Supply Chain Management and Business Performance

The VASC Model

Christelle Camman, Claude Fiore, Laurent Livolsi, Pascal Querro

• Publisher: Wiley-ISTE
• Year: 2017
• Print ISBN: 9781786300744
• eBook ISBN: 9781119427414
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Chemical & Biochemical Engineering
• Index: Technology & Engineering

Against this current trend of low growth and high uncertainty, business directors must work with their shareholders to set strategic objectives and define business models.

The great number of possible strategies makes this type of management very complex, and the actual deployment of strategic choices is often limited by a lack of overall coherence within the organization.

This problem calls for an appropriate and renewed response. In strategic management today, a closer, permanent dialogue is needed between operational and financial performance.

Based on a supply chain approach, the Value Added Supply Chain (VASC) model focuses on driving operational performance, but aims to achieve a greater and more dynamic integration between these two dimensions of the company's value creation.

1
Managing Performance: Objectives and Managers’ Needs

Our ambition in this first chapter is to identify managers’ objectives and, therefore, their needs (in terms of information, resources, etc.) in order to be able to meet them. In a context that is both turbulent and uncertain and where business models sometimes seem very different, it can seem ill thought out to wish to discern these objectives and therefore the needs associated with them. How do we compare a family SME and a broad group held by investment funds, knowing that the reverse situation is also entirely possible? How can we equally compare a business that has chosen to integrate all or part of its activities and another which, on the contrary, acts as a quasi-virtual business playing the role of skills broker by manufacturing at its sub-contractors? How, finally, do we assess the performance of a company? Is it by considering its capacity to be profitable today or, on the contrary, to be profitable tomorrow with or without borrowing money, as we mentioned in the introduction with the example of the emblematic unicorns? In the same way, can all business sectors be compared?

In order to not just answer all these questions but rather show that behind the differences there are recurrences in business management, we have chosen in this first chapter to deviate from our classic, three-part plan. We will therefore start with an initial section (section 1.1) which makes it possible to expand on the general trends in the economy further than we have in the introduction, then to illustrate this diversity of business models in some emblematic sectors of our economy, and to benchmark the main managerial trends behind the variety of examples. At the end of this section, we return to our classical breakdown which defines the different levels of reading, i.e. directors, then financial directors and finally supply chain managers. The second section (section 1.2) is therefore centered on the implementation of business models in business plans with the associated management problems. The third section (section 1.3) focuses on the evolution of financial strategies that involve new ways of considering both the allocation of resources within the business in budget management and managing capital. Finally, in the last section (section 1.4), we show supply chain management and the opportunities that it represents in terms of managing flow while remembering that the practices observed are diverse, as the organizational examples are in fact very different.

1.1. Towards greater organizational agility

Whether it is a question of the financialization, digitization or greening of society, or indeed the sharing economy, these strong trends form constraints as much as opportunities for businesses (section 1.1.1). These changes, whether they affect the economic, financial, social or even political spheres, involve so many constantly renewed conditions of action that businesses should not only grasp these, but above all permanently integrate these, either under compulsion or more proactively, into their strategic and operational responses. Managing their performance has in fact become more complex. The goals to be reached are no longer simply financial. The relationships between cause and effect, which is necessary to understand to identify points of action, are intertwined involving a detailed knowledge of the performance behaviors of activities and processes, increasingly scattered between multiple businesses and countries. Whatever the industry, business models change, adapting responsively or proactively to these new conditions. If there are divergences between sectors and businesses, the examples developed (section 1.1.2) nonetheless make it possible to identify the main constraints and difficulties with which businesses are confronted today, as well as their most basic needs in performance management (section 1.1.3).

1.1.1. Some basic trends and their impacts on businesses

1.1.1.1. The financialization of the economy

The increased influence of the financial sphere on businesses’ governance and strategic behavior is not a new issue. The appearance of corporate investors (e.g. pension funds, but also sovereign wealth funds) has however reinforced it. Maximizing the profitability rate of invested capital has led these financial actors to concentrate their investments while ensuring a rapid turnaround for their portfolio. The short-term view that they have thus favored has spread to large companies. These large businesses have therefore engaged in policies aiming to satisfy their shareholders before all else (increasing dividends and also palliating a drop in the value of their shares in the financial markets) or repurchasing their own shares (the growing phenomenon of “stock buy-backs”) to the detriment, in both cases, of investment, even if in the second case, anticipating the capital gain to come can favor greater self-financing. Favereau mentions this “great paradox of financialization” and even speaks of the predation of the financial sphere on the economic sphere: “as the profit rate increases, the investment rate decreases” [FAV 16]. This reduction in investment and the constant search to maximize the profitability of capital or, more broadly, the yield of shareholders’ capital, is not without consequence for supply chains, their structure and their management, a central question in this book.

