“Supply Chain is a competitive advantage that works hand in hand with other stakeholders in delivering business objectives. It is important to have a strategy that is integrated with the overall business strategy or vision or mission of the company. Lack of direction hinders our ability to focus on key areas, impacting deliverables,” shares Rituraj Saha, Head – SCM, Pernod Ricard India, during an exclusive interview…
In this continued journey of two decades in supply chain management, my career curve has spanned across varied verticals such as FMCG, paints, automobile, apparel and now alcoholic beverages industry. During this immense learning experience, I have driven supply chain transformations including organization development, process reengineering and system implementation across multiple countries. My six-sigma black belt training has helped me drive process efficiencies in supply chain. It has been a very fulfilling journey filled with its own share of opportunities and challenges.
In the last decade or so, most companies have realized that it’s the core supply chain function that enables a company to achieve the desired topline & bottom line performance. Supply chain function is the key lever in delivering desired service levels and enhance operational efficiency. The maturity levels of supply chain as well as operational processes of the company define the underlying difference between a great company and an average company. Leading companies have already started taking concrete steps and have been reaping benefits of the closed-knit supply chain network.
Supply chain has successfully broken the siloes that the companies were having in the past and has emerged as a very integrated strong value chain. Today the market requirements can be fulfilled on time and in-full conditions, all thanks to an integrated full-proof supply chain. In doing so, we have also ensured that we meet the customers’ requirements in the least possible cost to serve at an optimal investment level & inventory.
The challenges persist in varying degrees depending on the level of maturity in the supply chain continuum. I would like to slot these challenges into three broad categories – Strategic, Operational and People/Capability. These are interlinked with each other, impacting an organization’s ability to drive business objectives seamlessly:
Supply Chain is a competitive advantage that works hand in hand with other stakeholders in delivering business objectives. It is important to have a strategy that is integrated with the overall business strategy or vision or mission of the company. Lack of direction hinders our ability to focus on key areas, impacting deliverables. A good strategy always articulates key focus areas supported by process, structure and tools. Companies I have worked with have embarked on supply chain transformations and improvement initiatives like Network Optimization, Six Sigma/Operational Excellence, Process Reengineering, Tool Implementation, Integrated Planning Foundation, Digitization of Supply Chain, Logistics Excellence etc., to strengthen the supply chain function. These projects are transformational and aim to improve operational efficiency, service level and process maturity across all tiers of supply chain. The journey of formulating, aligning and executing supply chain strategy is a challenge every company confronts at some point in time.
Increase in volatility of customer demand, forecast inaccuracy or aligning operations to real time fluctuation in demand are challenges that all companies face. This not only impacts the top line but also operational cost and efficiency. Collaborative demand planning, agile supply chain, innovative inventory modelling are ways by which a company can improve forecasting ability or de-risk itself from continuous fluctuation in demand.
Effective Inventory management is another key challenge common to all industries. Higher or lower than desired inventory level can have a deep impact on company’s service level and operating cost. Having an optimal level of inventory across the enterprise (including extended enterprise and trade) is key to achieving a superior service level while minimizing obsolescence and working capital requirement. There is no one-size-fitsall approach for arriving at the optimal inventory level. Companies having inventory management guidelines have managed to achieve it through a process-based approach.
Visibility of planning information such as current inventory levels, actual sales/offtake, expected demand and expected shipment enhance our ability to respond fast to change in customer demand. Visibility of information or availability of data from supply chain entities, including partners, enables the organization to make better decisions leading to superior customer service. Lack of information could be because of inadequate IT system or because of lack of standard data management or lack of system integration across the extended supply chain.
A strategy is as good as its execution. People or capability plays an important role in executing a strategy. Lack of right capability across all levels of supply chain is one of the key challenges faced by companies. Good knowledge about the business as well as function, ability to balance conflicting priorities, good influencing skills and a good execution mindset are key traits for a successful supply chain professional. Recruiting and retaining talents having the right blend of skills are must for creating a worldclass supply chain team. It is equally important to augment SC capabilities across all functions to ensure higher compliance to plan. Cross-functional collaboration and alignment becomes easy if stakeholders are aware of implications of their role in the supply chain and their actions on the overall results.
