy, verticalization and supply chain management

1.2 Manufacturers and retailers

1.3 Competing supply chains

1.4 Supply chain-system – model

1.5 Elements of the model

Summary

Case

Terms and abbreviations

Process

2.1 Thinking in processes

2.2 Demand- and supply chain-planning

2.3 The SCOR-model

2.4 Integrated chain management

2.5 Supply chain-terminology

Summary

Case

Terms and abbreviations

Planning

3.1 Supply chain-design, -planning and -execution

3.2 Time-to-market and vertical integration

3.3 Choosing the business process-model

3.4 Assortment-planning and -control

3.5 Replenishment and synchronising demand and supply

Summary

Case

Terms and abbreviations

Inbound supply chain management

4.1 Inbound supply chain management

4.2 Development of the physical supply chain-infrastructure

4.3 Setup of the information systems network

4.4 Managing the supply chain

4.5 Controlling and sustainable management of the supply chain

Summary

Case

Terms and abbreviations

Procurement and supplier relationship management

5.1 Procurement: type, process, category and suppliers

5.2 Developing strategic supplier relationships (SSR)

5.3 Selecting strategic suppliers

5.4 Integrating the IT-system

5.5 Monitoring supplier performance

Summary

Case

Terms and abbreviations

Outbound supply chain management

6.1 Outbound supply chain management, omnichanneling and e-fulfillment

6.2 Ousourcing: “Offloading the bricks”

6.3 Benefits of outsourcing

6.4 Implementing outsourcing (1): key factors for success

6.5 Implementing outsourcing (2): partnership development

Summary

Case

Terms and abbreviations

IT-systems platform

7.1 IT-systems to support the business processes

7.2 Collaborative IT-systems

7.3 Creating the IT-systems platform

7.4 Defining the IT-roadmap

Summary

Case

Terms and abbreviations

ECR and collaboration

8.1 Efficient Consumer Response

8.2 EDI- and IT-networking

8.3 EDI and logistics collaboration

8.4 ECR, CPFR and SOLM

Summary

Case

Terms and abbreviations

E-business

9.1 E-business strategy

9.2 Information-hubs and -portals

9.3 IT-infrastructure

9.4 E-business landscape

Summary

Case

Terms and abbreviations

Organisation and change management

10.1 Planning the end-to-end supply chain-system

10.2 Organising the strategic building blocks

10.3 Leading the change management process

10.4 Controlling with systematic quality and performance improvement

Summary

Case

Terms and abbreviations

Index

Notes

Foreword

As senior manager, executive director and board member of companies within the apparel, retail and medical industries, I experienced very often a lack of understanding and interest for the back-end part of the business. Too often senior management and board members are only focused on sales and forget about the organisation and operational completion of the sale.

In today’s market field retail prices are under pressure, gross margins are shrinking and labour costs are going up. Additionally, more and more qualitative demands are being made by the retailers: more deliveries in smaller lots, faster and on-time deliveries, complete deliveries – no exceptions. All these demands require much more efficiency and effectiveness from the organisation to fulfil the completion of the sale. Trade offs between time and costs become very hard to make as ‘Every order is urgent’ and ‘It should be produced and delivered at the lowest costs’. If these trade offs are not balanced upfront within the organisation and within the total supply chain, substantial process costs and/or service level deficiencies will be the result. Here’s where my inspiration for this book started.

‘Profit and success are not earned exclusively in the buying and selling of the products anymore, but also in the efficiency and effectiveness of its integrated processes and systems to order, manufacture and deliver the products.’

Why is it so difficult for executive management to balance the trade offs between time and costs for its processes and systems? As it requires on the one hand, a detailed understanding of the organisation’s processes, and on the other hand, it requires knowledge of available IT-systems on the market. The lack of understanding starts here, as many directors do not fully know their supply chain processes and do not have enough IT know-how to judge which systems to use. In addition, the new technologies which integrate the buyer- and seller-processes / systems into end-to-end supply chain networks do not help to simplify the understanding for executives.

‘Many organisations lack persons or a department to bridge the lack of understanding of its processes and systems. This book tries to fill this gap. It shows what the strategic building blocks are for developing an end-to-end supply chain networkwithin your company.’

This book intends to be pragmatic. It provides a framework, toolkit and roadmap for developing your own end-to-end supply chain-system. The book should inspire you to explore the strategic building blocks and implement them within your (future) company.

Preface

What’s the purpose of this book?

The purpose of this book is to help you with the development and implementation of a successful end-to-end supply chain management – strategy: optimising your processes from manufacturer to retailer. Brand label manufacturers and retailers are confronted with shortening product life cycles and a more demand, pull driven market, which lead to an increased importance of time-to-market, and trade off – decisions between time and costs. Thinking in the end-to-end supply chain requires a massive organisational change, in order to become faster, more flexible, transparent and driven at lower cost levels. On the one hand, internal cooperation between the internal departments product planning (merchandising), logistics and information technology is needed, and on the other hand, external collaboration with the partners in the supply chain: the suppliers, lead logistic service providers and retailers, is required. Functional silo’s within and between organisations is ‘out’, collaboration is ‘in’. This book answers four questions:

How to develop an end-to-end supply chain – strategy?

How to create the necessary supply chain infrastructure?

How to make collaboration work between the partners in the network?

How to plan and manage the supply chain flows?

In other words, how do I plan, organise, lead and control the total supply chain, in order to use supply chain management as a weapon to create a competitive edge. This book provides a framework, toolkit and roadmap for developing your own end-to-end supply chain-system. A roadmap which reviews all aspects, relevant to your specific situation, based upon a framework. It will enable you to systematically improve your sales productivity in the retail stores, and to enhance the operational / qualitative performance of your own processes and processes of your partners in the supply chain.

On purpose supply chain management will be discussed in a broader spectrum. You will not find detailed analyses and extensive descriptions. For all those individual aspects enough books are already available in the retail store. However, you do find a complete overview of all the subjects which relate to supply chain management. The strength and added value of this book, is its combination of all relevant elements, presented in a logical order, to guide you how to develop the end-to-end supply chain-system. A path already completed by several companies successfully.

