Supply chain innovation means taking full advantage of best of breed technology and data algorithms that empower intelligent decision-making. The exchange of information, from inside and outside the organization, must be real time, autonomous and continuous.
Previously, I shared an article with insights into the integration of advanced data analytics in supply chain planning. Last week I had the opportunity to participate in a discussion on this topic at the 13th Annual Supply Chain and Logistics Summit. I also attended presentations from Kellogg, Johnson & Johnson and Colgate Palmolive; companies recognized as leaders in supply chain innovation and part of this year’s Gartner Supply Chain Top 25 report. Each speaker mentioned the importance of real time data integration and end-to-end visibility, and gave examples of how this is currently achieved in their respective organizations.
For more than 98% of global companies, implementing a data strategy and using advanced analytics, especially within the supply chain, is a challenge. Not all companies have the talent or financial resources to undertake this type of project. Investments in data structures, analytics and employee training are costly. Knowledge gains from this information are still fragmented between functional silos and across supply chain networks, creating a lack of value and low ROI.
What if we think differently about supply chain data, network collaboration and knowledge sharing?
1. What if we brought everyone to the planning table?
The Sales and Operations planning process (S&OP) has taken a leading role in supply chain design. S&OP is a great way to connect previously detached processes and prepare a better forecast. This process often falls short because we do invite all departments involved to the planning discussion.
In the consumer-packaged goods industry the cost of logistics accounts on average for 7% of revenues. Logistics partners and internal stakeholders are not part of the S&OP process. This creates a discrepancy in understanding the total cost to serve, and can lead to major challenges in meeting demand and preventing stock-outs at retail stores. Unforeseen trouble in the transportation and logistics network can also hurt brand image. When we involve all actors in the planning process and use data from all nodes within the network we are able to prepare more accurate forecasting models.
Speed and agility are the most important drivers in meeting customer demand. As supply chain executives we must take full advantage of all the knowledge available in the data and capitalize on our partner’s core competencies. This is the model of future intelligent supply chains.
2. What if we removed longstanding communication barriers?
Functional, siloed organizational structures are standard. A chain of command exists in every organization, each department has specific KPIs, and actors in a supply network have individual vested interests. The ultimate goal is to drive down costs, extend payables periods to release working capital and increase gross margin, all without regard for how this affects the overall system.
This is a direct result of the lack of communication and visibility within organizational departments, and throughout the entire supply chain.
What if we used data knowledge to create an unprecedented alignment of all stakeholders, with common KPIs across the entire network?
If we did this, we could create truly agile supply chains with increased flexibility and visibility. This network could offer better response to omni-channel customer demands. We could lower overall costs and risk by incentivizing shared inventory, shared operations and gain complete chain visibility.
Ultimately, we would create real time automated information sharing networks and continuous supply chain optimization. Participating in such a system creates value for all actors; it promotes proactive policies for risk prevention and creates cognitive systems that learn over time.
3. What if we built supply chains with end customers in mind?
A recent study from Terra Technology finds that for most companies 10% of items generate 75% of sales, and that the bottom 50% creates a long tail contributing to only 1% of sales. The costs associated with planning, producing, moving, storing, marketing and shelving all of all products affect the overall bottom line.
Only 18% of suppliers receive point of sale data from retail partners. Without SKU level data from downstream partners in the retail sector it is impossible for upstream actors to plan accordingly. Furthermore, the retail sector continues to charge upstream suppliers for these insights. New research from GT Nexus finds that around the world 81% of adults have tried to purchase a product that was out of stock at a brick and mortar store. The study also shows that this leads consumers to become dissatisfied with the brand, 1/3 of shoppers blame the retailer and 65% of them shop for the product online from a competitor.
Unlike excess inventory, we cannot measure the lost sales due to inventory stock outs. We must rethink the design of our supply chains, the sharing of knowledge within organizations and networks to gain visibility and become truly agile. Lack of collaboration is an archaic practice in supply chain management and will serve to further distinguish leaders from laggards.
If we really planned the supply chain with the end customer in mind we could significantly lessen the number of stock outs. E-commerce and click-and-collect models apply new pressures on global supply chains. We can no longer use the same fragmented processes, information and technology to meet demand and enhance customer experience.
The future of competition is no longer business vs. business, but supply chain vs. supply chain. We must empower our supply chains to sense system changes and adapt accordingly, while increasing collaboration within our global networks. Our ability to think differently about managing supply chain processes will lead to the development of truly intelligent organizations.
