The supply chain director?s world has become one of ?and? not ?or,? ?both? not ?either.? There is no reprieve in sight. As the rapid pace of change continues, market dynamics intensify, customer expectations grow yet loyalty decreases. Capgemini poses seven questions that delve deeper into today?s challenges and bring the future into sharper focus.

The challenge for most supply chains is to address a cacophony of demands that even the best supply chain director is challenged to manage. Market conditions and business leaders demand a range of cost containment measures: headcount reduction, process efficiency, asset rationalization, speed, responsiveness, plus the ability to support growth through acquisition, new markets, new products and channels, new partners and customers. Objectives often appear contradictory: improving availability whilst reducing inventory; improving service levels whilst reducing costs.The supply chain director?s world has become one of ?and? not ?or,? ?both? not ?either.?

There is no reprieve in sight. As the rapid pace of change continues, market dynamics intensify, customer expectations grow yet loyalty decreases and competitors continue to challenge. All these factors place an increased strain on organizational supply chain capabilities. That is the world of supply chain, and it is applicable in both product and service industries. The prize for those that get it right is a supply chain that provides sustainable profits and strategic advantage in the marketplace.

Capgemini poses seven questions that delve deeper into today?s challenges and bring the future into sharper focus.

Is the customer at the heart of your supply chain?
Some argue that the best tension is created when the supply chain focuses on efficiency and cost rather than on the customer. Fortunately, these are the diminishing few. More than at any other time, the contemporary supply chain must serve the needs of both the customer and the market. This means that businesses should ensure that any supply chain decisions are made with their customers in mind, not their sales targets. Leading ?product? companies have transformed their mindset, culture and business models to meet changes in customer expectations. Their example demonstrates how businesses focus on understanding the underlying customer need?be it lowest price, availability or quality. They demonstrate an obsession with using the supply chain to deliver the value proposition in a manner that adds value to the customer. A customer?s need frequently extends well after purchase, so delivering true customer value requires inspection of things such as packaging, returns, servicing and end of life activities. If the supply chain is built around the customer, it will be able to respond to market dynamics. In this way, organizations become opportunity seeking, and will be able to respond creatively to changing customer demands. More importantly, organizations will know how to respond to those customers that matter most.

What characteristics should you be looking for?

A customer-driven supply chain is as much about mindset as it is about science. Does your supply chain staff have to be coached and cajoled to exhibit the right habits and behaviors?

Effective segmentation sits at the touch point between the supply chain, and marketing and sales functions. Are they using the same tools and communicating the results of their analyses? If not, why?

Is there healthy constructive dialogue and challenges at the interface of functions and organizational boundaries? Do metrics help to align every party through the chain to deliver a good customer experience throughout the life of the product? Are profit analyses in use that support improved responsiveness of the supply chain? It is not uncommon to plan to run supply chains at different speeds or completely separate supply chains to suit specific product or market characteristics or, for that matter, customer buying behavior.

Is your supply chain structured to meet the current needs of the business?
One can never get a supply chain structure just right?it is more often a game of fast catch-up. It is highly likely that mergers, acquisitions, productivity gains, fiscal changes, market shifts or new technologies will have created significant change to your business environment in recent years leaving a patchwork of nonoptimal assets. The choices you will continue to make, whether to buy from, make in, or sell to the emerging geographies, will have a marked impact on both the economics and structure of your supply chain. The speed of doing business and new channels that technology has enabled, the new partners that are built into the network through changes to sourcing strategies?these are all factors that place continuous challenges on a business to ensure its supply chain is optimized.

What are the most important aspects to consider?

Is your supply chain contributing as it should to the delivery of your business strategy? If a lowest cost strategy?is your supply chain configured to deliver this? How might things change if your strategy changed to differentiate on the quality of service?

Do you have the right supply chain for your product given the demand profile and product characteristics? Indeed how many supply chains do you actually need? It is not atypical for organizations to be running several, differently, for their customer and product mix.

When did you last rigorously inspect your overall network of assets to ensure a fit with current business circumstances?from the perspective of physical, financial and customer responsiveness? And how robust will the network be, given the future business strategy?

Has the impact of globalization, emerging markets and the general re-structuring of business left you in a position that requires you to reconsider your core competencies and make some significant sourcing decisions? If so, what comes next?

How quickly can your supply chain respond to change? How proficient are you in delivering positive supply change management?

Do you have the most appropriate organization model and metrics to support your supply chain strategy? How are tensions managed between sales and marketing, or international and country?

Typically, we find organizations revisiting the way they run their business and establishing a new operating model with all the implications this brings to supply chain governance arrangements.

Is supply chain complexity good or bad?
Most supply chain directors would readily present a case for simplification. A constrained product portfolio typically leads to a supply chain that is easier and less costly to run. Indeed, there are many advisors that recommend such an approach and many organizations that can prove the benefits of doing so.
However, this can fly in the face of marketing and sales actions that seek only to capture the customer and steal market share from the competition by offering new variants and greater choice. This adds complexity but it can also add value that the customer is willing to pay for. Building the capabilities to respond nimbly to changing circumstances is the key to managing complexity. Embracing complexity is a fact of life and something we must learn to live with. Well-managed, complexity can become a differentiator. One needs only to look at the extent of personal configuration that is achievable in the personal computing and automotive industries to see the benefits of complexity.

