Strategic Supply Chain Management: Can your supply chain deliver both growth and efficiencies?

BRAD HOUSEHOLDER

Introduction

Companies recognise that in today’s global economy, their supply chains are both critical to success and vulnerable to disruption. The latest research shows there is far more to the story. The recently published McGraw-Hill book Strategic Supply Chain Management, Second Edition1 provides concrete evidence that supply chain performance and financial performance go hand in hand.

A high-performing supply chain can add bottom-line efficiencies and top-line growth. That sounds like a tall order, but there are things you can do now to manage your supply chain as a strategic asset to boost performance and profitability. If you get your supply chain right, it will move your business strategy forward and set you apart from the competition.

How is your supply chain responding to these challenges?

 Serve new customers via new channels. Companies must react to consumers’ preferences across new channels, like mobile devices. For example, offer point-of-purchase options based on personalised preferences ordered in a single touch. Increased purchasing power in emerging markets is also forcing companies to approach market segmentation differently.

 Adjust operations for new economic trends. Changes like rising labour costs in China and the shale gas boom in the US are leading companies to rethink their manufacturing and sourcing strategies. Such shifts usually require redesigning the supplier network to ensure quality and on-time availability.

 React quickly to disruptive events. More than 60% of survey respondents said their performance indicators, such as delivery lead times and inventory levels, had dropped by 3%

or more as a result of supply chain disruptions in the past year.2 Be it the financial crisis or natural disasters, you must be able to respond to crises faster and better than the competition.

Better supply chain, better financial performance

High-performing supply chains deliver

Create value? Or realise efficiencies? Many companies view this as an “either/or” choice. But industry leaders get both outcomes by managing their supply chain more effectively.

Take, for example, a company that stands out for its customer service experience and wants to reduce its transportation costs. It can identify the customers that truly value frequent deliveries and continue to offer them competitive delivery services while saving on transportation costs elsewhere.

Industry leaders achieve growth...

Industry leaders look at their supply chains from their customers’ perspective. That’s why these

companies recognise that their supply chains must support key value propositions like breakthrough

products, distinctive services, and unique customer experiences. Their supply chain systems,

processes, organisation, and, above all, mind-set mean they can create top-line growth while improving bottom-line performance.

The results are clear in their business performance. Compared with their industry competitors, leaders see:

 50% higher average annual sales growth

 20% higher profitability

 50% higher net asset turns ...and manage costs at the same time

Industry leaders don’t neglect sound cost and working capital management. They also ensure their supply chains are designed to navigate complex tax rules that can get overlooked, until their cost becomes clear. Leaders see those strengths as the minimum contributions of a good supply chain.

Using the supply chain for innovation and differentiation need not stand in the way of achieving efficiencies. Metrics show that, compared with others in their industry, leaders have:

 15% lower supply chain management costs

 less than half the inventory levels

 more than three times shorter cash-to-cash cycle times

J Hilburn, an online apparel retailer, sells custom-fitted clothes at off-the-shelf prices. After

customers place orders online, the company’s sales representatives visit them to take

measurements and offer fabric options. As a result, customers get textiles woven in Italy, clothes

manufactured in China, and service delivered in the US—at prices they like.

How to build a high-performing supply chain

What does it take for the supply chain to achieve sales and revenue growth while managing costs?

Design with the customer in mind

Be clear about what the business competes on: innovation, customer experience, quality, or cost.

While all four are important, find the one that pulls you ahead of the competition—and then design the supply chain “from the customer in.” High-performing supply chains support overall business strategy. And all aspects of operations, like service delivery, sales channels, and asset/tax footprint, are geared toward supporting that strategy.

Lenovo has two different operating models to serve distinct customer segments. Its relationship- oriented supply chain is responsive to the needs of large enterprise customers. Lenovo’s transactional supply chain, by contrast, serves small companies and individual consumers.

Add complexity where it pays off

Know the difference between complexity that doesn’t make a difference to the top line, and complexity that does. For example, leading companies maintain more-focused product and service portfolios than their peers. They also use far fewer systems and applications. Yet, when it comes to meeting the needs of their customers, they don’t hesitate to add complexity.

To serve their customers, they have more than three times as many manufacturing sites and roughly double the number of distribution centres compared with others in their industry. Adding complexity that supports competitiveness goes hand in hand with building resilience in the supply chain. Successful companies recognise that different customer value propositions are vulnerable to different threats. So they map their supply chain capabilities to different potential risk profiles.

Put the right people in the right places

High-performing supply chains need more than just technical and operational expertise.

Communication, collaboration, and relationship skills are equally important. Securing talent from around the world and growing skills internally can really make a difference. Oil-field services company Schlumberger has developed a global talent pool. The company rotates its engineers and scientists through various roles around the world to make sure that people who rise in the organisation understand Schlumberger’s range of offerings.