To use the wording of Lazonick and O’Sullivan [LAZ 00], businesses have gradually switched from the traditional “Retain and Reinvest” model to the “Downsize and Distribute” model, which is more flexible and enables them to properly remunerate capital providers. In addition to consequences on employment, which have been extensively analyzed and discussed for many years, organizational forms as a whole have evolved under the simultaneous effect of comptetitive and financial pressures. The refocusing on core business can be explained as much by the search for specific skills [HAM 94] as by the desire to concentrate capital on the activities that create most value or even by “variabilization” of costs. More broadly, the emergence and development of Global Value Chains results simultaneously in a search not only for competitiveness in price (out-sourcing in low-cost countries), or indeed for competitiveness in quality (specialist sub-contraction), but also for competitiveness in regulation [FAV 16]. The choice of locations, whether for the headquarters of large groups, already including SMEs in some sectors, their units of production or their logistics centers, rests on the search for advantages linked to more favorable taxation and less restrictive legislation and regulation.

This new value chain architecture has created a need for Supply Chain Management whose goal is to (re)integrate activities and processes scattered across a myriad of businesses and countries and to manage their performance from a broad perspective are expressed in terms of not only cost, the quality level of product and of associated services, lead time, responsiveness and flexibility, but also reduction in taxes and charges, the cost of invested capital, cost of CO₂ emissions, etc. A variety of sometimes contradictory goals, which reveals the difficulty of the task and of the necessary changes to be made in a shifting environment effectively, calls for a sometimes antinomic organizational agility, as we will see, with the current structuration and performance of supply chains and of business in their entirety, both in the section on business models (see section 1.1.2) and in the section on supply chain managers’ needs (see section 1.4).

Businesses’ financial structures lay at the heart of these changes. Non-financial corporations’ debt–equity ratios have increased with the crisis, encouraging them to remain cautious and to prefer self-financing when the financial margin permits them and when they are not able to raise new funds on the financial markets, like the unicorns mentioned in the introduction. In this context, optimizing Working Capital Requirement (WCR) is an important issue in the development of “cash management” programs, which have a direct influence on organizations and the management of supply chains as we will mention later (see section 1.4).

This financial context for businesses should not, however, make us forget that another movement, which is also strong, is rapidly changing our society. The digital revolution is indeed a hallmark of our era with already undeniable consequences on businesses’ strategies and organization, and without doubt, un-thought-of potential.

1.1.1.2. The digitization of society

Everyone agrees that digitization is a fantastic vector of growth for businesses, moreover in at least three directions. The first concerns the emergence and development of new business sectors essentially linked to new technologies and services associated with them. The second relates to the organization of work, the coordination within value chains, the relationship with customers and other partners, etc. and the performance gains linked to the creation of this network, this almost-instantaneous sharing of information or, more simply, the technological changes associated with it. Digitization is therefore a “tool” for improving business performance. The last direction, which is more developed in this section through some salient examples, focuses on the transformations in businesses’ offers made necessary and, more positively, made possible by the digital revolution.

The terms “multichannel”, “cross-channel” or indeed “omni-channel” have already entered contemporary language and have become the norm in businesses’ commercial strategies. In their wake, consumer behavior is changing in line with consumers’ acquisition of technology and their experiences of “cyber-shopping”. In particular, cross-channel shopping changes the commercial space, bringing together the label’s virtual and real spheres, involving the deployment of specific strategies “aiming to eliminate ruptures, of whatever kind (physical, emotional, economic, cognitive etc.) when a customer changes channel during a single experience with a label” [VAN 10]. Managing the performance of these different channels is more complex due to their potential overlap, the customer’s journey through the buying process and potential choice of a form of sale. T...

Table of contents

• Cover
• Table of Contents
• Title
• Copyright
• Acknowledgments
• Foreword
• Introduction
• 1 Managing Performance: Objectives and Managers’ Needs
• 2 Management Techniques and Tools
• 3 New Ways to Steer Supply Chain Performance
• Conclusion
• Bibliography
• Index
• End User License Agreement