Dance of the giants What leading companies are doing to optimise their end-to-end supply network

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1 ARTICLE Dance of the giants What leading companies are doing to optimise their end-to-end supply network By Robert Hart, TRACC Publications Editor EXECUTIVE SUMMARY Whether one agrees with the methodology or not, Gartner s annual Supply Chain Top 25 survey provides a useful yardstick for what the globe s largest conglomerates are doing, in terms of innovation, to remain at the cutting edge of their respective industries. This annual ranking calls out global manufacturers, retailers and distributors that display superior supply chain capabilities, performance and leadership. The three standout trends for supply chain leaders that Gartner identified in its latest (2014) survey are a deeper contextual understanding of customers; leveraging digital business as part of broader customer solutions, and the supply chain leading balanced growth. Attributes that distinguish these leaders from other organisations include: an outside-in focus; vision and execution, and an addiction to excellence. Supply chain networks have increasingly become global and dispersed. A variety of factors ranging from cost structures, tax laws, skills and material availability, new market entry and others have driven companies to redesign and reconfigure their supply chains continually. The consequent increase in complexity of market, channel, supply networks and distributed facilities has rendered related planning more intricate and complex. This is reflected by the three standout trends Gartner identified in its most recent survey. 1

2 TREND 1: UNDERSTANDING AND SUPPORTING THE FULLY CONTEXTUALISED CUSTOMER An enduring characteristic of leading companies is that customer needs and behaviours serve as the starting point for go-to-market and operational support strategies. The best of them present simple, elegant solutions to their customers, driven by conscious supply chain orchestration behind the curtain. Their centreled cultures enable consistently high-quality customer experiences tailored, where necessary, to local tastes. Jeanne Reisinger, former Global Director, Supply Network Operations for Procter & Gamble, concurs: A constant focus on the customer starts with a deep understanding of each customer segment and its service requirements. Customer service requirements and buying behaviours are differentiated, so it is clear which features are the price of entry and which features allow you to win in the market. There must be constant outreach to customers to understand evolving trends so that your company can lead the way as the bar is raised. Supply chain leaders are expanding this demand-driven concept in terms of how they relate to their customers. Ultimately, a deeper understanding of customers in their local environments is helping supply chain leaders capture more revenue for their businesses and improve operational effectiveness. There must be constant outreach to customers to understand evolving trends so that your company can lead the way as the bar is raised. This requires you to get very close to your customers, explains Jeanne, And if it s two large organisations moving closer to each other, such as Procter & Gamble and Walmart for instance, you have to decide carefully whose scale you re going to leverage without sub-optimising the other party s scale. It requires some delicate footwork to not only find the lowest total cost solution which is easy enough on paper but to also eventually get all parties to agree to the solution. Each negotiation can have unintended consequences, and one has to keep a close eye on any of the unintended consequences that may transpire, so that you can make adjustments after the fact, to really make sure you ve come up with the best, lowest cost and cash solution. I often refer to it as The dance of the giants. 2

3 TREND 2: A CONVERGENCE OF DIGITAL AND PHYSICAL SUPPLY CHAINS DELIVERING TOTAL CUSTOMER SOLUTIONS Leading companies have moved past selling only discrete products or services to their customers and are now focused on delivering solutions. Regardless of industry, these companies want their customers to be loyal subscribers to their solutions. Several of the leading consumer product companies on Gartner s list are offering e-commerce subscriptions for their products in partnership with retailers to create a seamless multichannel experience. This approach offers convenience and privacy to end customers who would normally buy these products in a bricks-andmortar store and might be swayed to try another consumer brand during any given store visit. Equally, the more progressive industrial companies have suggested vendor-managed inventory systems with their dealer networks. Some have gone even further and are now acting as virtual consultants to their customers planning organisations. They recognise that helping improve customers internal capabilities is part of a total solution, making them more valuable suppliers. Another significant aspect of the total customer solutions we see deployed by leaders relates to the remote management of aftermarket services, leveraging Internet connectivity, says Debra Hoffman, research vice president at Gartner. The Internet of Things allows for monitoring of performance across the value chain at customer sites, and also to collect and analyse the big data generated as part of upstream manufacturing and logistics flows. The Internet of Things (IoT) is forecast to reach 26 billion installed units by 2020, up from 0.9 billion just five years ago, and will impact the information available to supply chain leaders and how the supply chain operates, depending on industry. Some IoT devices are more mature, such as commercial telematics now used in trucking fleets to improve logistics efficiency. Some, such as smart clothing and industrial fabrics that use sensors to monitor human health or manufacturing processes, are just emerging. As these capabilities become mainstream, they will allow modern supply chains to deliver a more differentiated service to customers more efficiently. This will happen when many more physical assets than we have today are communicating their state to a networked ecosystem that then formulates an intelligent response. 3

