Covid has forced a rethinking of the complete supply chain including immediate suppliers and tiered networks. Digital capabilities are also accelerating the transformation of supply chain business models. Many retailers, product and component suppliers, and OEMs have pivoted to various services, such as, on-line order with store or curbside pick-up, direct fulfillment to stores, and pre-assembled fulfillment. It is clear that fulfillment is emerging as a key value player, especially in retail, and quality fulfillment equates to good business. It also means that supply chain should be viewed as a Value Driver as opposed to a Cost Center.
What does the “Value” of a supply chain look like? The following are some criteria.
- On-time deliveries of the right production with continuous shipment tracking and communication.
- Synchronized fulfillment and returns.
- Alerts along the supply chain for adverse events.
- Timely out-of-stock or delay notification to supply chain partners.
Integration of these value drivers would mean moving towards a fulfillment experience and away from individual cost optimization at various nodes. For example, on-time delivery would mean not optimizing the local transport fleet for least cost, but arranging the supply chain such that all nodes are balanced and optimized for best on-time deliveries at each node and to the final customer. Thus, moving to a value model also entails that the entire network costs be optimized, and therefore, each party has a profitable supply chain business model. This also means that performance measurements should be created with the entire supply chain in mind and not on individual nodes or siloed functions.
To elevate to a value driven supply chain, businesses need to think of their business processes from beginning to end. That is, they should consider not only their internal functions but other organizations and supplier networks and tiers when re-designing their supply chains. This is essentially integrating processes and re-architecting organizations, a very hard task. What are some of the key elements to be considered? Here are some.
- Product planning, demand forecasting, and inventory planning. This is critical because of the need to supply to demand by region or location. Efficiency and effectiveness here will have tremendous repercussions on the supply chain because it will minimize wasteful unneeded production and over processing, transportation, waiting, defects, inventory, and money; that is, the seven Mudas. Let’s think about the magnitude of the reduction across the entire supply chain if this element alone was optimized. It is worth mentioning that problems arising from the front-end are magnified ten times at the next stage. Thus, prevention is always better than the cure.
- Rationalizing product offers and catalogs. This is an exercise often missed or not rigorously done. An examination of demand planning and actual sales will indicate which products to rationalize. Retiring products and introducing market driven new ones will require flexibility to realign the supply chain. Integrating multi-country, multi websites of product inventory and providing the correct inventory and associated information is one key requirement. This is truly integrative of various functions, product development, IT, distribution, and supplier information networks.
- Provisioning the right inventory to next forwarding destination. This obviously needs the right product to ship and the supporting local capabilities for shipment, including labor, operational, and technical skills.
- Delivering to the last mile, whether it is an individual consumer or an organization. This requires synchronizing the transportation, workforce, and labor. While we take this for granted today and expect every package to reach our doorstep, there are many things that can go wrong and do go wrong often, diminishing customer experience.
Realizing the above require strategic investments in processes, systems, and skills to provide complete demand visibility across the supply chain. Only then can each downstream (or upstream) node plan for the best achievable outcome. What new capabilities would be needed then? Technology should be leveraged to the maximum to achieve them. Here are some pointers.
- Flexible demand planning with visibility across the supply chain: Effective optimization of the entire supply chain is completely dependent on accurate demand and visibility across the network. Any supplier at any level of the supply chain will be well positioned to meet the need if they are able to see the demand and fluctuations for a planning time horizon. To minimize the downstream bull-whip effect, market-based product demand planning should be accurate and visible.
- Inventory visibility: Each entity of the supply chain should have inventory visibility at their level and in collaboration with their customers and suppliers, balance their inventory with their network, such that the overall demand is met and fluctuation minimized.
- Labor scheduling and load balancing: What to make, when to make it, ship it, and deliver it intertwined with labor capacity and capability. On-site and fleet management production scheduling software need to be integrated to load balance and assign labor when needed. For example, if the truck driver or a truck is not available for a delivery, it doesn’t matter if the product dock date was met.
- Returns management: While effective returns management is a customer satisfier, it has significant implications on downstream activities like materials processing, recovery, re-processing, and storage, among others. Returns management systems, therefore, need to be integrated among the network. This is quite difficult to achieve due to resource and capability constraints; however, a common shared goal within a network may help.
- Management and reward of the entire supply chain performance: A management and reward system based on the entire supply chain performance will go a long way towards creating a true value chain. This will require management commitment to set-up the network and align with common goal sharing.
- Customer focused fulfillment metrics: In aligning with the above points, metrics and KPIs should be focused on customer fulfillment at each stage rolling-up to the final customer. Individual node metrics should be developed driven from overall supply chain metrics. This will drive supply chain optimization.