Only in the last ten years have companies begun to realize supply chain management as a powerful element of a successful business strategy. Famous examples, studied and commented on exhaustively, helped in this awareness, as they demonstrated that activities, previously seen as back-office and operational, can be totally transformed, becoming crucial points of the companies' long-term strategies. These examples are the well-known cases of Toyota, Wal-Mart and Dell.
But how to align the supply chain strategy with the corporate strategy so that the first “leverages” the second, becoming in fact a competitive advantage and helping to obtain a position of lasting superiority over competitors?
And, once the logistics and supply chain strategy has been defined, how can long-term planning be carried out so that the supply chain area's actions and projects are consistent with its strategy? The importance that logistics and supply chain activities have been showing in recent years is making executives in this area increasingly closer to the strategic planning process of their companies and starting to have to answer these questions.
This article aims to discuss these issues and present the CEL/Coppead methodology for preparing a Master Plan for Logistics and Supply Chain.
SUPPLY CHAIN STRATEGY
The visibility achieved by the examples of Toyota, Wal-Mart and Dell made many companies from other sectors try to compare themselves and copy the operational models and practices of these companies. Unfortunately, these replications of best-practices rarely work, not only because the sectors are different, but also because supply chains are complex and very different systems. Furthermore, companies compete in a variety of ways and competitive environments can differ radically from one another.
The great challenge of using benchmarking is related to the difficulty of guaranteeing the comparability of processes. This is basically for two reasons:
- Differences in the segmentation of processes and way of calculating performance indicators;
- Structural differences between companies related to particular characteristics, such as number of installations, customer profile and service level strategy, among others.
Comparisons aside, what can really define the success of the logistics and supply chain strategy is its alignment with the overall business strategy. That is, the supply chain's practices and operational model are geared towards competition, to make a real difference in the company's competitiveness, in addition to reinforcing the principles of global strategy.
Another crucial point of this reasoning is that, in the design of the ideal operating model, there must be a clear distinction between operations that need to be best-in-class in relation to competitors and others that only need to be at the same level as the competition.
In summary, good logistics and supply chain strategies need to have a defined focus and purpose and the executives responsible for implementing them must understand, act in accordance with and respect these intentions.
In Figure 1 we can see, in the left column, a series of examples of possible elements of a corporate strategy that are related to logistics and supply chain operations. The right column, in turn, shows some characteristics of the operational model that should be dictated by the strategic elements. These characteristics must be consistent and outstanding to the point of not only supporting the strategy, but also boosting the company's performance.
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| Figure 1: Competitive strategies and characteristics of operating models |
To help understand how an operating model can support and interfere with a company's success, Figure 2 shows some examples of companies, their strategies and their respective operating models, coherent and successful in their role of implementing the global strategy.
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| Figure 2: Case study of successful supply chains |
SUPPLY CHAIN STRATEGIC PLANNING
Once the supply chain strategy is defined and the elements that will be accentuated, it is necessary to elaborate the strategic plan to achieve these objectives. Many Brazilian companies still neglect the importance of a corporate strategic plan, even more so when it concerns the areas of logistics and supply chain.
Strategic planning is the process of identifying the company's long-term objectives and the major steps needed to achieve them within a pre-defined horizon, incorporating the concerns and future expectations of the main shareholders.
Developing a strategic plan is essential for a profitable long-term business. The speed of changes in the business environment increases the chances of failure for those companies whose management has neglected the elaboration and structuring of alternative scenarios. In the absence of planning, executives must spend a disproportionate amount of time in the role of fire extinguishers, reacting to crises rather than anticipating them and developing countermeasures.
In summary, having a strategic plan not only allows the company to plan for changes in the economy and its competitive market, but also, in the extreme, to plan its own changes, acting proactively and also being an agent of transformations.
As key results, the strategic plan should provide direction and control for tactical plans and daily operations. It provides a management philosophy, a day-to-day guide and a basis for measuring individual and corporate performance.
Considering these definitions, it is clear how the existence of a strategic plan for logistics and the supply chain is an important component for the company's global planning.
And it is in this context that we can raise some questions for reflection:
- Does your company have a long-term plan for the Logistics and Supply Chain areas?
- Does your company have a set of integrated actions and projects aimed at implementing the area's strategy?
- Are these actions prioritized and sequenced in time?
- Does your company know what the critical points of logistics and the supply chain are, that is, where should you strive to be the best-in-class?
- What is the breakdown of supply chain costs? Where are the main cost reduction opportunities?
LOGISTICS AND SUPPLY CHAIN MASTER PLAN
The CEL/Coppead methodology for developing a Master Plan for Logistics and Supply Chain has already been applied in around twenty companies, over ten years of experience in consulting, always seeking to obtain results related to the questions above.
The result of a Master Plan is a set of actions and projects to be implemented by the company, which seek to:
- Align the actions of Logistics and Supply Chain with the company's strategic planning;
- Implement supply chain management in an integrated manner;
- Improve the planning (in the long, medium and short term) of the area's activities;
- Greater efficiency in the execution of logistics and supply chain operations (cost reduction);
- Improved service level for external and internal customers.
