Building a High-Performing and Profitable Supply Chain
In Part I of my Supply Chain Strategy series, I explained why the five tenets of High-Performing Supply Chains remain a great starting point to build your supply chain strategy. In Part II, we saw how seeking inspiration from retailers can help manufacturing companies to embrace customer-centricity. And in Part III we looked at three critical capabilities manufacturers needed to adopt in this digital era: demand sensing and shaping, differentiated delivery models and the ability to de-prioritize demand. In this Part IV, we will cover the customer-centric maturity model.
For many manufacturing companies, developing a customer-centric supply chain can be a long and daunting journey. In order to succeed, the right steps must be taken at the appropriate time.
Customer-centricity is a longer-term vision. The more advanced and innovative supply chain segmentation and customer-centricity steps of the five tenets we have discussed cannot be successfully adopted without a minimum level of operational efficiency. The optimization, synchronization and business agility steps must be mastered first before these more advanced steps can be effective.
A four-stage maturity model describes the journey to customer-centricity, starting from the factory, and producing world-class products, before embarking on the transformation to a customer-centric supply chain, a challenge most companies are embracing today with varying levels of success.
Figure 4 – Maturity Model for Customer-Centric Supply Chains
Stage 1—Plant Focus
In Stage 1, companies typically focus their efforts on pushing high-quality products through the gate of the factory, making sure to reach the pre-established production standards and targets.
In this maturity stage, the forecast is typically translated into a production plan, and resulting production orders, preferably delivered in full and on-time.
Efficient Production at the lowest cost is the main concern of the plant manager. Cost-efficient production comes from producing the right batches in the right sequence to secure the least idle time and the best yields across the plant. In this environment, optimization of production runs is the most critical success factor and “sweating the assets” the main objective for the plant manager.
Stage 2—Supply Chain Focus
In Stage 2, companies start to realize that their cost competitiveness is not only driven by production efficiency.
The logistics function becomes more professional and enables planning processes connecting the entire supply chain, from the forecasting department through distribution, production and sourcing.
Planners start to realize that inventory spread across the distribution network is a source of inefficiency that makes it very difficult for each plant independently to determine the right quantity to produce and where to buffer against variation.
Logistics costs become a key area of concern, as they eat into the company’s profit margins, and service becomes a measurable KPI.
Eventually, a supply chain organization is setup to manage the supply network to balance demand and supply capacity, both for the company’s factories and for suppliers.
Stage 3—Demand Focus
In Stage 3, the supply chain organization has built sufficient credibility managing the supply capacity to start challenging the forecasts from sales and marketing.
Sales and operations planning (S&OP) meetings are now well established and help the supply chain functions discuss the quality of the demand signal with the business, along with various supply scenarios and the resulting inventory projection.
New approaches to forecasting are tested and the supply chain organization starts to reach out to other business functions, as well as to suppliers and customers, to improve and enrich the demand signal. New collaboration models may be formed with customers and suppliers such as CPFR, VMI or other advanced win-win partnerships.
This newly gained expertise in demand planning gives the supply chain function credibility to define new business opportunities to gain competitive advantage.
New supply chain models and innovative approaches supported by disruptive technologies are being introduced, backed up by a clear business case. A long-term supply chain transformation strategy now supports revenue growth or margin improvements via process innovation and new technology solutions.
Stage 4—Customer-centricity Focus
In Stage 4, supply chain becomes a source of competitive advantage.
The supply chains of customers and their suppliers are now integrated to a level where they can jointly create value for the end consumers of their value chains by sharing customer data via new and advanced collaborative processes.
Value chains now compete with other value chains leveraging technological innovation to support these new forms of horizontal supply chain collaboration.
Below is a model describing the technologies that support each step of the journey.
Optimization tools support Stage 1 ambitions. Demand planning and inventory optimization capabilities support Stage 2 objectives. S&OP solutions support Stage 3 companies looking for advanced simulation and scenario capabilities. And advanced forecasting and planning systems such as Flowcasting, along with big data repositories and prescriptive analytics, support Stage 4 ambitions to collaborate across the extended value chain.
With Flowcasting, JDA offers the last component of a solution suite that supports the whole journey from Stage 1 to Stage 4, a significant breakthrough to enable customer-centric supply chains for manufacturing companies.
In part 5, I will share how to accelerate this exciting journey.