Five supply chain characteristics that drive real value

Column by Masood Hassan, PwC Middle East Partner.
Logistics, COMMENT, Supply Chain


When eras shift, as they are doing now, paradigms from the past become obsolete, ineffective, or only marginally correct. In today's challenging business environment, continuing to do "what has always worked in the past" can have catastrophic results.

The recent economic recession had at least one positive effect: it forced companies to take an intense look at their supply chains, question some of their assumptions, and root out major inefficiencies.

The Middle East region is, however, a special case and has its own challenges; it has strong logistics and distribution capabilities, with a well-established 3PL industry and continued infrastructure investments. But it’s not just about logistics and distribution. The supply chain consists of a broad network of partners who interact at every level of their organizations. The failure to give the term “supply chain” a broad enough definition can cause a company to adopt a short-sighted approach to its operations. The supply chain is a network of companies that comprises your suppliers, their suppliers, customers of your company and their customers, if they exist.

Within the Middle East itself, countries vary widely in their supply chain capabilities; however, it is clear that, regardless of the business you are in, there are five distinct key strategic characteristics that define the supply chain, its maturity and performance. Companies in the Middle East who can effectively align their supply chain operations with their overall business strategy can create substantial competitive advantage – improving both the top and bottom line.

A good supply chain is an effective enabler of an organization’s strategic imperativesthat is, the parameters the organization needs to compete effectively. This idea isn’t new. But the truth is that many executives have a hard time explaining exactly what supply chain management is, or how they are using it to advance their organization’s competitive position. Why is this? Very simply, few senior “non-operations” executives have extensive experience managing the supply chain, and few understand its importance as a strategic enabler. At the same time, numerous business publications and industry experts tout the need to minimize costs, increase customer responsiveness, and maximize asset utilization—simultaneously— simply through the leverage of known “best practices” in supply chain management. The problem, of course, is that if these practices are offered in a vacuum, they aren’t designed to tie a specific company’s competitive strategies to its supply chain processes, infrastructure, and practices.

Strategic Supply Chain management explores how to make the supply chain prominent as a company’s strategy is developed. Five key characteristics can help even a “non-operations” person design a highly effective supply chain. These are:

First, view your supply chain as a strategic asset. When your supply chain strategy is integrated with your product and marketing strategies, you can expect to generate additional revenues during the product's life cycle, deliver superior customer response, and operate from a lower cost base than competitors. Many senior officers at leading companies already view the supply chain as a strategic asset, but for numerous organizations this still remains a great obstacle. How do you set the agenda required to reconfigure supply chains for competitive advantage?

Second, develop an end-to-end process architecture. Excellent supply chains leverage a tailored set of processes that are derived from the business strategy and are adapted as the strategy evolves. How are simple and robust supply chain processes developed? The supporting infrastructure needs to be adapted rapidly as business strategy evolves. Lack of awareness of the steps organizations can take to decrease supply chain complexity is the single greatest cause of poor return on investment in supply chain management.

Third, design your organisation for performance. An effective supply chain organisation must have the skills required to develop and manage a complex and rapidly-changing supply chain. You also need to understand how the organisation will be built. Will skills be acquired or developed? How much should you outsource? These are a few of the critical questions that must be answered. Success in supply chain management depends on putting in place the people who have the next generation of skills required. Today's supply chain managers need the business management focus which points the way towards implementing a high performance organisation.

Fourth, build the right collaborative model. To successfully leverage the skills of outside partners, you need a solid management framework, a clear understanding of the commitments being made on both sides, and a realistic assessment of the underlying economic assumptions. Supply chain collaboration, where the skills and talents of outside partners are leveraged to create benefits for all involved, has in many cases failed to deliver on its promise.

Fifth, use metrics to drive business success. The right set of metrics can provide information about the health of each core supply chain process and can identify problem areas on which to focus. Use measurement effectively as a management tool by describing how to choose metrics that truly enable business strategy and aim to drive desired behaviours.
Now is the time to act. Middle East companies should focus on finding end-to-end supply chain opportunities, as opposed to just logistics, and continuing to develop the supply chain.


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