The business landscape is ever changing, numerous innovations have allowed companies to transcend borders and become global entities. While the opportunities are numerous so are the challenges; in this fiercely competitive global marketplace success requires companies to pay closer attention to supplier relations. Global leaders should retain suppliers with vested interest in the long-term success of the company. These partners should be willing to extend more value added services, flexibility and resources. To attain this level of trust with suppliers, companies should approach these relationships with the same care they use when approaching customers. A vigorous supplier relationship management (SRM) strategy can assist organizations in maximizing partnership value, minimize risk, and manage costs through the entire supplier relationship lifecycle.
When formulating a supplier relationship management strategy organizations must consider the following implications to be successful:
1. Become the Customer of Choice
In May, 2014 Raytheon gathered a group of its largest suppliers in Boston, MA to discuss the launch of the company’s Supplier Advisory Council. This advisory board is to serve as the first step towards a more comprehensive supplier policy and the building block for Raytheon’s new SRM strategy. As stated by Michel Shaughnessy, Vice President of Integrated Supply Chain for the company “In order to reach a level of earned preferential treatment, Raytheon has to build stronger bonds and greater trust into supplier relationships.”
By working closely with its suppliers to receive the best sales terms, fluctuating manufacturing capacity when needed and first access to the latest innovations, Raytheon secured its status as a leader in the defense systems market. The company also realized a 10% increase in stock price since the summer of 2014, in a highly competitive and regulated market.
2. Connect your supply chain
Supply chain concepts are generally understood in a linear pattern of consecutive planning in the form of plan-source-make-distribute-return/dispose. What happens when a company plans to bring a product to market and outsources all of the steps in between to suppliers that do not communicate? Take for example lithium batteries, which are intermediate parts destined to be incorporated into finished goods such as laptops, cameras or cell-phones. The transportation of lithium batteries is dangerous, as they overheat, which can cause significant damage. In electronics supply chains, transparency and visibility is key to ensuring that products get to market as promised. To do this, the production and transportation of all component parts must be closely monitored and coordinated.
3. Foster partnerships based on trust
In 2013 B2C e-commerce sales accounted for more than 1.2 trillion US dollars. Omni-channel shopping has given customers a wider selection of goods and a platform for price comparison. Because of this, businesses are finding it challenging to forecast demand and therefore they risk escalating inventory costs or stock outs. Organizations need more flexibility in their supply chains and should seek stronger partnerships with their suppliers, moving away from transactional relationships based on costs and delivery times, and focus more on long-term mutually beneficial relationships.
SRM software, much like a CRM system allows supply chain personnel to keep track of supplier interactions and address concerns early. This type of system can also help organizations understand when their suppliers are undergoing change or hardship, and offer them an opportunity to step in and help, or provide them with enough time to source from different suppliers.
4. Manage working capital
To establish and maintain leadership, organizations must innovate. Most often capital is tied up in paying suppliers with few funds invested in R&D. Some companies choose to extend accounts payable as long as possible to free up capital that can be invested into R&D and innovation. This requires strong supplier relations, built on trust as most times delaying payment can erode partnerships, affect terms of payment, and cause less willingness for collaboration. These strategies are even more beneficial in the retail space where suppliers consider special arrangements on payments in exchange for better shelf space and product visibility.
5. Set clear expectations and KPIs
Suppliers are not mind readers; their success relies on communicating with their customers, understanding their demand needs, and receiving honest feedback. Organizations that rely on hundreds, maybe thousands, of suppliers to fill demand find themselves reacting to supplier behavior rather than anticipating concerns and preparing ahead of time. A comprehensive supplier management strategy helps organizations arrange suppliers based on different tiers of importance and reliability.
Suppliers should be held accountable for their promises; all communications, formal and informal should be properly logged and followed up with. It is unwise to trust a supplier with more work or a better project, if they have repeatedly failed to meet deadlines in the past.
Organizations should keep detailed information on supplier communications, contracts, and improvement based on their internal key performance indicators. While all businesses appreciate a supplier’s ability to deliver high quality goods on time, organizations should also have individual characteristics they value from their suppliers. It is important that these characteristics are shared with suppliers and used to measure their ability to improve on these indicators.
6. Find opportunities and improve supply chain sustainability
Consumers are becoming increasingly more concerned with how their products are manufactured and sourced. According to The Nielsen Company: 55% of global online consumers in over 60 countries assert that they are willing to pay more for products and services provided by companies that are committed to positive social change and environmental protection. In the past we have seen numerous examples of global leaders fail consumer expectations. These organizations depend on a vast network of global suppliers to bring their products to market, but in the eyes of consumers it is their responsibility to ensure that their practices have minimal impact.
To meet the growing demands of customers, organizations must work closely with suppliers, conduct regular audits, and analyze findings. Managing supplier relationships strategically allows global companies to set standards and utilize existing assessments such as the Higg Index. To reach sustainability best practices, communication with suppliers must be collaborative and transparent with stated common goals and clear ability to measure efforts.