For whom has this book been written?

Supply chain management; integrated chain management: 10 building blocks is written for higher education and university students. The book describes supply chain management at a strategic, tactical and operational level and combines theoretical descriptions with relevant practical experiences.

This book is useful for thinkers and practitioners! For everyone who wants to learn more about supply chain management and the development and implementation of an end-to-end supply chain strategy. If you are an executive, supply chain manager, marketing manager, purchase manager, IT manager, retail manager, wholesale manager, distribution manager, project leader, team leader, staff member or consultant, this book provides you with many useful insights, practice experiences and lessons learned.

What is the structure of this book?

All figures as shown is this book are coming from the author, who is having the copyrights, unless stated differently. The book is divided into three parts: product planning (merchandising), logistics and information technology. The parts on product planning and the IT-system consists of three chapters; the part on the logistics infrastructure composes four. The ten chapters together form the strategic building blocks necessary to develop and implement the end-to-end supply chain-system. In this 2nd edition a new chapter on process management is added to explain some basic theory.

▪ Product planning and control

Chapters 1, 3 and 10 focus on product planning (merchandising) and provide answers to the questions ‘how to develop an end-to-end supply chain management strategy’ and ‘how to plan and manage the supply chain flows’. Chapter 1 provides an introduction to the framework and the strategic building blocks necessary for the development of the supply chain-system. It briefly describes the retail environment, scope and tasks for retailers and manufacturers.

Chapter 3 focuses on the need for product - planning and development of the collaboration between retailers and brand label manufacturers to synchronise demand and supply of product flows into the retail stores. It describes where and how to influence the bottom line by means of its cost drivers.

Chapter 10 connects the three parts of the book, by means of: planning the end-to-end supply chain-system, organising around the strategic building blocks, leading the change management process and controlling to realise systematic quality and performance improvement. It reviews all elements necessary for a successful implementation of end-to-end supply chain management within your organisation. How do you successfully apply change management? What are the critical success factors?

▪ Logistics

Chapter 2 is a new chapter, written for this 2nd edition. It contains basic theory on process management and terminology within the field of logistics and supply chain management. The chapters 4, 5 and 6 are focused on Logistics and provide mainly an answer to the question ‘How to create the necessary supply chain infrastructure’. Chapter 4 concentrates on how to setupinbound supply chain management, and facilitate its end-to-end thinking and management from ‘point-of-sale’ back into the factory. You get more insight in the value adds and costs of supply chain management; and how you can influence them. Chapter 5 concerns procurement and supplier relationship management and how to integrate your suppliers on the back-end side of the supply chain. Chapter 6 relates to outbound supply chain management, with a focus on omnichanneling, e-fulfillment and outsourcing logistic processes.

▪ Information Technology

Chapters 7, 8 and 9 focus on information cechnology and provide mainly an answer to the question ‘How to make collaboration work between the partners in the network’. In Chapter 7 the development of the IT-systems platform is being discussed to support the business proccess management model. Chapter 8 focuses on ECR and collaboration with customers on the front-end side of the supply chain. Chapter 9 focuses on building the E-business network to enable the organisation to manage the end-to-end supply chain-system. Hereby are discussed in this 2nd edition the increasing digitalisation, industry 4.0 and development of internet of things (IoT).

Didactical aspects

In order to support you when reading Supply Chain Management each chapter contains:

learning topics at the beginning of each chapter;

tables, figures and other illustrations to easily pick up the most important aspects from the text;

toolbox(es) which present a practical application of the theory;

a summary of the chapter reviewing the learning topics;

an opening case and an integrated case at the end of the chapter; the integrated case can be used within the group to analyse the most important elements of the chapter within a practical situation;

summary questions to review the learning topics from the chapter and putting together a summary of the text;

a summary of the chapter reviewing the learning topics;

a list with abbreviations and terms as used in the text.

Supplements

Additional information can be found on the website of the Institute for Business Process Management (www.institute-bpm.com).

New in the 2nd edition

In this 2nd edition of End-to-End Supply chain management; integrated chain management: 10 building blocks the following changes are made:

the supply chain management – model is adapted to today’s challenges, for examples by giving attention to procurement, demand-planning, supply chain planning and omnichanneling;

the structure of the book is organised in 10 building blocks;

a new chapter (

Chapter 2

) on process management has been added. It contains basic theory of processes and terminology within logistics and supply chain management;

in

chapter 3

,

4

,

5

and

6

an additional paragraph is added on supply chain design (3), inbound SCM (4), procurement (5) and outbound SCM (6);

many new cases are included (Apple, UPS, supply chain planning, supply chain-finance, omnichanneling, LEGO, block chain technology, e-fulfillment, Walmart, Continental, industry 4.0, Toyota);

new toolboxes with practical tools matching the relevant topic as discussed in the chapter;

several tables and figures are adjusted;

additional material for lecturer’s can be downloaded at

http://scm.jimdosite.com

, for example powerpoint slides, cases and toolboxes.

This book on end-to-end supply chain management focuses on retail and industry, and not necessarily on supply chain processes for services. It offers a practical approach how to organize and implement supply chain management as integrating element to departments within the own company and with its suppliers and customers. It provides building blocks and a roadmap to develop supply chain management within the own organization.

Acknowledgments

1st edition

The completion of this book is the work of many persons for which I am grateful. I would like to thank lecturers and persons who provided me with feedback on the manuscript. Especially I would like to mention Jan Jansen (University of Applied Sciences of Arnhem en Nijmegen, Arnhem Business School), John van de Langenberg (Avans Hogeschool ‘s-Hertogenbosch), Didier Piets (University of Applied Sciences Arnhem en Nijmegen, Arnhem Business School), Koen Schram (Katholieke Hogeschool Mechelen), Marinus Verhoef (Hogeschool InHolland Rotterdam), Bart Voskuyl (Hogeschool InHolland Den Haag), Rob de Wit (HVA and Hogeschool InHolland Diemen). I also would like to thank Elle Kanters, Jaap Roorda, Peter Johannes and Rita Snaddon of Pearson Benelux for their support, effort and willingness to invest in the Dutch version of this book.

