The role of Supply Chain in the 21st century

Restructuring the end-to-end supply chain for success in modern markets

Introduction

In today’s fast-paced world, businesses are battling to win the short-lived affections of an increasingly fickle customer base, as consumer appetite for newer, better and brighter offerings, cheaper and more quickly never seems to be satisfied. Technology is dictating the pace of change; organisations need to embrace the latest advances and get fit for the future or risk falling behind their competitors. Predicting the future is impossible but planning for it is essential. And the future begins now.

Industry 4.0 is a game-changer, with manufacturing undergoing a fourth revolution as automation and computing collaborate with increasing complexity. Innovations such as the Internet of Things, advanced robotics, analytics and big data, jump-start an organisation’s performance, improving customer satisfaction as supply chain management applies these developments to enable ‘Supply Chain 4.0.’ These pave the way for opportunities for value creation, collaboration and improved margin, but a business can’t benefit without the capability to act upon them.

Success is dependent on automated, well- connected systems from cashpoint to manufacturer, guided by impeccably organised behaviours and processes within a well- structured organisational framework.

And this is the crux of the matter – more often than not, organisations are lacking in at least one of these, if not all three.

Volatility and unpredictability are now the norm, rather than the exception, making an optimised go-to-market strategy pivotal so the supply chain must be able to respond rapidly to constantly- changing market conditions. A mistake that many companies make is trying to just optimise the front- end of the supply chain – focusing on improving forecast and planning accuracy, or reducing inventory for example. They fail to realise that to reap the benefits, the entire supply chain needs to be optimised with a full restructure to sufficiently serve the front-end; from the consumer all the way back through to suppliers' suppliers.

Room for one more?

Making an organisation fit for the future requires a radical lifestyle overhaul, in which the redefinition of Supply Chain plays a crucial role. Historically, Supply Chain has always languished further down in the organisational hierarchy, reporting to Operations, rather than Operations being part of Supply Chain and its role has been limited to delivering the right quantities at the right time, at the lowest cost. Not anymore. The best in business elevate their Supply Chain to the senior executive team, realising that it’s capable of so much more than just supply and demand balancing. Their success isn’t just measured in low inventory costs; it’s measured in terms of driving the optimisation of sales.

Ultimately, you can’t save your way to prosperity. Turning profits of pennies into profits of pounds, or cents into euros and dollars, is rooted in increased revenues and margin growth; although there is certainly merit in streamlining processes, that’s not where the big bucks are made. With reduction of costs usually supply chain orientated – surplus inventory, exorbitant shipping costs or inefficient processes – Supply Chain has been limited in its opportunities to proactively pursue bigger profits.

Take the example of a leading sportswear manufacturer – it offered a ‘click & collect’ option for online orders in one of its regions, expecting 10-20 orders a week. But keen consumers propelled those figures to over 1,000 a week. Clearly, convenience is king.

To boost sales, it really is as obvious as ensuring that the supply chain is structured in a way that can anticipate and fulfil what the customer wants now, and what they will want in the future. This can only be achieved by properly integrating Supply Chain into the wider organisational framework.

By offering supply chain executives a seat at the leadership table, organisations can have true cross-organisational transparency, with all members of the leadership team given access to the necessary insights to optimise the business as a whole. With an equal voice and equal accountability, Supply Chain becomes truly invested into the business and will begin to seek out opportunities to actively generate revenue.

Rapid response

Success is inextricably linked with customer satisfaction. If an organisation meets consumer demand, or exceeds consumer expectation they will see their revenue figures respond accordingly. However, modern day consumers are no longer the affable, easily-impressed and continually content customers that they once were.

There has been a revolution in consumer behaviour. Increasingly demanding, customers have moved online, with internet and mobile shopping becoming first choice for many, lured by the promises of next or even same-day delivery. The phenomenon of social media may provide a helpful insight on customer attitudes, but it has also created a consumer base in which quality and excellent service are demanded but brand loyalty is hard to retain and choice is often driven entirely by convenience. It’s now about when and how, rather than what or who.

