Many Boards of Directors are struggling with the feeling that their Companies are not operating in an optimised way and hence that the ROCE (Return On Capital Employed) for the Investors could be improved…

Although this is true for all kinds of Enterprises, this is certainly the case for those with a physical Supply Chain (as the opposite to a purely Service Oriented Organisation).

Confronted to this challenge, a screening/analysis by a specialist will evidently be the first move …  But, depending on the background of the specialist, the outcome can be predicted: a Sales background will lead to a focus on the Service to the Customer and indirectly will inflate Inventories and operational Costs, a Financial guy will put pressure on all Inventories, and minimise all kinds of Costs … an Operations-driven advisor will never support a very good Service level, will ask for a lot of capital for building Inventories of goods to prevent even higher manufacturing and maintenance Costs.

It is clear, the only one that is chosen is the guy with a financial background, as he is the guarantee for a maximum ROCE: he will make increase the nominator and will minimise the denominator … Perfect!

I regret to have to state that this is the worst choice: the financial guy does not know the Customer needs and he doesn’t know how to run Operations …

The best choice is the advisor that searches to maximise the ROCE, starting from the chosen Strategy of the Company. He should deal in an optimum way with the conflicting pressures from the Customer Service, the minimisation of the needed capital (Inventories) and the operating Costs. He should be permeated by the concept of the Supply Chain Triangle!

If you want to learn more about our systematic approach, read the upcoming blogs in the coming months, or contact us for a more detailed insight in our implementation methodology.