Article
Four ways operational excellence in your supply chain will create a competitive advantage
March 29, 2021 · Authored by Erich Bergen
When the COVID-19 pandemic took hold in March 2020, the proper response for many organizations was to go into a defensive posture, shifting from making decisions based on organizational priorities and assumptions to making decisions based on immediate customer needs. Organizations learned to be more nimble and make decisions faster; to look ahead and better anticipate what’s next in order to plan inventory management optimization and take appropriate action. Ultimately, the strategies that make a supply chain more resilient will define and solidify a company’s competitive advantage in the market.
Across the manufacturing and distribution sector, top performers are not waiting for their customer base to ask them to create a more agile supply chain or to improve responsiveness. Companies are monitoring the market, watching how buyer behaviors are changing and then making adjustments by investing in the capabilities for improved responsiveness – all in the aim of delighting their customers and outperforming the competition.
In pre-COVID-19 times, the need to change was partially driven by basic business competition. Now, the disruption of the last year is compelling companies to move faster to form new relationships, evolve their business model, acquire new capabilities or divest non-core parts of the business. Those that have demonstrated deft action have set themselves apart and have continued to demonstrate operational excellence in four key areas: data and technology, inventories, omnichannel marketing and organizational resilience.
Data and technology drive insight
Business leaders need to know the key performance indicators (KPIs) that drive their business in order to make informed real time impactful decisions. Such data may include things like cost of materials, inventory turnover, delivery times from suppliers and customer ordering patterns. If they do not have visibility into their most important supply chain data sets, they need to seriously look at investing in data centralization based technology.
Data visibility will help companies restructure their supply chain to improve working capital, whether by reducing inventory levels or by accelerating delivery lead times. Access to more working capital allows organizations to focus on other priorities, such as improving demand planning, visibility and inventory management – all of which constitute another competitive advantage, as noted below.
Investing in the right technology improves the gathering and management of data. Organizations can then turn that data into actionable insights. For example, having the right data at hand helps companies:
- Engage with customers to manage expectations regarding delays, or prioritizing the manufacturing and inventory of products critical to meeting customers’ immediate and near-term needs
- Leverage the insights from internal and external data to drive key decisions, such as the location of a new manufacturing facility
Unfortunately, due to the economic pressures related to the pandemic, many companies halted or deferred technology investments that otherwise might have supported supply chain resilience – especially investments that support data analytics and organizational agility. Conversely, organizations that judiciously applied capital to upgrade data analytics, streamline supply chain operations and optimize organizational processes are currently enjoying a privileged position. Their investments and commitment to supply chain excellence elevated their market performance from “reactive” to “responsive.”
This deliberate choice to increase organizational capability in response to pandemic pressures has been evident in companies large and small, irrespective of product – from industrial systems to manufacturing to food service. Access to data at their fingertips – whether costing, operations or logistics – can help businesses pivot their supply chain in a more nimble manner to make informed decisions quicker. Data is no longer merely numbers in a spreadsheet; visualization tools take data, perform logic on it and then create intuitive dashboards for CMOs and CEOs to use.
Improved inventory management unlocks organizational flexibility
In the first few weeks of the pandemic, inventories across the developed world were exceptionally erratic: consumption halted for products that until February 2020 were in high demand; demand surged for other items with low to moderate demand until such point. Caught flat-footed from a supply chain perspective, or operating a business model ill-fitted for a time of social distancing, a record number of manufacturers either filed for bankruptcy restructuring or went out of business altogether in 2020.
Those that remain in business find themselves, largely, in one of three scenarios – listed in ascending order of inventory flexibility required to operate successfully:
- Scenario 1: negatively affected
a. Languishing and at risk of demise
b. Stable and operational - Scenario 2: unaffected
a. Austere, with little change
b. Actively driving self-renewal - Scenario 3: positively affected
a. Challenged to keep up with demand
b. Deftly meeting, if not anticipating, demand
Irrespective of the scenario, inventory management and the related dependencies remain. Some companies are looking into novel ways of alleviating the carrying cost from higher inventory levels. For example, The Wall Street Journal reported an increase in inventory management firms that buy and hold inventory on behalf of their customers, changing the supply chain model from “just in time” to “just in case.” While this comes at a cost, for some, it may be far less than the penalty to the balance sheet, working capital and credit facilities necessary to run the business.
Flexibilities such as these eliminate some of the cost of carrying higher inventories, but also provide increased accuracy and confidence in planning production capacity and lead time in fulfilling orders. Carrying more inventory or showcasing the resilience of its supply chain by demonstrating that the company is sourcing from multiple providers are competitive advantages that should be socialized to customers.
The rise of the omnichannel beyond retail – and how top performers respond
While business to consumer (B2C) and consumer packaged goods (CPG) companies have honed their ability to fulfill orders from multiple channels – brick-and-mortar, dealer/distributor, mail catalogs and online – their business to business (B2B) counterparts historically have not been faced with such channel diversity pressures. Couple the might of Amazon and Alibaba with ever-more powerful web search algorithms, and the result is a body of sales channels that no longer resemble that of the mid-1990s.
