Musings on 6 Supply Chain Management Trends – Are Changes Needed for Success?

In the current corporate climate, most companies are seeking to increase market share by flexing their supply chain to meet the needs of both the company and the customer. The question for many corporations comes back time and time again to: How can market share be retained or even post gains with on time performance?

Many companies over the last few years have been holding onto cash due the economic downslide along with cutting jobs and any other way of reducing cost. It has been noted that the economy will not improve unless we change that way of thinking. Promoting jobs, promotes spending. It’s simple yet complex at the same time.

In my opinion, large companies hoarding cash is not the way to stimulate growth in this country. As many of us are aware, supply chain management is a challenge for companies of any size. I have spent many years in both distribution and manufacturing helping to streamline business processes and have learned that it is a continual evolution.

In my years of consulting on the business side of things, I always found that effective and innovative Supply Chain Management plays a large role in increasing revenue. Years spent working with implementations of ERP business systems have taught me that there are several ways to increase productivity, reduce costs and streamline business processes from quote to cash. Most focus was spent working with inventory management, procurement and lean manufacturing processes in order to help companies become more profitable. During this time I found that responsiveness to customers is directly linked to capturing more revenue opportunities.

The supply chain planning process along with inventory and procurement has always been the focus to increase profitability in distribution. Manufacturing is not much different, just a few more processes, but cost reduction and process improvement in the manufacturing cycle can greatly improve revenue. Sales always seem to have the need to be competitive and so there is very little room there to increase revenue only through pricing measures. Today, with the economy being down makes it harder to increase prices without losing sales and customers.

Recently I came across an article by Hitachi Consulting that talks about the “Six Key Trends” for changing Supply Chain Management today. These may be some keys to success, but I believe there is more to it, but it’s a great place to start.

I believe one way to improve supply chain performance and efficiency is to use technology to continually improve upon business processes. This has become the widely accepted element of an overall business strategy — to improve the supply chain, thus increasing value for the customer resulting in a more profitable company. Let’s face facts. We as consumers all look for the same product, but try to find the best affordable price. Corporations know this to be true and must look for ways to cut cost, retain revenue and provide better service and value to the customer so as to retain that customer. Technology plays a vital role in that (and specifically as it relates to the six trends discussed below). Here are the six key trends for supply chain management today highlighted in the article, with my thoughts on a few aspects of those themes:

Demand Planning

There have been new approaches to demand planning in manufacturing. Plant level production planning is costly and does not directly influence what products sell most. Instead, having a demand driven focus will influence the sales focus on what products are “wanted” in the market place and therefore drive a more customer focused approach to managing supply chain effectively without sacrificing operational efficiency.

Consensus demand planning has become critical as all leaders in a company must be in agreement with a demand plan in order for it to be successful. This requires capturing all influencing factors and cross functional input, such as customer demands, new potential products, product improvements based on market trends and competition, market conditions, current market acceptance and services needed to support such products.

These factors need to be continually evaluated and the demand plan must be changed accordingly for continuous improvement and forecast accuracy. Analytic tools available today help reveal the flaws in most ERP systems that can be fixed. The key is to know where to look to find the root of the cause and fix it. ERP systems are designed to “run the business” from ‘quote to cash’. For example, MRP will show you what needs to be purchased or made to meet the forecasted demand, but the demand plan could be flawed (and often is) and without the ability to analyze “why”, we follow orders based on straight demand from the system. Only after the fact did we realize that we don’t need to make 1000 of something.

Somehow, a minimum was set wrong or safety was set wrong on the part and no one caught the exception because ERP systems don’t warn you that this is not an independent or dependent demand. If we could proactively analyze the supply and demand on an ongoing basis, we could see when there is a problem and fix the root of the problem. Some systems afford the ability to create queries, but again, this is more often after the fact, and by then it’s too late, or the queries put too much strain on the system to run often and as needed (MRP takes usually 8 hours or more to run on average).

Only after the fact did we realize that we don’t need to make 1000 of something. Somehow, a minimum was set wrong or safety was set wrong on the part and no one caught the exception because ERP systems don’t warn you that this is not a independent or dependent demand. If we could analyze the supply and demand with tools, we could see when there is a problem and fix the root of the problem. Some systems afford the ability to create queries, but again, this is after the fact and by then it’s too late or the queries put too much strain on the system. MRP takes usually 8 hours or more to run on the average.

