Game-Changing Trends in Supply Chain
A game changer changes the way that something is done, thought about, or made, e.g. new mass-production methods, moving assembly lines, made production affordable for many consumers, etc. We define game-changing trends as those trends that meet the two basic criteria of being extremely impactful on a firm’s economic profit and shareholder value, as well as very difficult to implement successfully. Supply chain professionals face Game-Changer changes every day. Firms have made significant and in some cases surprising progress in the last decade. Ten Game-Changing Trends in Supply Chain:
Customer relationship management –Stratification
Demand Management
Collaborative relationships
Knowledge-Based Learning
Transformational Agile Strategy
Virtual integration
Process Integration
Information Visibility
World-Class Metrics
Value-Based Management
I. Service Stratification. Why is it a Game-Changing Trend?
The concept called “Service Stratification” applies not only to service differentiation by customer segment but also involves the concurrent differentiation by product group and product offerings. The goal is to create customer value corresponding to the economic profit potential of the relationship. Leading companies have developed a robust governance structure to drive consistent execution of segmentation strategies, demonstrate the execution, tactical, and strategic levels of a company’s supply chain.
Once the specific needs are understood, the segment must be prioritised based on the strategic importance and their potential for economic profit. While this changing trend is envisioned it may become the standard operating procedure for retailers as they increasingly move into multi-channel supply chains. In a multi-channel retail case, the prioritisation would be focused on the preferred channel rather than on the specific customer.
II. Collaborative Relationship with suppliers and customers is a game changer.
Contemporary firms are using collaboration to reduce work duplication and redundancy, streamline flows and processes, and communicate better around shared objectives. Collaboration commitment, goal congruency, and integrated information sharing are three critically important drivers. Each of these success factors makes the business can develop superior connections with key partners and leads to a competitive advantage with greater efficiencies and market effectiveness. Two companies together can clearly provide new value that cannot be provided by either company in isolations. The best practice model indicates some initial drivers to facilitate a move toward better collaborative relationships:
1. Both parties need to address collaboration’s potentially negative aspects. Procedures should be established early to resolve a potential dispute, unforeseen issues, and the potential dissolution of a dysfunctional or no longer useful relationship.
2. To share risks and rewards, both parties must develop supporting organisational and inter-organizational structures, including work rules, leadership role, and guidelines on how all this will be shared.
3. Mutual trust must be encouraged for strategic and operational integration (shared values and vision).
4. Goal Congruency – Clear goals and outcome congruency clearly led to mutual benefits.
5. Collaborating firms need to integrate technology to share real-time information. Openness and transparency via selected technological solution, collaboration capabilities and benefits are likely to increase.
III. Agility is a broad concept that can be defined as the firm’s ability to quickly adjust tactics and operations within its supply chain to respond or adapt to changes, opportunities or threats in its environment. Firms must develop the ability to complete an activity as quickly as possible. Supply chain Agility possesses five distinct dimensions:
? Alertness can be described as the firm’s ability to quickly detect changes, opportunities, and threats.
? Accessibility is described as the ability to access relevant data to decide how to respond.
? Decisiveness can be described as using the available information to make decisions resolutely.
? Swiftness is defined as the ability to implement decision quickly. The speed of movement and a change of direction speed/action are required to respond in the shortest possible time.
? Flexibility is defined as the ability to modify the range of tactics and operations to the extent needed.
Together the five distinct dimension of Agility allows firms to rapidly respond to a volatile and ever-changing marketplace. Recruiting and developing talented employees with the decision-making skills remains critical for maturing in this area.
IV. Cross-functional integration is recognised by professionals as a game-changing trend. Companies need to focus on the next generation of Cross-functional integration, as it is perhaps one of the most challenging opportunities for businesses today. The new “great divide” is between purchasing and logistics. Firms that strive to close this gap will outperform those that do not. Some enablers:
1) an understanding of the global environment, 2) an understanding on the part of supply chain functional leadership of both the finance and accounting functions in the language associated with these functions, 3) an understanding on the part of supply chain functional leadership of the marketing function, 4) a focus on acquiring developing retaining, and off-boarding supply chain talent, 5) an understanding of cross-functional teaming, 6) an understanding of information systems and technology, and 7) an understanding of supply chain analytics.
V. Relative Value for Customers. Just as firms need a transformation supply chain strategy, they need a metric and goal setting system that drives the new behaviours required by the new strategy and aligns with a transformational strategy. Segmentation approach can also benefit the supply side as well as the demand side; supplier and customer-segmented metrics can be powerful tools: a) Create the right cross-functional accountability, b) Establish a driver-based metrics framework, c) Set appropriate goals, d) Ensure that metrics cannot be easily gamed.
