Shaping Supply Chain Strategy In A Highly Volatile Environment

In today's global economic environment, managing what you have always done so far, even if you do it very well — is not good enough. Companies are under constant pressure to cut costs and produce results despite dynamic circumstances. Supply chain managers must transform rather than simply improve their operation. This simply means adopting the philosophies, methods and processes that will make your organization ‘best in class’.

So what makes each of these companies the proverbial ‘best in class’? While the answer may vary for each organization, some practices however, are generally applicable across the board. Here are some of the essential features that will help companies achieve the title of ‘best in class’.

Customers always come first

Traditionally, the supply chain is built to deliver products or services to customers at the time and place needed. An effective supply chain manager understands this and services the requirements of the organization’s customers. Collaborating with customers to develop innovative products, forecast demand and replenish supplies improves forecast accuracy, capacity utilization, inventory efficiency and service levels. Working with customers directly thus creates true value for every business partner in a supply chain.

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Aligning right

Organizing the supply chain function is ever changing, especially if it needs to be tailored in a way that will maximize its effectiveness and bring about sufficient benefits to the company. There are two aspects to this:

1. The distinction of whether a function is core or context. Core functions offer opportunities to truly differentiate a company while the contextual ones drain valuable resources. Companies should strive to develop in-house competencies to orchestrate core functions while the contextual functions can be offloaded externally or internally to lower profile teams.

2. The way in which it is managed — centrally or distributed. Even when the functions are not centralized, companies should strive to have a common set of policies, procedures and protocols.

Whatever the company’s structure, accurate staffing for the supply chain is vital to its success. ‘Best in class’ companies today hire supply chain managers who have strong communication and relationship management skills, the ability to think strategically, and a focus on value creation.

Make technology work for you

Technology has been the biggest boon for most companies in enabling best practices. Companies should select software that will make the company more efficient and then structure their workflows and processes around the chosen technology. The real ploy would be to first review the processes that need improvement and then select the technology that poses the best fit.

Technological advancements in customer service, such as improved use of digital channels, lead to heightened consumer expectations and thereby sets higher standards for everyone in the value chain. Most progressive companies choose managers that understand their processes and later learn the system that would help them achieve higher service levels without painful work arounds. It is no secret that customer service is integral to sustaining business growth — especially when you consider that 55 percent of customers will pay more for a better customer experience, according to Defaqto Research in 2013. Retailers have streamlined the digital path to purchase, providing convenient services such as one-click ordering and direct purchasing from alternative retail channels, such as print circulars. By eliminating obstacles at the point of purchase, companies like Amazon and EBay are catering to the modern user-experience and directly impacting ROI through higher checkout completion rates. Bain and Company reports that a 10 percent increase in customer retention levels result in a 30 percent increase in the value of the company.

Another brilliant example would be a global oil services company. The organization needed to centralize its global demand planning process in to a single source cloud platform, with business units spanning over many countries and geo-markets. Leveraging the capabilities of SAP’s IBP Sales & Operations Planning (S&OP) tool, they managed to standardize its planning process with common policies, procedures and protocols. The system provided a common source of data for the highly interactive planning process thereby enabling simulations, comparisons and analytics at different phases and at multiple levels of data granularity. This new system also helped the company to move away from stand-alone spreadsheets that offered little integration or data consistency.

In order to be efficient and effective in managing supply chains, it is imperative to implement world class Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) systems to support information flows that aid in decision making. ‘Best in class’ companies implement business processes and practices in conjunction with systems implementations, thereby increasing profitability significantly by improving overall execution capabilities and increased visibility across the supply chain with both internal and external partners.

Managing Risks

As businesses continue to expand globally, increased outsourcing and offshoring and practicing lean manufacturing techniques, the risks are increasing drastically. It is extremely important to manage these risks and implement plans to mitigate major exposures wherever possible. As Warren Buffett says, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”

Managing risks in a global supply chain in many cases requires accounting for and bridging the differences in culture, language, values and organizational behavior. A supply chain may not be quite as dynamic or complex as capital markets. But, when it comes to managing the supply chain, the challenge can be as formidable as managing risks for instruments such as mortgage backed securities or credit default swaps. McKinsey states that it takes 12 positive customer experiences to make up for a negative one. This exposure is real and must be given significant consideration and planning to prevent errors.

Focus on time and inventory

While one can focus on improving multiple aspects of the supply chain, the greatest impact can be found by focusing on two things: increasing the velocity of its products and reducing overall inventory in the system. For example, Albemarle Corporation, a leading specialty chemical company, was able to gain control of their working capital through better inventory management. The company was seeking a system that could define and sustain a consistent global S&OP process. Essentially, Albemarle sought to establish a common data model that could consolidate the demand, supply, and financial plans resulting in increased visibility. They did this by leveraging again SAP’s IBP for Sales and Operations Planning (S&OP). Albemarle gained better control over asset utilization and inventory planning across finished goods, intermediates and raw materials which was enabled by higher accuracy of forecasted sales that could now be measured consistently.

 Sustainability

The Institute for Supply Management (ISM) defines sustainability as “The ability to meet current needs without hindering the ability to meet the needs of future generations in terms of economic, environmental and social challenges.”

Every supply chain faces frantic challenges to support its corporate social responsibility goals. These hurdles may only worsen with time. Supply chain strategies should not only consider ways of meeting immediate business objectives, but also evaluate if these strategies enable a strong economic, environmental and socially responsible future.

Becoming ‘best in class’ and staying there is less about implementing the latest technology or tools. It is more about creating the value system and the discipline to constantly review performance in the key areas that influence supply chain, then measuring and continuously improving it.

Kanth Krishnan is VP of Supply Chain Solutions Delivery at Intrigo Systems.