The traditional supply chain is being disrupted by new technology and consumer expectations, requiring companies to rethink their supply chains.
Businesses today are seeing their traditional supply chain practices disrupted by the Internet of Things (IoT), 3D printing, implantable technology, connected homes, automated workforces, smart decision support systems, robotics and more. And in today’s tech-savvy, Uberized and Amazon-impacted world, consumers are increasingly demanding a personalized, consistent and seamless experience across retail, online and mobile, requiring companies to rethink their supply chains. This sea change is occurring at a time of increased market volatility. Events like Brexit, increased mergers and acquisitions and shrinking product lifecycles all play a role. Whatever your industry, volatility has become the new normal. Companies that have embraced the outsourcing and globalization culture of “buy anywhere, make anywhere and sell anywhere” are now faced with a complex grid of supply chain nodes (see figure below).
Organizations must strike a difficult balance: Deliver a unified omnichannel experience that accommodates customers’ rapidly changing preferences on pricing, quality, delivery options and service levels, while also meeting investors’ constant expectations. To accomplish this in today’s digital world, companies need to embrace the three principles of a seamless supply chain.
The Seamless Supply Chain Principles
There are three core tenets to enabling a seamless supply chain:
- Profitable Customer Commerce provides personalized and seamless responses to today’s digitally connected customer across all channels in the most profitable way. To accomplish this, companies need to connect the digital customer with the physical supply chain, without any latency.
- Adaptable Manufacturing enables retailers, distributors, manufacturers and suppliers to seamlessly respond to customer demand while managing physical inventory, machinery and labor across factories to maximize ROI. It also involves being agile and responsive to demand changes and resilient in the face of supply disruptions.
- Intelligent Fulfillment interconnects planning and execution processes to profitably satisfy demand according to the unique needs of individual customers.
To be successful in today’s consumer-driven world, organizations must be able to respond effectively to customer demand through the adaptable manufacturing and intelligent fulfillment core tenets, while also managing supply chain costs more efficiently to deliver profitable customer commerce.
Many organizations still use a “peanut butter spread” approach when it comes to service, treating all channel, customer and product segments the same, over-serving some and under-serving others. While this typically results in more than half of an organization’s portfolio being unprofitable, companies have been able to survive in the past by carrying buffer capacity and inventory. This, however, is no longer sustainable.
The future belongs to leaders who can respond effectively to customer demand while managing supply chain costs. This can be accomplished by deploying segmentation strategies. First, companies must create intelligent “clusters” of channels, customers and products that have similar requirements, patterns and characteristics, and define the customer value proposition (e.g. responsiveness, flexibility, quality, price, etc.) for each one. Next, they must match the different value propositions with the cost to provide differentiated service levels across the defined clusters while maintaining profitability.
With any segmentation strategy, profitability is the overarching goal but the focus on offering differentiated services across the defined clusters cannot be lost. It is important to note that the value proposition for each cluster could be different. For example, premium customers might demand higher service levels and increased responsiveness, necessitating a higher cost, while non-premium customers might want a lower price.
In essence, the seamless supply chain tenets ensure that there is dynamic alignment of customer channel demands with supply chain response capabilities, optimized for net profitability across each segment.
Deploying the Seamless Supply Chain
The seamless supply chain is an organizational initiative that requires an amalgamation of people, process, governance and best-of-breed technology, as well as strong executive leadership and commitment. Executives must instill customer-centric cultures within the DNA of their organizations. Corresponding business process best practices should be embedded in the organization’s culture, with continuous top-down and bottom-up communication and strong articulation of the benefits and the business case for change.
Best-of-breed systems have come a long way, and leading companies are now leveraging decision support technology to enable seamless supply chains. Essentially, they are leveraging the same physical assets to create multiple virtual supply chains that match different value propositions to different clusters with corresponding costs-to-serve. This helps them orchestrate a differentiated supply chain posture (planning for demand, inventory, manufacturing, allocation, order promising, etc.) for different clusters based on their strategic business objectives. They are able to use the same physical supply chain assets, plants, distribution centers and warehouses much more effectively, instead of deploying additional assets.
Thus technology supports the seamless union of the digital connected consumer with the physical supply chain. It leverages the Profitable Customer Commerce tenet, seamlessly propagating demand across value chain partners using Adaptable Manufacturing, then delivering synchronized planning and execution across the extended supply chain through Intelligent Fulfillment.
Through executive buy-in, enforcing governance and leveraging technology as an enabler, the seamless supply chain drives competitive advantage and profitable growth across all clusters. This will not only result in a personalized and consistent omnichannel customer experience, but can have a significant impact on margin, market share and competitive advantage.