In a previous article titled “What Is Preventing Your Supply Chain From Being a Strategic Differentiator?” I reviewed a variety of factors that stand in the way of supply chain excellence. In this article, I shall review the factors that set the supply chain leaders apart from the rest and that help drive profitable growth for their companies.
- Integrated business planning. Without a shared set of metrics between the commercial and operational teams, it is extremely difficult to get alignment between them. Examples of shared metrics include customer service levels, inventory turns, sell-through forecast accuracy, total landed cost, and overall profitability of the business. By aligning the metrics between the different supply chain stakeholders, a collaborative spirit between the teams is encouraged. Integrated business planning, also known as sales and operations planning (S&OP), is a key process capability being used by leading companies to track such shared metrics and drive accountability across the organization by providing a visibility and collaboration framework with a predefined process cadence. Bringing the finance organization into the picture through an effective S&OP process helps ensure that the growth objectives are met in a profitable manner.
- System-wide inventory strategies. Time and again companies make the mistake of “handing off” inventory from operations teams to sales teams wherein the responsibility of managing inventories shifts from one organization to the other at particular nodes of the network. Assigning responsibility to a single team for owning and managing the inventory across the company is very important to drive system-wide inventory strategies. Strategic segmentation of the product portfolio should be performed across the supply chain to drive made-to-stock, made-to-order, or assembled-to-order strategies for inventories. To the extent possible, production and distribution should be postponed in consideration of the above inventory strategies to be able to meet demand just in time. Such postponement strategies help pool the risk of carrying inventory to more centralized locations, reducing the need for excessive safety stock. This helps reduce the working capital needs and free-up cash to drive profitable growth.
- Customer centricity. The increased sharing of point-of-sale data by retailers provides manufacturers with an opportunity to leverage this data to generate store-level sell-through forecasts. An emerging technique called flowcasting converts this sell-through forecast into requirements such as DC-level capacity and staffing needs, transportation and manufacturing capacity needs — all in view of end-customer demand.1 Major brand owners are also investing in forming dedicated account teams to support the collaboration efforts with the major retail channels that they serve. Such dedicated account teams are playing a key role in helping supply chain stakeholders align to serve the customer by providing key account-level insights to the operational teams. Having such customer centricity aligns supply chains to better serve customers in a profitable manner.
- Extended visibility. Visibility across the supply network into demand, inventories and capacities as well as any disruptive events is extremely important for efficiently running the supply chain. As an example, having visibility into the raw material needs at a global level provides significant leverage for the procurement team with key suppliers. Suppliers also can enjoy considerable economies of scale enabled by better planning and improved visibility into their customers’ global procurement needs.
- Agile systems. Given the dynamic pace of change that today’s supply chains experience, supply chain systems must be agile enough to support such rapid change. For example, a company may choose direct-to-store delivery to support promotional peaks and let product flow through the customer distribution centers during other times. Making such changes to the network flows should be very straightforward and should be supported by the business planners without requiring IT intervention. This is just one example of supply chain agility. The ability to rapidly create what-if scenarios and share them with other stakeholders is a key capability that business planners are looking for. Such what-if scenario planning facilitates honing in on the most profitable means to accomplish business objectives. Best-in-class supply chain technologies support such capabilities. These capabilities are now delivered in the cloud, making such agility a reality for planners.
The aforementioned capabilities enable supply chains to drive profitable growth for the companies that take advantage of these valuable levers. Do you think the above list covers it all? What other factors do you think contribute to profitable growth from a supply chain perspective? I would love to hear your thoughts!
1“Flowcasting the Retail Supply Chain” by Andre Martin, Mike Doherty and Jeff Harrop