Operational excellence in the supply chain.
Achieving operational excellence in an evolving supply chain.
Some days your supply chain can feel like a moving target. From managing volatility in supply and demand, to staving off inflation, to complying with carbon emissions regulations, you never know what challenges your supply chain might face on a given day. Each one can throw a wrench in your planning, supplier relationships, profitability and more.
Achieving operational excellence — creating and delivering products your customers want, when and where they want them — requires constant evaluation of your supply chain to adapt it to current market conditions. Meeting your growth and profitability goals demands efficient processes and an agile, engaged workforce with the future-focused skills needed deliver high productivity.
Let’s take a closer look at what that means in practice.
For more than three decades, supply chain leaders across industries have successfully focused on cost reduction. Inflationary pressures have changed that. In one case, a technology company that cut its supply chain costs in half between 2011 and 2017 is now struggling to keep costs flat. The Consumer Price Index has increased 5.3% for the 12-month period ending August 2021, up from 1.3% a year earlier.
The headwinds pushing inflation are strong. Shipping container shortages have led to skyrocketing freight costs; the average Shanghai-to-the-U.S. container costs more than five times what it did in June 2020. Chemical, metals and other commodities’ costs continue to rise. (While lumber and steel prices have fallen from their 2021 peaks, they are still up substantially from pre-pandemic times.) Add to that, a global shortage of the silicon chips that the automobile industry, smartphone, computer and electronic industries depend upon, along with worker shortages, currency devaluations and debt issues, and you see that manufacturers are waging inflationary battles on multiple fronts.
As margins tighten and companies look for ways to cut supply chain costs, they may be tempted to shift their focus away from operational excellence activities. However, that will not produce the long-term results they seek. If anything, the focus on operational excellence should intensify as they look for ways to improve process efficiency, human capital management and productivity.
The path to process efficiency.
Automating repetitive and manual tasks along the supply chain is essential to improving its performance. Adding sensors to manufacturing, warehouses and delivery vehicles to provide transparency and real-time tracking of production, inventory and shipping are also key. These and other digital solutions allow businesses to make data-driven decisions on supply chain strategies.
But automation isn’t the answer to every challenge. Process efficiency can also benefit from:
Shifting from single-source to multi-source supply chains – Companies that depend on a single supplier for some goods may benefit from volume pricing and preferential treatment. But when severe weather, labor shortages and, yes, pandemics interrupt supply chains, single sourcing can pose great risks. Lower material costs deliver no benefit if customer orders can’t be filled or deadlines are missed. To maintain process efficiency, one solution is a multi-supplier approach. For example, U.S. companies that primarily source materials in Asia might add a regional supplier that can meet shorter fulfillment schedules and fill other gaps on short notice.
Rethinking the last mile – The growth in e-commerce during the pandemic led many companies to reconsider how best to get orders to end-customers — particularly the growing number who place high value on speed and low or no shipping or delivery costs.
One answer they found is micro-fulfillment, a distribution model that increases the number of distribution centers and locates them closer to customers. Consider a supermarket chain, for example. Instead of fulfilling online orders at a regional warehouse, more grocers now use retail stores as local distribution centers.1 Turnaround time is quicker when orders can be fulfilled in-store for same-day curbside pick-up or delivery.
In some cases, companies are outsourcing the last mile of their supply chain altogether, relying on third parties to assemble or complete their product locally. A national online florist, for example, can contract with independent floral shops across the country to fulfill orders. Automation, transparency and strong supply chain relationships make these last-mile partnerships efficient — and possible.
Improving human capital management.
No company can achieve operational excellence in its supply chain without the help of engaged and agile employees. The easiest way to develop a workforce with these traits is by creating a work culture that champions adaptability, celebrates innovation and fosters resilience.
In addition, consider other ways to make optimal use of your human capital, including:
Treating service as a key differentiator – Many of today’s consumers have high expectations both for the products they purchase and the “customer experience” you provide before, during and after the sale. That often goes beyond in-store consultations, in-home product assembly and third-party warranties. Companies that place a premium on service — whether through one-on-one human contact or supplemented by analytic processes that help them identify and track future customer needs — can help separate themselves from the pack.
Upskilling their labor force – Engaged employees are more open to learning the new skills needed to optimize the benefits that automation, artificial intelligence and other new technologies have to offer. It’s not just management-level staff that benefit. Human resource teams can use advanced analytics to make informed decisions on talent acquisition and assess how best to retrain employees for new processes. Likewise, employees throughout the entire supply chain — from distribution centers, to shipping docks to truck drivers — can learn to use data to make critical decisions in day-to-day operations.
Most supply chain professionals are not trained in statistics or data science. Both skills are needed to increase productivity across the supply chain. But that does not necessarily mean that operational excellence depends on transforming existing staff into data scientists and experts in analytics.
While some upskilling is needed by most existing employees, training can be supplemented by:
Implementing advanced, intuitive tools – Advanced machine-learning and artificial intelligence can perform a lot of the “heavy lifting” for non-technical staff. A supply chain that can predict maintenance needs or pre-emptively identify supply bottlenecks can provide staff the critical information they need to make decisions. Other technology investments can help employees become productive quickly.
Adding more “knowledge workers” – Most companies employ high-level workers whose primary job it is to “think for a living.” In the supply chain, these knowledge workers include data scientists, economists and other specialists who understand statistical models and complex algorithms and can apply them to supply chain management. Companies with few supply chain knowledge workers on staff might add some. Because the talent pool for these professionals can be small, you might also consider offering a path to certification or upskilling in your recruitment efforts.
The bottom line: Accomplishing productivity gains in your supply chain depends in large part on the investment your company makes in upskilling your staff and building out your supply chain analytics infrastructure. Both are essential to achieving the operational excellence needed to support customer satisfaction and long-term growth.
Conrad, Pete. (2021, June 17) “Micro-Fulfillment: Definition, Benefits, and Businesses Using It,” https://www.veryableops.com/blog/micro-fulfillment-definition
Supplychaingamechanger.com (2021, September 6) “Supply Chain Woes with Inflation Rising…What’s Next?,” https://supplychaingamechanger.com/supply-chain-woes-with-inflation-rising-whats-next/
Hanbury, Peter, Schannon, David and Flood Caperton. (2018, November 18) “Cost Inflation Is Back, Putting Supply Chains at Risk,” https://www.bain.com/insights/cost-inflation-is-back-putting-supply-chains-at-risk/
O’Marah, Kevin. (2017, August 17) “Supply Chain Management is Killing Inflation,” https://www.forbes.com/sites/kevinomarah/2017/08/17/supply-chain-management-is-killing-inflation/?sh=63e2458043b8
Trivedi, Anjani. (2021, March 321) “As Prices Rise Across Supply Chains, Will Inflation Come for You Too?,” https://www.bloomberg.com/opinion/articles/2021-03-31/prices-are-going-up-across-supply-chains-will-inflation-come-for-you-too
McKinsey & Company. (2021, July 19) “Responding to inflation and volatility: time for procurement to lead,” https://www.mckinsey.com/business-functions/operations/our-insights/responding-to-inflation-and-volatility-time-for-procurement-to-lead
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