Exhibit 2. Value Chain Restructuring Unlocks Tremendous Value
1,200 1,000 800 600 400 200 0
NUMBER OF SUPPLIERS
ASSETS 25% Reduction Potential
SG&A(1) COSTS AS PERCENTAGE OF SALES
3,500 3,000 2,500 2,000 1,500 1,000
Percent of Sales
7% 6% 5% 4% 3% 2% 1% 0%
FY’01 FY’02 Fiscal Year
Sales, general, and administrative overhead costs
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.