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Wednesday, March 13, 2013

The Unavoidable Transformation of Supply Chain Management

The business world is experiencing volatility in levels it never used to - Cycles of economic growth, crisis and recovery are more frequent, unpredictable and ever more influential. This, together with the effects of globalization and natural catastrophes (such as in Japan and Thailand) as well as man-made ones sharply enhances the volatility experienced.  

Even this is enough to sound overwhelming, but in order to complete one mustn’t omit, in parallel there are a few more revolutions worth mentioning happening. They happen in different locations at different paces and at different times, but it is clear that they are here and that they are without doubt expanding everywhere. The Consumer Revolution- Today’s consumers are more technologically advanced, informed and knowledgeable, more connected to a wider community of consumers, more demanding and have higher awareness to well-being, health and sustainability. The Information Revolution- Today information is generated in rates never experienced before (recent studies estimate that every few minutes the amount of information generated is equal to the whole of the information generated since the beginning of the universe). And finally The Regulatory Revolution – Social trends, urbanization, care for the planet and quality of life leads to increase regulatory intervention in areas it never took part of before.

In-light of these realities, towards the end of 2012 a few surveys were conducted to evaluate how they affect supply chain management. This article brings the key findings of these surveys done by PwC, SCM World, Bloomberg Business week Research Services and CSC that combined surveyed thousands of managers in hundreds of organizations representing different markets, multiple industries and a variety of business realities.

Each survey looked at the subject from a slightly different angle and recorded its findings in their unique way, however they all show a similar trend – supply chain excellence is a key contributor to value creation, competitiveness and resilience. They are united in concluding that- Organizations that acknowledge and place the supply chain function appropriately, align the supply chain strategy with the organization’s strategy, and focus on achieving flexibility, speed, efficiency and customer satisfaction, experience meaningfully better business performance. According to PwC survey such organizations achieve 70% better performance vs. those who lag behind.

The surveys indicate the following means for achieving the above objectives:
-        - Strategy and Organization
o   Placing the supply chain management function as part of top management. CSC reports that 54% indicated immediate subordination to CEO/ President (This trend is becoming more visible by the day, highlighting the growing importance placed on supply chain excellence in today’s corporate reality. And it is hard to ignore a case like Apple’s Tim Cook who headed operations and supply chain prior to being nominated CEO).
 o   Aligning the SC strategy with the organization, and focusing the SC strategy on performance and customer satisfaction are the key components for value creation and competitiveness. This is -followed by relationships with suppliers, speeding launch of new products, and expanding in existing and new markets.
-        - Segmentation and Differentiation
o   Creating multiple unique channels to reach the consumer. With consumers having multiple alternative ways to buy, the creation of new and multiple means of reaching the customer becomes mandatory. Meaning that one can no longer use a one policy for all, but rather require a variety of policies to fit different customers, supply chain partners and products. Companies utilizing more than one policy are showing superior performance to those still operating only one. 
o   51% of PwC survey participants and 75% of SCM’s indicated they are building supply chain capabilities designed to create market differentiation. PwC survey indicates these efforts are particularly focusing on: Maximum delivery performance, Minimum costs, Maximizing volume flexibility and responsiveness, Minimized risks, Complexity management, Sustainability, Tax Optimization and efficiency.
-     - Outsourcing
o   There is a trend of focusing on core strategic supply chain abilities and outsourcing the rest (such as: Warehousing, transportation, manufacturing, operational purchasing etc.)
-      - Technology
o   Most leading companies are already using a variety of advanced IT solutions and plan to continue increasing the array of tools in the coming years. These tools are used to achieve visibility and transparency, ensure availability of data and information for decision makers and automate some of the SC activities, such as: inventory management, replenishment, new product launches and more.
o   Creating higher visibility, transparency and analytical abilities improve substantially the SC performance, cut costs, increase profits and increases the gap from the laggards. CSC survey indicates though, that mostly these abilities are prevalent for the upstream and less for downstream.
-      -  Operations
o   Efficiency, competitiveness, speed, flexibility (adaptable to high fluctuations in demand) and delivering the highest customer satisfaction are the key objective of supply chains, and they constantly must improve.
o   These abilities are achieved via a few initiatives: Collaboration starting with information and all the way to processes, infrastructures and resources; having excess capacities; demand based replenishment; inventory optimization; POS data leveraging, and more.
-      -   Risk and Talent Management
o   More than 80% of the companies participating in SCM’s survey reported experiencing disruptions to supply in the last two years. 50% suffered losses and about a third reported profitability and customer losses.
o   Managing the flow disruptions risks requires a new point of view and a line of processes and tools for minimizing, avoiding and mitigating the risk. This includes: Less long term supplier relationships, increased frequency and quality of supplier communication, applying standard risk management tools, creating supply back-ups and multiple sourcing.
o   The increased SC complexity coupled with the challenges it faces mandates ensuring that resources engaged in the SC function are knowledgeable, capable and skillful. Organizations are making meaningful progress in this direction.
-      -   Sustainability and Social Media
o   Sustainability is mostly considered as important for strengthening customer relations and most companies indicate that they intend to continue investing attention and money on sustainability.
o   In 2012 the trend of demanding suppliers to adhere to sustainability requirements grew coupled with taking punitive actions when suppliers failed to adhere up to discontinuation of the business engagements. It seems though, that the trend changes to using positive incentives instead.
o   Social media still plays insignificant role in organizations considerations but the importance is growing and attention is diverted to managing the risks associated with social media as well as harnessing the opportunities it opens

A clear trend is emerging – supply chain is becoming more and more the key enabler of organizations survivability, competitiveness and growth. This realization mandates that the organization takes a fresh look at their supply chain approach and adopt a few basic principles: Organizing the supply chain organization in a business unit reporting to the CEO/ President and focusing it on delivering the highest customer satisfaction in the most economical and competitive way.

The core means for achieving that include: Aligning the SC strategy with the organizations strategy; Adopting advanced means for creating growing flexibility, operational efficiency and speed; Using the supply chain to create differentiation; Using technology and collaboration for visibility, transparency and analytical capabilities so that decisions making across the supply chain are timely and adequate.

It all indicates to a pathway that has just begun. A pathway that will continue to develop and evolve and that ultimately will dramatically change the way businesses operate.

Sources:
1)      PwC 16th Annual Global CEO Survey, December 2012,
2)      The Chief Supply Chain Officer Report, SCM World, September 2012
3)      Supply Chain Innovation Driving Operational Improvements, An exclusive survey and research report from Bloomberg Businessweek Research Services, January 2013
4)      The ninth annual global survey of supply chain progress, Findings from a survey jointly conducted by CSC, Neeley Business School at TCU, and Supply Chain Management Review (SCMR), 2012

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