Furthermore, I thank all persons and institutions for their authorization to use their copyright material.

I am grateful with the publichation of the English version of this book in 2010.

Düsseldorf, October 2005/2010

Joris Leeman

2nd edition

Herewith I thank everyone who has their share in the development of this 2nd edition.

Especially, I would like to thank the persons who read through the script. Also, the persons who gave their permission for the use of their copyright material. Furthermore, I thank Wendelien van Voorst van Beest, Inge Klinkers, Rivka Mooren, Elle Kanters and the rest of the team of Pearson education for publishing the 2nd edition in Dutch language. Last but not least I thank my wife for her patience and support during the process of making all the adjustments.

Düsseldorf, September 2020

Joris Leeman

About the author

Joris J.A. Leeman is the founder of the Institute for Business Process Management. He has extensive experience in organising the back-end part of the business: organisation, supply chain management, IT-systems, e-Commerce and e-Business, logistics, and sourcing operations. He is a consultant, lecturer and author. Prior to this he worked as a manager, director and executive for globally operating companies like MEXX, Johnson & Johnson, and Esprit.

Besides his consultancy activities, he is a part-time lecturer at the Arnhem Business School, HAN University of Applied Sciences, in The Netherlands. In addition, he acts as a freelance senior trainer in procurement and supply chain management for KPMG Germany. The trainings are for global leading companies and take place in Europe, Asia and USA.

He received his BA degree in Logistics & Economics from HAN University in The Netherlands. He received his MA degree in International Business and MBA degree from Webster University, St. Louis, USA. ASCM (APICS) certifications: CSCP, CPIM, CLTD and SCOR-P.

Institute for Business Process Management

The goals of the Institute for Business Process Management are (1) to advise companies in improving their end-to-end business processes and organisation; (2) to train students, postgraduate students, employees, managers, and directors in the field of procurement, supply chain management, logistics, e-business, retailing, export management, and services management; (3) to publish books which enhance the knowledge of managing end-to-end business processes.

Other publications

2018 Joris Leeman, Export Planning, a 10-step approach, 2nd edition (English), Books on Demand, August 2018. ISBN 978 3752 847628.

2017 Joris Leeman, Supply Chain Management, Integrale ketenbesturing, 2e editie (Dutch), Pearson Education, May 2017.

2010 Joris Leeman, Supply Chain Management, Fast, Flexible Supply Chains in Manufacturing and Retailing, (English), Books on Demand, April 2010. ISBN 978 38391 37918.

2007 Joris Leeman, Supply Chain Management, Integrale ketenbesturing, (Dutch), Pearson Education, May 2007. ISBN 978 90430 12867.

2005 Joris Leeman, End-to-end Supply Chain Management; Fast, flexible Supply Chains in Manufacturing and Retailing, (English), Books on Demand, October 2005. ISBN 38334 28651.

2004 Supply Chain Steuerung und Services, Logistik Dienstleister managen globale Netzwerke – Best Practices. Springer Verlag, 2004. Baumgarten, H., Darkow, I.L, Zadek.H. Book contribution “Partnerschaft und Vertrauen für Supply Chains in der Bekleidungs-Industrie“, Fiege, Hugo und Leeman, Joris J.A., (German), Springer Verlag, 2004. ISBN 35404 43088.

Institute for Business Process Management

Joris J.A. Leeman MA, MBA

APICS certified: CSCP, CPIM, CLTD, SCOR-P

www.institute-bpm.com

CHAPTER 1 Market and Strategy

At the end of the chapter you will be able to:

explain why verticalisation and supply chain management is so important for management today;

explain what distribution channels exist and which members are active in the supply chain-network;

name the three most important business drivers for brand label manufacturers and retailers;

provide a brief explanation of the supply chain-system - model and how to create a competitive advantage with it;

name the most important strategic building blocks for the development of an end-to-end supply chain-system.

Case Faster fashion puts new pressure on supply chains

I can remember an audience of supply chain professionals left agog a few years ago, as they listened to Spanish academic José Luis Nueno explain how Zara can see an outfit on the catwalk in Paris – and have a version of it on the shelves of its stores 24 hours later. Of course, that level of performance is exceptional – but even the norm of a few weeks was way ahead of its competitors who were still designing seasonal collections months in advance. Since then “fast fashion” has become a key ingredient in the product offer for many apparel retailers as they have realigned supply chains to push the moment of production as close as possible to the moment of sale. But achieving this is tough and some major retailers are still struggling to match the industry’s best.

For example, in March 2015, the CEO of Gap, Art Peck, said in a magazine article that it was taking Gap up to three times as long as competitor such as Zara and H&M to get product ideas into the store. And when it published its 2015 annual report earlier this year, Gap said: “For fiscal 2016, our top objective is to improve sales performance through a more consistent, on-trend, product offering. To enable this, we have several product initiatives underway, and in addition, we plan to continue focus on our responsive supply chain and inventory management.”

But now, it seems, fashion is getting even faster. Next week Burberry will take the first step in a strategy that moves it away from its traditional four runway shows a year to just two, straight to consumer shows. CEO Christopher Bailey said its shows had been evolving to close the gap between when consumers could see collections on the runway and retail availability. “From live-streaming, to ordering straight from the runway, to live social media campaigns, this is the latest step in a creative process that will continue to evolve.” US designers Tommy Hilfiger and Tom Ford are also reported to be adopting “see-now, buy-now” strategies. Clearly, there are big wins to be had, but equally clearly, there are big implications for the supply chain. By definition, products have to be available immediately – no waiting to see how the collection is received. That means that the risks associated with a poorly performing line are going to be greater. So not only must supply chains be able to accommodate the increase in speed to market – they must also be more responsive and agile to deal with problems more quickly.

Source: M. Davies (red. 2016), ‘Faster fashion puts new pressure on supply chains’, Logistics & Supply Chain, 9/2016.