There are challenges that are specific to an industry (regulatory and environmental challenges in Alco beverage industry) or to a company with in industry. Companies overcome these challenges through a combination of People, Process and Technology solutions and through relentless execution of supply chain strategy that is aligned with the overall business strategy.
There are various ways by which you can make your supply chain agile and demand driven:
Delayed differentiation/postponement strategy
Having worked in supply chain across many industries, I have seen this principle being applied everywhere.
It is about carrying inventory in a generic form – that is, in a standard semi-finished product and do final assembly/production/localization post confirmation of real demand. This is why we call postponement a vital element in an agile strategy. Postponement should happen as close to the customer as possible. Key advantages of postponement:
Segmented approach to Forecasting and Inventory management: There is no one size fits all approach. In order to stay nimble, we will have to follow the segmented approach to forecasting and inventory management depending on nature of SKUs and markets. e.g., we can classify SKUs into ABC and XYZ on the basis of value contribution and variability of demand and can follow different forecasting, production planning & replenishment and inventory approach for different types of SKUs. You may have to create an agile supply chain for SKUs that are less predictable and are at an early stage of a product life cycle.
End-to-end supply chain flexibility: Introducing flexibility across the supply chain requires closer relationship with customers and suppliers enabled with better information and product flow. Agility in the upstream can be achieved by collaborating with your vendors, involving them in new product commercialization process, through Vendor Managed Inventory and by sharing information on a continuous basis. Our experience says that new product introduction time can be dramatically reduced through the involvement of suppliers in the innovation process. Agility in manufacturing is also about determining capacity flex, relevant capacities based on market and product characteristics.
Leveraging technology: Demand driven supply chain is all about capturing demand on a real-time basis and responding to that accordingly. You will have to leverage technology to respond to real-time data through the use of smart systems, Internet of Things and analytics. Technology tools help companies in augmenting collaborative forecasting capability, understanding exceptions with what-if scenario capability and getting visibility & taking proactive actions to service market needs. An effective Transportation Management System helps companies drive agility, visibility as well as operational efficiency.
Integrated business planning approach: As complexity of organization grows, it can become a stumbling block in a company’s ability to stay nimble. IBP is an approach through which a big company can stay agile through close collaboration with all stakeholders. Its objective is to align all internal as well as external stakeholders on operational plan linked to financial objectives. It is all about collaboration among functions to drive faster decision making through informed data. It is also about continuous flow of information from downstream to upstream and acting on it proactively to address challenges confronting your business, formulating strategy and executing against that.
Having said that there will be occasions when either pure AGILE or LEAN strategy might be appropriate for a supply chain. However, there will often be situations where a combination of the two may be appropriate depending on the nature of the market or SKU/product characteristics. You could be lean for part of the time and agile for the rest. I truly believe that supply chain is a competitive advantage that works hand in hand with stakeholders in driving business objectives. An agile supply chain can go a long way in supporting business, stay ahead of the curve leading to growth and superior customer service.
It has be a combination of process tool and matrix approach. For the process, we need to ensure that there is crossfunction of API in place. All stakeholders within the supply chain function are driving one common objective of delivering service levels. End-to-end supply chain collaboration can be enhanced or can be facilitated through an automated integrated supply chain solution and that’s what we intend to roll out because in the absence of that, it becomes very difficult to manage the frequent changes in demand. There also needs to be an integration with our upstream partners such as vendors. It is certain that without involving external stakeholders, the desired benefits can’t be realized. We do so by vendor management inventory. We also ensure that the vendors are involved in the design stage when it comes to new product commercialization. These are the ways by way of which we can make our supply chain responsive. In the crux, it has be to the perfect concoction of upstream & downstream as well as internal as well as external stakeholders.
