Supply-Chain Optimization

Evolves
From competitive advantage to necessary capability

n only a few short years, digital technologies have radically transformed the
enterprise. Theyve accelerated the pace of business and created new pressures
along with enormous opportunities. Executives can now optimize their supply
chains aided by a spate of new tools and solutions to address gaps in
globally dispersed enterprises and capture the rewards that an integrated supply
chain delivers.
Companies have tried to optimize supply chains for years. But as internal cost-cutting
and productivity improvements reach their limits, these firms are forced to look
outside their companies to profitably meet increased customer demands. Simply put:
the business and IT landscape has changed.
Savvy leaders know that the path to success requires transformation of supplychain management (SCM) from a tactical exercise into a strategic weapon supplychain optimization using new technologies. Creative use of these tools can deliver
visibility into a supply chain that improves forecasting, speed, and profitability.
But building this type of supply-chain visibility isnt easy. For most companies,
a real-time approach to supply-chain optimization requires a fundamental remapping
and rewiring of processes across an array of vendors and customers and their
IT infrastructures. This often necessitates the adoption of new technologies, including
cloud computing, mobility, social business, and big data with sophisticated analytics.
Its a challenge yet companies that get it right can generate greater efficiency,
value, and profits for every participant in their extended supply chains.

Supply-chain optimization benefits strategy execution

SCM is more complex than ever. Globalization, heightened customer expectations,
and increasingly diverse sales channels (wholesale, retail, online) have shortened
product launch windows dramatically putting pressure on supply chains to keep
up with rapid prototyping, product development, and vastly tighter production
schedules. Factor in the explosion of customer and supply-chain data now available,
and you have a recipe for overwhelmed legacy IT systems and breakdowns in
customer deliveries and service.
Effective supply-chain optimization offers a way to minimize risks while maximizing
profits. It starts with visibility the use of technology to collect data across the
supply chain to provide insights into supplier and production performances, inventory
and sourcing issues, and customer purchasing patterns.

Savvy leaders
know that the
path to success
requires
transformation
of supply-chain
management
(SCM) from a
tactical exercise
into a strategic
weapon supplychain optimization
using new
technologies.

www.mpi-group.net.com
2014 The MPI Group.

Supply-Chain Optimization Evolves / The MPI Group

1

An Aberdeen Group study found that leaders in supply-chain visibility had

superior performances compared to other organizations (followers), such as:

The ability to
tap into diverse
data sources
demand trend
reports, sales
forecasts, current
inventory levels,
order status
data, returns
management,
transportation
costs on a
real-time basis
is revolutionary.

Delivery: 96 percent of orders delivered to customers complete and on time vs.

89 percent at followers.
Receivables: 94 percent of orders received from suppliers complete and on time vs.
87 percent at followers.
Costs: 26 percent decreased total land-unit costs in recent year vs. 18 percent
at followers.
Overall: 100 percent were GS1 item-level compliant vs. 25 percent of followers.1
Supply-chain optimization also influences research and product development.
For example, social networking and social listening systems along with sophisticated
analytics allow organizations to spot changing patterns and adjust to market
trends in near-real time. They also introduce new capabilities: a consumer-products
manufacturer, for example, might engage a group of customers in a discussions
about styling changes and product and service enhancements. In the past, this
process could require months of focus groups and analysis. Today, real-time
feedback from customers as they buy and use products offers insights into how to
tweak designs and/or pricing immediately. With end-to-end supply-chain visibility,
the manufacturer also can model how the changes will impact sourcing and inbound
costs. As a result, it can complete a redesign process in significantly less time and
beat competitors to market.
Organizations also achieve significant gains in forecasting and demand planning
through supply-chain optimization. This is a chronic problem in most industries;
poor demand visibility can lead to lost sales or, even worse, to overproduction and
losses on obsolete and unsold goods. End-to-end visibility, real-time data feeds,
and social listening tools can prevent both problems, leading to more efficient
production scheduling, procurement, and logistics.
In fact, the ability to tap into diverse data sources demand trend reports,
sales forecasts, current inventory levels, order status data, returns management,
transportation costs on a real-time basis is revolutionary. Companies that adopt
a highly integrated, 360-degree supply-chain optimization approach typically achieve
substantial gains in a number of key areas by:
Boosting the speed and accuracy of delivery
Improving the quality of goods
Tracking and meeting regulatory-compliance requirements
Introducing value-added features and capabilities
Reducing SCM costs
Increasing productivity and profits.
1

Bob Heaney, Supply Chain Visibility: A Critical Strategy to Optimize Cost and Service, Aberdeen Group, May 2013; Leaders were
30 companies compliant to GS1 standards to improve supply-chain efficiency and visibility across industries at an item level.