As Figure 3 illustrates, these actions must be organized in a unified diagram, where they will be prioritized, with their interdependencies established and with those responsible allocated.
Interdependence seems obvious, but not so much. What to do first: a review of the logistics network or the definition of the carrier contracting strategy? A strategic storage plan or a finished product inventory policy? These are questions that, after completing all the stages of the methodology, can be answered with more certainty in the preparation of the Action Plan.
In addition to being organized, most of the actions have estimated earnings, as well as the investments needed to implement them. With this depth, it can be said that the Action Plan is not only strategic, as the level of detail reached means that it is quickly connected to the company's operational planning. Thus, the migration from recommendations to practice is more direct and tangible.
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| Figure 3: Results of the Master Plan for Logistics and Supply Chain |
WHEN IT'S NECESSARY?
Certainly, all companies need corporate strategic planning and, consequently, their supply chain area as well, but from the experiences of CEL/Coppead we have seen that there are situations in which carrying out a Master Plan for Logistics and Supply Chain is more critical and indicated.
The first situation is when the company is structuring itself to create a Logistics and Supply Chain area/department. There are still many companies in Brazil without related activities organized in a single area, and developing a Master Plan, at this point, is the ideal way to start. Not only because the area starts knowing what its biggest challenges are, but it has an action plan organized in time, showing where it wants to go. In addition, in the CEL/Coppead methodology, the organizational structure of the new area is also evaluated and some alternative organizational configurations are part of the final product to be delivered.
When a new executive takes over the Logistics and Supply Chain area/department, he almost always wants to promote quick changes and present results in the short term. And often the assumed area is not ready for this. In this case, a Master Plan can be very useful, both in obtaining immediate results and in adapting and understanding the new executive about the company's operations, as his learning curve is accelerated during the project.
Another situation that has been increasingly frequent in shipping companies is the creation of a Logistics Projects and Supply Chain area. This is an area dedicated to the development and implementation of improvements and innovations in operations. In the extreme, it should develop its own Master Plan for Logistics and Supply Chain, but many times, due to lack of methodology and knowledge of the various functions (transport, stocks, storage, demand forecast, supplies, logistics network, etc.), plans its activities in a limited, disintegrated way and little aligned with global strategies. Its initiatives certainly generate value for the company, but with a Master Plan in hand, this area now has a structured work plan for the next five years, taking much more advantage of the allocated resources and making them show more results and faster .
On the other hand, when the company does not have a Projects and/or Logistics Planning and Supply Chain area, it runs the risk of having a very operational focus, without a long-term philosophy for the actions to be implemented in this field. In this case, the Master Plan is important to bring a more strategic vision, often having to evaluate and define, four hands, what is the role that Logistics and the Supply Chain have in the corporate strategy. The Action Plan makes up for the absence of planning and suggestions for changes in the organizational structure will be concerned with creating activities or positions that bring the capacity for planning to the company.
Finally, there is a group of companies that have a range of projects to be implemented, but these actions were not prioritized and organized over time and may not have been very comprehensive or seen in an integrated way. Normally, it is very difficult for those who are “sunk” in operations to have a broader perspective, perhaps even involving areas other than their own.
METHODOLOGY AND MAIN PHASES
The CEL/Coppead methodology is organized into four Modules, which are subdivided into some blocks of activities, as shown in Figure 4.
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| Figure 4: Illustration of the CEL/Coppead methodology for developing the Master Plan for Logistics and Supply Chain |
The intention of this article is not to explain in detail each highlighted phase, but rather to provide an overview of the results of each step so that the core logic can be leveraged and applied.
Figure 4 not only shows the Modules and their respective activities, but also the pyramid that guides the hierarchy of logistical decisions and illustrates the dynamics between the various functions. The concepts behind it are the following: at the top of the pyramid are the Customer Service definition policies, that is, its entire Supply Chain must be oriented and structured to meet the service level requirements (set of service policies to the customer) agreed between Marketing, Commercial and Supply Chain.
At the second level are the Network or Logistics Network decisions that must be taken seeking the best trade-off between service level and logistical and tax costs.
These two great definitions generate subsidies for the strategies of the other functions to be planned: demand forecasting methods, inventory policies, S&OP process, transport strategy and so on.
At the base of the pyramid are the three fundamental pillars for the proper functioning and performance of all operations: Information Technology, Indicators and Organizational Structure. Without these elements aligned, it will always be very difficult for the strategies outlined for the other functions to be properly implemented and managed. The CEL/Coppead methodology pays great attention to these points, in order not to jeopardize the implementation of the suggested actions.
Module 1
Module 1, called Supply Chain Mapping, consists of a true immersion in the company's operations, with a great characterization of the logistics system, involving a map of logistics costs, inbound flows, transfers and distribution, inventory levels, business segments, concentration and behavior of demand, etc.
To achieve this objective, a large amount of company data is processed, as well as twenty to thirty interviews, involving the various areas of the company: Marketing, Sales, Production, Corporate, Supplies, Logistics/Supply Chain and Technology Information, among others. Depending on the case, the interviews may also be with some key customers and suppliers.