Make supply chain an engine of innovation

Leading companies fuse their supply chain with their other business functions like product and

service innovation, and marketing and sales. When cross-functional groups work together as teams,

surprising innovations can emerge. It might be a new product or service—or even a ground-breaking

way of serving customers.

The supply chain is everybody’s business

The best ideas almost always originate at the intersection of diverse disciplines. And the worst breakdowns often happen when interdependencies are not well understood. Even the brightest functional teams cannot deliver high-performing supply chains on their own. That is why industry leaders make it a point to excel at internal collaboration. They understand that the supply chain isn’t just an issue to be dealt with by the supply chain department.

Get the top people talking

Do I have the right resources in the right place at the right time to address our customer’s needs? All functional managers regularly ask themselves that question. But at leading companies, managers work together to make these resource decisions through cross-functional processes such as sales and operations planning. Multiple perspectives and experience are more important than ever in today’s constantly changing environment.

Getting the leadership involved is essential to set the right example. Different business units and functions may not immediately recognise the advantages of greater collaboration. Employees do well when they see the benefits of internal collaboration, such as faster innovation, higher customer satisfaction, and increased efficiency. Reward them based on results, no matter where they work in the organisation.

Encourage teams to collaborate

Conflicting objectives and performance metrics as well as poorly integrated processes and systems can make things complicated. But while the challenges are real, so are the results.

At the Crop Protection division of the chemical company BASF, managers monitor overall supply chain performance from the customer’s perspective. They have access to different data on measures such as costs, inventory, and service delivery. Managers track—and focus on improving—operational performance based on that full picture, with support and guidance from the performance measurement team. This level of internal collaboration is critical to BASF’s success because its customers’ demand patterns can be volatile.10

Attract the best suppliers

Internal collaboration has a huge extra payoff: It sets the stage for better external collaboration.

Increasingly, companies have to position themselves as a customer of choice to attract the best

suppliers. Industry leaders are more likely to have reliable networks of suppliers that are resilient to

economic turbulence, eager to introduce innovations, and trusted to uphold environmental, health,

and safety standards in far-flung locations.

Bring about lasting change

Compared to many change efforts, supply chain transformation can be very challenging. It needs to take into account diverse business units, dispersed locations, multiple customer segments, complex tax and regulatory rules, and a global supply base. That’s not all. You must create change in a competitive and demanding environment, where everything—from procurement to product launch—must carry on without missing a beat.

No meaningful change is too small

Successful transformation starts with setting realistic goals. Changes can range from incremental improvements, such as making processes more consistent and predictable, to breakthrough innovations, like brand-new ways of competing in your industry. Many change efforts fall in between and aim for supply chain excellence. That may involve adding complexity to give customers what they want, such as moving from a global to a regional production and order-fulfilment model. To achieve supply chain excellence or innovation, you need strong top management leadership and dedicated operational teams.

Capabilities matter more than you think

Did we achieve our goals? Can we sustain and continue to improve our performance? Ask these questions when evaluating the success of your transformation initiatives. To get the full picture, track outcomes against a comprehensive set of metrics. Business and operational metrics like margins and on-time delivery are certainly important. But pay as much attention to what ultimately drives performance, such as the level of process maturity. In 2003 Alstom Transport, a manufacturer of super-fast trains like the TGV, launched a supply chain transformation initiative to improve customer delivery and time to market. In evaluating performance, the France-headquartered company tracked not only hard operational metrics but also the development of underlying capabilities.11

Uneven progress is just fine

Keeping an eye on the critical steps along the way, rewarding progress, and identifying and closing gaps are all equally important for meaningful change to take hold. Different teams around the world are at different starting points so they will progress at different rates. Operational teams that move more quickly are able to set a solid foundation for others to build upon. In fact, standard milestones may not be enough. Having visibility into the progress of colleagues and peers often creates positive pressure to change.

Make the change stick

Industry leaders all have one thing in common: They want their supply chain transformation to lead

to permanent improvement. They’re not interested in temporary fixes. They are realistic about the

resources they have, and are prepared to move, train, or hire people if they need to. And they invest

in processes and infrastructure to make sure people can keep improving the way they work every

day.

SPEAKER PROFILE

Brad Householder is a principal in PwC’s supply chain practice, leading PwC’s global supply chain planning team. With more than 30 years industry and consulting experience, Householder helps PwC’s clients develop and implement transformational supply chain strategies, with particular focus in the areas of supply chain planning, supply chain network optimisation, transportation management and supply chain organisation design.

Contact details

Email address brad.householder@us.pwc.com Website http://www.pwc.com/

Telephone 15082590432