supply chain edge road to maturity best-in-class supply chains white paper

The Road to Maturity: Key Characteristics and Competencies of Best‐in‐Class Supply Chains

By Mike Edie, Chief Operating Officer, Supply Chain Edge

www.supplychainedge.comCopyright 2012 Supply Chain Edge LLC. All rights reserved.

The Supply Chain: A Key Foundation of Success

• In a challenging world, a nimble, scalable supply chain keeps costs low, helping companies fight off tough competitors while growing in new markets. Robust supply chains also allow companies to provide better service, thus defending existing customers.

• However, while some companies are deriving benefits like these from their supply chains, many others see the supply chain as a cost center—not a source of value.

• In this presentation, Supply Chain Edge (SCE) explores the stages of supply chain maturity, highlighting the key success factors of deriving more value from this critical function.

2Copyright 2012 Supply Chain Edge LLC. All rights reserved.

The Benefits of a More Sophisticated Supply Chain

• Companies with more sophisticated supply chain capabilities reliably outperform the competition:

– They are likelier to have strong service performance, distribution and logistics cost performance, and inventory performance. Strength in these areas is directly linked to better sales, profitability, and return on capital, and fosters competitive advantage.1

– By transforming its supply chain, Dell achieved $1.5 billion in cost savings between 2008 and 2010 while reducing complexity, forging stronger customer connections, improving internal collaboration, and boosting forecast accuracy.2

– PolyOne Corp. implemented a series of supply chain management improvements that helped generate $218 million of free cash flow and reduce net debt by $223 million, all during one of the worst economic recessions in history.3


Four Stages of Supply Chain Maturity

• SCE has identified several key attributes that define increasingly higher levels of supply chain sophistication.

• Overall, there are four stages of supply chain maturity:

– About one‐quarter of companies have only reached the first level, and excel solely at basic supply chain activities.

– The remaining three‐quarters possess a range of capabilities, with a general progression toward more proactively managed, customer‐focused supply chains.

• Using these benchmarks, companies can guide their own supply chain improvement programs.


Stages 1 and 2: The Foundation

• About one in four companies have reached only a basic level of supply chain competence. They have myriad opportunities to improve supply chain capabilities and move to the next stage, which represents nearly half of all businesses.

• Stage 2 companies generally: – Integrate logistics issues into their

outsourcing decisions– Understand which logistics activities are

best performed in‐house and which can be done more effectively by someone on the outside

– Can analyze costs, service levels, and IT performance to identify needed logistics improvements


Stages 1 and 2: The Foundation

• Stage 2 companies also generally are proficient in:

– Regulatory compliance related to shipping and warehousing

– Import/export management– Optimizing spending on maintenance and

repair operations (MRO) and other indirect goods and services

– Finding, hiring and retaining skilled supply chain professionals, as well as knowing when to go outside to get help (for example, by hiring a 3PL)


Stage 3: Proactive Adaptation

• A major difference between Stage 2 and Stage 3 companies: The latter proactively update and optimize their supply chain structures and capabilities.

• Stage 3 companies know when to reconfigure the supply chain function’s structure and governance to keep its performance levels high, thus avoiding disruptive once‐in‐a‐lifetime transformations.

• These companies also focus on continual improvement of the supply chain’s performance, such as tailoring distribution and transportation capacity to accommodate spikes in demand (either on their own or with a 3PL).


Stage 3: Proactive Adaptation

• Stage 3 companies shift talent as conditions and opportunities dictate, and actively manage knowledge and best practices within the supply chain function.

• Through robust sales and operations planning (S&OP) processes, they can forecast demand more accurately, boosting efficiency and tightening the link between business strategy and execution.

• Many Stage 3 companies have integrated their WMS and TMS platforms with ERP systems, thus attaining a transparent view of supply chain performance.


Stage 4: Perfecting the Supply Chain

• For Stage 4 companies—including leaders such as Walmart, Proctor & Gamble, and Estee Lauder—the supply chain is a source of differentiating value. It brings better products to market more quickly than competitors can, delivers higher service levels, and supports wider margins.

• Stage 4 companies actively monitor and improve supply chain performance, and focus on coordinating and integrating supply chain functions and activities.

• They generally share three key priorities: supply chain visibility, cost control, and customer service.



• Stage 4 companies typically have a robust process in place to not just monitor supply chain performance, but also to quickly identify and remedy the root causes of any problems.

• They generally have mastered demand and supply planning, and can accurately forecast demand down to the individual SKU level—as well as ensure manufacturing and distribution are on the same page.

• They also are committed to adopting advanced supply chain technologies, and can build compelling business cases for the right solutions.



• Finally, Stage 4 companies understand the importance of involving supply chain personnel in customer relationships. Many actively make connections between their supply chain experts and those of client companies, who then collaborate to ensure that the entire value chain functions as smoothly as possible and is responsive to changes in the marketplace.

• In short, for these companies the supply chain has become an instrument of value and differentiation—not a source of cost or complexity.


Conclusion• The world is not becoming an easier place in which to succeed. Hungry new competitors are

seeking growth in established players’ home turfs, while customers are more demanding of great service and ongoing innovation. At the same time, the economic environment continues to provide a significant dose of volatility and unpredictability.

• Improving supply chain competence can help companies overcome these challenges. Even in its most basic form, a well‐functioning supply chain is a bulwark against competitive threats and market volatility. At the highest levels of maturity, the supply chain is a key weapon in the battle to do more with less, boost responsiveness in a changing environment, and hold on to finicky and demanding customers.

• While the supply chain has great potential to generate business value, companies must actively invest in it and in their supply chain management capabilities. By learning from both the beginners and the leaders, any company can move ahead on the road to supply chain maturity.

Read our full point of view on this topic.


http://www.supplychainedge.com/assets/documents/sce-road-to-maturity-best-in-class-supply-chains-white-paper.pdf

Sources

1: “The Race for Supply Chain Advantage: Six practices that drive supply chain performance,” McKinsey & Company, 2008.

2: “The Top 25 Supply Chains: Leadership in Action,” Gartner Inc., 2010.

3: “Improving supply chain management drives a turnaround in tumultuous times,” Thomas J. Kedrowski Supply Chain Management Review, September 22, 2010.


Joe Brady

Senior [email protected]. 440.937.5151www.supplychainedge.com

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