1.1 Strategy, verticalisation and supply chain management

1.1.1 Strategy

Succesful companies work according to a certain strategy. Such a strategy is composed of elements which enable to create a competitive advantage. The competitive advantage has to be visible for the customer or consumer: on one hand via the product or service, on the other hand via its process (service, quality, time, cost). The development, production and delivery of a product or service is comprised of several process steps within the supply chain. Very often these process steps are being organized by several companies, operating in different countries. Hence, they are increasingly dependent on each other within the supply chain. Companies collaborate. to maintain control. A specific form of strategic collaboration is verticalization. Verticalisation focuses on managing the supply chain based on a (planned) demand of the customer or consumer. Companies closely work together in planning, manufacturing and distribution of the product or service.

What is the situation in retailing?

The opening case made clear that retailers, like Zara, with a smart business strategy respond to the everly faster changing requirements of the consumer. To have the right products is not enough, as products with a high demand also need to be replenished timely. Next, information systems are needed to identify bestselling products, and organize product planning and digital coordination of the product deliveries. The processes and systems enable fulfillment of the requirements of the customers. However, not all products can be sold and delivered following a similar pattern. Certain products are available all-year-through and therefore need to be replenished during the year. Other products are fashion-driven and as a result are only for a short-time period available on the market. Very often replenishments are not possible given the short-time availability. The inventory risk of not being able to sell the product is for both example-products different: products which are available all-year-through (non seasonals) have less inventory risk compared to articles which are temporarily as a fashion-item on stock (seasonals). Therefore, the chosen product-strategy has a big influence on the inventory risk all members in the supply chain have. Moreover, the process-requirements are different too: non-seasonals have to be replenished very fast, which has demanding requirements for the different members in the supply chain. Articles which are only available for a limited time will be less frequently replenished and require less supply chain requirements. The chosen company strategy determines the level of coordination requirements with respect to processes and systems.

What is the situation in manufacturing?

A similar situation as described in retailing is applicable for a company operating within a manufacturing environment. Companies like ThyssenKrupp, ABB, Philips and Siemens very often engineer, manufacture and distribute products on a project-base, sometimes even tailor-made developed, produced and delivered. Just think of elevators, transformers for machines in a factory, medical equipment for a hospital. The final product (the project) is often a composition of products of suppliers, assembly of part of these products in one’s own product, and assembly and installation of all produts at the customer’s location turn-key. of the customer These types of projects are bound by quality, time, service and cost. Competitive rivalry is high and supply chain-performance of a timely project-installation is the key-factor. Most often these products are ‘make-to-order’ or even ‘engineer-to-order’, which means that also in the ‘make’-industry the supply chain is demand driven; like in retailing! The case upon the ‘make’-industry according to ING-Bank as shown at the end of this chapter confirms this line of reasoning.

Competitive strategies according to Treacy and Wiersema

Treacy and Wiersema differentiate three competitive strategies, which are based on the three generic competitive strategies of van Porter.1 Each strategy has a different emphasis on quality, time, service, and cost.

Operational excellence-strategy (lowest possible cost).

This strategy is focused on reaching an optimal combination of price, quality and buying convenience which cannot be matched by its competition. Its emphasis is on low prices and standardized processes to be able to operate efficiently.

Product leadership-strategy (best product.)

This strategy is focused on continuous (technological) innovation of the product assortment. Its emphasis is on product innovation and delivery of the the best product on the market.

Customer intimacy-strategy (customer intimacy)

This strategy is focused on creating a close relationship with the customer by fulfilling its requirements: tailor-made services and mass customization. Tailor-made services are individually composed for the customer. Mass customization organizes tailor-made services for a group of specific customers. Its emphasis is on service, quality, quality and services during the overall process.

Toolbox 1.1:

Value positioning-model of Treacy en Wiersema2

Treacy and Wiersema developed a value positioning-model based on which companies can determine how to realize a competitive advantage with four elements. It is a useful and practical model to easily find out the strategic focus of a company.

For example, the process is the experience of the booking of a train ticket and train journey itself. The product is the travel service from point A to B.

The two elements below the line are focusing on what the customer has to pay or has to do, in order to acquire the product/service. For example, the effort is what the customer has to do to purchase and receive the train ticket.

Based on the value positioning-model the company can choose with what strategic element to compete in order to realize a competitive advantage: via the final product (result), the process-experience, its price, or effort to acquire the product/service, or in a combination of these elements. Furthermore, the value positioning allows companies to compare their strategies. The three mentioned strategic directions – operational excellence, best product en customer intimacy – differ in the composition of the four value positioning elements.

Task: fill out the value positioning model for the three mentioned strategic directions. Evaluate what the essential differences are per strategy to create the competitive advantage.

1.1.2 Verticalisation

Verticalisation within the supply chain is taking place at several industries; one of these industries is the apparel industry. The enormous success of vertical retailers like H&M, Zara, Gap and Next in the apparel industry since the ’90-ties, as well as today, force brand label manufacturers like Esprit, s’Oliver, Mexx, Tommy Hilfiger, Levis, Nike and department stores like Karstadt, Kaufhof, Lafayette, Printemps and El Corte Ingles to speed up their supply chains and verticalise/integrate their processes and systems upstream (towards their suppliers) and downstream (towards their wholesale customers) in the supply chain. The competitive environment is increasingly tough: the consumer is less predictable, demand increasingly fluctuates; retail prices are under pressure; competition is extending from products that were traditionally limited to upper, middle and lower segments of the market - and increasingly from the sports industry; gross margins are shrinking; retail store costs and personnel costs are going up.

Those who do not manage their assortment planning and inventories well are continuously under pressure to markdown their products, which makes it even more difficult for them to sell the next collection at its recommended retail price levels. The vertical retailers have responded by:

increasing the probability of designing a bestselling product by dramatically shortening the product’s time-to-market;

piloting the products in the stores and then replenishing the bestsellers within 14 days by new type of make-to-order processes;

driving the inventory sales productivity (as measured by stock turn, sales per square meter, markdown percentage) by keen assortment and delivery planning;

integrating the IT-systems from point of sale back into production factories and from there towards fabric suppliers;

focusing on quality of workmanship through fitting and process quality.

Brand label manufacturers traditionally do not own their retail stores and retailers (department stores) do not own their factories. This easily leads to a competitive disadvantage in comparison with vertical retailers, who have their own retail stores and have tight control over their manufacturers.

