Building a Response
Building an effective response — raising capabilities within the supply chain, as well as elevating its role within strategic planning — will not happen overnight. Rather, businesses leaders and their supply chain organizations need to begin to view this transformation as a series of continuous, iterative improvements.
The starting point is to begin placing greater emphasis on predictability. The supply chain function must improve its ability to gather all needed information for making choices in real time that absolutely minimize surprises for their organizations. The flow of such information must be both upstream and downstream. In other words, supply chain executives should be as well-informed regarding the latest actual orders and forecasts of key customer demand as they are of the cost/volume tradeoffs of production runs from key suppliers.
Supply chain managers should also adopt an analytical perspective. Examine performance across the entire supply chain. Relate changes in variables such as demand and production/maintenance costs leading to better decision-making in terms of product development, product lifecycles, capacity planning and other key components of value creation.
Soon, supply chain managers will be demonstrating, through action, how greater predictability leads to greater optimization and in the process adds enormous value to a business. They will use fact-based approaches to discern overly optimistic demand forecasts from more likely scenarios. They will better manage productions runs based on global, as opposed to regional demand, leading to greater efficiency.
Moving from success to success, the function will gradually become so integral to the business that its views and processes become invaluable, if not defining. A company's supply chain dexterity will begin to inform everything from product development and lifecycle management to marketing and customer relationship management — and vice-versa.
This is not to say that supply chain issues will emphatically define corporate strategy. Rather, this is an iterative process whereby the two, by increments, evolve into a more symbiotically optimized balance. Business strategy becomes both defined and enabled in terms of supply chain capabilities. Where business strategy needs to adapt to supply chain realities, it will. And where supply chain capabilities need to evolve to meet business needs, they will.
Conclusion: A New Era
A new realization is taking hold: A company's supply chain defines its competitive capabilities. Companies now need to begin doing more in terms of aligning their business and supply chain strategies to create a stronger whole. In short, it is time to elevate the role of the function.
Begin by accepting that supply chain reliability and predictability are fundamental drivers of business value. Missteps, research shows, destroy value. Meanwhile, advances in the achievement of greater reliability and predictability can streamline costs and deliver greater value across the whole of the value chain. Add to this, owing to its unique position, the supply chain function itself is ideally suited to play a profound role in nearly all aspects of value creation and preservation.
A growing number of leading companies are affording their supply chain organizations with greater authority and responsibility for defining not only how the supply chain will operate but increasingly how their companies as a whole will operate. Not all such functions are currently suited for such a crucial, strategic role. Many will need to assume such a role gradually, earning their way one step or one success at a time. But in the face of all the factors already cited, the trajectory is inescapable.
As the economy continues to change, an organization's success will be increasingly contingent on the degree of alignment between its business strategies and its underlying supply chain capabilities. Supply chain may not necessarily drive the formation of any fundamental value proposition. However, given its role in delivering on promises, it must also become more active in defining those promises. In other words, businesses must begin to define core business strategies in terms of their supply chain. The era of competition driven by supply chain capabilities has arrived.
About the Author: Brian Meadows serves as the Americas leader for the Supply Chain and Operations Advisory Services business of Ernst & Young. He has deep experience in supply chain operations both as a consultant and an operating executive covering the end-to-end supply chain. Most recently, he was senior vice president of supply chain and operations at Hospira and Sprint-Nextel Corporation, where he led the integration of the supply chain operations of Sprint and Nextel Communications. Prior to Sprint, Meadows was the senior vice president of supply chain management at Nextel, where he centralized and built the supply chain organization. Additionally, he was the COO of an internet technology outsourcing company. His supply chain and operating experience is complemented with an operations focused consulting career in which he was a principal at A.T. Kearney and a partner at Deloitte Consulting. More information at www.ey.com.