How Today's Supply Chains Increasingly Define Strategy and Deliver Performance

3 reasons supply chain is more important than ever, and where to begin transforming supply chain to create stronger enterprises that can meet today's challenges


February 16, 2011 — Supply chain management has always been important. However, its relative importance is on the rise, particularly as senior executives are becoming more focused on supporting a return to growth.

Trends and realities in the global economy are thrusting supply chain management to the forefront of business strategy. Executives are realizing that supply chain characteristics and capabilities ultimately define how a business can and should operate. As this new state of affairs takes hold, supply chain managers must both embrace and act upon an evolved and elevated role in strategy formation, leadership and value creation.

Today's volatile markets have forced companies to drive tremendous change and align costs with revenue. Typically functionally focused, this rationalization of resources, combined with the never-ending drive to realize greater value, is producing extraordinary and impactful results.

Though profitability is returning, top-line growth remains elusive — and by most forecasts may remain so for the foreseeable future. Given this realization, business leaders are now seeking to achieve the next generation of productivity gains. In particular, they are upping the ante in terms willingness to innovate in areas such as how and where work gets done.

To achieve this next order of efficiency, companies are moving away from a purely functional focus. They are now taking a global view in terms of standardizing operating processes and/or leveraging end-to-end processes.

It is critical for organizations to recognize that business performance is substantially governed by the supply chain. The supply chain is fast-becoming one of the core determinants of a company's business model. Organizations are now in an era where their operating model is being defined by its supply chain function.

Why Now? Recognizing Three Key Trends

A wide range of forces has been placing greater and broader demands on supply chains for decades. Everything from advances in collaborative technology to greater globalization raises the bar for supply chain management nearly incessantly. And today an uncertain global economy is exacerbating the need for still leaner inventory management as well as general cost consciousness both up and down the supply chain.

The pressure on supply chains is approaching, or already exceeding, a type of critical mass. Success in business is now more dependent on the performance of the underlying supply chain than ever before. As for the forces behind this surging prominence — those creating the most pressure for a shift towards a more supply chain-centric business model — three in particular deserve greater exploration. They are as follows:

1. Supply chain failures can visibly impact market valuation

Just how much influence does the supply chain wield in terms of the success or failure of an organization? Asked to say where most value is created within their company, most executives would likely point to areas such as product development, customer service or marketing.

But now change the question and ask which corporate activity generates the most value.

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