VI. Demand Management. Endcasting is seen as a heightened focus on final consumer demand. A macro trend that has helped further this idea of Endcasting is the availability of vast amount of end-user demand data. With the ubiquity of scanners, data is now available for analysis and insight into demand patterns, not just from channel partners but from end-consumers.
Demand sensing technology has been shown to be effective, reducing error allowing them to sense consumer response or promotions, and better serve customers during these high-profile events. A best practice is to relentlessly measure the accuracy of the inputs provided from different sources and to use those measures of accuracy to judge the added-value from each input source. There is software which measures the predictive value of each input source at every item-location and uses the most predictive signals to create the best possible forecast. Multiple perspectives can be systematically and analytically used to create accurate and balanced forecasts.
VII. Talent management – Training to Knowledge-based Learning. The No. 1 requirement for supply chain excellence is finding, hiring, and developing talented people and then placing them in the proper roles. To change the supply chain game, companies should be world-class at getting the right people with the right skill sets in the right place. The “dream” supply chain leader:
? Global orientation – Supply Chain Executives must manage an enterprise that extends across continents.
? Cross-functional, cross-company understanding
? Leadership skills – Must be able to foster close interpersonal relationships that build credibility for him and for the function across his organisation.
? Technical and analytics savvy - he/she must know what to avoid and what questions to ask to successfully guide the implementation of new supply chain technologies.
? Superior business skills - Must be business people first and surly chain specialists second, enhancing economic profit and shareholder value, not simply on cost cutting but also to speak the language of senior executives.
VIII. Virtual Integration. Firms are changing the game by linking together masses of information from multiple sources. Reliance on an outsource third party relationship with material and services suppliers helps to overcome the financial burden of capital investment and opens access to a larger pool of skilled labour and management. The benefits of virtual integration include the potential for reduced price and labour cost, increased knowledge, and access to a larger customer base.
Some companies are bringing both manufacturing and service production back home. The rapidly rising cost of labour in emerging economies, high oil prices, increasing transportation cost, and a growing awareness of global risk have motivated companies to re-evaluate their global supply chain strategies. Intellectual property erosion and product quality problems are the underlying reason that some offshore regions are falling out of favour as the low-cost manufacturing locations of choice. Other factors influencing the decision to move closer to home include increased supervision and training on manufacturing and inspections, higher local security needs, and extra expenses associated with travel and telecommunications. Some supply chain professionals do not believe that the use of outsourced resources will diminish in the future, so using third parties will continue, although the locations will undoubtedly change.
IX. Information Sharing and Visibility. The use of business intelligence and analytics to analyse so-called “big data” is changing the game by linking together masses of information from multiple sources and then analysing that data with increasingly powerful hardware systems and business analytics expertise. The benefits: automate systems to sort through masses of data, extract valuable information, and systematically feed it into SCM systems and only alert folks when human attention is required.
Most companies start with their enterprise systems as the first step in harnessing big data. By using this data, companies can sense and respond to quickly changing market realities. There are a number of actions that can help move organisations closer to full adoption of sharing strategic and tactical information with partners/customers to improve supply chain performance. The secret is an ability and willingness to collaborate with partners and customers.
X. Value-Based Management – Using Supply Chain Excellence. Shareholder value runs through supply chain excellence. To change the game, firms need to leverage the full potential of their supply chain to achieve breakthrough financial performance. Supply chain excellence drives shareholder value because it controls the heartbeat of the firm; that is, the fundamental flow of materials information from suppliers through the firm to its customers. Unfortunately, too many companies have a supply chain where lack of strategy, talent, a misapplication of technology, internal and external silos, and lack of discipline in managing change cripple this flow.
Economic profit is the linchpin between supply chain excellence and shareholder value. Economic profit is important because it means the company is delivering returns above the cost of the capital invested. Generating economic profit should be the prime goal of all firms. Supply chain excellence can deliver the most upside to economic profit and shareholder value because its full potential has been so underutilised in the past versus other corporate initiatives. When economic profit increases over time, shareholder value increases.
Today, a small but growing number of companies are reporting that they leverage their supply chains to make working capital and cash flow improvements that drive economic profit and shareholder value. Future supply chain organisations must focus on far more than just driving out costs and improving product availability. Smart companies will use innovations in their supply chain to generate the cash to fund innovations in their product lines and growth in their business.
So what are you doing to differentiate your supply chain provision, are you adding value or just reducing cost?
Dave Food
