Is your supply chain ready to handle modern day business and environmental challenges?

As economies around the world step back from the financial brink and begin adjusting to a new norm, companies face a different set of supply chain challenges than they did in the height of the downturn. All economies around the world are facing rising costs in labour, energy and raw materials.

The price of crude oil, which is one the biggest influencers of global GDP growth, has increased by over 70% since the Q1 2009 when we were in the middle of the great recession. Further to these macro challenges, Governments around the world, both in developed and emerging markets are in the midst of either executing or planning reduction in their fiscal deficits adding to the impact on consumer demand.

These cost inflations compounded by lack of government demand stimulus are here to stay for the near term both domestically and in our export markets. Given these circumstances and coupled with spare capacity in nearly all industries, organisations are faced with rising pressure from domestic and global competition, fast changing consumer expectations and increased complex pattern of customer demand.

It is therefore important that organisations define a winning customer value proposition and clearly align their supply chain strategy to this. It is also important that supply chains have flexibility to address the volatile market conditions, react to changes in product life cycles and to changes in legislation, taxation and border regulation. This is easier said than done and very few organisations get it right. Those who do, are single minded in their value proposition for each business group and have a supply chain setup ideally suited to deliver this value proposition.

All too often organisations are trying to achieve too many objectives. For example in this current environment of cost pressures, it is common for executives to attempt deliver wide product choice, innovation, speed to market, on time delivery and at the same time the lowest price. No supply chain can cope with such a varying degree of objectives and only results in failure. With the internet fast becoming a major business channel, organisations want to achieve all of the above in multiple channels.

Customer value proposition

Successful companies of late have been very single minded in their customer value proposition and therefore supply chain strategy. Amazon’s customer value proposition is product selection and availability. Therefore their supply chain is focused on product availability and next day delivery for a very wide portfolio of products. They invest in safety stocks and in fast distribution as efficiently as possible without compromising the customer value proposition.

Zara, the fashion retail business, has a customer value proposition based on delivering fashion at an affordable price. Their supply chain therefore has to be agile and deliver speed to market. They have invested in stocks of components and in creating an integrated supply chain close to the market.

There are also organisations that focus in delivering lowest price. Walmart is a great example of this where the supply chain is set up for low cost sourcing and cost efficiency across all aspects of the internal supply chain.

These are some examples of supply chain strategies aligned to customer value propositions delivering business goals. However to make any strategy work, there are elements that are common. Every supply chain has to be flexible and at the same time, in the current market environment, it has to be cost efficient. Organisations are adopting just in time and lean principals along with low cost sourcing, to help drive cost efficiency. Though these help achieve cost efficiency goals, they are in conflict with ensuring adequate flexibility, to cope with the constant threat of uncertain demand and supply pictures.



How does one achieve the right balance?

Supply Chain Management, in the past, has had little focus. Only recently has supply chain being elevated to board level at organisations. There is also little formal education and thought leadership in this area. Organisations tend to rely on best practise which may not ideally suit them in this pursuit of being single minded in their customer value proposition.

This may sound controversial; Supply Chain Management is a science driven by rules developed based on mathematical and empirical approaches. Do we have well trained managers who understand this science? Here lies the current challenge for organisations to not only develop the best suited supply chain strategy, but also to implement it and ensure it runs smoothly and reacts to unpredictable demand and supply jolts that is now becoming a frequent phenomenon.

This increasing challenge can be summarised by asking these key questions:

• Have you developed the key processes and do you have the right IT infrastructure to enable you to run these accurately and efficiently?
• What is the supply chain strategy to deliver the value proposition and the required flexibility at the same time as achieve your financial goals?
• Have you articulated your customer value proposition for each business group/product line? This becomes the primary goal for your supply chain.
• Within these value propositions, do you have an understanding of the source of volatility? This becomes the investment required to make your supply chain adequately flexible.
• Do you have the resources (human, financial and system) to achieve this supply chain strategy?
• Most importantly, do you have the trained resources who can raise to this new supply chain paradigm?

These are questions that Company boards are challenged with. Those who address these and do so with the understanding that they are solving a ‘scientific challenge’ will win in a market that is fast becoming global, highly volatile and with consumers and customers demanding more for less. Finally, to add to these challenges, consumers, customers, NGOs and Governments all expect supply chains to be socially responsible and be environmentally friendly.



(The writer is Global Digital Director, Coats PLC, UK. Prior to the current appointment Hizmy was the Global Supply Chain Director, Coats PLC, UK. Hizmy will be one of the Key Resource personnel taking part in the Colombo Supply Chain Forum, which will be held from 22 to 24 January 2013 at Cinnamon Grand, for which the Daily FT is the official newspaper.)