Evolution of Change in the Supply Chain Swirling at Breathtaking Pace

Supply Chain Brain

By: Doug Braun, CEO, IBS
January 20, 2014

"The more things change, the more they stay the same." The proverb from the 19th Century French journalist Jean-Baptiste Alphonse Karr suggests that change does notaffect reality on a deeper level but only cements the status quo. In our era, however,change is not only happening, the evolution of change continues to be fast.

Here are some areas that businesses need to give serious consideration to in 2014:

The Ascent of the Consumer-Driven Supply Chain

In business, it’s always been about the customer. However, a consumer-driven supply chain is now the norm. Companieshave to be prepared to support this shift and the impact of the omnichannel shopper on the supply chain. Passive companiesfailing to adapt to this type of supply chain will increasingly be at a disadvantage. Costs will be too high. They will be stuckwith too many or too few products, and the wrong mix of products. They won’t be able to service customers in asatisfactory manner either.

There is some evidence pointing to these outcomes. In the last five to six months, more and more serious conversations have focused on sales andoperations planning (S&OP) tools. The Council of Supply Chain Management Professionals focused one of its key quarterly reports on S&OP, andthere were substantial tracks on the subject at its annual conference in October. Prominent industry analysts also have devoted recent work to theissue.

The market is moving briskly to address the scenario of how to satisfy a consumer-driven supply chain and how to personalize products on a “oneeach”level. Companies not only have to produce, manufacture, assemble and customize products in a cost-effective manner but deliver thoseproducts to consumers in a time frame sufficient for their needs.

Mega-warehouses in store-ready formats with 175 “pick” spaces are one way to meet the above goals. These 1.5-million square-foot venues arestructured with ready-to-ship containers for getting products on shelves and the mechanisms for re-ordering quantities to keep shelves stocked.Today’s companies must build supply chains into an environment where it’s “1-2-3 and on the shelf.”

Here’s an example: A customer enters a drugstore to purchase a three-month supply of allergy medication but doesn’t find what she’s looking for.She’s told that she doesn’t need to settle for what’s on the shelf. Instead, the store will ship the brand she wants for next-day delivery, if that’s therequirement. And that’s just to address the brick-and-mortar store model.

With respect to the internet, consumers continue to drive personalization. “I want that iPhone in purple with my initials on it, and I want it shipped inthree days.” In the age of the consumer-driven supply chain, organizations need to be able to adjust to the ever-changing wants of consumers, even ifthey don’t know exactly what those demands will look like in the future. But just as you can design your next car on a brand’s web site, you need togive consumers the ability to design their own auto accessories, for example, select their colors, get those items made, and shipped to them in three tofive days – all in a cost-effective manner. How do you achieve this?

On-shoring to Manage Brisk Changes

That’s where on-shoring can be effective to meet these trends and demands.

While the move a decade ago was to push manufacturing off-shore to lower costs, the demands of a consumer-driven supply chain necessitatecapabilities to deliver on personalization and timeliness. And that means on-shoring.

It’s worth noting that the distinction between B2B and B2C supply chains is at best gray today and at worst completely obliterated. The concept ofB2B is the same. A customer will order supplies, and she will order them in a quantity to get the discount – whether the supplier carries them for herand distributes the products one at a time as she needs them, or ships them to her for placement in a back room.

An electrician isn’t going to buy 50 conduit boxes for his back room, though. He’s going to say, “I’m going on my routes today, and I need two today,and I’ll need four tomorrow.” Even better, he wants a mobile device that allows him to create invoices and e-mail them to his customers. But as hecreates those invoices, he aggregates orders, and then the orders get disbursed to the right suppliers to meet the needs of tomorrow’s deliveries.

There is no sense in separating B2B from B2C companies because they purchase the same way. Even businesses that sell to other businesses maywant their names emblazoned on those conduit boxes to personalize them as we see in B2C. The key thing to remember is that differentiation addscosts and time. What you’re trying to do is minimize the differences, and thereby, the costs and turnaround time. And people will pay forpersonalization, be it B2B or B2C.

Hold to Core Values

Businesses are at different places on the maturity curve. Yet what’s most important is adhering to core values – more crucial than ever in 2014. Research substantiates this point.

Gartner predicts a 300-percent rise in cloud-based services over the next few years. In three to five years, 80 percent of software will be consumedfrom the cloud, according to other sources. Those are staggering numbers, but they make sense. If you’re not in the IT business, don’t set up servers.Give the apps to a cloud provider and have it maintain your IT environment.

A major hospitality supplier did just that. It faced the challenge of supplying linens for hotel chains around the world. Hotels have various bed sizes,and hotel chains order different size sheets.

How could it get the right sheets to the right places at the right times?

With the help of a cloud provider, it leveraged sales and operations planning and warehouse management technology to eliminate distractions andfocus on what it does best: Delighting customers.

The tools enabled it to focus on its core competencies, giving visibility into the needs of properties and the ability to automate the ordering process.The results were the ability to stock warehouses, to reduce the amount of products languishing in the supply chain, and to move product efficiently.

Change Management

To achieve such results requires a paradigm shift in the way supply chains are managed and administered. People don’t like change, so it’s importantto position executives who will inspire the necessary change in an organization. Change management requires the right people on board, with clearlyset goals. It’s difficult because of the brisk pace of change that faces industries and supply chains. Companies have to get people who have bought intoa consumer-driven supply chain, and ones familiar with the electronics age we now live in. Priorities have to shift, and cultures need to change.

That means that software and systems have to be straightforward, and people need to be able to tap only those features and functions relevant to theirjobs without distractions. Applications have to be simpler to use.

The trends discussed above are just some of the transformational changes that thoughtful businesses will take in 2014 and beyond to better alignthemselves with market needs and put consumers where they belong – front and center.

Source: IBS

Keywords: supply chain management, supply chain IT, supply chain solutions, supply chain planning

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