Three Distinct Capabilities of Best in Class - From the supply chain leadership series

As I mentioned in my last post of this series, I am starting a blog series on “supply chain leadership”. I hope to pose thought provoking, and forward looking questions to executives in my supply chain network. This series will provide insights into the most pressing challenges, innovative items in supply chain leader's budgets, and how these executives have handled talent, complexity, end-to-end S&OP, and technology. Next up is Clarence Chen, Partner at AT Kearney. I have known Clarence from his days at PRTM as Partner of Electronics & Semiconductors. His background and opinions on the future of supply chain is truly fascinating.

1. As we enter 2014, how would you describe the most pressing supply chain challenges?

Some of the most pressing supply chain challenges in 2014 continues to be that of delivery, quality and cost. I think the factors that compound those challenges are changing at a faster pace than most industries are able to cope with, thereby making attainment of the core supply chain objectives even more challenging. There are two vectors for those factors:
1) At a geo-demographic level there are the shifting patterns of demand and growth along with cost factors rising quickly in some geographies/countries and inputs into production.
2) At a technological level, the pace of innovation continues to accelerate. Not only is the pace of NPI increasing in technology, but that same clock speed is now moving into broad sectors as trends such as the internet of things/devices become more pervasive beyond traditional high tech penetrating into industrial, healthcare, automotive sectors, etc. To cope with these factors, companies have to rethink the core supply chain capabilities of plan, source, make, deliver and the skills and resources required to manage supply chains in 2014 and beyond. Companies will need to manage with greater precision, tightness, and control over their supply chain assets and partners. Those who don’t master that well will risk high E&O and overall inventories, supply-demand mix issues which impact service levels, and slow response times to changing market demand patterns

2. The End-to-End supply chain strategy has been well documented. What capabilities does your company have that is better in class for integrating end to end?

The best-in-class companies have three distinct capabilities that are more developed than others. First is a thorough mastery of the demand management process – not just focused on forecasting, but on developing a better “quality” of demand. This emphasizes factors such as being able to understand whether shifts in demand represent a timing issue driven by big deals, or whether the market is fundamentally at new level of demand, and then driving the rationalization of actual demand against a plan. Second is an ability to propagate demand across an extended supply chain, taking into account the key control nodes and depth of the supply chain, and balancing that against supply, inventory, service and supply chain level constraints. Third is the ability to collaborate with key long lead time suppliers to ensure that they are able to meet the forecast and execute against actual requirements. This direct control of the end-to-end supply chain minimizes bullwhip effects, and enables the responsiveness required in today’s volatile environments.

3. How aligned and connected are you to the many supply chain nodes? What are the reasons you would want to improve this alignment?

Back in 2010, on the heels of a severe component shortage environment as companies emerged from the 2008 market downturn, I conducted a survey with 14 leading computing and storage companies to better understand how some coped better than others with the upswing in demand, and extreme supply shortages. The findings validated that those companies with greater visibility and control of their extended supply chain fared much better in recovering supply than those companies that did not. By visibility and control, it means that those that had visibility at component level, and sometimes at tier 3 level visibility, coupled with planning and orchestration across the extended supply could then proactively allocate precious supply to demand priorities and manage tightly the placement of P.O.s at the extend lead times. In particular, those that modeled what their contract manufacturers and key supplier suppliers (e.g. die banks with silicon devices) and were able to balance S-D at each node fared the best.

I love Clarence’s insights, especially on the main challenge: delivery, quality, and cost. These are the core objectives from the past 20 years, and remain the core challenges. However, as he notes, demand demographics and speed of NPI cycles are stressing the core in new ways. Most people want visibility. But, a lot don’t drill into the question, “What will you do with visibility?” As Clarence notes, the quality of demand needs to improve. What segments are relevant? You need to propagate this relevance throughout your supply network. What are the insights to this change? And, then you need to collaborate with the key nodes to execute the change. You can see those supply chains that can prioritize change, analyze the end-to-end impact, and collaborate in real time are doing so with better margin and operating costs, capturing more market share, and controlling supply chain risk and disruptions better.