How to make your supply chain hum

A finely tuned supply chain can reduce production costs, result in better-quality goods and allow a company to better meet customers’ needs. But making a supply chain hum at companies that sell into and source from markets worldwide is easier said than done.

Growing complexity is a significant component of globalisation and makes supply-chain management more challenging, a CGMA briefing points out.

Emerging economies are no longer just sources of low-cost materials and labour; they also provide growing consumer classes and sources of capital, talent and innovation. At the same time, technological advances provide new tools to address the new challenges.

“One of the greatest challenges … is identifying who is essential to the chain’s success and how they operate,” according to the CGMA briefing. “Who adds value and where? What are their strategic objectives? Who or what is their performance dependent on? What are their major risks?”

A 2014 Deloitte survey of more than 400 executives in manufacturing and retail companies worldwide tracks what supply-chain leaders do to stand out from the pack as they address these questions.

Supply-chain leaders are more likely to:

• Empower executive-level leadership with end-to-end span of control.
• Develop supply-chain strategies aligned to unique business segments.
• Integrate activities and data across functional and enterprise lines.
• Build innovation capabilities to fuel long-term growth.
• Align talent and supply-chain strategies.

Those tendencies pay off. Seventy-nine per cent of supply-chain leaders reported revenue growth that was significantly above average, compared with 8% in the other companies. Also, the earnings before interest and taxes (EBIT) margin was significantly above average among 69% of supply-chain leaders, but among only 9% of all the other companies.

Leadership. At 56% of supply-chain leaders, a senior executive represents the supply-chain function and has a seat at the table when the company makes strategic decisions about new products, pricing, customer services or entering new markets.

At the other companies, only 33% had a supply-chain representative amongst their senior executives.

Differentiation by business segment. Advances in technology and data capture allow companies to more accurately analyse profitability and costs to provide a certain level of service and identify unprofitable products or customers. Supply-chain leaders are more likely to use these analytical tools to customise supply-chain strategies for segments of their business.

Eighty-seven per cent of supply-chain leaders use segmentation to decide how to deliver their goods, 83% to develop the procurement strategy and 72% to set service levels.

Integration. The majority of supply-chain leaders own all parts of the supply chain – product development, demand and supply planning, sourcing and procurement, manufacturing, logistics – which limits breakdowns in communication, competing priorities and mismatched performance metrics. Among the rest of the companies, the majority owned only half of the parts that make up the supply chain. Supply-chain leaders are also more likely to support cross-functional collaboration company-wide; use integrated business planning strategies; co-ordinate forecasting, inventory management and risk-sharing with suppliers; and tap customers to evaluate the company’s performance. 

Innovation. Supply-chain leaders recognise that a company may have to adapt where and how it sources its goods, what services it provides and how it distributes its goods. Ninety-six per cent of supply-chain leaders said innovation in the supply chain is extremely or very important, compared with 65% of the other companies.

To make sure innovation is appropriate and done right, supply-chain leaders are more likely to rely on technology and analytical tools than other companies: Optimisation software (75% of supply-chain leaders compared with 34% of the other companies), mobile technology (75% vs. 30%) and supply-chain visualisation software (67% vs. 28%).

Talent strategies. Supply-chain leaders are more likely to hire new talent with expertise to meet broad expectations in areas such as global risk management, supplier collaboration, profitability and sustainability.

Eighty-eight per cent of supply-chain leaders seek talent with analytical and/or cross-functional expertise, compared with fewer than two-thirds of other companies. Eighty-three per cent of supply-chain leaders recruit talent with global experience, compared with 57% of other companies.

Related CGMA Magazine content:

“How CFOs and Supply-Chain Leaders Can Boost Earnings”: Global supply chains tend to deliver more value when CFOs and supply-chain leaders work closely together, but such a business partnership existed at only about one-quarter of companies EY polled worldwide.

“What Opportunities Are Hidden in Your Supply Chain?”: Supply chains present opportunities for manufacturers to identify efficiencies and innovations that can create a competitive advantage.

“Seven Key Factors Short-Circuit Supply-Chain Risks”: Six Nissan production facilities and 50 of its critical suppliers were damaged in Japan’s 2011 earthquake and tsunami. But Nissan ended 2011 with a 9.3% increase in production. Find out how, and learn about factors that can help companies minimise the impact of supply-chain disruptions.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.