The years from 2007 through 2009 were notable for their economic volatility, reflected not only in the global economic recession but also the instability of customer demand and rapid movement in raw material, fuel, and commodity prices. Supply chain executives were under pressure to develop more efficient, customer-centric supply chains while finding innovative ways to reduce costs and enable growth. Meanwhile, they were also being asked to take advantage of business opportunities that arose from their economic conditions.
As if the largest economic crisis since the Great Depression wasn’t enough of a challenge to the supply chain industry, the introduction of the smartphone and advanced analytics into the marketplace disrupted the industry further by providing an exponentially growing consumer base and easy access to goods and information. Companies tripped over themselves to build ecommerce portals, and one-click purchasing grew in relevance.
All of these changes in the marketplace meant that supply chains had been disrupted forever. The world after this period was not the same for the supply chain industry, and supply chain professionals had to respond to what was quickly becoming an outside-in, demand-driven world. The pace of change hasn’t slowed, and now the Internet of Things, digital operating models, and predictive analytics are further enhancing the end-to-end capabilities of the business.
Company leaders did what they could to adapt. They prioritized projects that reduced inventory and logistics expenses. Although this helped matters in the short term, professionals risked ignoring the long-term demand-driven vision of the business operating model. Organizations prepared for the rebound while responding to the conditions of the new normal: a reduced labor pool, analytics-based demand insights, stagflation and deflation, issues surrounding energy and sustainability, and a burgeoning omnichannel marketplace. Effective strategies coupled with a well-defined plan and the right tools helped supply chain professionals alleviate fulfillment pressures and readied managers for market changes in the future.
What are the strategies that helped the best survive? They were then and remain today, the following:
Strategy 1: Adopt a demand-driven planning and business operating model based on real-time demand insights and demand shaping. The right prediction and contingency planning tools will ensure a complete view and an effective response to risks such as suppliers going out of business, political upheaval, and natural calamities affecting manufacturing. Companies then can adjust pricing and promotions strategies to shape demand, move additional product quickly, drive revenue growth, or further expand margins for a high-demand product with limited market supply.
The key is to have the foresight to leverage opportunities and mitigate challenging events so that your business not only survives but succeeds. With the arrival and maturation of cloud supply chain technologies, businesses now have the ability to see exactly where all of their inventory is—in real time—from the store shelf back to the manufacturer. An agile demand-driven supply chain requires end-to-end visibility across the business from buyers and the market to supply. With cloud technology, businesses can have it.
Strategy 2: Build an adaptive and agile supply chain with rapid planning and integrated execution. Once executives are able to better understand and shape demand and risk, they need to adapt their supply chains to changing market opportunities and events. Companies must deploy dynamic planning capabilities and continually fine-tune operations to ensure responsive agility to meet changing demand.
The old model was to wait until the end of the month or quarter to shift production and supply based on shipments and sales. The new model calls for more continuous, dynamic supply chain adjustments to rapidly respond to market changes. This can minimize or even eliminate shocks across the supply network. The results include better visibility; enhanced collaboration across the value chain, including reliable and predictable sourcing and supply, manufacturing, transportation, warehousing, and distribution; and accelerated decision-making with better analytics and support. Agility is the name of the game. Market reactivity, in the moment, has never been easier to achieve than it is today—again, with cloud technology and the right people, process, and technology capabilities.
Strategy 3: Optimize product designs and product management for supply, manufacturing, and sustainability to accelerate profitable innovation. Innovation is crucial for being one step ahead of the competition. But innovation doesn’t exist in a vacuum. To be successful, products must be manufactured at the right cost, place, and time. Decisions made in the early cycles of product development can make or break the product. Designs must be optimized for supply, manufacturability, and supply chain operations. All true costs to deliver must be accurately captured and analyzed to maintain balance across the end-to-end business.
In addition, product innovation and competitive advantage increasingly stem from the selection and management of suppliers and technologies. If a company can manage the information, people, processes, and decisions regarding a product throughout its lifecycle, it can achieve strong results and market leadership. There’s no better way to achieve this than with seamless and clear collaboration processes across the end-to-end supply chain—from demand, the market, and customers back to manufacturing and suppliers. The ability to orchestrate this conversation across the end-to-end business and use demand-driven insights has never been more in reach. Oracle’s cloud collaboration tools for supply chains help product designers innovate solutions that customers are demanding.
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Strategy 4: Align your supply chain with business goals by integrating sales and operations planning with corporate business planning. Although sales and operations planning processes provide coordination among sales, manufacturing, and distribution, there still are disconnects and gaps among finance, strategy, and operations in many companies. One way to bridge these gaps is with integrated business planning that involves people, process, and technology elements of the business. This process integrates financial strategic budgeting and forecasting systems with operations planning and allows smart trade-off decisions to be made for the business.
The resulting marriage of end-to-end processes ensures revenue goals and budgets developed in finance are validated against a detailed, bottom-up operating plan and responsively executed. Concurrently, the strategy reconciles the operating plan against financial goals. True integrated business planning—made possible with cloud technology—connects sales and operations planning processes with corporate business planning and enables companies to achieve the right balance of supply and demand, aligned with strategic business goals. It provides real-time visibility to all the key dimensions for success—demand, supply, product, risk, and performance—across the organization and throughout the extended supply chain.
Strategy 5: Embed sustainability into supply chain operations. The triple bottom line of people, profit, and planet has never been more important than it is today. Studies show that companies striving for social and environmental sustainability achieve major competitive advantages, especially with regard to production efficiency, supplier management skills, and attractiveness to employees. Substantial opportunities exist for sustainability in supply chain operations:
- Company leaders first need to embed sustainability as a core strategic component and capability of their supply chain strategy. This means incorporating it as a key requirement across all supply chain processes.
- Second, professionals initially should focus on the basics to achieve quick wins through real-time visibility and analyses to energy and resource consumption and resource or material movement. This enables reduction of carbon inefficiencies, minimized energy consumption, less waste with “recycle-reuse-refurbish” materials, and optimized travel and transportation.
- Businesses can keep the momentum by ensuring continuous improvement through systemic measurement, audit, and knowledge management. Compliance audits, best practices, and benchmarks provide a governing framework for sustainable supply chain operations and ensure clarity around the environmental impact of specific actions.
Strategy 6: Ensure a reliable and predictable supply. Without reliable supply to customer-facing stakeholders to meet agreed-upon service levels, a manufacturer will tend to hold inventory buffers to ensure meeting customer service levels. This costs the business and, even worse, may mean the wrong products are at the wrong place at the wrong time, resulting in supply shortfalls. Working on continuous improvement and operational excellence strategies is a foundation for successful end-to-end supply chain operations. Oracle and the cloud provide the infrastructure, analytics, and application processes to support the digital manufacturing thread across the end-to-end supply chain, which ensures that manufacturing operations are synchronized, connected, and integrated with customer- and demand-facing and planning processes.
The right processes, practices, and tools can help.
The demands on supply chain managers to rapidly respond to change and increase profitability are greater than ever. The good news is that effective strategies and solutions exist that support each one of the previous five strategies, and they can deliver immediate return on investment. The tools also exist. They have been battle tested, end-to-end, across some of the most valuable supply chains in the world. The way in which companies implement these strategies can mean the difference between success and failure. The tools they use should be low-risk and proven.
By Maha Muzumdar. Original version published in APICS Extra, July 2010.
Maha Muzumdar is Vice President, Suite & Industry, Cloud Business Group at Oracle, where he helps formulate, define, and drive the market strategy for Oracle’s supply chain applications.
Additional input for this post came from Oracle’s Cloud SCM Product Marketing Team.