Verticalisation is also taking place in manufacturing. Many industrial companies try to manage the complete supply chain themselvey, or try to do this via strict collaboration with suppliers. A firm like Thyssenkrupp makes steel in a firmness as required by the customer (engineer-to-order), after which the thick steel plates are being rolled and rolled-up, to enable the next production step of pressing the steelplates into a framework of a door for a car. Finally, these doors are delivered as finished product just-in-time at the car factory where they are assembled into the car. The five elements as mentioned for vertical retailers in retailing are also valid for manufacturing, or also referred to as ‘make’-industry, only the measurement of the sales productivity is most of the time different.

1.1.3 Supply chain management

You probably wonder what supply chain management in detail has to do with verticalization. Supply chain management concerns ‘managing the supply chain’, which means ‘chain management’, and this is exactly what is needed to have the product or service engineered, manufactured and distributed on time, correct, complete and at minimal cost. According to Chopra3 a supply chain consists of all parties which are, directly or indirectly, involved with the fulfillment of a customer-/consumer-requirement. The supply chain not only exists of brand label manufacturers and suppliers, but also transport companies, employees in the distribution centers, retailers and customers. Within each organisation, like with the brand label manufacturer, a supply chain consists of all functions which have to deal with receiving and fulfilling customer requirements. These functions concern product development, marketing, operations, distribution, finance and customer service.

End-to-end

Supply chain management-thinking is thinking from the consumer back into the chain at the starting point of raw material. The physical goods flow is from supplier to customer, but the thinking is exactly the other way around; from customer back into the factory. Why is it like that? Because the customer directs the demand for products and services. This so-called supply chain-thinking is also named end-to-end supply chain management.

Lesson learned: To survive in today’s marketplace against the vertical retailers, brand label manufacturers and retailers (like department stores) need to integrate their processes and systems from point-of-sale back into the factory.

Supply chain-strategies

Companies on the one hand are being confronted with an increasing need to react faster to customer requirements. However, these customer requirements are more and more difficult to predict. Due to the increasing variability in demand it is not so easy to realize an accurate demand forecast. On the other hand, it becomes more though to deliver fast and correct, due to the fact that everything has to be produced in far away low-cost countries. This puts the supply chain further under pressure. So, what supply chain-strategy to choose? On what base? Figure 1.1 provides an overview of generic supply chain-strategies.

How to manage Demand / Supply uncertainty:

Figure 1.1 Generic supply chain-strategies

The strategies are allocated based on two uncertainties: uncertainty on demand (low or high) and uncertainty in supply (low or high). In a situation of low uncertainty in demand and supply the supply chain can be easily planned and managed. As a result, efficiency optimization results can be realized. The supply chain-strategy can focus on a efficiency/lean- strategy. It is not a problem to hold inventories, as planning can be done very well. Therefore, the decoupling point could be MTS (make-to-stock). Ssee further chapter 3.

However, in a situation of high uncertainty in demand and supply it is much more difficult to plan the supply chain. It then becomes necessary to build in flexibility and responsiveness (speed in cycle/throughput time) This is named an agile supplychain-strategy. Maintaining inventories is risky, therefore many companies prefer to produce based on actual customer orders (make-to-order). The two other generic supply chain-strategies (responsiveness, risk hedging) are in the middle. Responsiveness has its focus on uncertainty in the demand-side (customer), and risk hedging has its focus on uncertainty on the supply-side (suppliers).

These four generic supply chain-strategies have a major influence on the setup of the supply chain: are you putting the emphasis on cost (efficiency) or on time (responsiveness)? This can differ per industry- and business-segment. Therefore, you should always look first at the uncertainty in demand and in supply, before you think about a certain supply chain-strategy. Furthermore, the characteristics of a product or service are of influence too. Check the 4V-analysis in Toolbox 2.1. The next paragraphs will focus more on the members in the supply chain and the building blocks to setup the supply chain-system.

1.2 Manufacturers and retailers

1.2.1 Members in the supply chain

The members who mainly play a role in the supply chain are the consumers or customers, retailers, wholesalers (distributors), brand label manufacturers and suppliers. The consumers are the final customers of the product or service. The retailers are the store owners who sell their products via physical stores (department stores, franchise stores, own retail/image stores of brand label manufacturers, multi-brand stores) or internet shops (e-tailing). The wholesalers are the middle man (distributors) who sell (trade) the product or service further to the retailers. Brand label manufacturers are the ones who design the product or service and provide it with an image-label. The actual manufacturing is being done by the supplier, who in some cases is part of the brand label manufacturer. Figure 1.2 provides an overview of the different members in the chain for several distribution channels.

Figure 1.2 Distribution channels and members in the supply chain

1.2.2 Trends in retailing

Manufacturers and retailers are forced by the changing market conditions to work together; much more than they have ever done before. Probably today’s most important retail issues where both are being confronted with are:

time-to-market;

shelf availability;

transaction cost.

4

Time-to-market is crucial in meeting the everly increasing fluctuation in consumer demand patterns. The consumer is more and more unpredictable. Reduced product development and product delivery time enables to decide later in the process about the final product to bring on the market. Deciding closer to the market enables to improve the forecast accuracy of consumer demand. Higher forecast accuracy improves the number of ‘bestseller products’ which are being sold on the retail space. Shelf availability is the next important retail issue. It refers to having the product on the shelf, at the right location within the store, and be able to replenish it fast enough to the retail space to maintain a high service level and avoid lost sales. Replenishment includes the refill from the stockroom in the store and (daily) replenishment of existing stock from the retail distribution center or manufacturer. It also refers to programs to replenish the stock by means of additional production runs at the manufacturer. Shelf availability is all about balancing a high service level percentage to the consumer versus maintaining a cost-efficient inventory level in the store. Transaction costs refer to the overall cost per piece from manufacturing to retail sales. Small purchase lots might reduce the markdown risk, but also impact the inventory service level to the consumer. Large purchase lots reduce the purchase cost per piece, but might increase the overall markdown percentage.

