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The Supply Chain Top 25: Raising the bar


September 01, 2012

Excellence Addicts. All companies measure. What most still struggle with is how to focus on the metrics that matter—and even more importantly, how to interpret and then act on those metrics to achieve a desired outcome, namely to improve operational results. From our years of research in this area, we find that most organizations are, in fact, awash in supply chain metrics. They find themselves so caught up in the tactical aspects of measuring—defining, collecting, sorting, translating, rationalizing differences—that it becomes an end in itself, and suddenly they realize they’ve lost sight of the bigger picture.

The best companies—the ones we call “excellence addicts”—have a very different approach to metrics. First, they know what to measure. But they also understand that the whole is greater than the sum of the parts, that it is, in fact, a system, and that the purpose of the metrics is to make the entire system work better. When individuals in these companies get together to discuss and interpret a set of numbers, the conversation isn’t about whose fault something is; it’s about where things broke down in the system, how to fix them, and then how to take it to the next level. They are ruthless in constantly examining their own processes to push the envelope of performance.

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Three trends evident
Each year, our analysts talk to and research the supply chains of hundreds of companies. Through these discussions, we note the trends: What are the leaders focusing on, where are they investing time and effort, and what can be applied broadly? Overall, we’ve seen companies continuing to invest in resources and assets for growth, a trend that started last year and is continuing. The global economic recovery has been uneven and halting in some cases, but, companies’ outlooks are increasingly expansionary in terms of the markets they serve and the products they offer.

There are three trends to note:
1. Supply Chain Risk Management and Resilience. Despite investing for growth, companies also know that the potential for disruption at anytime remains real. Many are looking to improve the resiliency of their supply chains to mitigate this risk. In turbulent times, and in the face of growing complexity and risk, leading companies need sustainable, resilient supply chains that support profitability and drive industry leadership. This requires managers to re-evaluate the layout of their supply network designs to make them more resilient to future catastrophes. It may also include designing products that allow more flexibility in supply and manufacturing, increasing long-term alternative sources of raw materials and logistics capabilities, and expanding outsourced manufacturing capacity.

Leading companies such as Intel, P&G and Unilever improved multitier supply chain visibility and advanced network management capabilities to be agile in the face of disruptions. Overall, leaders have remained focused throughout the past year on building resiliency into their global supply chains. We see this continuing to be a highly valued supply chain characteristic.

2. Simplification. Many companies tell us that they have exhausted easily gained efficiencies within their existing supply networks and product portfolios. Further improvement will require structural changes to streamline the flow of supply, and eliminate less profitable product and portfolio complexity. Supply chain leaders are adopting complexity optimization strategies to eliminate infrequently used product features, service offerings, suppliers and distribution network capacity that does not add sufficient value to customers. Supply chain segmentation has emerged as a critical enabler of supply chain simplification, and while this is a concept that has been around for a few years, leaders are aggressively adopting it to reduce complexity.

3. A Shift Toward Multi-Local Operations. Manufacturers and retailers have long sought ways to balance the trade-off in their supply network designs between global economies of scale and the demand for local responsiveness. Leading companies are reassessing their sourcing and manufacturing networks, and rebalancing their supply network strategies in favor of multi-local design, supply and support. More specifically, they are shifting from a centralized model, where these functions support global markets, to a regionalized approach, where capabilities are placed locally, but architected globally.

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