Globalization

The business world is becoming more global both in supply acquisition and sales. This is mostly due to communication, internet and the digital age. A global customer and supply base has greatly affected the supply chain. Most corporations are looking for the best place to manufacture product cheap, without sacrificing quality, as well as looking for the best place to buy supply needed to manufacture product. Container shipment volumes have increased over the years and some ports have capacity issues related to customs or trans-shipping, thus forcing companies to logistically re-route, which has a major effect on the overall cost and efficiency of the supply chain network. Changing the point of entry for inbound shipments can have a positive impact on the “total landed costs” due to factors such as customs clearance times, capacity and better efficiency of transporting materials. Alternate ports would need to be evaluated for supply chain costs and efficiency. A well thought out global network design can optimize a supply chain network, reduce overall costs and obtain maximum performance due to a better flow of materials to the “end point” — be that a customer or the manufacturing facility.

Increased Competition and Price Pressures

As with most brands in the past, if you had a unique product that was in high demand (such as an iPhone) than you could stay ahead of the competition and focus on improvements. However, today that is not enough to remain competitive in the market place (Android is closing in on market share). There are too many competitive products in every category. Price is the factor that is driving demand in most cases due to a challenging economy, but it’s not the only factor. People will sacrifice a better product for a cheaper one if they cannot afford it. So to diversify, suppliers can differentiate themselves to OEMs by offering value added services such as VMI, Drop Shipping and collaboration to name a few. Ultimately, better collaboration among OEM, CMs and suppliers across the global network can lend itself to value added services for end customers, which can keep your company competitive by building better relationships with customers. Many consumers do take into account quality, support and services when evaluating products for purchase.

Outsourcing

This one is debatable in a lot of areas. Outsourcing some or all of your supply chain can be advantageous if you have all the right control measures in place and manage the process from end to end. But we have seen over time that it can be dangerous and can cause loss of customers if this part of the supply chain breaks down. In my opinion, the US has outsourced too much and it has had a direct impact on the economy. By trying to save money and outsource manufacturing operations, we have caused the loss of jobs and growth to which in the end, has resulted in less US revenues for companies, because many individuals have curbed their spending. However, one can outsource certain parts of the supply chain and be successful. Many factors come into play such as, provider selection, competency, performance, capacity limitations and financial due diligence on the provider/supplier to name a few. There also must be focus on proper management, communication and control variables of outsourced providers and process, this would be key to manage the processes efficiently and be proactive in monitoring the various components of this particular outsourced supply chain part/product line. Sometimes outsourcing can be harmful if not properly managed and can affect the breakdown of the complete supply chain.

Shortened and More Complex Product Life Cycles

This one key trend in my opinion is the most challenging. Companies looking for the cheapest method to manufacture, as well as the cheapest components to build their products in order to keep the cost down, are taking risks that far outweigh the cost benefits. If the product fails too soon or the quality is spared as a result of this process, the consumer is left with a bad experience and with consumers having such a strong and far-reaching online “voice”, for the offending company, a poor reputation is very hard to recover from. A well thought out, engineered PLM (Product Lifecycle Management) process will greatly benefit companies by reducing risk of obsolete components and materials. The struggle today remains with products not sharing common components, operations, or materials with the newer products that will take the place of older models. There needs to be a better focus on managing new product design with product discontinuation in mind, and designing for manufacturing using similar processes so as to gain leverage across the entire product line. This will help reduce costs and complexity, as well as increase/improve product life cycle times without sacrificing quality. Product lifecycle management also encompasses adherence to local packaging, labeling regulations, development costs (engineering) and final entry to market. As the economy becomes more Global, all these factors must be considered in order to promote effective distribution of the product, whether targeted to region or consumer.

Collaboration Between Stakeholders in the Extended Supply Chain

Collaboration across all lines of the supply chain is critical. This increases visibility and coordination across the supply chain and that allows all involved to make good decisions which will affect the total value. The right tools (software), processes and organizational structure will make effective supply chain collaboration achievable. Consumers, suppliers and manufacturers need to be in alignment in order to improve upon supply chain value. Recently Sales & Operations Planning has emerged as the main vehicle for collaboration and a way to help increase value by maintaining a well-coordinated, valid operating plan in support of customer demand, business planning and strategy. S&OP bridges the gap between sales/forecasting and supply chain. This is needed to make critical, informed decisions. S&OP also allows for greater visibility across the entire value chain. This cross-functional (and even cross-company collaboration) will lead to a better PLM process, improved demand planning, minimized inventory, reduced costs and will help achieve superior customer service and fulfilled customer expectations.

In conclusion:

As a whole, these trends seem to be what most corporation are taking into account when evaluating their current supply chain. No doubt that technology is needed to address these key trends, and that includes:

• ERP to run the business efficiently, supplemented by
• Added SCM solutions designed for today’s complexity and volatility and targeted at creating an integrated, streamlined, and agile supply chain.

As the market changes, so too must the companies serving it. The bottom line is that if the supply chain performs poorly, the effect is felt across the entire business causing possible long term failure in performance of an otherwise successful business.  

Additional Resources

• Supply chain management frequently asked questions