So how might you use complexity to your advantage?

Ensure that your portfolio doesn?t have added choice just for the sake of it; rather that it has choice because the market clearly seeks it and is prepared to pay for it. In too many cases we find choice only adds to the confusion.

Work with your supply chain partners and your portfolio managers to pool knowledge and capabilities to deliver complexity in a cost-effective manner.

Regularly review the portfolio and add/delete so that you retain that which adds value, and ruthlessly remove that which simply adds cost.

Check that your overall supply chain is built around the needs of the market today, and not just a result of passage of time.

Ensure that you have an eye on the future market, and are coaxing innovation into the discussion.

Ensure your supply chain?the assets, capabilities and methods? are consistent with the cycle your industry is currently in or is projected to be in, so that you can respond to the complexity the market demands.

Is everyone pulling together?
Perhaps they say they are, but is that really so? And if it isn?t, what lies behind their behavior? From the lofty heights of leadership, it is often easy to assume messages received from staff and suppliers, suggesting that everyone is aligned to common goals, priorities, timelines and customer needs. Getting everyone on the same page is crucial. It is also difficult and requires a systematic approach that focuses the supply chain ?system? on the same end goals. If cost reduction or responsiveness are the vital needs for the customer, it does no good to presume that your suppliers or any other one part of the chain can deliver this?the whole chain must pull together. The bluntest instruments in the improvement toolkit are structures and measures, and these are unfortunately the ones that we find organizations use in excess. Often, these are re-used again and again, such that the tools themselves become impediments to progress. Nimble supply chains are built by focusing on creating the right organizational DNA.

Align the supply chain around customer segments, channels and business processes or combine all three instead of working around functional silos. Shifting the emphasis from function to process is typically a 3-year journey.

Build a culture of teaming, whilst ensuring clarity of role and coherence of measures and incentives.

Test and develop a culture of learning, so that capabilities emerge by habit more than by training? manage capability dynamically, not statistically.

Establish operational excellence as a hygiene factor so that staff and supply partners can focus on innovating for improvement; not simply re-engineering to eradicate waste.

Take a long hard look to ensure that respect is evident between the supply chain players.

Does technology help, or hinder?
It?s entirely possible to run a $1bn supply chain on a spreadsheet, but for how long? What reliance would one place on people, processes and partners to keep it running? The truth is that technology can be both a help and a hindrance, and it?s very much up to the supply chain director to figure out which it will be. The fact that present day technologies are important is undeniable. The question is more one of how to use it to best advantage, to inform real-time decision making, model and predict future trends and needs, or simply to run the process efficiently. This requires skills in both the technology function and supply chain?skills that are not typically in abundance. Some organizations employ technology as a competitive weapon to differentiate. When it is focused on the right place in the supply chain, it can prove powerful. Cost-competitive industries employ technology to best inform their purchasing and contract management decisions, and operate in-process activities like stock management, logistics and manufacturing. Industries requiring dynamic responsiveness focus on advanced planning tools, connectivity with the customer?s demand signal, and excellence in information systems inter-operability. The more progressive industries and organizations are harnessing disruptive new technologies like sensing, positioning, and goal-seeking agents to bring new life to their supply chains. This can shift the focus from responsiveness towards a capability to predict.

Think of the supply network as a cartwheel. Eighty percent of the information activity occurs around the rim of the wheel?the tacit information between staff, and with partners. Twenty percent of the information is captured and fed to the center as transactions?which are now typically embedded in enterprise planning systems. Very different technologies and information structures are required to help you manage your business ?at the rim.?

How do you know what steps will ensure technology helps not hinders?

Focus on finding any lingering Luddite views on technology, and rigorously test them.

Have you assessed which services and processes make the most difference to your customer and profit performance, and ensure that you are building technology into those first, foremost and best?

Check that you are not optimizing information flows within silos (i.e. risking sub-optimizing).

How well are you managing your business at the rim?

Is your supply chain delivering sustainable profit?
Supply chains exist to make money? a fact that is rather too often overlooked. In crude terms, that involves buying at a sensible price, adding value efficiently and selling at good market value. Yet how often does one find an organization that has the basic information to genuinely inform these fundamental principles?

Intelligent pricing too often falls in the crack between the supply chain?s attention to cost and sales? attention to selling. There are now growing pressures to build the intelligence beyond just financial. Business leaders are held more accountable for decisions concerning the ethics of sourcing, compliance requirements, environmental and end-of-life considerations, corporate social responsibility, and sustainability. For those that have not addressed financial optimization, these newer factors only add to the management burden. There are several practical things to do:

Check that you and your staff are fully aware of current requirements and the implications of upcoming change. Ensure that there is a suitable mechanism in place to inform them. More importantly, are you confident that the capabilities are in place to respond appropriately?

Assess where your organization stands relative to industry best practices with regards to dynamic financial management and fix things if you are behind to prevent further complications.

Shift the mindset of your supply chain staff away from simply responding to demand and towards grabbing opportunities to shape demand to optimize profit.

Confirm that your senior sales and procurement managers are afforded the time and tools to perform for
you. They pull the most significant levers of profit.

Put some principles and practices in place to reflect the longer-term requirements of sustainability.

Source: CapGemini

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