The Inevitable Change in Supply Chain Management
The consumer revolution and the information revolution have impacted the world and the markets. How did these revolutions impact the field of supply chain? Various surveys have tried to answer this question. This article, originally published on Supply Chain Magazine, assembles the main findings of these research surveys.
Written by the Industrial and High-Tech Division, Tefen Management Consulting1
Today, the business world is experiencing extreme fluctuations. Cycles of growth, crisis and recovery of the economy have become more frequent, unpredictable, and hold the possibility of casting dramatic consequences. Globalization brings a substantial increase in competition, along with the creation of new challenges in managing the international array and managing natural disasters (such as the ones in Japan and Thailand) or man-made natural disasters. All of the above increase the fluctuation that organizations experience.
Simultaneously, there are several revolutions going on around the world. They occur in different places, but their tendency is clear, and their expansion everywhere seems inevitable:
The Consumer's Revolution – today, the consumer is more technologically advanced, more updated and more informed. He is connected to other consumers; he demands more, and is more aware of quality of life and sustainability.
The Information Revolution – information technologies create a flood of data and information, in unprecedented volumes: a recent publication estimates that every few minutes around the world, a data amount equal in its volume to all the data that was created since the dawn of civilization, is created.
In addition, the regulation revolution – the social tendencies, the urban growth, the worry for Earth's well-being and the quality of life – all of these increase regulation's involvement in fields in which regulation did not get involve in the past.
In light of this, several surveys were performed, in order to inspect the impact of these changes and trends, in the fields of supply chain management. This article assembles the main findings of these research surveys, conducted by PwC (surveyed more than 500 senior executives in various industries and places around the world); SCM World (surveyed more than 1,400 executives); Bloomberg (surveyed more than 300 executives); and CSC (surveyed the main trends in supply chain management around the world).
Each study examined the topic from a slightly different angle and documented its findings in a unique way, yet each survey presents the same trend – supply chain excellence is the key ingredient to create value, improve the competition capability, create growth, and improve the organization's strength.
All the surveys are of one mind in their conclusion: organizations that manage to understand that the key to success is supply chain excellence, create adequacy between their organizational strategy and their supply chain strategy, and focus in achieving flexibility, agility, financial efficiency and customer satisfaction. They attain significantly better business achievements than other organizations who are late to realize this, and according to PwC's survey attain 70% higher business results than the other organizations.
According to the surveys, supply chain works to achieve these goals in the following ways:
• Strategy and Organization
- The supply chain management as part of organization's senior management – 54% of CSC's survey participants mentioned that the supply chain manager is subordinated directly to the CEO (and of course, it is unavoidable to mention Tim Cook, Apple's CEO, who in his previous position was the company's supply chain and operation manager).
- The importance of the adequacy between the organizational strategy and the supply chain strategy appears in the survey as a common denominator. There's a broad agreement that the chain's performance and its focus on the customer's satisfaction are the main ways by which the supply chain contributes to creating competitive value and advantage. Then, an excellent relationship with suppliers accelerates the pace by which new products are launched and completes expansion in existing and new markets.
• Segmentation and Differentiation
- The multiple ways by which the customer reaches final goods has been forcing organizations to create many ways to reach him. Therefore, one of the emerging trends is supply chain segmentation, known as using not one, unified approach to all the products, distribution points and customers – but a variety of approaches and models. Companies that run more than one model achieve preferable business results than those that use a single one.
- 51% of PwC's survey participants and SCM's survey participants mentioned that they try to differentiate themselves from their competitors in terms of supply chain abilities. PwC survey stated that the effort to create these differences focuses on the following fields:
- Optimal supply performances
- Reducing expenses
- Maximum amount flexibility and response for demand
- Risk reduction
- Complexity management
- Taxing optimization
- There seems to be a visible trend of focusing on strategic abilities, supply chain overall, and transferring other activities to subcontractors. Examples of outsourced activities include storage, transportation, manufacturing, operational purchasing, customer's orders management, etc.