These three retail issues can be seen as retail business drivers: they drive the retail sales productivity– performance. Both manufacturers and retailers need to have the right product, at the right place (shelf availability), at the right time (time-to-market), and at the right quality and lowest possible costs (transaction costs) for the consumer. Vertical retailers more or less own and control the complete process from purchasing the raw material to selling the final product in the retail store. Therefore, they are in a much better position to influence the retail business drivers. Brand label manufacturers and traditional retailers, like department stores and specialty retail chains therefore have to collaborate in their end-to-end supply chain in order to maintain an equal competitive position. Figure 1.3 provides an overview of the different verticalization forms within the distribution channels.

Figure 1.3: Verticalisation forms within the distribution channel

Three main different retail channels exist: vertical integrated, vertical collaboration and independent. Vertical integrated refers to the vertical retailers like Zara, Next. These brand label manufacturers run their own retail stores (forward integrated) and organise the manufacturing themselves (backward integrated).

Vertical collaboration refers to brand label manufacturers like Nike, Esprit. These brand label manufacturers cooperate / collaborate with retailers (department stores, franchise stores and retail chains) and preferred, key suppliers to maintain the end-to-end supply chain, as if it were owned by the brand label manufacturer. Next, they often run their own retail stores as well. In this book the term ‘verticalisation’ is being used to describe the process of developing a vertical collaborative – retail channel between retailers, brand label manufacturers and suppliers. Independent refers to the independent retailers and brand label manufacturers who do not work together with each other.

The effective and efficient management of the retail business drivers determine the success in the market for manufacturers and retailers. The performance results can be measured by means of three overall factors: operations performance, retail sales productivityand financial performance. Operations performance focuses mainly on the processes: its speed, systematic, flexibility, transparency, number of personnel, cost levels.

Figure 1.4: Retail business drivers and performance results

retail sales productivity focuses on the sales performance in the retail stores: its net sales p/square meter, gross margin percentage, stock turn, markdown percentage and service level percentage. Financial performance focuses on the profit and loss results: its sales, cost of goods sold, gross margins, expenses and net profit. Figure 1.4 provides a summary of the retail business drivers and its impact on the performance results of brand label manufacturers and retailers.

1.2.3 Trends in manufacturing

In daily life you are are regularly confronted with many changes as a result of changes due to internet or other technological innovations which are related to digitalisation. In manufacturing, or ‘make’-industry, and partly also for retailing the following trends can be felt now or in the near future:

digitalisation;

industry 4.0;

internet of things (IOT).

Digitalisation is the conversion of paper flow into electronic form. An increasingly number of documents and paper processes are being converted to digital processes, so called ‘workflows’. Companies handle their processes electronically instead of via paper. Very often this is faster, it is traceable, can be archived easily and it is cheaper.

Industry 4.0 concerns the next fourth technological revolution which can be divided into the following trends: modulation (modulair design and fast assembly of a large diversity of products); identification (auto-ID-solutions); digitalisation (real-time production and virtual planning); miniaturisation (small components and solutions); customisation (tailor-made solutions).

These three trends have a major influence on the manufacturing processes and products as supplied by the factory. In chapter 9 it is further discussed.

1.3 Competing supply chains

1.3.1 Value chain concept of Porter

In paragraph 1.1 you could read that successful companies work according to a certain strategy. The created competitive advantage is visible for the customer in the product offering or in the process delivery (service, quality, time, cost). The creation of competitive advantage means the creating of an ‘added value’ in comparison to its competitor. This can be realized by means of its product, but also via its process. Within the complete supply chain, the end-to-end supplychain, each member in the chain is adding value to the product and to the process. Porter5 developed the value chain-model to provide a framework how companies can decide via what nine activtivies they can create ‘added value’. These nine value-creating activities can be divided into five primary activities and four supporting activities. Each of these activities influences on one side the costs and on the other side the (marketing) sources which provide the differentiating competitive capabilities. Figuur 1.5 shows on overview of the value chain-model of Porter.

Figure 1.5 Value chain-model of Porter

Toolbox 1.2:

Value chain-model of Porter

The value chain-model of Porter is a good tool to determine how the percentage cost division is allocated between the nine activities and what added value is being provided to the product or service.

The nine activities consists of five primary activities:

inbound logistics: the inbound finished goods flow from the supplier; operations: the production- and transformation-process from input to output; outbound logistics: the outbound goods flow to the customer; marketing and sales: the marketing and sales of the product or service; service: the offered customer- and maintenance-services.

And four supporting activities:

infrastructure: choice of level and size of the organization structure and infra structure; human resources: policy towards its own personnel; technological development: policy and investments in new technologies; purchasing and sourcing: selection of raw materials / components in sourcing countries, purchase policy.

Task: draw the value chain-model three times, and allocate for each model your estimated percentage cost division over the nine activities, and provide an indication of the added value which is being added in case of an operation of a: bank branch, sporting shoes of Nike, and a consultant. Discuss your allocation/division in your group.

With the value chain-model of Porter a company can decide via what nine activtivies they will create ‘added value’. Based on that the company makes a choice about the product and process delivery of its product or service. The final competitive strategy will be formed on the base of the competitive strategies of Treacy & Wiersema as outlined in paragraph 1.1. Chapter 4 explains how to use the value chain-model within supply chain management.

1.3.2 Value-added-networks

The value chain-model as presented in figure 1.5, value chain-model of Porter, is only focusing on one company. However, an end-to-end supply chain exists of several companies and parties, each of which take care of a certain process. This means that within the whole supply chain there are a lot of smaller ‘value chains’ which eventually lead to the overall performance and possible competitive advantage in the chain. The sum of the ‘value-added’ of the individual members in the chain is forming the value-added-network6: a chain of added values. As previously described the product by itself is not the only determinating factor to be successful on the market. The process delivery of the product or service is evenly important; concerning all processes within the end-to-end supply chain, from sub-supplier to final consumer.

1.3.3 End-to-end supply chain-system

The management and control of processes in the end-to-end supply chain implies the individual companies have to colloborate with each other. Companies collaborate to be as market focused, as well as operationally effective and efficient, as companies who manage the supply chain completely by themselves (like the vertical retailers). This verticalization-force is especially relevant in industries with fast and unexpectedly changing market conditions, like in the computer-, high tech- and fashion-industry. The different collaboration-forms of verticalisation are already described in figure 1.3. Figure 1.6 provides an overview of the current and future situation in which supply chains are (will be) situated. In the current situation: every member tries to do it him/herself; in the future situation: a member orchestrates and manages the integrated supply chain-planning. (see further chapter 3).

