Mastering the impossible

The art of supply chain excellence is to align customer needs and commercial strategies with scalable and efficient operations, while managing the risk of the transformation journey and ongoing execution.

Supply chain leaders need to prepare for and control risks – from natural disasters to terrorism to product recalls. Then, after failing to meet a delivery date of tomorrow for an order placed today on a product that will not be available until next month, the supply chain leader needs to ‘align expectations’ with the irate customer. Mastery of some sort of ‘art’ is quite handy in such circumstances….

Most world-class organisations have identified that supply chain management is a critical enabler in driving sustainable competitive advantage. Building a world-class supply chain, however, is not about the most efficient plants or lowest supply setups contrary to popular belief. Lean enterprises are competitive weapons, but only when applied to the business issues and strategies that drive increased revenues and profits.

Instead, world-class supply chains all have one thing in common – they support overall business goals that emanate from clear commercial strategies and propositions that link the various components of the ‘customer offering’ – product portfolio, pricing and supply chain services – in order to drive exceptional customer service and profitability. Full stop.

World-class supply chains do not exist in their own right. They exist to support the overall business model. Most organisations – even after ‘expensive IT investments and reengineering programmes’ – have fundamentally missed this point. Mastering the impossible is only possible when the supply chain is supporting the commercial goals of the organisation and not trying to either catch up, defend against or rectify issues created by unclear commercial priorities. This is where the art and the science of supply chain management converge.

This convergence is the journey to becoming world-class. This – and the lessons the leaders demonstrate regardless of industry or complexity – is a three-pronged roadmap:

Articulate the commercial end game
‘What are we trying to be and for whom’ is the beginning point on the journey to a world-class supply chain. Those who have successfully transformed their assets and operations into lean enterprises that efficiently and effectively service global customer needs do so with the end game in mind, factoring in expected volatility and risk. Agility, market leaders realise, is only useful as it enables organisations to capture market share at required service levels, while managing costs.

The key in this paradigm is not to confuse ‘customer driven’ with ‘commercially sensitive’ in the set-up of the value chain. The message is clear: understand your commercial value proposition and build your supply chain response to support this differentiated positioning. Invest in supporting the commercial priorities, not in solving issues created by gaps in these priorities. The world’s foremost value chains can be customer driven, product driven or some combination of the two. The key is to ensure this follows (rather than leads) the commercial strategy that is defined.

Develop in and around core competencies
Organisations that have successfully navigated supply chain transformation journeys have taken the proposed commercial strategies and anticipated market developments and performed a rigorous assessment of their respective areas of focus and competency. Lean production at Toyota, order fulfillment at Dell and sourcing at IKEA are all truly world-class capabilities that enable their respective market leadership positions. A critical aspect to remember is that, while selecting and developing core competencies is fundamental, building the ‘ecosystem’ to maximise the effect of the capabilities themselves is the critical success factor in every case. Dell’s fulfillment engine would have stalled without well-integrated suppliers that followed the demand and supply curves at every step. IKEA’s consistent year-on-year price reductions would be impossible without a well-honed retail and distribution machine that supports constant and smooth growth across the globe.

Prepare for the game changers
In every business cycle, certain ideas or developments signal the step change to new plateaus of performance and efficiency. These changes – from the assembly line thinking of the Model T to the dotcom mania of the e-business cycle – have differing plus/minus impacts and effects across industries.

The signaling events, however, typically represent enormous opportunities to differentiate, eliminate and/or take market share by innovating in these times of change. These are the ‘game changers’. The year 2007, in BearingPoint’s view, will be the year of ‘green’ and ‘resiliency’ for example. Clients, from mobile handset manufacturers to daily goods and specialty retailers, are designing innovative ways to increase opportunity taking and manage risk by making their supply chains more sensitive and responsive to change, more ‘green’ and risk managed, and generally more balanced globally through enhanced cross-border productivity methods.

The focus on ‘game changers’ is the cornerstone of creating and enabling consistent competitive differentiation. These ‘game changing’ business practices are never invented and applied in isolation. They are applied to and implemented based on the commercial strategy of the organisation. Successful organisations create fully integrated, highly agile operations by following these principles. Many organisations, however, run into challenges because they either de-couple commercial and supply chain strategies or lack the leadership or stamina to drive strategies into practice.

Our global experience with both leaders and laggards, and organisations large and small had shown us that, while few organisations execute flawlessly on the above tactics – and there are a few that have consistently set the bar over the past 20 years – most organisations get tripped up along the way by overcomplicating the fundamentals or losing sight of the end game. Organisations blame events, difficult customers and shorter product lead times, among other excuses, to justify the performance or cost issues that upset internal and external customers.

The goal of creating sustainable competitive advantages through supply chain excellence must therefore be to move the ‘artistry’ of crafting excuses to issues and problems to a ‘science’ of creating globally, commercially aligned and agile strategic supply chain change.

About the author
Matthew Costello, Managing Director of Bearing Point is responsible for the company’s Global Supply Chain Management Practice as well as its UK Commercial Services Business Unit. Costello has deep experience in managing large-scale business improvement initiatives and operational issues with a concentration in consumer, industrial and high tech international value chain transformation.