Kearney; Cost. Service. Agility. Supply chain’s new troika
What was at first thought to be a one-time disruption, the ultimate black swan event, has now become the new normal. The hard-won lessons of Covid-19 have shown us that moving forward supply chain resilience will be as imperative to business as cost and performance.
Suketu Gandhi, partner and global product leader, Digital Supply Chain and Plan is helping companies the world over set a new plan for the “new normal”. Gandhi shows clients the way to achieving their targets by building agile supply chains that leverage today’s best tech to sense and pivot with fast, informed decision making.
Real resilience is far more than performing “what if” scenario analysis and disaster response planning. It’s about increasing capabilities and building lighting fast reflexes, so you can respond to fluctuations in demand and an ever-changing business landscape with dynamic resource and capacity planning.
As CEOs, COOs and CPOs now look to restructure their business model with the aim of increasing organisational resilience and agility, produced in partnership with MIT Technology Review, Kearney offers a comprehensive . Speaking with clients such as Mars and Johnson and Johnson, MIT and Kearney took a tech-centric view of data needs and how AI can help.
The report says that at the core of company efforts to increase resilience and agility there should be two strategic priorities; decreasing complexities and using data to increase visibility at every node in the supply chain, and developing action plans to efficiently respond to change and disruption.
Gandhi walks us through.
Complexity must be managed, not expunged.
“You have to step back and look at your business a few years out and think, what are the three things I should do? What are the structural changes that I should make? You must be very deliberate in the choices that are made based on the options that are available,” Ghandhi says.
“One of the key dimensions is finding commonalities and what can be done to standardise further. The more common you can make things, the easier manufacturing, assembly and sourcing become. Although it seems quite logical, unfortunately, we don't find people doing that.”
“Another key element is inbound and outbound transportation, what we call geography. Where do you manufacture? Where do you sell? Now that's a simple question, but then you must also look at the geographical boundaries you cross and how many political boundaries as well. And that second question, political boundaries, is a loaded one because that can cause issues. Brexit is a good example of that.
“The other part of geography is that countries like China and India are going to start insisting that if you sell in their country, then you must manufacture in their country. You have to give back some of what you take. So those are the type of political considerations you must take into account when building a strategy. You must decide where to manufacture, understand costs, service, agility and resiliency and put it all together.
When looking to drive out complexity, Ghandhi warns to set boundaries and suggests leaving the customer out of it, as customer-facing changes may have you in an unending loop. “What we have found is that having that as a constant is absolutely critical. Don't change that proposition because otherwise, you end up with a situation of circular logic, and you never reach an end.
“If you start to look at things like changing features, then you have to consider if the customer will be willing to pay for it and you start to go around and around. New product development starts to fight with supply chain, who fights with the CPO, who fights with sales and marketing, and you never make your way out of it. That's why I say, leave that constant, don't mess with it and move forward.”
“However, no amount of effort will protect you against every shock. That's the first thing we tell people; you can’t protect against everything. So, what are the choices you want to make? And that becomes a CPO, CEO and CFO question.”
Cost. Service. Agility. Supply chain’s new troika.
The emergence of supply chain’s new troika.
“So now we have a new Troika emerging because the CFO used to call the CPO only to reduce cost. Whereas now he has to be a part of the discussion of risk. Our strong perspective is boards are going to start asking this question regularly.
“The fundamental equations of being a CPO or running a supply chain have not changed. The math is still the same, but the granularity, however, has changed. It used to be that people would look at things at a country level, then geographical, then segment, then region. Now you’ve got to be at a customer individual order level. That's the level of granularity needed.”
Gandhi says another change has been a move away from a one-size-fits-all approach to technical solutions, “There was this view that says a general solution for one is easily applicable to the other one. Now, what we are finding is that as we get into the world of artificial intelligence and machine learning, AI allows you to identify the parameters that matter.
“For example, if we buy a standard shoe, versus an athletic one, one may be sold on price and the other one on features. That quite significantly changes how supply chain should look at it. And so now general solutions lose their power because it's easy to find a very specific solution.”
Lastly, Gandhi points out the maturement of risk tolerance, a factor Sense and Pivot looks at, shifting from implicit to explicit.
Sense & Pivot
Kearney started on the Sense and Pivot journey almost three years ago after spotting the trends around the difficulty of forecasting, the inflexibility of distribution centres, manufacturing facilities and transportation networks.
However, there was still resistance to change. Gandhi says, “What Covid did was fundamentally accelerate the trend. What we thought would take another year to two years all of a sudden just came to life. It’s what I call the shift left phenomenon; years became months and months became weeks.”
Just how unpredictable the world can be was a hard-earned lesson. Supply chains quickly realised they need to adapt and perform against plan despite the business challenges brought on by the disruptions and the limitations that lay within the supply chain. Sense and Pivot helps organisations to mitigate the impacts of risks such as extreme weather, geopolitics and unpredictable changes in consumer demand, creating a dynamic, highly responsive and resilient supply chain.
Gandhi says the companies should be asking is if they are set up to sense the right information in order to pivot assets. Real-time information can be pulled from a myriad of resources such as business partners, social media, manufacturing facilities (for machine capacity or handling times), or even point of sale information. This information can then trigger an action or inform decision making. The trick is in aligning the right data to the companies goals.
Sense and Pivot is aimed at companies unique organisational objectives, such as cutting costs, meeting new demand requirements or achieving scalability. By leveraging advanced technology to sense information signals, Sense and Pivot goes beyond the collecting and analysing data and improves business performance by creating opportunities for proactive actions and well-informed decision making.
At one customer, using advanced analytics and sensing daily inventory consumption demands at the SKU and store level, the company is able to pivot and quickly adjust shipments to reallocate inventory, reducing stockouts, returns and inventory waste, increasing it’s annual operating income by 10%.
However, none of it can be accomplished without the right people doing the right things.
Gandhi On People
“We love technology. Absolutely. Who doesn’t? But you don’t want to over-index on that either.”
The Building resilient supply chains report states “Initiatives to drive digitalisation and supply chain resilience must include components of people and process change management. This is a critical step for ensuring that data and insight drive real decisions at every stage of the value chain.”
Gandhi recollects a saying that is all too fitting, “a colleague of mine told me if processes and software could rust, that would be wonderful because then we would rebuild. Unfortunately, they don't.” The signs of an outdated process in need of a redesign are harder to see than rust on a machine part. But processes can no longer be allowed to become stagnant.
“It used to be that you would design a strategy and you went to sleep and then just executed it every day. And hope that in three years, you got to look at it. That model is dead. Now we have a continuous design and execution model. That’s a big change, and that’s the essence of Sense and Pivot.
Gandhi points out that just as it takes a skilled driver to drive a fast car, as technology expedites how we do business, the need for leadership and expertise matters even more. Because, of course, the faster you go, the harder the impact.
- Suketu Gandhi