Tom Turner, previous vice president of global logistics at Masco Corporation, supply chain instructor at UNC-Greensboro and current Clarkston Executive Alliance member, continues our discussion on supply chain agility strategy. Supply chain strategies are often built based on internal philosophies, cost savings and efficiencies.
As I discussed in our last blog, Cutting Through the Clutter, the gains from improving supply chain responsiveness are usually much greater than the gains from improving supply chain efficiency. At times, supply chain responsiveness can only be achieved by investing, which is counterintuitive to traditional cost-cutting supply chain strategies of the past. The sobering reality is that there are no canned answers to establishing supply chain agility, but there are some guidelines for developing an effective strategy. Building an agile supply chain requires supply chain organizations to look externally first, focusing not only on the retail customer, but also on the end consumers.
Let’s be so bold to say that the supply chain strategy should be considered both a subordinate and contributor to the sales and marketing strategies. It is the sales and marketing organizations that are capturing marketing intelligence to understand the consumer, which the supply chain ultimately must serve. Likewise, supply chain leaders must participate in the design of the sales and marketing strategies for them to be most effective in execution. Supply chain leaders must understand marketing opportunities, new product development processes, go-to-market timelines and more—all of which sit well outside the traditional boundaries of the supply chain. Historically, the sales and operations planning process (S&OP) was the primary source for supply chain organizations to have a peek into the sales and marketing world from a tactical perspective.
With the new wave of Integrated Business Planning, supply chain organizations can now more strategically integrate with sales, marketing, R&D and finance to ensure associated strategies, tactics and day-to-day decisions are in alignment with customer demands. When supply chain leaders are creating a consumer-focused agile strategy, they must accept that uncertainty is a characteristic of modern markets. Some traditional consumer products companies that started with less competition, less knowledgeable customers, and a diverse number of smaller retailers will perhaps have a more difficult time accepting the high levels of demand uncertainty that exist today.
Some managers, who have a predisposition to declare a high level of forecast inaccuracies undesirable, encourage their people to strive hard to achieve accuracy in their forecasts. Uncertainty cannot be removed by edict. And when it comes to innovative products, uncertainty is often good. If the demand for a product were foreseeable, that product probably would not be sufficiently innovative to command high profit margins. If supply chain leaders sincerely adopt an agile supply chain, then these forecast deviations will no longer be the culprits for cost overruns, stockouts and inefficiencies. These expected changes in demand will simply allow the responsive supply chain to react quickly, adjusting supply up or down early in the sales cycle to effectively manage inventories and deliver on consumer needs. However, the agility mindset goes beyond flexibility and agility from sourcing through delivery.
True agility relies on a holistic approach that captures market data and transforms it into useful information that flows quickly throughout the supply chain to predict changes and speed up reaction times. This approach reduces inefficiencies throughout the supply chain, shortens delivery times, reduces stockouts and improves customer service. Emphasis on the back-end alone will not accomplish agility. There must be a seamless integration with the front-end to truly achieve speed. In the next post, we will cover how to create opportunities through supply chain agility, focusing on operations and technology.