Infrastructure: The Key to a Greener Supply Chain
May 21, 2010 - SCMR Editorial
As manufacturers go global, the supply chain infrastructure that served them well locally may be insufficient for their new needs. Expanding into emerging markets is core to almost every major manufacturer’s growth strategy. Yet many emerging markets lack the supply chain infrastructure needed to execute. Nokia discovered this when it launched a new value-based cell phone in India. Its traditional retail channels did not exist in India, requiring a new strategy of transporting product to the small kiosks found across the country.
Manufacturing and product supply strategy takes on new dimensions when serving global markets. Demand for new product features across these markets exacerbates supply chain complexity with increasing product options and SKUs. This complexity is forcing leading companies to re-think their product supply network strategy to become more flexible and to maximize utilization. Coca-Cola has set a goal to double its revenue by 2020, by expanding into new product categories. In the automotive industry, Ford has embarked on a design strategy that increases product platform use. This allows vehicles to be built in multiple plants and postpones product variability to flexibly meet shifting market demands.
Amidst this need for increased capacity is a demand to stop wasting the planet’s valuable resources. Large manufacturing plants account for the greatest contribution to the world’s emissions and energy consumption. This places the burden upon plant operators to improve operating efficiencies if there is to be any significant reduction of global greenhouse gases. Sustainable products and a supply chain infrastructure are required to reduce these green house gas emissions and the total carbon footprint of the supply chain. Measuring the supply chain carbon footprint will be a requirement for all manufacturers. This is especially important to consumer product companies. Wal-Mart is raising the bar in retail, requiring suppliers to report a 15-point sustainability index for products.
Start with being demand-driven
Establishing the new supply chain infrastructure is not just about building more plants or laying more roadways. It requires designing products and supply networks that deliver customer value profitably while maximizing infrastructure utilization. Being demand driven increases customer service profitably with the lowest risk to the planet’s resources. (see Exhibit 1)
We recommend establishing several capabilities to build this demand-driven infrastructure:
Being market driven is not new to marketing organizations, but is often a foreign concept to supply chain professionals. Leaders in global supply chain understand their markets and align their supply chain infrastructure to support this demand.
Best practices for becoming market driven include segmentation to ensure supply chain and market alignment. Manufacturers must sense demand at the point of consumption and share that signal with partners. Shaping demand allows the supply chain to influence demand through practices such as common parts or reduced cost and pricing.
The demand-driven response
Reacting to demand without understanding the total cost-to-serve wastes valuable resources. Orchestrating the demand-driven response applies decision support techniques to validate customer desire for a product while operating a profitable supply network to satisfy demand.
Common practices for orchestrating the demand driven response include network design, S&OP, and product portfolio management. These techniques put a decision support system in place that uses all demand and supply criteria to ensure a profitable demand-driven response.
Drive innovation in products and services
Leading companies are innovating both products and supply chain services to impact the entire customer experience. Cross-functional teams observe the environment in which customers use products. This leads to innovative delivery models where supply chain capabilities enhance how products are used.
Driving innovation in products and services requires observing how customers experience products within their environment. Impacting this experience may require deploying supply chains in new ways. Changing organizational norms is often a difficult first step that requires supply chain and other functions beyond marketing to understand these needs. Customer requirements must be defined beyond product attributes alone.
Build value in supply networks
Companies must put foundational supply chain processes in place that ensure they can deliver value. Core strength here allows companies to mature beyond a traditional reactive supply chain to one that’s capable of delivering a profitable demand-driven response.
Predicting supplier risk is one capability that Intel uses to ensure a reliable and profitable response where missing a day’s production can cost $100 million. During the 2009 down-turn, if any supplier had credit coming due in the near future it was flagged for assessment. These metrics improve supplier sensing and support better decision making with a 12- to 24-month view on potential risk.
The foundation for value in supply networks is laid upon building blocks that include agility, collaborative supply networks, predictive supplier management, and operationalized innovation among others. These core capabilities maximize infrastructure asset utilization by eliminating wasteful non-value added activities.
Sustainability maximizes use of resources
Organizations that fully embrace and quantify sustainability as a key business strategy will drive efficiencies and cost savings throughout their supply chain. This decade will define the foundations of the low-carbon economy where supply chain infrastructure attributes—including production and energy—will be central to this transformation.
Reactive or tactical sustainability is capable of driving down bottom-line costs and qualification in future green markets, but won’t allow an organization to drive increased market share, exploit new markets, or emerge as leaders. The AMR Research Sustainability Maturity Model recognizes three key organizational progressions toward authentic sustainability: strategic transformation, structural normalization, and operational implementation.
Customer demand for increased product variety is exploding supply chain complexity, requiring a fresh look at the infrastructure needed for a profitable response. The physical demands of supply chains will be pushed to deliver more just as pressure to reduce the carbon footprint of products is greater than ever. We believe that the key to maximizing utilization of supply chain infrastructure lies in being demand-driven. By moving toward demand-driven value-networks, manufacturers and retailers will align their supply chains to optimally deliver customer value.
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