Supply chains are pivotal to business success. However, when it comes to building a robust supply chain, only few companies are able to do it. While the task is certainly daunting, but once achieved, it can enable organizations to build resilient business models and deliver sustainable results. Shobhit Jain, Industry Leader (Retail and Wholesale Distribution) - EMEA South, SAP, offers a 10-point agenda that can help organizations in their endeavour to build a Best Run Supply Chain’.
While there is no denying that supply chains are the backbone of organizations, it is more important to underscore that best run supply chains lead to significant competitive advantage. 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. For example, they have upto 50% lower stock outs, 25% lesser supply chain costs and 40% fewer quality issues, which is a significant difference. They are not only efficient and reliable, but also more adaptive and resilient. So, what do these supply chains do to consistently deliver exceptional results? What is it 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 by Michael Jordan, ‘Some people want it to happen, some wish it would happen, others make it happen’
THE 10-POINT AGENDA
In my view, here are the ten attributes of the best run supply chains. It is important to note that lot of these characteristics are interdependent (and in many cases synergistic) and hence being an outstanding supply chain requires excelling in most of them.
1. Completely aligned with business objectives - They recognize that supply chain objectives need to be in sync with business objectives and priorities. This is because in the absence of this alignment, the supply chain agenda will not get required management focus and commitment, restricting its ability to deliver sustainable and long-term performance. It may also result in misaligned KPIs, with supply chain performance failing to improve business performance. Furthermore, with business dynamics changing fast, collaborating with business ensures that these supply chains can adapt much faster to the changing business reality. For example, if the business need is to deliver products with clean label (food industry), the right supplier base can be timely developed. Another example is to proactively expand distribution network in line with the envisaged business growth.
2. Collaborative mindset – The best run supply chains believe that having a collaborative mindset is essential for unleashing its full potential. This is demonstrated through improved inter-functional and intra-functional collaboration (within supply chain) as well as collaboration with external partners (eg: suppliers). Inter-functional collaboration calls for a deeper and frequent interaction with other functions. For example, working closely with the marketing team to reduce the time for new launch, or engaging with Finance to reduce Capex in order to achieve targeted returns. Collaboration and engagement 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, they also ensure that intra-functional conflict and misaligned goals are not a hindrance to achieve its objectives. They ensure harmony amongst various supply chain teams by developing aligned goals and focusing on Total Cost of Ownership (TCO).
3. Set a 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.).
They recognize the importance of a robust S&OP process in providing critical inputs (Campaigns, promotions, CRM activities or other causal factors such as sales incentives) to demand planning, supply planning and resource planning. It is also an excellent forum for cross functional collaboration, and these organizations make the most of it by effectively driving initiatives for long term improvement. The S&OP process is typically enabled by appropriate technology / systems to make it more sustainable, reliable, and effective.
4. Leverage demand data – Demand visibility is at the heart of any successful supply chain. They build a reliable and responsive supply system by ensuring availability of timely, accurate and granular downstream demand data. The extent to which downstream data is available is determined by the industry and channel. Some industries such as retail, automotive and QSR can have end consumer demand visibility. This data is critical during new launches, campaigns, and promotions as well as periods of high demand volatility (eg: Covid-19), resulting in high responsiveness without causing upstream volatility and higher stock levels. Organizations that deploy good demand planning and sensing tools to capture, transmit, and use the demand data (vs. dispatch data), see significantly lower stock outs, inventory, and write-offs.
5. Supplier strategy - These companies have a 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 factors relevant to the business. Based on this, they classify their suppliers (eg: Strategic, Core, others, or other variations) and develop a supplier engagement strategy. This includes how much time to invest in relationship, understanding the supplier’s ecosystem (its business and supply chain) and joint performance review. Supplier strategy may also influence the contracting approach and its tenure (eg: what method to adopt for price finalization – Cost plus, one on one negotiations, auction etc.?). Many 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 – They focus on building upstream visibility of key material categories (based on spend value and strategic importance). This involves visibility and understanding of available capacities and 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, and procurement and manufacturing lead time for suppliers. Upstream visibility improves responsiveness and ensures early detection and timely response to any disruptions. It also helps in better cost management by tracking cost drivers and changes in the 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 and maintain a relentless focus on driving adoption & business benefit tracking (this is important as many times while the investment is made, the anticipated benefits are not realized. It is also important for incorporating learning in future 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, control tower, manufacturing execution system, deployment of IOTs, digital twins, integrated dashboards, and many others. They are capitalizing on opportunities provided by the 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 - In addition to robust processes, these businesses have effective backup 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 planning responses to them. This could 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, and so on.
9. Innovation and sustainability –These businesses challenge the status quo and develop & implement innovative solutions. It is not always about developing a novel or disruptive idea, but also about accelerating the adoption of appropriate innovation developed by other companies. 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 all comes down to people) – Best run supply chains understand that while processes and systems are critical for driving high performance, consistently outstanding results hinge on people who run the supply chain. Hence, they invest in people right from selection, capability building and direction setting, and by allowing them to experiment. They ensure that people understand the vision and strategic priorities of supply chain and provide enabling ecosystem, which leads to higher focus and commitment from people leading to sustainable performance.
While building a detailed agenda for step-changing supply chain performance is the starting point, the real difference comes by driving a consistent and relentless execution on the plan.