The idea of this survey of the profile of operations is to understand where the critical points of the supply chain are; where are the challenges and the biggest costs. Is it in the supply and management of raw material inventories (as in the automobile industry)? Or is it in storage and distribution (as in the tobacco industry)? Despite everything always seeming critical and important, the entire supply chain has its sore points, those that deserve more attention and generate the greatest complexities for managers.
Another positive point of this phase is the involvement of all areas in issues related to Logistics and Supply Chain. The interviews make all areas think about the challenges and characteristics of the Supply Chain, breaking down barriers, making all areas start to speak the same language and preparing the ground for the inevitable changes that a project like the Master Plan promotes.
In addition to this understanding of the current situation, another major objective of this phase is to understand the company's Strategic Context, in order to be able to align all actions and projects with the company's strategy and also to not make the Action Plan obsolete quickly.
Therefore, interviews are conducted with the presidency and board of directors and access to the company's strategic planning is requested. Figure 5 shows the main issues to be addressed:
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| Figure 5: Strategic context questions |
Module 2
Module 2, called Supply Chain Diagnosis, carries out in-depth analyzes of the operations identified as the most critical in the first phase. The intention is to identify the greatest opportunities for improving the level of service and reducing logistical costs to be obtained through changes in processes, managerial, organizational or technological practices, which allow obtaining performance gains within a favorable cost-benefit ratio.
The great benefit of this phase is that it not only allows the recommended actions and projects to be accurate, but also provides quantification of the results to be obtained, which facilitates internal approval for the continuity of the implementation.
Some examples of the analyzes carried out in this phase are:
- Shipping cost:Transport productivity, consolidation opportunities, comparison of paid freight with market values, switching modes, fleet profile, contracting strategy, etc;
- Stocks:Evaluation of inventory turnover, cost of inventory versus service level, calculation of safety stock, resupply process, etc;
- Supplies:Concentration of suppliers, strategic sourcing, cost of order, centralization of purchases, etc;
- Order Cycle:Identification of each stage of the order cycle, their durations and variability, histogram of orders delivered on time, etc.
In this way, with in-depth analysis, statistical tools and what-if analysis, it is possible to quantify the potential gains of a given action.
Module 3
In Module 3, the development of the Action Plan is configured in the structuring of the set of projects and programs to be implemented with the objective of eliminating inefficiencies and obtaining improvements in operational performance. For each opportunity identified, actions and projects are listed, their respective estimated gains and their implementation complexity.
In addition, actions assessed as more complex will be detailed in a 4W2H model (what, when, who, where, how and how much) to document and assist in implementation, whether carried out by CEL/Coppead or not.
Long-term actions, in line with the company's Strategic Context, prepare it for the future, for proactively implementing changes.
Prioritizing such a wide range of actions is certainly a challenge. CEL/Coppead believes that the sequencing of actions should be conceived in such a way as to balance the logistics structuring/organization needs with the anticipation of diagnosed gains, as illustrated in Figure 6.
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| Figure 6: Prioritization and sequencing of the Action Plan |
The concern with balance is due to the fact that maintaining efforts only in structuring actions in the logistics area creates the necessary bases for good management, but postpones the possibility of capturing immediate financial gains. On the other hand, keeping efforts only in quick wins actions can generate credibility in the short term, but the gains are lost and are not sustainable, due to the lack of structure, training and technology to perpetuate the results.
CONCLUSION
This article sought to present the concepts of Logistics and Supply Chain strategy and how it should be aligned with the company's global strategy, in order to become a key part of the corporation's lasting success.
The need for this strategy to be deployed in strategic planning for the Logistics and Supply Chain area was also discussed, highlighting the importance of having an integrated and long-term vision of the actions needed to achieve the goals projected for the supply chain.
Once these two issues were discussed, the CEL/Coppead methodology for developing a Master Plan for Logistics and Supply Chain was presented, showing how it is possible – through an immersion in supply chain operations – to prioritize its critical points and make a thorough diagnosis of managerial practices, generating an Action Plan for the company's next five years, with prioritized and sequenced actions and projects, having their benefits and implementation efforts quantified.
One of the main challenges of a Master Plan is to navigate through strategic, tactical and operational issues, reviewing them and aligning them into a single coherent and practical plan to be implemented. And, in the end, what you want to achieve is clear and integrated planning, designed to achieve competitive advantage by increasing the value offered to the customer, by anticipating the demand for logistics services and managing the resources of the entire supply chain. And, of course, it never hurts to reinforce, this planning must be carried out within the general Strategic Context of the company.
BIBLIOGRAPHY
CHRISTOPHER, M.. Logistics and Supply Chain Management. São Paulo, Pioneer.
LAMBERT, D.; STOCK, J. Strategic Supply Chain Management. McGraw-Hill/Irwin, 2000.
LAPIDE, L.. MIT's SC 2020 Project: The Essence of Excellence. Supply Chain Management Review, April, 2006.