The ability to earn respect and trust with our stakeholders is one of the key elements. If you want to be a successful professional, you have to ensure that you earn their confidence. I always believe in having an open and transparent environment at the workplace. I like to delegate tasks to people and lead them from the front so that they develop those leadership qualities and get motivated. I also encourage them to embrace changes and be innovative. People need to find ways to execute the same task in different ways so that there is always an alternative at hand in times of adversity. It's the relentless desire to win, coupled with strong execution mindset and an ability to build a high performing team are what make you an outstanding leader. A passionate SCM professional needs to treat the business as if it was his own, to invest and grow my people, and never compromise on integrity.
A successful company leverages its supply chain to stay ahead of competition. It relies heavily on key supply chain strategic pillars to drive execution of business strategy and thereby ensure achievement of goals in the short to medium/long term. That’s the reason you will always find a successful company underpinned by a strong supply chain function as a competitive advantage. Key strategic pillars that a successful company focuses on to make SCM a competitive advantage are:
Demand Driven Supply Chain Management: Demand driven supply chain is all about better understanding of customer needs and aligning your supply chain processes to actual consumption and consumer demand. It is about designing supply chain that best meets the need of the consumer on an ongoing basis. Real time and transparent visibility of data across all tiers in the supply chain is key to making a demand driven supply chain.
Integrated Business Planning: IBP is an integrated business management process supported by integrated tools and capabilities through which Volume, Demand & Supply Planning of the enterprise are continuously aligned & synchronized across all relevant functions of each organization. Integrated business plan helps a company tie operational plan to overall business objective and align all stakeholders on one operational plan that allocates resources most effectively. Process discipline, simplicity, commitment from all stakeholders and persistence are key enablers for a successful IBP.
Operational Excellence (OE): A company embracing Operational Excellence strives to attain a disciplined approach to whatever it undertakes. It is about continuous improvement with an objective to improve key performance metrics. OE in supply chain should be focused on optimizing performance across all processes. Redesigning supply chain processes through an Operational Excellence approach goes a long way in unlocking value and meeting stakeholder’s requirement.
Inventory Management: The objective of inventory management is to improve stock availability & freshness at optimal level of inventory. Inventory management includes Product life cycle management, Raw Material & Packaging material planning and Finished Goods inventory management (Inventory Planning, Inventory Policy and Inventory Control) across all tiers of the supply chain. A good inventory management helps a company improve service level, full price sell out performance as well as working capital efficiency thereby achieving higher topline, free cash flow and EBIT.
Capability Development: Personnel capability development across all levels of organizations is a non-negotiable requirement for successful execution of any initiative. This is one of the biggest levers a company focuses on to improve the execution capability. Capability development happens through a combination of on-the-job training, roadshows, training workshop and mentoring. Many companies embark on supply chain excellence program to augment capability and build talent pipeline to ensure sustainable results.
These strategic pillars should be integrated with the overall business strategy and should have commitment from all stakeholders across all levels. SCM transformation happens by executing these strategic pillars through a combination of process redesign, tool implementation, structure set up, capability building and metric tracking approach. These pillars serve as the foundations for making SCM a competitive advantage enabling companies to win in the marketplace through superior customer service and best-in-class operating model.
Thanks to the government’s concerted thrust, infrastructural development activities have seen a market improvement. There is still a long way to go. There are lot of infrastructural bottlenecks that constrict our ability to drive efficiency. While the GST has been rolled out since more than 18 months, there are issues related to toll tax and vehicles being stopped at check posts for longer times. We would ideally want a seamless movement of goods without any stoppage. Secondly, availability of GPS-enabled trucks is also a greater worry we need to deal with. If these get streamlined, we will significantly be able to enhance efficiency in supply chain and improve lead times and the impending infrastructural developments once get realized, would ultimately result in improved operational costs.