Retooling the supply chain for profitable growth

By Patrick M. Byrne -- Logistics Management, 10/1/2005

After years of fervent cost cutting, many companies are shifting their attention to a new priority: profitable growth. Such a focus can be a positive development, but it may also pose a problem, as few supply chains are well positioned to support a growth-focused enterprise.

This is not to say that today's highly efficient supply chains fail to address the needs of growth-focused businesses. After all, efficiency always promotes market and sales growth, just as inefficiency and waste are always detrimental.

However, operational efficiency alone is not sufficient to support a platform of growth, and many companies are struggling to determine how to build a supply chain that can support a profitable-growth agenda. With that in mind, the following sections outline the key capabilities companies must master in order to develop and sustain a growth-enabling supply chain.

Timeliness and visibility of data. For companies bent on profitable growth, visibility—the capacity to swiftly acquire useful, actionable information about customers and operations—is indispensable. Consider that high levels of customer visibility are what leading companies use to build differentiating products and services. Optimal visibility also helps them build specific supply chain capabilities for specific customers or segments and, consequently, boost revenue and market share. In short, visibility leaders:

• Know where goods are in the supply chain at any given time.
• Understand how best to develop and support supplier and customer relationships.
• Keep the right amount of inventory in stock.
• Deliver products and services where and when promised.
• Know the total landed costs of individual stock-keeping units (SKUs).
• Adhere to the regulations of countries where they and their suppliers do business.
• Are able to ensure the safety and security of assets and deliveries.
• Respond quickly to market development and enhancement opportunities.

Tight integration with customers and suppliers. Most companies' internal operations are reasonably well integrated. However, leading companies have taken that integration to their trading partners, sharing vital information about demand, supply, processes, and priorities across the supply chain.

This kind of growth-focused collaboration has led to significant benefits. In consumer goods, the leaders in supply chain integration have lowered inventory levels by as much as 40 percent, boosted sales by up to 45 percent, increased in-stock availability by up to 12 percent, and enjoyed large declines in the length of lead times and the number of rush orders they must fill.

Deployment of innovative technologies that serve as the foundation for achieving partner integration and supply chain visibility.Thus far, most companies have used supply chain technology to increase efficiency. Now, however, supply chain leaders are using tools such as radio frequency identification (RFID), "smart" cards, product life-cycle management software, dynamic pricing systems, biometrics, and predictive monitoring to fuel growth.

Technologies like these are more important than ever because the amount of information needed to manage a global supply chain is so great. Without regular technology infusions, most companies won't be able to obtain the levels of data visibility and decision support that they need to connect with customers, manage complexity, and ensure that their supply chains are flexible enough to support growth.

A culture and organization that support a growth-oriented supply chain. Profitable-growth leaders know that even the best business strategy will not succeed unless the company has a skilled, adaptive workforce that understands corporate strategy and how their actions affect the organization's ability to achieve its goals.

For example, growth leaders usually are more successful than most companies at dissolving the walls that separate demand functions (marketing and sales) from supply functions. This has proven especially valuable in the planning arena, where new opportunities arise for marketing and sales organizations to help the supply chain organization understand what's actually driving demand. Leaders also excel at fostering a culture that embraces innovation and change, and positions supply chain interests as key ingredients in the company's strategy.

Metrics that reward integration. Leading companies design and deploy numerous metrics to gauge how well their supply chains support goals for growth. Here are four:

1. Total cost of the supply chain, which includes manufacturing, inventory-carrying costs, and materials costs.
2. Customer service, of which the most important metrics are fill rate and cycle time.
3. The value of inventory, which extends beyond measuring the days of finished-goods inventory available. Also key is the value of raw materials on hand, work-in-progress, and finished goods being delivered to customers.
4. Days to cash, which gauges the time between when the point the customer purchases materials for an order and when that customer actually pays for the finished product.