To support an end-to-end supply chain a shift in supply chain management towards integrated planning is required

Figure 1.6 Supply chain-management: today and in the future

Verticalisation of the business will enable brand label manufacturers and retailers (department stores) to compete with the vertical retailers. Depending on how well it is being organised they will be more or less successful amidst the others. Therefore, in today’s environment competition between vertical retailers, brand label manufacturers and department stores (with brand labels or own private labels) is not only on the product, but also on their supply chain-system. The design and engineering of a complete end-to-end supply chain-system includes the management of its:

product planning;

logistics infrastructure;

IT-system network.

Product planning contains all the activities of a retail products / product category manager to define and manage which products and in what quantities price/fashion degree - levels move to which retail stores by what delivery cycles during the year. It includes the complete assortment planning and product planning (merchandising) of its product flows.

Logistics infrastructure focuses on the physical network infrastructure to manufacture, transport, consolidate and deconsolidate and distribute the products to the retail stores. It highlights its sourcing structure, its central or decentralised distribution system and its transportation allocation methods.

IT-system network focuses on the information systems (hardware, middleware and applications), the electronic collaboration with external partners (suppliers, retailers and service providers) and setup of an e-business network to further enhance the collaboration via trade portals and internet.

These three parts form the heart of the end-to-end supply chain-system which drives the verticalisation. In most companies these 3 parts acts as complete separate functional departments or units. In many cases their individual actions are not supporting each other, which results in lost time, increased costs, lack of visibility or inflexibility and frustration.

1.3.4 Internal and external collaboration

Managing the end-to-end supply chain-system requires internal cooperation and external collaboration between manufacturers and retailers. Firstly, internal cooperation of the product planning (merchandising), logistics and IT departments, is essential to manage planning, execution and control of product flows. Secondly, brand label manufacturers and retailers (department stores) need to collaborate with their retailers and suppliers in order to better manage the total supply chain. Internal cooperation and external collaboration provide the basics for managing the retail business drivers and improving the retail sales productivity. Figure 1.7 provides an overview of the elements to manage the end-to-end supply chain-system.

Figure 1.7 Managing the end-to-end supply chain-system

Lesson learned: The secret of success between competing supply chain-systems can be found in the effectiveness of its product planning, logistics and IT-systems design and implementation. Synergies in time and costs can only be realised if these three parts fit exactly.

1.4 Supply chain-system – model

This book describes how to setup an end-to-end supply chain-system within the own firm or within the complete chain. The processes have to be organized based on a competitive strategy. These processes are designed and managed from the perspective of product planning, logistics and IT-systems.

According to Slack7 a process is a combination of resources which transforms input into output to fulfil (internal and external) requirements. For example, the hotel operations contain amongst others a process to clean the rooms; manufacturing operations exists of an assembly process; bank operations consist amongst others of an accounting process, etc. The operations of a company’s activity consists of several processes and sub-processes. Even the composition of a marketing plan exists of a process of steps and activities. The management of these company’s processes is named process management. The term process management is becoming increasingly important, because companies further automate their administrative activities and customers expect stable and reliable services. The thinking in processes and how to organize these processes within the supply chain are therefore essential. For this reason, chapter 2 completely focuses on processes.

1.4.1 Supply chain-system

The design and implementation of a supply chain-system as competitive weapon for gaining market share and optimised sales productivity in the retail stores is a complex and difficult job. It requires 100% commitment from top management to take the necessary strategic decisions and change management power to implement the required thinking and discipline to live it every day and systematically improve its sales productivity step by step. It is a journey to better results with many different steps, sometimes seemingly unrelated to each other.

However, at a certain point it all comes together and the product flows through its system like a ‘waterflow’. In each pipeline system, the water can be controlled by an opening and closing system to enable more or less water to flow through the pipes. This is exactly what is happening with verticalisation: based on the POS information in the retail stores the demand is calculated in the Product planning system and this activates the control and supply of products moving into the retail stores. However, in order to make the product flow through the supply chain a logistics infrastructure needs to be available: the ‘pipeline structure’. The development and implementation of an effective Supply chain-system can be done following the supply chain-system – model (Leeman, 2017)8. This model provides the SCM strategic building blocks to create the ‘pipeline structure’ and manage the ‘waterflow’ through the supply chain. Figure 1.8 shows the ten strategic building blocks necessary to develop and implement the supply chain-system. The overview shows which building blocks are on a strategic-, tactical-, or operational-level. Next, the strategic activity is named per level. At a strategic-level you develop the supply chain-strategy and -design; at a tactical level you develop the supply chain-planning; and at an operational level you develop the supply chain-execution. The 10 building blocks form the red thread of this book. The levels at which these building blocks are described are not the focal point of this book. So now and then an explanation will be provided from the perspective of the three levels.

1.5 Elements of the model

The supply chain-system - model consists of 10 strategic building blocks which are briefly explained here. The building blocks will be further described per chapter.

1.5.1 Market and strategy

The first strategic building block focuses on the trends in the market and the development of a business strategy. The design of the business strategy is on a strategic-level. The supply chain-strategy and design of the supply chain-infrastructure are to be aligned with the chosen business strategy. The planning of the business – supply chain-planning – is being done at a tactical-level. The actual supply, processing and delivery of the goods and services are done in the operational processes. This is the supply chain-execution at an operational-level. How to manage the planning and operational processes depends on the strategic choices you make: if you choose for product-leadership, then you have to innovate a lot and you must provide high quality.

Figure 1.8 Supply chain-system - model© (J. Leeman, 2017)

If you choose for operational-excellence, then you have to standardize your processes to realize low costs. If your focus is to realize the highest customer loyalty, then you have to provide tailor-made services, what requires more effort and time of the organisation. This book tries as much as possible to explain the link from strategy to planning, from planning to its processes, and from the processes to the IT-systems.