Consider the purchase of new industrial systems and high-dollar equipment. In recent years, this has usually relegated to a manufacturer’s direct order fulfillment of its products or a dealer or stocking distributor. Opening up a new bagel shop? Call the food processing equipment dealer for that horizontal mixer. Expanding your metal fabrication capacity? Call the manufacturer for your high-capacity metal stamping machine. Running a physics laboratory at the local university? Send in a spec list request to the (one in a million) purveyor of electromagnetic scientific equipment.
Today, an online search with the keywords "industrial food mixers," "high-capacity metal stamping machine," or even a hyper-niche item such as a "linear particle accelerator" will yield multiple links where a business can directly buy any of such items – all valued at six-figures or more. The bottom line: irrespective of product, a company’s next order can come from anywhere, from anyone and at any time.
The omnichannel is no longer a variable to be managed, if not driven, solely by B2C and CPG companies. It is the domain of the high-performing organizations that dominate their markets. In our work with thousands of manufacturers and distributors annually, we find that the leaders in their respective sectors excel in omnichannel fulfillment and customer experience by virtue of their deliberate structure, systems, data visibility and process.
In doing so, their omnichannel prowess and responsiveness replicates a similar experience for the customer across all channels of engagement (digital, distribution or retail). The pandemic proved that companies – retailers or otherwise – who had already embraced and implemented the omnichannel concept had a better chance of survival and growth than retailers wedded to a strict brick-and-mortar or even multichannel environment.
Some businesses beyond retail are now hyper focused on omnichannel as a better way of sourcing, transporting and providing logistics for their products. The omnichannel strategy is transforming dependence on a single supplier, or multiple suppliers from a single region of the world, to using multiple suppliers from multiple locations. Leading companies that excel in delivering on the omnichannel experience and the superior economic (and competitive) benefit it offers are those that employ the right customer data and integrate the procurement experience across all channels, emphasizing again the importance of having the right technology in place to harness this data effectively. To survive and grow, companies have to address the needs of customers seamlessly through all existing channels, and “future proof” as much as they can for new channels that haven’t been developed yet.
Organizational resilience
Supply chain interruptions during the pandemic have compelled some corporate boards and C-suites to become more in tune with the operations of the business, so supply chain strategies increasingly are part of their agendas. The right investment in technology will support Dynamic Costing™ – the ability to dynamically adapt organizational capability and control via real-time data monitoring of key manufacturing and operational parameters. Smart manufacturing and connectivity at the shop floor means that machines will feed data into an enterprise resource planning (ERP) system, providing “shop floor/top floor” visibility that supports well-informed, faster strategic and tactical decisions.
Businesses that survived the inventory flexibility challenge outlined above with more insulated supply chains have likely bolstered their capital capacity and flexibility to execute strategies that require direct investment of financial, personnel and other strategic assets. One strategy may be to enter into acquisition or partnership discussions to drive new sources of revenue – pushing existing products into new markets or jointly creating a new product for an existing market or for entry into a new market.
Improving supply chain performance, resilience and flexibility is dependent on upgrading data, systems and processes. One of the most influential factors in that upgrade is assessing where the company is now, where it needs to be, and what and who is needed at a given point in the maturity/evolutionary curve of the business and its supply chain. This assessment will drive strategic and tactical supply chain decisions:
- Do we have the right structure, talent and technology to succeed?
- Do we need to hire new talent?
- What additional organizational capabilities, systems, tools or processes do we need to sustain performance in the near- and long-term?
- Is the solution to buy or merge with an existing business that will fill a gap in the market?
- If inorganic growth is the chosen strategy, how do we preserve the culture of the organization to stay healthy, connected, productive and excited about the future, while delivering on today?
Keeping a pulse on supply chains today, for the supply chain of tomorrow
Before the pandemic, businesses with challenged supply chains may have delayed the necessary fixes because of the perception that there was no urgent trigger to take action. Such companies needed better visibility into basic operational metrics, such as where they bought raw materials or components for their products. Businesses that were not prepared felt the pain of constrained or interrupted supply chains. That pain forced them to transform, putting more focus on supplier relationships, data, technology, training, communication protocols and strategic planning. With these foundational elements in place, companies aspiring to reach the top quartile in supply chain performance in their sector will have a platform from which to accelerate growth.
Leading companies have two priorities: running the day-to-day business and thinking of future growth. They focus on the right current metrics to ensure the client services are high, delivery lead times are met and fill rates are achieved. Keeping a pulse on today puts the company in a good position to think about tomorrow.
One of the characteristics of a successful company is staying ahead of the market. Don’t wait for your customers to tell you what they need; invest in the capability to delight your customer base. If you do not do the hard work to create a robust supply chain, someone else in your space will. If you are willing to make drastic decisions, invest in the right technology and people, and re-evaluate your supply chain needs. All of this takes commitment and courage, so you can propel your business and fuel that customer delight.
