What does it take to be a Best Run Supply Chain?

While there is no denying that supply chains are the backbone for organizations, what is more important to underscore is that best run supply chains lead to significant competitive advantage for the organizations. According to notable studies with data backed research, these organizations outperform their peers on various metrics – Revenue growth, On Time in Full (OTIF), Time to launch new products, Cost of sales, Logistics & distribution cost and Sustainability KPIs among others. Best run supply chains are not only agile and efficient, they are also more adaptive, resilient and reliable. So, what is that these supply chains do to consistently deliver stellar performance? What is in the DNA of these supply chains that enables this?

It certainly does not happen by chance, but through a rigorous and consistent set of actions, well enunciated in the quote below:

“Some people want it to happen, some wish it would happen, others make it happen” - Michael Jordan

In my view, here are the ten attributes of the best run supply chains. An important point to note is that, many of these characteristics are dependent on each other (and in many cases synergistic) and hence being an outstanding supply chain requires excelling in most of them.    

1.    Lockstep with business objectives - Best run supply chains recognize that supply chain objectives need to be in consonance with business objectives and priorities. This is because in the absence of the alignment, there will not be requisite management focus and commitment in supply chain initiatives, thereby restricting its ability to drive step change in performance. It will also lead to misaligned KPIs, resulting in supply chain performance not leading to improvement in business performance. Also, with business dynamics changing fast, working in conjunction with business ensures that these supply chains can adapt much faster to the changing business reality. For example, if the business need is to develop products with clean label (food industry), supply chain can proactively develop right supplier base. Another example is to expand distribution network in line with the envisaged market growth.  

2.    Collaborative mindset - Best run supply chains firmly believe that in order to unleash the full potential of the supply chain, it is critical to have a collaborative mindset. This is manifested through improved inter-functional and intra-functional collaboration (within supply chain) and collaboration with external partners (eg: suppliers). Inter-functional collaboration calls for a deeper and frequent interaction with other functions. For example, working closely with marketing team to reduce the time for new launch, or engaging with Finance to reduce Capex for achieving targeted returns. Collaborating and engaging with key suppliers can provide repository of innovative ideas which can be leveraged as a win-win proposition (eg: packaging innovation, value chain efficiency initiatives like yield improvement). Finally, best run supply chains also ensure that intra-functional conflict / non-aligned goals are not a hindrance to achieve its objectives. By creating aligned goals within supply chain and focusing on Total Cost of Ownership (TCO), they ensure a harmony amongst various supply chain teams. 

3.    Set rhythm through a robust S&OP process – These supply chains drive an effective S&OP process with a well-defined objective, timelines, accountability and performance review mechanism while ensuring participation from cross functional teams (Sales, Marketing, Finance, Production etc.). The process is also enabled by a good technology platform. They appreciate how pivotal a robust S&OP process is, for providing critical inputs (Campaigns, promotions, CRM activities or other causal factors like sales incentives) to demand planning, supply planning and resource planning. It is also a good platform for cross functional collaboration and these companies make best use of this process in effectively driving cross functional initiatives.

4.    Leverage demand data - Leading supply chains build agile supply system by ensuring availability of timely, accurate and granular downstream demand data. Extent of downstream data availability depends on the industry and channel. Some industries like retail, automotive, QSR etc. can have end consumer demand visibility. This data is critical during new launches, campaigns & promotions and periods of high demand volatility (eg: Covid-19), which results in high responsiveness without creating upstream volatility and higher stock levels. Companies which have systems to capture and timely transmit and use the demand data (vs. dispatch data) through good demand planning and sensing tools, see significantly lower stock outs, inventory and write-offs.   

5.    Supplier strategy - These companies have well-crafted and differentiated supplier strategy. This could be based on multiple considerations like spend value, criticality of item / category to business, innovation capability or other reasons pertinent to the business. Based on this, they classify their suppliers (eg: Strategic, Core, Others or other variations) and create supplier engagement strategy accordingly. This includes how much time to invest in relationship, understanding of supplier’s ecosystem (its business and supply chain) and joint performance review. Supplier strategy also defines the contracting approach and its tenure (eg: what method to adopt for price finalization – Cost plus, one on one negotiations, auction etc.?). Very often, while ordinary companies do create a good supplier strategy, but they do not execute it in spirit (for example, not engaging well with strategic suppliers or just focusing on driving down cost with them). Best run supply chains do not make that mistake.   

6.    Upstream visibility – Best run supply chains focus on building upstream visibility of key material categories (defined basis spend value / strategic importance). This involves visibility and understanding of available capacities & key bottlenecks (critical for high growth companies), major supply risks (eg: raw material availability or financial stability of the supplier), cost structure & what causes cost volatility, procurement and manufacturing lead time for suppliers etc. An upstream visibility helps in being more responsive through lead time reduction, and ensures early detection and timely response to any disruptions. It also helps them manage their costs better through tracking of cost drivers and changes in value chain. For companies in food service space, upstream visibility enables much better control on food safety and quality.   

7.    Investment in technology and systems – Best run supply chains meaningfully leverage technology in alignment with overall business priorities, build longer term digitalization landscape which is integrated & seamless, and have relentless focus on driving adoption & business benefit tracking (this is important as many times while the investment is done, envisaged benefits might not be realized. It is also important for incorporating learning for subsequent initiatives). Technology is also a key enabler in effecting changes in operating model (eg: same day delivery). Some of the key areas of investment include demand planning & sensing systems, supplier collaboration platforms, transportation planning and execution system, manufacturing execution system, deployment of IOTs and integrated dashboards among others. They are leveraging opportunities offered by confluence of IOTs, data analytics and AI / ML systems (eg: condition and rule based predictive maintenance of equipment). Finally, they are also open to experiment with new and emerging technologies (through POCs and pilots with a clearly defined success criteria). 

8.    Contingency / back-up planning - While the best run supply chains have robust processes, they also have effective back-up and contingency plans. These plans are not charted just as a ‘formality’, but are practical and help them prepare and protect the business in case of unexpected events. This requires anticipating and envisioning various scenarios and preparing responses against them. This may include supply disruptions (eg: capacity constraints or supply issues at a sole supplier), significant demand volatility (say demand is 3x of projections for a new launch), manufacturing and distribution network disruptions (eg: temporary closure of a manufacturing facility or a warehouse), cost volatility etc.  

9.    Innovation & sustainability – These companies have a predisposition to question the status quo, and develop & implement innovative solutions. Also, it is not always about building a new or disruptive idea, but also faster adoption of appropriate innovation that other companies might have built. For example, deploying Blockchain based solution for enhancing visibility and reliability or early engagement with suppliers for reducing product development lead time. These supply chains also have laser sharp focus on driving sustainability initiatives which could include responsible sourcing, targeted reduction in carbon footprint & consumption of other resources, and social programs.            

10. People management (It’s all about people) – Best run supply chains understand that while processes and systems are critical for driving high performance, consistent outstanding results hinge on people who run the supply chain. Hence, they invest in people right from selection, capability building, direction setting and allowing them to experiment. They ensure that people understand the vision and strategic priorities of supply chain and provide enabling ecosystem, which ensures high focus and commitment from people leading to sustainable performance.