For many Oliver Wight customers, the online channel is the fastest growing. However, a disorganised, disconnected supply chain will result in dissatisfied customers, lost sales and surplus inventory. There needs to be a concrete go-to-market strategy in place, and that’s impossible without an integrated end-to-end supply chain.

From the beginning to the end

Competitors aren’t the only threat to an organisation – one of the biggest obstacles to a business is itself. Internal customers blight the path to success, vying for the affections and attentions of supply chain and disrupting the flow of products and services to external consumers. Some organisations even have customer service divisions just for satisfying their own people, because the front-end of supply chain have become accustomed to behaving as if they are the customer.

For example; if an organisation has global subdivisions with local markets and local inventory for those markets, and the sub-division is demanding stock from a central distribution point, the company is setting itself up for sub- optimisation. If decisions are made on a local level rather than from a centralised perspective, it could result in product not being sold and/or product not being distributed to the market where it would have achieved greater margin.

End-to-end supply chain is about managing the supply chain in an organised way, and this is where the concept of planning ‘control towers’ emerges. Predictably, its origins are in the world of aviation, where control towers manage and monitor the multiple autonomous events at airports – take-offs, landings, on-the- ground transport and logistics etc. By tracking independent but parallel events, the control tower can improve performance, respond in real-time to projected or unexpected events and ensure operations run as expected. And avoid potential disasters.

If organisations continue to operate on internal customer methodology or just by optimising the front-end of the supply chain, they’re never going to be able to improve to the extent that they can realistically afford to compete with the big boys.

When applied in the context of large multi-national organisations, planning control tower decisions are made centrally, synchronising what’s being made in multiple factories and what’s distributed to multiple markets. Decision- making isn’t devolved to a local level, rather, it all stems from one centralised source with access to insights for the whole organisation, rather than just a single sub-division. This way, businesses can ensure that the decisions being made benefit the organisation as whole, enabling them to optimise the allocation of products and services.

Cottoning onto this concept, a number of software solution providers now offer IT packages which include a ‘Control Tower’ module. Most often, these are cloud-based data-storage systems that enable companies to leverage their end-to-end supply chain visibility performance by using real-time data analytics for optimised performance. The most sophisticated systems not only provide visibility, but also respond to disruptions and provide collaboration capabilities and functionality to automate processes and controls everything from optimum products distribution to temperature of perishable products monitoring. By relying on a system to highlight and solve issues, such as optimum product distribution – the planner can focus on other tasks to improve efficiency and performance.

However, if organisations continue to operate on internal customer methodology or just by optimising the front-end of the supply chain, they are never going to be able to improve to the extent that they can realistically afford to compete with the big boys. For many smaller businesses, the perpetual struggle against global giant, Amazon, can illustrate this.

Renowned for its next-day and same-day delivery – and now, incredibly, one-hour delivery slots – Amazon has dominated the online consumer goods market and has left smaller organisations scrabbling to match its quick and convenient delivery slots. Despite a $7.2 billion loss on shipping in 2017 as a result of deliberately putting the squeeze on would-be competitors, Amazon is continuing to invest heavily in creating its own shipping infrastructure, from ocean freight, air transport, demi trucks, local delivery, and even trialling drone deliveries to customer’s front doors.

However, many organisations are trying to compete with Amazon in terms of delivery but are inevitably over-promising and under- delivering because their supply chains have never been structured in a way to allow them to do this. They are running extremely unbalanced supply chains and yet, expecting to deliver excellent, competitive service on the front-end.

One Oliver Wight customer in the healthcare sector attempted to reduce costs by outsourcing parts of its operation but at the expense of increasing the lead time by three months. The organisation soon discovered that the dramatic decrease in flexibility was a price it couldn’t afford to pay, and it’s now having to spend time, money and effort reeling back in what it originally outsourced.

When it comes to competition, the boundaries are no longer very clear and it isn’t always the usual suspects. In fact it is becoming increasingly difficult to identify where the next competitor coming from. At the time of writing, there is speculation that Amazon is venturing into the pharmaceutical sector. As of late 2017, Amazon purchased several wholesale pharmacy licenses in various US states – initially, it seems the company will focus on the delivery of medical devices.