- Today, most of the leading companies use a variety of advanced technological solutions, and plan to continue and expand usage of these tools in the coming years. These tools are used in order to:
1. Create visibility in the width and length of the distribution chain
2. Make sure that the information given to the decision makers in all the organizations participating in the supply chain, is available and unified
3. Automate some of the processes that are involved in inventory management, order creation, new product launch, inventory renewal, and more.
- Creating visibility and transparency and combining it with data analysis abilities significantly improves the supply chain's performance, saves costs and raises the profitability. While doing so, it increases the gap from other companies that are late to create such abilities. CSC's survey found that still, most companies that have already taken action in this field have more applicable tools for the demand part of the supply chain, and less tools for the supply part.
- The data and information flood creates unanimity, that the analytical abilities of organizations to handle the mountains of data, in order to supply relevant information for the decision makers, have already become critical and will continue to be so in the next years (according to 73% of the Bloomberg's survey participants, and an unequivocal conclusion of CSC survey.
- Efficient, competitive, fast and flexible2 economic operations, one that provides high satisfaction to the customer, is agreed to be the main target that requires constant improvement.
- Efficient operations are achieved by a number of initiatives, such as:
- Collaboration, starting from information and ending with means and resources
- Holding excess capacity
- Inventory renewal, based on consumption
- New sales and manufacturing models
- Utilizing Points of Sale models
• Risk and Talent Management
- More than 80% of the companies in SCM's survey reported that they were damaged by supply interruptions during the last two years. 50% of the companies suffered loss as a result of the supply interruptions, and more than a third reported profitability damage and customers loss.
- Managing these risks brings a renewed attitude to the field, and a line of processes that are suitable to minimizing and avoiding damage. This includes:
- Fewer long-term connections with suppliers
- Increasing the frequency and quality of the connection with suppliers
- Using organized risk management tools
- Creating backup sources for suppliers and purchasing from various vendors
- The rise in supply chain's complexity, along with the rise in its necessity to deal with the aforementioned challenges, requires that the organizational focal points, who deal with these issues, hold knowledge, abilities and suitable skills. Organizations take significant actions to make sure it is the situation.
• Sustainability and Social Media
- The sustainability trend is mostly perceived, still, as a trend in strengthening the relationship with the customer. Most of the participating companies report their intention to continue and invest attention and funding in the sustainability field.
- Companies invest efforts in order to make sure their suppliers also answer the sustainability demands. In 2012, there was a rise in the trend of punishing suppliers who did not meet the requirements, which led to those relationships' termination. But it seems that the trend of creating positive incentives, instead of a termination process, is on the rise.
- The social media networks still play a secondary role in companies' considerations, but the apparent trend is of viewing them as more important. This is combined with approaches that cope with social media risks on the one side, and utilizing the possibilities that are opened through these networks on the other side.
In conclusion, from the dialogue conducted with thousands of executives in hundreds of organizations around the world (who represent different markets, many industries and a diverse business reality) it appears that there's a very clear trend: more and more, the supply chain is turning to the main tool by which organizations promise their survival, and use it in order to improve their competitive abilities and to achieve growth: supply chain excellence.
This insight forces organizations to reexamine their approach towards this field and adopt a few ground principles: 1. organizing the supply chain as a vital organizational unit which is subordinated to the CEO and 2. turning the supply chain focus on promising customer's maximal satisfaction, in an economically competitive and efficient manner.
The main ways by which organizing a supply chain can reach this goal include:
- Adapting the supply chain strategy to the organization's strategy
- Adopting advanced approaches in order to create growing flexibility, operational efficiency, and agility
- Using the supply chain in order to create competitive differentiation
- Using technology and sharing in order to create visibility and transparency in the supply chain operation
- Creating analytical abilities in order to use existing data and improve the synchronization of the decision-making processes
In short, supply chain excellence is only in its beginning, but will continue to evolve and will change substantially the ways by which organizations work.
1 This article is a translation of a Tefen article, published on Supply Chain Magazine, issue 94, December 2017
2 One that adapts itself to high demand fluctuation