4 The true value of convergence lies in data sharing, where the data becomes actual information that is handed to people who can take appropriate decisive action to meet customer expectations. Like Japanese keiretsu systems, with their profound buyer-supplier links, informationbased integration allows suppliers to become deeply ingrained in their customers ecosystems. The difference is that with the latter type of integration, data linkages make it unnecessary to exchange employees or create mutual ownership, as is common in keiretsu networks. Jeanne believes that the true value of convergence lies in data sharing, where the data becomes actual information that is handed to people who can take appropriate decisive action to meet customer expectations. Future supply chains will meet those expectations by integrating people, processes and systems in a digital value network, she says. For instance, when Walmart began sharing its data, it did more than take the noise out of forecasting for suppliers it became a magnet attracting innovators to a place where new ideas would be continuously developed and improved to everyone s benefit. TREND 3: SUPPLY CHAIN AS TRUSTED AND INTEGRATED PARTNER Growth is a top priority for the C-suite in 2014, with 63 percent of senior executives picking growth as a top imperative in Gartner s 2014 CEO Survey. Leading supply chains are enabling this growth both organically and through the successful integration of mergers and acquisitions. M&A activity is likely to revive in line with a rejuvenated worldwide business outlook and improved asset price stability. At the same time, true supply chain leaders are emerging as trusted and integrated partners to business groups. Their influence is increasing in areas such as product lifecycle management, integrated business planning and corporate social responsibility. Their focus on profitable growth often leads to smarter, more conscious decision-making, saving business groups from spiralling out of control in the drive to maximise revenue. 4

5 ARTICLE DANCE OF THE GIANTS WHAT LEADING COMPANIES ARE DOING... The supply chain has a large part to play in enabling the business to compete in the future, concurrent with protecting existing business. Its influence over which products will be sold and which customer service levels will be supported, is akin to the checks and balances within a system of government. With the focus of many companies on profitable growth, they also need to consider the risks inherent in new markets, facilities and partners. An integrated supply network design process can enable the company to make decisions in an informed, creative and systematic way that takes into account risk and still finds cost-effective solutions. An example of this is described in the article From Superstorms to Factory Fires (David Simchi-Levi, William Schmidt and Yehua Wei, Harvard Business Review, January 2014), which shows how Ford Motor Company applied Simchi-Levi s Risk Exposure Index (REI). This enabled them to focus their mitigation efforts on the most important suppliers and risk areas instead of ignoring them or using an exhaustive approach. What becomes patently clear in the end is that the most progressive companies are not afraid to rethink the design of their global supply network if that is required for success. Jeanne points out that, The big differentiator is not so much the design of the supply chain, but rather excellent operational execution of the selected supply chain design, much like what Gartner terms conscious supply chain orchestration behind the curtain. This, and the agility and adaptability to respond to changes in a situation, are the true differentiators that continually drive improvement. In the world of big data, success will come to the companies that have the ability to turn real-time data into information and then turn the information into decisions. One example is using POS (Point of Sale) data to determine the consumer-preferred SKU mix in the first weeks of a new product introduction, thus allowing build-up of the right SKUs. This helps meet the customer and consumer needs while avoiding piles of unproductive inventory down the road. Skilled problem-solvers trained in the art of continuous improvement will continue to be valuable assets in all advanced companies. What becomes patently clear in the end is that the most progressive companies are not afraid to rethink the design of their global supply network if that is required for success. In some cases, this has led to increased vertical integration where leaders are gaining ownership of their customers and suppliers in an attempt to dominate value chains, redrawing the lines of competition in the process. info@traccsolution.com 5