Efficient supply chain is critical to a business, but it takes constant re-evaluation of processes to ensure supply chain optimization.
It is nearly impossible to quantify the importance of an efficient supply chain to company’s bottom line. Whether it is entering a new market with an innovative technology or simply highlighting one’s current products during a limited time offer, a healthy supply chain is the critical infrastructure that buoys it all.
But keeping your supply chain running at its best takes work – achieving supply chain optimization requires constant innovation from a dedicated supply chain team.
So, how does one accomplish this desired, yet somewhat complicated goal?
For some supply chain optimization tips, consultancy giant DeLoitte has published a sweeping study “Supply chain leadership: Distinctive approaches to innovation, collaboration and talent alignment.”
According to the DeLoitte report, there are two different types of companies when it comes to supply chain performance: Supply Chain Leaders and Supply Chain Followers. The classifications were devised from DeLoitte’s 2014 Global Supply Chain Survey, a report in which 400 executives in the retail and manufacturing sectors participated.
Supply Chain Leaders (SC Leaders): are companies that are rated above average for both inventory turnover and their ability to deliver their respective products on time and in full.
Supply Chain Followers (SC Followers): are companies than rank below average for both inventory turnover and their ability to deliver their respective products on time and in full.
Supply Chain Leaders and Supply Chain Followers differ in other arras as well: 70% of SC Leaders have revenue growth this is significantly above average versus 8% of SC Followers. Furthermore, 69% of SC Leaders have an EBIT (earnings before interest and taxes) margin that is significantly above average versus 9% of SC Followers.
While the aforementioned financial gap between SC Leaders and SC Followers paints a stark picture, there are even more nuanced differences. SC Leaders, reads the report, are more likely to do the following to optimize their supply chain function:
- Empower executive level leadership end-to-end span of control
- Develop differentiated supply chain strategies aligned to unique segments
- Actively integrate activities and data across functional and enterprise lines
- Fuel long-term, sustainable growth by building innovation capabilities
- Adopt emerging and potentially disruptive technologies
- Develop talent strategies aligned to a new era of supply chain as a strategic function.
SC Leaders achieve supply chain optimization by ensuring the supply chain function is represented by an executive. According to the Deloitte report, 56% of SC Leaders have an executive leading their supply chain function, compared to 33% of SC Followers.
Among the numerous benefits associated with having an executive intimately involved with the supply chain function is that senior executives “have a seat at the table where high-level strategy is set and decisions are made. Being able to offer the supply chain perspective on potential moves, and to explain the supply chain implications of proposed changes, can enable leaders to achieve alignment between supply chain management priorities and overall business strategies more readily.”
Achieving supply chain optimization requires a firm to balance its various “priorities.” Chief among those priorities are: costs versus service provided.
“There will always be trade-offs between the desire to reduce operating costs and the need to meet rising costumer expectations for faster delivery and higher levels of service,” reads the DeLoitte report.
To analyze those trade-offs, SC Leaders routinely employ “segmentation” – granular analysis of different supply chain issues – to make decisions. Information is critical in supply chain optimization.
SC Leaders’ method of service level differentiation
- 87%: Delivery mode
- 83%: Procurement strategy
- 79%: Production strategy
- 79%: Product flow path
- 74%: Stocking strategy
- 72%: Service levels
Taking a broad view
SC Leaders recognize that their supply chain plays an integral role in their organizations and, therefore, must work as an “integrator.” An optimal supply chain function, for example, collaborates with other departments such as corporate strategy, sales and marketing and finance. This collaborative approach applies to suppliers as well.
A lack of cross-departmental work will result in the “misalignment of plans and sub-optimal execution.”
Just as the supply chain function should be an “integrator” in a company, innovation should also be considered a team sport. A company should consistently examine possible avenues for innovation, included in which should be a discussion of how the supply chain function can help facilitate it.
Innovation, for example, can be establishing new networks, adopting potentially disruptive technologies such as cloud software or new services. But whatever the example, each innovation should be considered alongside the supply chain function to ensure best results.
96% of SC Leaders consider innovation important
65% of SC Followers consider innovation important
The importance of analytics
Leading-edge supply chain technologies and analytic tools are a critical component to achieving supply chain optimization. Insights found in data – gleaned from company functions, suppliers and customers – can allow executives to make decisions they wouldn’t have otherwise.
Extensive use of analytics
- 75%: of SC Leaders use optimization software extensively
- 34%: of SC Followers use optimization software extensively
- 67%: of SC Leaders use supply chain visualization software extensively
- 28%: of SC Followers use supply chain visualization software extensively
- 75%: of SC Leaders use mobile technologies extensively
- 30%: of SC Followers use mobile technologies extensively
- 65%: of SC Leaders use RFID tags extensively
- 27%: of SC Followers use RFID tags extensively
A lot is expected of supply chain managers in today’s competitive global marketplace. In the past, driving a hard bargain with suppliers and keeping costs down sufficed but over time, the market has come to expect “advanced” skills.
“Supply chain organizations now need professional experience in such areas as global risk management, supplier collaboration, product flow path decisions, network design, financial profitability, growth enablement and sustainability,” reads the report.
In addition to those skills, experience in the global marketplace, especially emerging markets, is critical for supply chain managers. Having such skills work go a long way in achieving supply chain optimization.
Perfecting a supply chain, to be sure, is a tall order. As this post has illustrated, there are numerous, interconnected factors every company must consider when working to optimize their supply chain. But that should be the goal of every business because a healthy supply chain will have a positive affect on the company’s bottom line.