Supply-Chain Optimization Evolves / The MPI Group

Executives must regularly assess models

for enterprise transformation
Transforming broad supply-chain optimization concepts into specific tactics and
operational methods and developing contingency plans for unforeseen and
unanticipated events, ranging from a natural disaster to a labor disruption
presents formidable challenges. At the same time, its difficult to predict the impact
of new internal processes across an enterprise, let alone the effects of supply-chain
changes across a global supply chain. Yet many companies fail to plan for and then
measure the ROI on their supply-chain investments, creating substantial risks of
glitches, gaps, and breakdowns as processes are left unattended.
Thats why key performance indicators (KPIs) are a critical component in any
supply-chain optimization initiative. They provide visibility and help to define
and improve effective processes. Detailed analysis should include not only typical
supply-chain measures component pricing, supplier on-time rates but financial
measures as well, such operating expenses, margins by product and customer, and
cash-to-cash conversion cycles.
Savvy leaders will reach even further, using supply-chain optimization metrics to
continuously reevaluate their supply-chain strategies. Do existing processes stand up to
current needs? Do they meet objectives and targets? Is there a way to eliminate steps, streamline
processes, and close gaps? Are new technologies or approaches changing the equation in any way?
Examples abound. In a supply chain that lacks integration, executives often manage
forecasting, production, and scheduling independently leading to inefficiencies
and performance gaps. On the other hand, within an integrated approach, leaders
view workflow from sales and operation planning (S&OP) to production scheduling
as a unified function. This allows them to conduct advanced supplier optimization,
which incorporates risk analysis of various supply-chain models. Doing so makes
it possible to forecast purchasing requirements more accurately, understand
order-to-cash cycles, identify subcontracting issues, and manage production and
warehousing more efficiently.

In a supply chain
that lacks
integration,
executives
often manage
forecasting,
production,
and scheduling
independently
leading to
inefficiencies
and performance
gaps.

An internal review and analysis of an organizations supply chain is the starting

point for achieving optimization. Its particularly important to analyze processes
and workflows on both a micro and a macro level, including how any changes
impact the supply chain.

Supply-Chain Optimization Evolves / The MPI Group

3

Supply-chain analysis touches multiple key areas: sales and operations planning,
R&D and product development, forecasting and demand planning, production
scheduling, procurement and supply-chain planning, logistics, and customer support
and service. Most important, however, is a cross-sectional view that encompasses
products, information, and capital as they move each of these areas in succession.
At the same time, a company must ensure that it has adequate regulatory and
compliance systems in place. Firms operating globally may require additional tools
and analysis, including tracking capabilities for customs, freight forwarding, and
port clearances. In fact, supplier compliance and performance audits are driving
dramatic growth in supply-chain optimization technologies, as executives seek to
certify the traceability and sustainability of their suppliers. According to IT consulting
firm Gartner, the worldwide supply-chain management and procurementsoftware
market grew 7.3 percent to U.S. $8.9 billion in 2013. Thats on top of a 7.1 percent
increase in 2012.2

Seven Essential Steps to Supply-Chain Optimization

1. Evaluate current processes: Conduct a thorough analysis of all existing processes
that connect to the supply chain. Understand how these processes intersect and which
technology tools support them.
2. Establish a target: Identify performance gaps between existing supply-chain processes
and whats possible in various areas, such as forecasting, budgeting, inventory management,
order processing, invoicing, warehouse management, omni-channel communications,
social business tools and collaboration, and transportation and logistics.
3. Quantify the gap: Determine investment costs and potential ROI, typically measured
in savings, revenues, and profits related to closing the gap.
4. Prioritize gaps: Key priority factors typically include: urgency (such as the danger of
losing a customer); the likely ROI related to closing a gap; available resources to tackle
the project; and required tools, solutions, and process changes.
5. Create a plan for closing the gaps: Develop a strategy for guiding the initiative, a
tactical plan for implementing it, an operational plan for day-to-day operations, and
a contingency plan for emergencies.
6. Execute on the plan: Allocate business and IT resources ranging from staffing
and revamped systems and applications to new facilities required for the transition.
Factor in training and change management.
7. Make adjustments and continuously optimize the strategy: Establish monitoring and
assessment tools to refine systems and processes. Conduct strategic reviews for business
expansions and acquisitions, fundamental changes in business strategy, and significant
changes in the marketplace. A full review is necessary approximately every five years.

Gartner press releases in May 2014 and May 2013; www.gartner.com.

Supply-Chain Optimization Evolves / The MPI Group

With these technologies, manufacturers also gain a centralized view of distributed

billing and invoicing while tracking other key functions, such as third-party logistics,
shelf-life management, product attributes, labor performance, and customer service.
Dashboards, analytics, social collaboration tools, mobility apps, cloud capabilities,
and other information-management tools can move an organization from reactive to
proactive supply-chain management.
This means that executives can now identify issues before they cause significant
problems, dramatically improving decision-making by harnessing critical data to
balance risk with opportunities. Ultimately, the organization achieves a level of agility
and flexibility that is transformative evolving the supply chain into a central
nervous system for a digital business model. The focus shifts from holding down
costs and maintaining service levels to one of continuous improvement, innovation,
and growth.

Time is right to optimize

Supply-chain optimization is increasingly critical to organizational success but
new technologies and tools arent enough. Real optimization requires new R&D,
forecasting, and fulfillment processes to leverage new supply-chain capabilities;
true collaboration among supply-chain partners, suppliers through end customers,
in which people, best practices, and plans are shared; and coordinated analytics
and dashboards that allow every participant in the supply chain to adapt to rapidly
changing markets. Companies that incorporate such strategic changes become
smarter, more innovative, and outperform their competitors on a range of metrics.
Are you ready for real supply-chain optimization?

About The MPI Group

www.mpi-group.com
The MPI Group serves leaders with research, advice,
and performance-targeted solutions that provide a
competitive advantage in todays fierce marketplace.
MPI combines the disciplines of research, strategic advice,
knowledge development, and hands-on leadership to
create a difference in performance, in profits, and in
the people who make them possible.

Supply-Chain Optimization Evolves / The MPI Group