Editor’s Note the following story appears in today’s Supply Chain Brain Today edition
By Michael Burkett, Managing Vice President, Gartner
This past week, I participated in the Extended Supply Chain conference in London. Presenting throughout the day were leaders directly responsible for management or financial accountability of the European supply chains for several top companies, including Microsoft’s VP of supply chain for EMEA and Asia/Pacific, the CFO for Samsung Electronics Benelux, Dell’s global VP of logistics and fulfillment and the VP of supply chain and information technology for Bridgestone Europe.
As part of the day’s discussion, I posed two survey questions to the audience to discern the role of supply chain within their organizations:
• The first question I asked was how supply chain was viewed within their companies. A large majority (50%) said it was viewed as an enabler of the business, yet only 20% said it was viewed as a competitive weapon. The remaining 30% said supply chain is viewed either as a cost center or a shared service to the organization.
• The second question asked who the head of supply chain reported to in their company. The majority (59%) responded that their top supply chain professional reported to the CEO. 21% responded that supply chain reported into the COO. The balance reported to the head of manufacturing or another executive. One manufacturer at the conference shared that its head of supply chain reports to the vice chairman. Another company’s head of supply chain reports to the CEO and has a seat on the board of directors.
These results align with the steady progress Gartner is seeing where supply chain is viewed more often as strategic to business success. This hasn’t always been the case, however. For many, this still remains a journey. What’s often required to get this recognition is a burning platform, and several companies point to a number of events in recent years that created that urgency, including the recent recession, the 2010 volcano eruption in Iceland, and, most recently, the earthquake and tsunami in Japan. These events exposed the risk to corporate financials when an economic downturn leaves assets idle or when global supply chains are disrupted.
Being recognized as strategic to the business is exciting. However, a number of conference participants were quick to emphasize that operational efficiency and cost management remain the priority for supply chain. Although supply chain is contributing more to business growth strategy, they cautioned to never lose sight of the responsibility to improve margins. A number of companies reiterated that “cash is king” and deeper visibility into total supply chain cost to serve (CTS) remains an area in need of continued progress. However, progressive supply chain leaders are contributing most effectively by understanding their customers better and helping the business make better trade-off decisions on how to serve them more profitably.
Align Demand and Supply for Profitable Customer Service
When the commercial and operational sides of the business join forces, it results in a win-win for the business. More often than not, customer service improves at a lower CTS.
• Customer-centricity and segmented supply chains — Many leaders see that costs and customer service can improve simultaneously when supply chains are aligned to customer segments. One high-tech company reported a 30% reduction in manufacturing and freight costs through segmentation. An industrial manufacturer reported a 15% reduction in its logistics costs by moving to regional hubs from country-specific warehouses.
• Sales and operations planning (S&OP) — Seen as a top priority, many have progressed in their S&OP maturity, but emphasized the required journey. One beverage manufacturer described its need for organizational and cultural change on both the commercial and operational sides of the business, and that the right talent often wasn’t in place.
• Demand shaping and new product introduction (NPI) — One high-tech manufacturer pointed to its capability to drive demand for certain products as a core competency, where its supply chain plays a central role. Supply chain’s contribution to NPI and product phaseout was seen as a priority for the company’s success.
Relationships Matter Across the Extended Supply Chain
Whether you’re looking across internal business functions or an external partner’s, building and managing relationships does matter. Aligning incentives, while still protecting each party’s interests, is a fundamental required skill.
• Outsourcing relationships in extended supply chains — The importance of third-party relationships in an extended supply chain was emphasized by all. However, several cautioned against handing off total control of a supply chain process. An approach by one high-tech manufacturer is to seat its own engineers on-site at a contract manufacturer. An automotive supplier outsources 80% of its warehouses, but still retains the most complex of these operations in-house to ensure continued knowledge of the operation.
• Organizational roles and metrics — Breaking down functional silos lays the foundation for a successful end-to-end supply chain. In some cases, a supply chain organization’s span of control has extended into NPI and customer service. One manufacturer described the importance of collaboration where its supply chain forecasters are seated within the sales organization. Sales is also held accountable for profitability, not just revenue growth targets. This creates an incentive to run an efficient supply chain.
Information Is Like Gold to a Responsive and Profitable Global Network
Data is plentiful in a global supply chain, but extracting useful information to support business decisions is what matters. This requires not only investing in the right technology, but in the talent that can apply it to the complexities of the supply chain.
• Supply chain visibility and risk management — Several companies are deploying control towers that link to their various supply chain nodes to enhance visibility. In response to the recent Japanese crisis, several companies described their discipline in risk mitigation planning and shared how they’re now participating daily in cross-functional “war rooms” they’ve established to deal with the current threat of supply disruption.
• Information amid increased data volumes — One high-tech company manages 350 gigabytes per day of supply chain transactions. It emphasized the increasing importance of technology to turn this data into real-time information, pointing out that supply chain professionals with strong IT system knowledge are a talent pool it prioritizes.
Supply chain management has come a long way toward being recognized as strategic to the business. Now it’s up to supply chain leaders to deliver against those expectations to achieve profitable growth, while delivering excellent customer service. As practitioners will attest to, it’s a journey with many complexities and challenges along the way. However, it’s a journey well worth taking, and one where many are seeing success.