By Michel Ramis, VP Sales and Marketing
Over the last few years, globalisation and digitalisation have encouraged global companies to redesign their strategy and to look for new ways to make a difference in order to remain competitive among their market and to improve their productivity at the same time. What if the answer to this challenge was obvious but the executives forgot to think about it?
In every multinational company, a function is too often under evaluated, even though, thanks to this function, executives would be able to better control their profitability objectives. This crucial function, which can create additional value for the company, is the Supply Chain.
According to a recently published study from Capgemini Consulting , 75% of operational executives consider that Supply Chain (and its digital transformation) is a major issue for the company. The Supply Chain is a core activity that integrates all the product flows and the information regarding logistical processes: from raw material purchase to final products delivery. Nowadays this function only occupies an unnoticed position in companies, comparable to an ancient art that only a few chosen seem to be able to master: the Supply Chain managers. Yet, the ‘Supply’ function must be rethought and considered as a determinant factor of the productivity and savings race for companies. Companies can no longer consider Supply Chain only as a support function but rather as an executive function.
Who are those alchemists?
The most famous example is certainly the former Operations Manager in charge of Apple’s Supply Chain: Tim Cook, current CEO of the Apple Group . He is one of those who quickly took the measure of the benefits that the ‘Supply’ could create for the company and in particular its impact on the operational and financial performance.
At the time, one of Cook’s main strategic initiatives was to decrease the number of suppliers necessary to the composition of the Apple-brand products. He cut the volume by three quarters, that is, from 100 down to 24 suppliers, encouraging the suppliers to compete in order to become unchallenged partners of the brand. Tim Cook understood that controlling the Supply Chain of each of the company’s suppliers meant being able to get sharper procurements. By closing at the same time half of the company’s warehouses (10 over 19), the brand was able to limit the stock overhangs and to reduce the restocking from a whole month down to 6 days within a few months only. Thanks to these initiatives, Apple was able to get rid of numerous logistical constraints and to create margins superior to the competitors ’ones. It is also important to highlight that the Gartner Group in its annual TOP 25 ranking of the most efficient Supply Chains considers Apple (like P&G) as the absolute reference.
The operational impact of the ‘Supply’ in a global firm strategy management is major as the Tim Cook example proves and it is not an isolated case. Other Supply Chain managers have also had access to executive positions like Mary Barra from General Motors or Brian Krzanich from Intel.
What one must understand today is that the concept of supply chain has changed dramatically to a point where the expression itself appears to be outdated. Indeed the common representation of Supply Chain management is a simple execution chain in which products move from one point to another. However, this representation does not take into account the comprehensiveness and the scope of a Supply Chain today that works more like a complex network of integrated players. Supply Chain managers can have an influence on these players to meet their needs and those of the market. We prefer to use the term of extended Supply Chain or “End-to-End” (E2E) Supply Chain.
Their secret stands in the Data Analysis, which is collected in the whole Supply Chain. Based on the various elements collected from each of their partners and centralised in a Decision Support Instrument, Supply Chain managers are able to arbitrate some industrial processes (stock and production management, sales forecast, etc.). Thanks to the visibility offered by each player of the chain and thanks to collaborative business tools, they can have a real-time influence on each of the chain links and to control/ measure their individual impact on the whole process.
This business approach encouraged the Supply Chain managers to reject the idea of a frozen organisation and to adopt a business approach based on agility and flexibility. Such a Supply Chain-guided methodology enables companies to create major gains for competitiveness, hence the need not to underestimate this function, especially among increasingly unstable markets. Therefor it is paramount that executive boards recognise the Supply Chain operational agility in order to maximise the companies’ profitability.
The vision of these new rulers from ‘Supply’ functions, like Tim Cook, can seem very business-oriented and technical for executives. However, it must become the norm, in particular among companies listed on the stock market, in order for them to take the measure of the economic and competitive potential granted by the Supply Chain. The Supply Chain manager’s work can no longer be apart from the rest of the company but should instead be an active part in the decision-making process of the company. Indeed, the companies take decisions systematically based on their impacts and their related objectives (WCR improvement, service rate, costs reduction, customers’ satisfaction improvement) and systematically defined by the general direction. The only way for executives to take the real measure of the strategic and operational impact and efficiency of the Supply Chain is to integrate it into their executive committee.
By Michel Ramis, VP Sales & Marketing – FuturMaster