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Supply Chain 4.0: Opportunities to use your supply chain for differentiation

Investments in your supply chain can help you respond quickly to changing customer demands—creating a real impact on your financial performance.
Simon Hinds

Based in Melbourne, Simon has more than 15 years of experience in leading and deploying transformational change programs worldwide, with a focus on supply chains.

As we discussed in my recent blog post, How to recruit, train, and retain talent for Supply Chain 4.0, bringing your supply chain operations to the heart of your organization and pushing them to the top of your CEO and board agenda can offer new opportunities. Among top-quartile supply-chain performers, strategic investment in supply chain correlates with strong financial results. A typical $10bn organization can expect to see a $70m earnings before tax (EBT) improvement and a potential $85m cost reduction.

Getting supply chain management right drives tangible and substantial impact, even for top performers.
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Differentiation built on B2B innovation

Our economy is evolving in parallel to this potential, driven by customer demand for mass customization, personal service, and fulfilment speed—across sectors in both B2B and B2C environments. Supply-chain investment can help meet these demands, particularly with regards to technology, infrastructure, relationships, people, and digital and analytics.

And there’s lots of choice available when it comes to investment in technology. A survey of supply-chain experts identified over 50 innovations powering Supply Chain 4.0, including smart shelves, no-touch order planning, and scheduled maintenance. Cycle stages of these innovations range from the beginning of their development through to broad use, with adoption rates rising quickly.

So it’s unsurprising that several opportunities for differentiation center around technology. But contrary to expectation, the investment levels required are often minimal. A chemical manufacturer added custom-built solutions to its current automated production system as part of its transformation. By taking a customer-back approach and using agile working methods for faster implementation, it increased earnings before interest and tax (EBIT) profits by 3 percentage points, while raising service-level adherence from 70 to 95 percent and forecasting accuracy from 50 to 90 percent—a vast improvement from previous results.

The ability to offer improved service levels has proven to be a critical differentiator in what otherwise is largely a commodity market. Across many sectors, customers (such as major retailers) are telling producers to “deliver on time or pay the fine”—but smart producers can turn that threat into profitable promise. When a company knows it can rely on its production forecasts, it can guarantee better service and offer financial incentives if it fails to deliver, safe in the knowledge that its high-performing supply chains will make such payouts rare.

Differentiation from innovation in B2C

Technology played a key role at a large consumer packaged-goods client, which used big data and advanced analytics to improve its real-time supply chain planning. Careful diagnosis highlighted an inventory-reduction opportunity of about 20 percent across its end-to-end supply chain. By deploying a performance-management engine, the company could better track supply-chain performance while managing exceptions more effectively with real-time problem solving. The final major component was an advanced analytics-based inventory model. Together, the changes resulted in a 30 percent reduction in inventory, while the on-time-in-full (OTIF) delivery rate rose to 95 percent.

A digitized supply chain at a European car manufacturer resulted in higher customer service levels and lower cost, taking in the entire end-to-end ordering process from configuration to production, and through to the final delivery to the customer. End-to-end transparency significantly reduced delays and improved customer service, with most orders processing automatically; and improved planning synchronization resulted in fewer lost sales.

Differentiation through forecasting

Advanced analytics can also help companies fulfil requirements resulting from changing customer expectations and behaviors. Substantial value can be created just by being able to assess data on a wider range of inputs: better predicting a hot spell that drives sales of ice cream and BBQ equipment; quickly capturing a red-carpet moment that launches a new fashion craze; or preparing for an energy-policy move that sparks demand for building materials. These data points can then trigger supply-chain responses to meet the new needs, with data-driven decisions improving performance across commercial, operations, and finance functions.

A consumer-goods company used machine learning and big data to significantly improve the accuracy of its demand forecasting: a 12 percentage-point improvement in forecast accuracy, and a reduction in brand- and pack-forecast error by more than two-thirds. And a European non-food retailer redesigned and automated its network of warehouses to achieve savings of 15 percent without reducing service to its stores, and while also preparing for a predicted increase in product lines and order rates.

Differentiation through partnerships

Investment in more than technology can be fruitful when making strategic decisions. Investing in relationships with organizations that can source multiple providers of components can help spread some of the capital risk. This strategy is especially prominent among major consumer technology companies and their largest suppliers.

Steps to stand out

In an environment where customer expectations of performance outstrip the current rate of investment and improvement in existing supply chains, what steps should you take to boost the impact of your supply chain and stand out from the competition?

Start by reviewing your supply-chain investment strategy as a percentage of overall capital expenditure, and at the same time map your customer expectations to current capabilities. By doing so you’ll be able to identify important gaps, together with opportunities for differentiation. Be sure to follow the money: see where venture and innovation capital is being applied to elements of the supply chain, and look for strategic partnerships for longer-term investments.

Finally, while great supply chains can lead to great financial performance, remember that investing in supply-chain technologies, people, and partnerships must be a long-term plan that sustains returns over a period of 5-10 years rather than just one. Great supply chains stay that way only if they keep improving, year after, through the economic cycle.

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