January 12, 2021Source: Grant Thornton
From supply chain disruption to competitive advantage
As companies pivot from the unprecedented supply chain disruptions of 2020, manufacturing industry leaders are taking a step back to reassess the impact and future implications of a tumultuous year.
We see overly ambitious new product introductions choking supply chains while supply chain cost to serve continues to grow exponentially and customer satisfaction declines. Trade and tariff issues loom as companies seek to optimize their physical supply chain networks and tax structure. Overlay substantial labor shortages and changes in demand patterns and sales channels and it is easy to understand the strain on supply chains. New government regulations such as FAR 889 that went into effect in August add fuel to the fire. And proactive supply chain risk management is a concept that is here to stay.
The management of supply chain risk in support of business continuity is now a table stakes capability management teams must master. It requires sophisticated technology to identify and manage internal risk factors and hard to identify third party risk.
The mismatch between an overarching growth strategy and the supporting supply chain strategy and operating model is also a serious issue for many private companies, especially those experiencing hyper growth.
Well intended management teams fail to understand the business necessity of frequent customer segmentation and SKU rationalization. The result is a suboptimal order fulfillment strategy, declining service levels, excess inventory, excess supply chain cost, longer cash conversion cycles, and eventually brand erosion, then lost customers. All the while, the balance sheet gets weaker as liquidity and cash flow issues simmer.
Proactive management of the supply chain is a key differentiator for top performing companies. As a private company board director, there are ten key supply chain actions to expect of competent management teams
- Recalibrate supply chain strategy— directly link the strategy and operating model to the overarching growth strategy and industry constraints.
- Quantify supply chain cost to serve— segment the customer and SKU base, differentiate service commitments and rationalize under performing SKUs to reduce business complexity.
- Proactively manage supply chain risk– develop and implement a recurring risk management framework and governance model that includes situational planning; then invest in leading risk management technology.
- Identify and eliminate high priority operational gaps— underperforming supply chain are full of waste that erodes margin; gap them against leading practices, prioritize improvement opportunities, and reward quick resolution.
- Strengthen the balance sheet— focus on integrated business planning to link the budget to the operational plan and maintain a rolling cash flow forecast.
- Optimize the physical network based on strategy and customer needs— use a digital twin of the supply chain to understand cost to serve and proactively take action to contain it.
- Integrate demand and supply-side planning— invest in leading technology to integrates demand and supply planning for higher fill rates and lower inventory.
- Measure supplier risk for direct spend— supplier failure can break the supply chain; quantify it and take proactive action to protect customers and shareholders.
- Accelerate digital maturity— invest in Industry 4.0 technologies to digitize the supply chain and improve visibility and analytics.
- Use predictive analytics– it must be measured to be improved, this includes using big data to predict equipment failures, lost capacity, supplier failures, declining sales, stockouts, inventory obsolescence, financial performance, etc.
To learn more about the survey findings which could help you shape your supply chain strategy, view our 2020 Digital supply chain survey report .
Jonathan Eaton, Principal, National Supply Chain Practice Leader, Grant Thornton
Jonathan is the practice leader for Grant Thornton’s National Supply Chain Practice. With over 20 years of Supply Chain experience, Jonathan has spent the majority of his career advising large multinational companies and middle market companies across multiple industry sectors on how to best transform their supply chains.
