Inevitable Change in Supply Chain Management

Inevitable Change in Supply Chain Management

An article by Mickey Granot, Partner @ Tefen

As the business world is becoming more volatile, the cycles of economic growth, crises and recovery are appearing to be more frequent, unpredictable and impactful. Globalization leads to a significant increase in competition while creating new challenges in the arena of international relations and in navigating man-made and nature-created crisis situations (e.g. natural disasters in Japan and Thailand).
There are also several revolutions occurring as we speak. They are occurring at different rates in each place, but their goal is clear and expanding across the board – inevitably. First of all, the revolution of consumers – consumers today are more technologically advanced, informed and connected among themselves. They are more aware of what quality of life they require and what sustainability practices they uphold. Second, the information revolution – information technology now produces data in quantities unheard of before and allows to analyze information on things not measured earlier. Finally, there is the regulatory revolution – social trends, urban growth, concern for the planet and increase in the quality of life are now areas where regulatory intervention was not previously accepted but is slowly tapping into.
In light of this, a number of surveys have been examining the implications of these changes for supply chain management. Companies from PwC to Bloomberg News to CSC and SCM World have surveyed hundreds (and in some cases thousands) of executives exploring the major trends in supply chain management around the world. This article synthesizes the main findings of those studies in a comprehensive and practical way.
Not surprisingly, the studies revealed a similar trend – excellence of the supply chain is a key element in creating value, improving competitiveness, enhancing growth and strengthening the organization. Companies that are able to effectively link supply chain strategy with the organizational one achieve higher flexibility, economic efficiency, speed and hence customer satisfaction.
According to the studies, here are the ways that can help achieve these goals through effective supply chain management:
Strategy and Organization
• Establishing supply chain management function as part of the senior management of the organization. 54% of executives confirmed their supply chain managers reported directly to the CEO in a survey conducted by CSC. Also, let’s not forget a bright example of Tim Cook who was a Director of Supply Chain and Operations at Apple before becoming its CEO.
• The importance of coordination between the organization's and supply chain strategies indicates a common denominator for creating value for the customers. It translates into a broader agreement that performance across the end-to-end supply chain should focus on customer satisfaction, creating value and driving sustainable competitive advantage. This, in turns, allows building stronger relationships with suppliers and increasing the speed of new product launches as well as expansion into existing and new markets.
Segmentation and differentiation
• Since customers these days have multiple ways to access their desired products, organizations are trying to find new ways to reach them. Therefore, one of the growing trends is the segmentation of supply chain. No longer can the one-size-fits-all supply chain model meet the needs of current consumers – the products, distribution points, points of consumption and consumers themselves are different and hence require a different approach. Companies that operate more than one business model perform better than those that are still using a standard model of supply chain.
• The majority of survey participants (51% of those polled by PwC and 75% by SCM) view their supply chain capabilities as the main factor that differentiates them from their competitors. PwC survey shows that these differentiating abilities focus around the following areas: optimal delivery performance, reduced costs, maximum flexibility and responsiveness to live demand, minimized risks, sustainability of results, tax optimization, and overall efficiency.
Outsourcing
• The trend seems to be for organizations to be focusing on their strategic capabilities and global supply chain while outsourcing non-core support activities to subcontractors (such as storage, transportation, manufacturing, operational procurement, customer order management, etc.).
Technology
• Most leading companies today are already using a variety of advanced technological solutions and plan to continue expanding their toolsets in the coming years. These tools are used to generate visibility along the distribution chain and ensure consistent and reliable information is readily available for decision-makers in all required parts of an organization. Examples of such tools include automation of some of the activities related to managing inventory in real time, creating orders, launching new products, and many more.
• Visibility and transparency of data analysis offer organizations an upper hand in improving overall supply chain performance, saving costs, increasing profitability, and staying ahead of the game compared to other companies slow to build those capabilities.
• There is a consensus among the surveyed executives that analytical abilities of organizations to quickly process large amounts of data relevant for decision-makers have become acute, and will continue to be so in the coming years (73% of participants in the Bloomberg survey and a unanimous majority in the CSC survey).
Operations
• Operating in a cost effective, competitive, and fast manner, adapting to the high volatility in demand and providing high customer satisfaction are the main goals that organizations realize require constant improvement (and this is where culture of continuous improvement comes in handy).
• These capabilities can be built through a number of initiatives: sharing of information, means and resources (cross-departmental collaboration), maintenance of excess capacity, inventory replenishment based on consumption, sales and production planning, data analytics and others.
Risk and Talent Management
• More than 80% of the companies represented in the CSM survey were affected by some supply disruptions during the past two years. Approximately 50% have suffered losses as a result of that and more than a third reported damage to the profitability and loss of customers.
• These risks require organizations to re-think their risk management practices and introduce a series of processes to minimize damage or avoid it. Among others: less long-term/ rigid relationships with suppliers, raising the frequency and quality of communication with suppliers, using the tools of risk management pro-actively, creating backup sources/ plans to purchase from multiple sources.
• The increase in complexity of supply chain requires that the resources engaged by the organization have the knowledge, abilities and skills to match the challenging environment. Organizations hence are taking steps to recruit, train and retain the talent that can support the value chains of the future.
Sustainability and Social Media
• Sustainability is one of the most obvious trends. It is targeted to strengthen the relationship with the consumer, and most of the participating companies reported an intention to continue to invest attention and funds in the area of sustainability.
• Companies invest a great deal to ensure their suppliers also meet the sustainability requirements. Moreover, in recent years there has been a changing trend in relationships with suppliers: instead of penalties in the contracts, companies are now starting to use incentives to motivate compliance and cooperation thus seeing suppliers ultimately as partners.
• Social networks still play a minor role in the considerations of the surveyed companies, however, the emerging trend is increasing their importance. Companies are trying to figure out the best approach to dealing with the risks associated with social networks while utilizing the possibilities and communication channels that they offer.
To summarize, a dialogue with hundreds of executives from thousands of organizations around the world that represent different markets, industries and business realities shows a clear trend: supply chain is becoming more and more central to ensuring organization survival and growth. This means organizations are required to rethink their approach to the market and to adopt a number of basic principles: establishing effective reporting lines among supply chain management and company leadership (building supply chain organization into the management team), creating a targeted/ segmented supply chain models to ensure maximum customer satisfaction in the most competitive and cost effective way.
Some of the major ways through which supply chain organization can truly deliver on its mission include: matching supply chain strategy with that of the organization; adopting advanced approaches to building flexibility and efficiency into supply chain and dramatically improve the speed of operations; creating a competitive operational differentiation through supply chain; using technology and introducing visibility and transparency of the data throughout the supply chain; creation of analytical capabilities to enhance decision-making processes; pro-actively managing risks and talent retention; and finally, adopting sustainability measures and holding suppliers to the same standards.
Some of these trends are only starting to emerge, but they will continue to evolve and take shape that will inevitably change the way organizations do business and serve their customers.