However, there is the strong possibility that it will eventually tap into the direct distribution of pharmaceuticals, hugely disrupting the current set-up enjoyed by the ruling pharmaceutical elite.

The Oliver Wight approach

The solution may be straightforward – an optimised end-to-end supply chain – but it’s not simple, and the steps to achieving this require more effort than many organisations are willing to put in.

When it comes to business improvement, opportunities are typically disguised as hard work, so they often go unrecognised. It’s human nature to be easily seduced by the promise of a quick-fix – who wouldn’t be tempted by maximum results for minimum effort?

Why go on a diet if you can take a slimming pill; dieting is hard work, requires behaviour change (eat less, exercise more) and takes a long time? In a business improvement context, this often translates into the installation of a software solution. At Oliver Wight, we’ve found that organisations are quick to buy into ‘miracle’ products, rather than commit to a complete overhaul of their practices - they’re willing to spend time and money on systems but won’t spend on the actual transformation they need to make to the Supply Chain itself. It’s understandable, but it’s ultimately unwise. Diet pills don’t work over the longer term.

Without doubt, technology advancements have significant merit, but they need to be implemented alongside a thorough transformative strategy to ensure sustained success. This is where Integrated Business Planning (IBP) proves pivotal - it’s a process which ensures early focus on any potential gaps in business performance, allowing organisations to predict and respond positively to changing conditions over the next 24-36 months. Furthermore, it allows business leaders to allocate critical resources - people, equipment, inventory and materials - in the most profitable way.

However, it’s essential to realise that although IT systems need to complement an existing IBP process, IBP in the 21st century is also inextricably reliant on the data these IT systems capture. In fact, in this era of digital disruption, modern IBP has for some organisations, evolved into Enterprise Business Planning (EBP), which uses the latest technology, such as AI and demand sensing to provide control in volatile, consumer-driven and unpredictable environment. EBP provides transparency across financial, commercial and supply chain plans, with high-performance matrix teams interpreting and managing data to deliver desired outcomes. With the incorporation of digital planning capability, EBP extends the forward planning horizon to a minimum of 36 months and ensures commercial plans progress in step with shorter-term supply constraints as well as medium- to longer-term flexibility. By providing full integration between business planning and execution, and the organisation’s group, market and brand strategies, as well as its brand planning and target setting EBP enables organisations to sense, respond to, and ultimately shape demand for agile and profitable route-to-market execution.

A crucial aspect of an effective IBP (or EBP) process, Demand Sensing provides real-time consumer insights to enable organisations to immediately detect and respond proactively to changes in demand within the execution window. By leveraging analytics and the latest mathematical algorithms, it creates an accurate picture of changing demand, based on the current realities of customer behaviour.

These early indicators allow organisations to react in-the-moment, responding accurately and efficiently to create an ever-improving customer experience. Efficient demand sensing and execution processes take the chaos out of short-term planning. They’re levers which ignite actions to real-time signals or responses of customers and with lightning-fast reactions, companies improve customer service and increase sales revenue. But this is only possible with an integrated, end-to-end supply chain.

Driving force for success

“I find the harder I work, the more luck I seem to have.”

—Thomas Jefferson

Thomas Jefferson famously said, “I find the harder I work, the more luck I seem to have.” Ultimately, being fit for the future boils down to ambition. Many organisations can become good, but few become truly great - the deciding factor is rooted in the determination and goals of the leadership team. There needs to be a realisation that being prepared for the future isn’t instantaneous improvement, it’s continuous transformation.

By setting the agenda, providing the resources and leading the way to transformation, business leaders can inspire the cultural change they need to create success. A strong leadership and team-based culture enable organisations to react quickly and with agility, in response to a constantly changing market and customer dynamic.

Leaders need to provide the vision for the business - a vision that will be flexible enough to accommodate the trends of the future and ambitious enough to survive them. The higher the ambition, the more significant the goals that can be achieved, and this requires leaders who are driven by an insatiable desire for success.