Turning supply-chains into competitive advantages
08 December 2014
Somsak Jaitrong, Human Capital Alliance senior advisor explains successful supply chains.
With globalization, many Asian companies are turning their supply-chains into unique competitive advantages.
In a recent article, “Three ways CEOs can improve the supply chain”, McKinsey’s Christoph Glatzel, Alex Niemeyer and Johannes Rohrem said these companies realize their supply chains are much more than the cost of getting products into customers’ hands.
These companies understand that supply-chains translate corporate strategy into day-to-day interactions both within and beyond the organization.
“Ultimately, it is the supply chain that satisfies or disappoints their customers.”
These companies also use a broader supply-chain definition – one that includes planning, information sharing, and value-adding activities, from raw material to final distribution, rather than just logistics.
“Leading companies have made strategic investments in their supply-chain capabilities and set up efficient and effective organizations that overcome cross-functional silos.”
Using supply-chain excellence, these companies have redefined their customers’ service expectations and their ability to bring market innovations into a powerful competitive advantage.
The best companies, the author said continue evolving and reinventing their supply chains, even if they have already achieved a leading position in their industry.
“By doing so, they are able to manage risks; respond to changes in the economic, technological, and competitive environment; and exploit new opportunities more effectively than their competitors.”
Three critical supply-chain activities
The authors said successful companies have identified three specific activities that lead to superior supply-chain business performance:
- Differentiating supply chain and corporate strategies
- Creating modern end-to-end supply-chain organizations
- Establishing supply-chain performance standards for the entire organization.
Differentiating supply-chain and corporate strategies
Although business strategies may include superior service, product innovation, or cost leadership, companies must ensure their supply chains deliver the strategy’s key points.
Leaders from across the business, the authors said must help define a workable supply chain and then ensure they provide the necessary data to the company.
At the same time, marketing should be able to articulate what customers value most from the company’s services, how those needs vary among customers, and how it can be differentiated from competitors.
“Your commercial functions have to identify which customers justify the cost of the highest service and which would be better served using a more standardized approach.”
Effective supply-chain and product-development functions they said will find ways to create innovative products that suit the needs of all those customer groups while keeping overall costs under control.
Creating modern, end-to-end supply chain organizations
Today, companies must create modern, end-to-end supply-chain organizations. “The times of managing the supply chain in separate tiers is over.”
Modern sophisticated data analysis enables companies to manage supply chains end-to-end and, in some industries such as retail, almost in real time.
Appointing single leader
Successful companies should appoint a single leader with responsibility for end-to-end performance and for delivering improvement projects across tiers and traditional functions such as marketing, manufacturing, and procurement.
The supply-chain organization should also combine operational excellence with strong analytical capabilities and data-driven, cross-functional decision making.
Analytical teams, they said should also be created to support decision making and identify hidden risks and opportunities in unstructured data.
The IT function should also be equipped with nimble applications and platforms that enable collaboration and analytical decision making.
Performance standards for entire organization
Finally, successful supply-chain operations must establish organization-wide performance standards that monitor and most importantly incentivize everyone to deliver the most value to a business while protecting against its biggest risks.
“That means using more than the traditional metrics of cost, service, and capital.”
The most appropriate key performance indicators, the authors said depend strongly on the needs of the business, the product, and the market segment: the cost of production for value players, the stability of supply for staples and critical products, agility in volatile markets with fluctuating demand, and launch excellence for new products are essential.
“If a metric doesn’t matter in your business, don’t misdirect the organization by using it.”