According to the Council for Supply Chain Management Professionals (CSCMP), supplier relationship management is a comprehensive approach to planning and managing an organization’s interactions with providers of goods and services. This practice is supported by a dynamic SRM strategy that retains information that can be used for analysis. The overall objective of SRM is to streamline transactions and manage communications. As supply chains become more diverse and exposed to various global risks, these practices help organizations become market leaders, mitigate risk, hold suppliers accountable and measure their supply chain footprint.
This blog appeared on the Cerasis Transportation Company Blog, visit them for more information on logistics, 3PL and supply chain management thought leadership.
Supply chain disruptions are business disruptions. There is no portion of the business that is isolated from interruptions upstream or downstream in the supply chain. As SCM become more strategic in business planning, we gain a deeper understanding of how challenges and opportunities in the supply chain can impact the overall performance of the business.
1. You are only as strong as your partners are!
Supply chain disruptions are rarely under the control of business operations or supply chain executives. Oftentimes we build partnerships to help us plan for the future and put our trust in companies to support our supply chain goals.
“Freight is the heart of supply chain management. Without the ability to quickly and effectively move merchandise around the globe, the business’ ability to succeed is limited”
Global companies agree to large ocean freight contracts to stabilize yearly transportation costs, and have a baseline budget for their expected TEU transportation.
Most SMBs will likely use an NVOCC for this service; this means that a 3rd party forwarder handles all the company’s documentation and freight arrangements door-to-door. Such a practice puts SMBs at a disadvantage which became very clear during the demise of Hanjin Shipping Line. Without their knowledge, many U.S. businesses found their merchandise on Hanjin vessels due to decisions made by their NVOCC. According to SeaIntel, at the time that Hanjin filed for bankruptcy protection, the company had 43 vessels in transit with 540,000 TEU of cargo on board.
Given the time of year, the merchandise on board of the ships was planned inventory to service the U.S. and other global consumers during the 2016 holiday season. One way in which larger businesses can protect themselves from such disruption is to take this decision in-house and assign a responsible party to manage their logistics network. In this case, companies can go directly to the shipping line and negotiate long term contracts at fixed rates. Companies should fully research the shipping lines they contract with and their terms of service. Generally, there is a high TEU requirement for competitive rates and this can often backfire if the logistics team chooses a poor partner.
2. Useful, accurate predictive analytics are key
Data from the closing of 2016 shows that retailers had increased faith in consumer spending during the holiday season, and accordingly, increased inventory holdings in the last quarter. The National Retail Federation states that the year-end increase in import volume came as a surprise to many in the retail industry. The NFR raised its forecast to a 7% gain at major U.S. ports, from 3.2% in an earlier report, while November imports rose 11.2%, beating the prediction for a 3.6% year-over-year gain.
For manufacturers and wholesalers, customer trends often include paying close attention to the retail channel as well. Very aggressive sales and inventory management trends from Amazon, and other e-commerce retailers, created market disruptions driving many brick and mortar shops out of business. Their aggressive practices continue to take markets by surprise.
“Staying ahead of customer trend curve-balls requires alignment and communication”
At the end of 2015, days before Black Friday, Amazon reconstructed their inventory management strategy, significantly shortening their days of inventory on hand. This was a strategic move enabling the company to release cash at the end of the year, and force their vendors to enter a vendor-managed inventory system within a few weeks.
Amazon, Alibaba, and Ebay changed the way end consumers search for products and make purchases. Companies have to be prepared for last minute decision-making and must have flexibility in their supply chain to deal with spikes in demand or disruptions upstream.
Understanding shifting consumer behaviors is not a one-time effort, and must be ongoing. Successful organizations are proactive in learning about their customers’ needs and prepare to meet them ahead of time. It is imperative that this effort be shared across the organization to connect knowledge from the sales team to the supply chain.
3. Your supply chain must be flexible enough to adapt
For operations professionals, the constant goal is to continuously improve on previous processes and recognize tangible cost savings. In business, however, we cannot operate in silos. Our planning and preparation can only solve for a certain percentage of all the processes covered globally. To prepare for events such as the disruptions listed above, a company’s supply chain must be flexible and the managing team must have the tools to make last-minute well-informed decisions. A flexible supply chain should be able to detect and respond to issues and opportunities in the short and long-term with the best choices for the business.
Understanding and preparing for operational challenges is crucial to growing a successful global brand.
Strategic planning can make the difference between hitting the mark on profitability and customer service and failing to compete in the global marketplace. Understanding the sources of disruption in a company’s supply chain makes the operations team indispensable in drafting future growth and driving strategy to support this.