Collaborate to Innovate

Five universal business plan challenges driving supply chain alignment in the 21st century


Over the long term, Hong Kong Disneyland intends to hire and train local people throughout its management functions, including supply chain. The company sends its Hong Kong employees to other Disney facilities around the world for three to six months to learn the business. The challenge, as McKinsey research has documented, is the shortage of immediately available supply chain talent. McKinsey data indicate that 75,000 supply chain managers will be needed in China alone over the next five years, but only 3,000 are now available.

So a key Disney new-market objective in Asia is patient growth. The company intends to hire and operate locally to become part of the region's cultural fabric. To do so, it must ensure growth plans don't move faster than supply chain and organizational expertise allow.

2. Enhancing the Customer Experience

Whether it's serving new customers in new markets like Hong Kong Disneyland, or serving existing customers in traditional markets, the essential foundation of supply chain management lies in a deep understanding of customer needs, reiterates Dr. Hau Lee, professor of operations, information and technology at The Stanford University graduate school of business.

At Longitudes Shanghai, Lee cited the China supply chain approach of Astec, a marketer of power supplies to original equipment manufacturers in the computer and telecom industries. Like Disneyland Hong Kong, Astec's approach to supply chain strategy in China has been to rely on partnering locally and to build long-term supplier relationships.

The company relies on vendor hubs and allowing vendors to manage inventory and provide local market intelligence. Astec involves its Asian partners in the product design, innovation and logistics process. To avoid compromising on quality, the company has created a supplier development program where 50 Astec engineers work with suppliers to continuously drive improvement. The company has also created an internal IT group that's focused exclusively on supply chain. "We've won millions of dollars in new business by investing in local supply chain professionals and in developing market intelligence, which most companies don't do," said George Foo, Astec executive vice president of operations.

Longitudes experts also point out that a key way to ensure better customer service is to deliver complete supply chain visibility. Visibility, of course, allows companies, customers and supply chain partners to look up and down the supply chain, to see exactly where an order is, where it's headed and why. No one can afford the risk of black holes of information anymore. On the other hand, a company can greatly enhance customer service by providing richer, more up-to-date information about shipments in progress.

Imagine a service that would give high-volume shippers detailed visibility into the status of multiple shipments. They can share this information electronically with their customers who can feed it into their own systems like inventory and accounts payable. Visibility tools like this can help companies provide instant answers to customer questions and to do a better job of troubleshooting if something goes wrong.

3. Differentiating from Competitors

When you understand the customer, you can gain a springboard to competitive advantage, believes Dr. Lee. He points to the Spanish apparel manufacturer, Zara, as a prime example of a firm that uses a holistic supply chain to differentiate its products in the fast-changing, highly competitive fashion marketplace. Zara has been growing 20 percent since the 1990s and the company's net profit margin is 10 percent. That compares to an apparel industry average of 3 to 4 percent.

The apparel maker's highly flexible, cross-functional supply chain allows it to introduce an incredible 12,000 new products a year. It changes stock every two to four weeks, rather than every season, by focusing on supply chain flexibility rather than finding the lowest labor cost.

Could that produce retail shortages? Zara doesn't worry about that. That's because shortages convey an image of scarcity and hot products. That prompts customers to buy now, and to return often to see what's new. In a nutshell, Zara has designed a supply chain that differentiates its products to match its particular business plan objective — to satisfy customers' ever-changing appetites for new styles.

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