Supply Chain Management Trends

Stephen DeAngelis

October 31, 2012

Supply Chain Management has changed significantly over the past several decades. Robert Gifford, executive vice president of global logistics with Ingram Micro, told the editorial staff at SupplyChainBrain that “the last two decades have seen a transition among global supply chains from internal control to the outsourcing of such key elements as manufacturing and distribution.” [“The Changing Dynamics of Global Supply Chains,” 9 October 2012] He went on to insist that even more changes are on the way. The article explains:

“The latest wave of change was driven by the still-developing world of electronic commerce, creating a global demand for products. The result is a more complex supply chain, even as customers expect the same level of service from e-commerce that they are accustomed to receiving from brick-and-mortar retailers. ‘It all comes down to moving a good or product into a consumer’s hands,’ says Gifford. ‘Whether you’re a business or individual, the product is still what they’re looking for. You don’t care if it was made in Chicago or Bangalore. You’re looking for the same experience.’ The biggest accelerator of supply-chain evolution over the last decade has been the surge in global demand, driven by the growth of the internet. ‘You can access product from all over the world,’ says Gifford. ‘It’s a demand-driven supply chain. It’s no longer supply-constrained.’ All of which is placing huge stress on modern-day supply chains, which must compete both on a local and global level. Merchandisers must figure out how to provide top-quality service to the e-commerce world as well as traditional stores.”

Back in 2009 Hitachi Consulting (HC) published a white paper entitled Six Key Trends Changing Supply Chain Management Today. The first two trends that the company identified were demand planning and globalization, which supports what Gifford told the SCB staff. The other trends identified by Hitachi Consulting were: increased competition and price pressures; outsourcing; shortened and more complex life cycles; and closer integration and collaboration with suppliers. While demand planning may have progressed in the manner Hitachi imagined, other trends, like outsourcing, for example, are getting reevaluated by many companies. Bryan Collemacine, an analyst at Kinaxis, read the Hitachi Consulting paper and had a few thoughts of his own about how supply chain management has changed or is changing. [“Musings on 6 Supply Chain Management Trends – Are Changes Needed for Success?” The 21st Century Supply Chain, 13 September 2012] I’ll discuss what Hitachi Consulting and Collemacine had to say about each trend beginning with demand planning.

Demand Planning

Here’s what Hitachi Consulting wrote about the first topic: demand planning.

“The demand-driven approach can help a company create a more customer-focused mindset, without sacrificing operational efficiency. Ultimately a demand-focused approach to planning can significantly improve demand planning and management efforts and help overall costs and customer service efforts. Advanced demand planning systems and proper strategies can also help uncover data and identify trends buried in a company’s information systems. … Critical to success of any Demand Plan is having all stakeholders, including sales, marketing, finance, product development and supply chain agree upon a consensus Demand Plan. It is important for all participants to discuss factors affecting customer demand patterns, such as new or deleted products, competitors or market conditions, the aggregate demand plans and associated revenue plans. … Demand Planning is a key input to the larger Sales and Operations Planning process.”

The only quibble I have with that description is that I believe that good demand planning begins with data integration (i.e., having a single source of truth) while the analysts at Hitachi Consulting wrote that demand planning can be used to “uncover data and identify trends buried in a company’s information systems.” I don’t believe this is a chicken and egg discussion. A good demand planning process begins with good data. Collemacine writes:

“Consensus demand planning has become critical as all leaders in a company must be in agreement with a demand plan in order for it to be successful. This requires capturing all influencing factors and cross functional input, such as customer demands, new potential products, product improvements based on market trends and competition, market conditions, current market acceptance and services needed to support such products. These factors need to be continually evaluated and the demand plan must be changed accordingly for continuous improvement and forecast accuracy.”

Both HC and Collemacine seem to agree that one of the foundations (and benefits) of demand planning is corporate alignment around consensus goals.

Globalization

On the topic of globalization, the HC paper states:

“No area of a business is more affected by the trend to a global business environment than the supply chain. Manufacturing, distribution, sourcing of materials, invoicing and returns have all been significantly impacted by the increased integration of a global customer and supplier base, and many companies find that existing processes and technology are not flexible enough for this new business environment.”

Fortunately, in the years since the report was first published, technologies have developed that can meet the challenges presented by globalization. The authors of the paper conclude, “The right Supply Chain Design is critical to managing the changes brought about by rapid globalization.” Collemacine agrees. He writes:

“Container shipment volumes have increased over the years and some ports have capacity issues related to customs or trans-shipping, thus forcing companies to logistically re-route, which has a major effect on the overall cost and efficiency of the supply chain network. Changing the point of entry for inbound shipments can have a positive impact on the ‘total landed costs’ due to factors such as customs clearance times, capacity and better efficiency of transporting materials. Alternate ports would need to be evaluated for supply chain costs and efficiency. A well thought out global network design can optimize a supply chain network, reduce overall costs and obtain maximum performance due to a better flow of materials to the ‘end point’ — be that a customer or the manufacturing facility.”

Enterra Solutions has created technologies that can increase supply chain visibility for manufacturers and help them make decisions that ensure inventory in the pipeline is distributed more productively.

Increased Competition and Price Pressures

The HC paper insists that “with the continued commoditization of many products, companies need better ways to distinguish themselves.” It continues:

“Product innovation and brand equity no longer [are] allowing [global consumer goods manufacturers] to command a higher price in the market. … Companies are looking to their supply chains in two ways to help offset this trend. First, they are looking at ways to reduce cost and are creating a more efficient value chain to remain cost competitive. Second, companies are looking at ways they can provide value-added services to meet the demands of more sophisticated customers.”

