Supply chain synchronization can tackle risk, create sustainable advantage

11 September 2020 Consulting.us

Synchronizing an organization’s supply chain can unlock its full potential and lead to a sustainable competitive advantage, according to a recent white paper from the University of Tennessee’s Global Supply Chain Institute (GSCI) titled “End-to-End Supply Chain Synchronization: Orchestrating a Winning Strategy.” The paper – which examines the concept of “synchronization,” its best practices (including digitalization), and several illustrative case studies – was sponsored by global operations and supply chain consultancy Maine Pointe.

The global pandemic has rocked supply chains and exposed vulnerabilities. As organizations reassess their long-term supply chain strategies, synchronization offers an avenue to unlock more value and turn the supply chain into a competitive weapon, according to the GSCI paper.

“Gaining an advantage during what is the biggest business disruption in decades calls for a renewed look at the supply chain,” said Steven Bowen, CEO of Maine Pointe. “We’re seeing new issues come to light that must be addressed. The first step in responding is stabilization, followed by recovery and a new rebalancing of the supply chain. A fully integrated and synchronized supply chain, driven by Total Value Optimization (TVO), can be one of the greatest value drivers in the organization.”

Supply chains leaders are often out of sync with the goals of the overall business, and are relegated to a supporting role. Top companies, however, align their supply chain operations with their core business drivers to achieve better business results.

According to the paper, supply chain synchronization is the strategic work that aligns supply chain operations, business processes, and people systems (culture) with the core business driver to achieve total value. A business driver is an item that, when it improves, the business sees improved results – and when it degrades, the business sees worse business results.

The paper outlines five steps to implement synchronization.

1) Identifying the core business drivers

A company, especially a larger one, can have multiple core business drivers. A large global firm that has both a snack food and furniture category, for example, would have at least two supply chains with potentially at least two unique core business drivers.

A pharmaceutical firm’s core driver could potentially be regulatory compliance, while a commodity business’ core driver could be commodity prices.

Example core business driver

2) Aligning physical, process, and people

Supply chains are composed of physical assets, business processes, and people systems – sometimes called the Three Ps of supply chains. Two commonly observed gaps are that the physical supply chain is not well-synced with the outputs of business processes – such as budgets and innovation strategy. Supply chain culture is also often not in a position to successfully achieve the difficult relational work of synchronization.

Aligning the Three Ps creates a supply chain that is end-to-end (holistic and integrated system with clear strategies and supply chain collaboration); reliable and predictable (avoids rework/returns and manages variation); and cultivates a supply chain culture (a talent pool with sense of ownership and common values).

3) Synchronizing the physical supply chain

Companies need to understand and map their value stream – which can be a complex task when chains have hundreds of suppliers. In a synchronized system, the value stream will efficiently and effectively deliver the core business driver and eliminate variation through a reduction of time and improved responsiveness.

Value streaming mapping

Mapping the value chain will mean measuring the performance at nodes and transitions, which can help solve customer service gaps and analyze waste and losses. Many companies evolve to benchmark the time, waste, and cash at each point, according to the paper.

4) Synchronizing business processes

Business processes should effectively translate current needs to what creates the largest total value (core business drivers). Business processes include budgeting, research and development, and demand and supply integration.

Flow charting is the first step in connecting business processes to synchronization strategy. Flow charting helps companies understand processes – clarifying objectives, key steps, inputs, and outputs.

Once the process is clear, it can be renewed to ensure process outputs are consistent with the core business driver. The flow chart should also be documented, and a system owner should be defined, according to the report.

Example business processes

5) Synchronizing people systems

Perhaps the most difficult task is reforming corporate culture to support a synchronized supply chain. Some organizational cultures support synchronization and some resist it – with resistant cultures often having unique cultures within each functional group that is distrustful of other functional groups’ cultures.

Top companies will establish a core business driver and then ensure that all business functions support full collaboration to achieve business goals. Benchmark cultures will reward attention to detail, create overlapping functional rewards systems (including executive compensation), and celebrate total value improvement versus functional goals.

“End-to-end integration, collaboration, platform management, digitization – all are tools to achieve an end: Increasing total value across the supply chain,” said Michael Burnette, GSCI Fellow and co-author. “Synchronization is the next step. Going through the synchronization process allows companies to create a value chain for long-term organizational success.”

Digitalization

The GSCI white paper also collected a number of best practices by examining and interviewing more than a dozen leading firms in a diverse range of industries. One important best practice they identified was end-to-end supply chain visibility and optimization – provided via digitalization.

The first element of digitalization is physical digital tools – such as robots, optical tools, and drones – that enable instantaneous decision making, quality verification, and the ability to handle significant changes in product characteristics.

The second element is information/analytical technology, which delivers access to data, real-time analysis, and machine learning to optimize the supply chain. These tools allow a company to track materials and products from suppliers all the way to delivery; make data-driven decisions based on historical information, statistical probabilities, and AI; and continuously improve systems to deliver optimized total value.

The paper highlighted several leading firms that synchronized their supply chains and realized improved business results. In one case, an omnichannel retailer facing a shrinking market was able decrease working capital by 25% and reduce logistics spend by 7 to 12%  – saving tens of millions of dollars.

In another illustrative case, an alternative energy provider facing tariff challenges drove new value through optimized distribution networks, strategic procurement, and redesigned products. These actions helped improve Ebitda by 13.5%.


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