Leveraging the Supply Chain for Competitive Advantage

A survey of consumer healthcare decision-makers shows opportunities for manufacturers to gain competitive advantage by focusing on some key points in their supply chains.

Stamford, Conn.based Archstone Consulting, an independent business strategy and operations consulting firm, conducted an intensive supply chain survey that was completed in 2004, among a number of the leading consumer healthcare manufacturers. The survey was designed to answer three strategic questions:

* How does my supply chain performance compare with competitors?
* Are my supply chain efforts addressing the right issues?
* Is my supply chain positioned for competitive advantage?

While the participants were mainly consumer healthcare focused, Archstone Consulting believes the findings are applicable to most large consumer product manufacturers.

Survey Highlights

The survey results revealed that there are still leap-frog opportunities for manufacturers to gain competitive advantage through the supply chain by more extensively collaborating with customers, bringing executive focus to improvement efforts and revisiting their supply chain operations to better support growth and flexibility.

The most successful survey respondents had a number of key supply chain and organizational capabilities in common:

Execution, Execution, Execution The most successful firms in the survey had an almost pristine focus on getting the blocking and tackling right. Executing correctly on the basics and having the systems to support them provides a sturdy base from which to launch more advanced supply chain offerings.

Focus on Customer Touching Metrics...First In nearly every case, successful firms in the survey ensured that their practices and operations facing or impacting customers were raised in importance and measured. Executive focus and the proper use of incentives can go a long way to make sure that the customer always comes first.

Raise the Importance of Supply Chain in the Organization The successful firms in the survey had supply chain leaders who raised the importance of supply chain operations in their respective organizations. These supply chain executives truly interacted with, and were considered part of, the top executive management team.

Make Your Supply Chain a Strategic Enabler of Growth Instead of a Cost Center Beyond raising the profile of supply chain within your organization, it is important to position your supply chain as a strategic enabler of growth. The most successful firms in the survey viewed supply chain operations as a key competitive enabler.

Additional Findings

Cost to Serve

Cost-to-serve is rapidly becoming a best practice in the Consumer Products industry. The firms in the survey that had the most robust definition and use of cost-to-serve also had the best overall supply chain performance. Cost-to-serve is an important building block practice that:
a) Allows for better allocation of scarce supply chain resources
b) Helps manufacturers understand true customer profitability and service level decisions
c) Helps manufacturers make better informed decisions around such issues as customer rationalization
d) Helps manufacturers target cost improvement efforts

Customer Segmentation and Rationalization

Customer segmentation and rationalization is critical for the efficient allocation of scarce supply chain resources to the most profitable and strategic customers and channels. These activities are not only indicative of good supply chain management but of good business management in general. Therefore, it was surprising to learn that so few of the survey respondents incorporate supply chain and cost-to-serve perspectives into their customer segmentation approach.

Customer Collaboration and Supply Chain Visibility

Archstone Consulting probed the breadth and depth of customer collaboration among survey respondents. Activities included collaborative product development, promotions planning, CPFR, VMR, shared inventory visibility, shared performance objectives, and use of new technology. Not surprising, the survey respondents that had the most advanced customer collaboration also had the best performance.

Forecast Accuracy

Archstone Consulting believes that improved forecast accuracy is meaningless without an effective sales and operations planning (S&OP) process to ensure that manufacturers have the right product in the right place at the right time. Manufacturers that have coupled accurate forecasting with an effective S&OP process saw improved supply chain metrics such as fill rates, order cycle time, turns and working capital in effect, they were able to take it to the bank.

Other Notable Findings

No participant scored advanced across any part of Archstone Consulting's maturity model. While many of the participants are doing creative things with regard to their supply chains, there is still opportunity to improve.

In general, survey respondents excelled in areas where supply chain management was measured and held accountable. Areas that were not deemed important by executive management tended to have poorer performance; unfortunately, for some survey respondents, this lack of focus included customer touching and service metrics.

About the Author:

James Ilaria is a director in Archstone Consulting's Consumer Packaged Goods practice. He has more than 18 years of experience helping global firms drive shareholder value as both a management consultant and as an internal strategy executive. Ilaria has worked extensively with consumer product and retail companies in the areas of strategy, benchmarking and operations improvement.

Ilaria recently authored Accelerating E-Collaboration: Avoid Simple, Easy Wrong Answers in the Winter-2003 issue of GMA Forum. The article addressed barriers to data synchronization and the adoption of UCCnet for consumer product manufacturers and retailers. He has also authored supply chain articles for use at the World Economic Forum in Davos, Switzerland.

Ilaria can be reached at jilaria@archstoneconsulting.com or (203) 940-8235.

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