1.5.2 Process

The second strategic building block is focused on the setup and management of the processes. Chapter 2 explains how you can describe and manage processes, or in other words: what is process management? and this building block includes the basic of the supply chain infrastructure setup and planning & control mechanisms to manage the supply chain. It describes the theory of process management and several basic elements of supply chain management. After it has become clear from building block 1 what the market requires and how the company can react to this with its business strategy, building block 2 provides the fundament for the setup of the supply chain-infrastructure and management of the supply chain.

1.5.3 Product planning and control

The third strategic building block focuses on how to design and develop the product planning. It concerns the (1) choice of the different types of business process-models(push, pull or combination), the (2) definition of the sales productivity targets for the retail stores (sales per m2, stock turn, markdown %, net sales per store), the (3) setting up of the products allocation planning, and the (4) replenishment process to synchronise the deliveries and sales (demand/supply) in the retail stores and/or B2B-customers. Business process-model, sales productivity and balancing demand/supply determine the retail planning and product delivery cycle. Hence, they are building blocks to create the product planning.

1.5.4 Inbound SCM

The fourth strategic building block, inbound supply chain management (Inbound SCM) concerns (1) the end-to-end thinking within the organisation from point-of-sale back into the factory, (2) the development of a cost efficient and flexible physical SCM-infrastructure to move products from manufacturer to retailer, (3) the setup of an information systems network to create visibility within the pipeline and to be able to manage the supply chain by setting and managing time, service or cost drivers. Inbound supply chain management is a building block to create the logistics-infrastructure.

1.5.5 Procurement and SRM

The fifth building block, procurement and supplier relationship management (SRM) concentrates on (1) developing strategic supplier relationships (SSR) with selected key suppliers (key- and breakthrough-suppliers). The key suppliers are selected based on a predefined set of (quality assurance) criteria and service level agreements (SLA’s) to measure the supplier’s performance. Next, SRM concentrates on (2) the development of IT – Systems (B2B) to integrate each other’s processes and systems. In addition, SRM focuses on (3) monitoring the supplier performance via factory visits, ongoing supplier rating performance and supplier education programs, which should lead to a systematic improvement of the selected quality assurance criteria and performance SLA’s. SRM is a building block to create the logistics-infrastructure and IT-system network.

1.5.6 Outbound SCM

The sixt building block, outbound SCM, focuses on the delivery (fulfillment) of the order and outsourcing of non-core processes – thoses processes which do not belong to the core part of the business. The first part of chapter 6 deals with the fulfillment within the different distribution channels. In the fulfilment of the order omnichanneling and e-fulfillment play an important role. Omnichanneling concerns the marketing, sales and delivery of products and services via mixed distribution channels: via internet, catalogue and retail stores. E-fulfillment is the delivery of an internet-order via retail stores or directly to the customer/consumer. The second part deals with outsourcing. Outsourcing part of the logistics or IT function is an attractive building block to ‘offload the bricks’ and move faster as an organisation, without having to worry too much about buildings, equipment and people. In addition, it provides additional management capacity to the organisation. Key management can concentrate and focus their valuable time on the core competences of the organisation. Outsourcing offers flexibility, is variable costs driven and eliminates high fixed costs investments upfront. Next to the benefits of outsourcing, the key factors for success and partnership development with the logistic service provider are being described. Outsourcing is a building block to create the logistics infrastructure.

1.5.7 IT-systems platform

To speed up its supply chain both brand label companies as well as retailers (department stores) need to change their organisation focus from a single company view to a multiple company, network view. Information technology enables these organisations to operate within a multiple company / network and to collaborate with the different members of the end-to-end supply chain-system network. The key objective is to optimise and synchronise the demand / supply - process cycles by means of exchanging information between IT-systems.

This strategic building block focuses on how to develop the IT-systems platform. The overall IT-systems platform concerns the (1) identification of the organisation’s key processes and business functions, (2) the creation of collaborative IT-systems between the different members of the supply chain, (3) the setup of the internal IT-systems platform, and (4) the definition of the IT-Roadmap. The IT-systems platform is a building block to create the product planning and assortment flow and IT-system network (platform, collaboration, and e-business).

1.5.8 ECR and Collaboration

Efficient Consumer Response (ECR) and Collaboration, Planning, Forecasting and Replenishment (CPFR) are business practises to enable digital business with other companies following specific worldwide transaction standards. It concerns on the one hand the exchange of information via EDI (Electronic Data Interchange) or via a web trade portal, and on the other hand the development of partnerships to collaborate and integrate each others’ processes regarding product development, supply chain and sales processes. ECR and Collaboration form together a building block to create the IT-system network.

1.5.9 E– business

E-business network concerns the development of the IT-network structure to collaborate with all the members within the end-to-end supply chain-system. It discusses the headlines for the development of an e-business network. It provides guidelines how to create an e-business strategy, which information hubs / portals to setup to support the different key processes digitally, how to setup the IT-infrastructure and how to define the future’s e-business landscape. E-business network is a building block to create the IT-system network

1.5.10 Organisation and change management with SQPI

organisation and change management, in this book, concerns the process how to transform the organisation towards a verticalised company. It relates to the end-to-end thinking within the supply chain. To become a vertical driven company requires, besides a clear strategy and roadmap, a team consisting of change agents who drive the change management process within the organisation and with its customers, suppliers and external partners.

Figure 1.9 Chapter overview

The transformation should develop a pattern with ongoing systematic quality and performance improvements. In other words, how do I plan, organise, lead and control the total supply chain, in order to supply chain management as a weapon to create a competitive edge. Organisation & change management is a building block to create the product planning, logistics infrastructure and IT-system network. It is the enabler for the verticalisation process within the organisation. The performance is systematically and continuously improved via SQPI (Systematic Quality and Performance Improvement).

The book is divided into three parts: product planning (merchandising), logistics and information technology. Two parts consists of three chapters, one part of four chapters. The ten chapters together form the strategic building blocks necessary to develop and implement the end-to-end supply chain-system. Figure 1.9 provides an overview of the three parts and its related chapters.

Summary

1. Explain why verticalisation and supply chain management is so important for management today;