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# Suppliers

Assets ($Billions)

Today

Goal

Today

Goal

Company

Company

Value

Value

A

A

Chain

Chain

Exhibit 2. Value Chain Restructuring Unlocks Tremendous Value

1,200 1,000 800 600 400 200 0

NUMBER OF SUPPLIERS

ASSETS 25% Reduction Potential

Today

Goal

0

.5

2.5

2.0

1.5

1.0

COST SAVINGS

SG&A(1) COSTS AS PERCENTAGE OF SALES

Savings ($Millions)

3,500 3,000 2,500 2,000 1,500 1,000

500 0

Percent of Sales

7% 6% 5% 4% 3% 2% 1% 0%

FY99

FY00

FY01 FY02 Fiscal Year

FY03

FY04

(1)

Today

Sales, general, and administrative overhead costs

Goal

Source: Booz Allen & Hamilton

customer attractiveness of the site, while also reducing costs through scale.

By attacking the problem both from within and without, companies can generate signifi- cant results and enhance share- holder value (see Exhibit 2).

Either You’re a Driver… or a Passenger

t is our strong belief that value chain restructuring is no longer a luxury; it is a necessity for most industry play- ers. The issue is whether you I

drive the change and capture the benefit in terms of market capi- talization — or whether you’re taken for a ride.

Many of the supply net- works that exist today have been built one connection at a time to address immediate needs, but with no clear sense of the overall and optimal structure. Decisions are made on a day-by-day or program-by-program basis, resulting in significant redundan- cies not only within the compa- ny, but across its extended net- work and across industries. Networks are often managed based on price and, in some cases, cost-to-serve, but rarely

value. As a result, there is signif- icant value left on the table.

But it’s hard to change. Companies confront significant obstacles, both operational and cultural. They are so entrenched in their traditional ways of doing business that they are doomed to become passengers in a new economy driven by more nimble and adept competitors. While they recognize the pressing need for dramatic change, they also resist the “trial by fire” approach of many start-ups. They point to the recent stumbles of many early achievers in e-business and take comfort in their caution.

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