Perhaps no company has seen this trend more than Procter & Gamble (P&G). P&G’s latest strategy addresses the consumer bifurcation (i.e., low- and high-end buyers) noted in the HC paper. For more on the dilemma faced by P&G, read my post entitled Critics Pile On Criticism of P&G Innovation. Collemacine adds:

“There are too many competitive products in every category. Price is the factor that is driving demand in most cases due to a challenging economy, but it’s not the only factor. People will sacrifice a better product for a cheaper one if they cannot afford it. So to diversify, suppliers can differentiate themselves to OEMs by offering value added services such as VMI, Drop Shipping and collaboration to name a few. Ultimately, better collaboration among OEM, CMs and suppliers across the global network can lend itself to value added services for end customers, which can keep your company competitive by building better relationships with customers. Many consumers do take into account quality, support and services when evaluating products for purchase.”

Outsourcing

The HC paper states, “As many companies step back and examine their core competencies, some realize that outsourcing parts or all of a supply chain can be advantageous.” It continues:

“There can be significant economic benefits from outsourcing all or part of your supply chain operation, but without the right systems, processes, or organizational management structure the risk to success can increase to frightening levels. In an outsource-heavy environment companies need to put more controls and systems in place to compensate for the fact that their supply chain capabilities no longer reside onsite.”

In a world that is trending towards online shopping and away from traditional brick-and-mortar stores, order fulfillment is becoming a big deal. That’s why a number of companies are once again taking control of their supply chains. Collemacine writes:

“We have seen over time that it can be dangerous and can cause loss of customers if this part of the supply chain breaks down. In my opinion, the US has outsourced too much and it has had a direct impact on the economy. By trying to save money and outsource manufacturing operations, we have caused the loss of jobs and growth to which in the end, has resulted in less US revenues for companies, because many individuals have curbed their spending. However, one can outsource certain parts of the supply chain and be successful. Many factors come into play such as, provider selection, competency, performance, capacity limitations and financial due diligence on the provider/supplier to name a few. There also must be focus on proper management, communication and control variables of outsourced providers and process, this would be key to manage the processes efficiently and be proactive in monitoring the various components of this particular outsourced supply chain part/product line. Sometimes outsourcing can be harmful if not properly managed and can affect the breakdown of the complete supply chain.”

Shortened and More Complex Product Life Cycles

Trying to grow a business is difficult; especially, in the developed world where markets are already saturated. One way to address growth is by continually offering new and innovative products. As the HC paper notes, many companies “are under pressure to develop innovative products and bring them to market more rapidly, while minimizing cannibalization of existing products, which are still in high demand.” It continues:

“In order to meet the needs of both customers and consumers, companies need more efficient product lifecycle management processes. This includes heavy emphasis on managing new product introduction, product discontinuation, design for manufacturability and leveraging across their entire product and infrastructure characteristics. … By focusing [on] product lifecycle management efforts, … a company can buffer itself against the risk of an unplanned cost increase, a poor new product launch, an unplanned obsolescence writeoff and can enhance the overall customer perception of the company as an effective innovator.”

Collemacine writes, “This one key trend in my opinion is the most challenging.” He explains:

“Companies looking for the cheapest method to manufacture, as well as the cheapest components to build their products in order to keep the cost down, are taking risks that far outweigh the cost benefits. If the product fails too soon or the quality is spared as a result of this process, the consumer is left with a bad experience and with consumers having such a strong and far-reaching online ‘voice’, for the offending company, a poor reputation is very hard to recover from.”

New technologies, like 3D printing, can dramatically improve and speed up product design and development. One other lifecycle consideration that is likely to rear its head in the future is recyclability and/or disposal. Tomorrow’s supply chain is likely to involve cradle to grave processes.

Collaboration Between Stakeholders in the Extended Supply Chain

Supply chain collaboration and supply chain visibility go hand-in-hand. You can’t achieve a demand driven supply chain without good collaboration and great visibility. The HC paper states, “As supply chains continue to develop and mature, a move toward more intense collaboration between customers and suppliers has occurred.” It continues:

“The level of collaboration goes beyond linking information systems to fully integrating business processes and organization structures across companies that comprise the full value chain. The ultimate goal of collaboration is to increase visibility throughout the value chain in an effort to make better management decisions and to ultimately decrease value chain costs.”

Collemacine agrees that “collaboration across all lines of the supply chain is critical.” He continues:

“Recently Sales & Operations Planning has emerged as the main vehicle for collaboration and a way to help increase value by maintaining a well-coordinated, valid operating plan in support of customer demand, business planning and strategy. S&OP bridges the gap between sales/forecasting and supply chain. This is needed to make critical, informed decisions. S&OP also allows for greater visibility across the entire value chain. This cross-functional (and even cross-company collaboration) will lead to a better PLM process, improved demand planning, minimized inventory, reduced costs and will help achieve superior customer service and fulfilled customer expectations.”

Conclusions

The HC paper concludes, “To remain successful companies need organization-wide buy-in to supply chain excellence and some will need to re-evaluate their current processes and performance.” Collemacine concludes, “As a whole, these trends seem to be what most corporation are taking into account when evaluating their current supply chain. No doubt that technology is needed to address these key trends.” Fortunately, those technologies are being rapidly developed; which should make the supply chain of the future more efficient and effective.