How supply chain modeling technology and centres of excellence (COE) are guiding global businesses toward measurable operational improvements
Why Is Supply Chain Design Important?
The modern supply chain is an increasingly complex and volatile network that often stretches across continents and supports numerous market segments. With this complexity, the impacts of change are harder to determine and the risks involved with being unprepared increase. Changes in demand, shifts in commodity prices, supply disruptions, variability in transportation availability, natural disasters, geopolitical change and regulatory issues all impact the flow of goods to market. Businesses have hundreds of supply chain ‘what-if’ questions to answer, and need a means to get fast, data-backed answers.
Supply chain design is the practice of using living, digital models of the end-to-end supply chain to guide continuous improvement and innovation and provide a single, enterprisewide platform for decision support. Modeling is now a must-have capability for businesses to keep up with the pace of change and to sustain a competitive advantage by significantly improving in the areas of cost, service and risk. Leaders have created centres of excellence and put in place an integrated supply chain design platform and business processes to rapidly and accurately answer tough supply chain what-if questions and generate effective and clear recommendations for decision support.
Increased Benefits with End-to-End Perspective
In order to use supply chain design as a competitive weapon and see significant savings, supply chain design should see across the entire business to optimize the true end-to-end supply chain and not just a specific business unit or business function. Supply chain design COEs can pool talent and technology to provide analysis capabilities to the entire organization. This organizational structure can help the group avoid the pitfalls of local bias or politics and remain focused on data-driven business solutions. A study around supply chain design centres of excellence, conducted in large billion dollar organization across multiple industries ranging from automotive to food and beverage, done by the University of Michigan discovered more and more companies across industries are building, developing and growing their own centres.
Supply Chain Savings Case Example: Product Allocation
A large food manufacturer had already made investment decisions around facility locations and production footprint. The next question was how best to utilize that footprint. Over time, demand for its product fluctuates to different regions of the U.S. and the company wanted to evaluate the impact of shifting locations from which raw materials were sourced in order to provide a lower total cost. For example, if the company has 10 plants where a certain kind of soup is made, where and in what quantities should the soup be made, based on current raw material sourcing costs, transportation and facility costs?
By utilizing capacity modeling to simply balance variables and capacity, the company uncovered $50 million in cost savings in just one year, without any changes to the physical production footprint.
Building a Successful Centre of Excellence
There are a number of important practices that can help businesses nurture COE growth and effectiveness and keep modeling processes and deliverables consistent. Here are a few examples:
Establish a Consistent Method for Identifying and Prioritizing Design Initiatives
An excellent exercise for any business considering a move toward a supply chain design COE or in the early stages of development is prioritization of modeling initiatives. Executive sponsor(s) as well as representative department heads and analysts should participate. Each initiative is mapped onto the matrix according to relative business benefit and relative ease of implementation (example below).
This process is in itself an extremely effective way of promoting valuable interaction and focused discussion among the team. The mapping process removes some of the subjectivity normally present in these decisions and requires input from the entire group. A view of potential projects will quickly take shape and become a starting point for either COE justification or a prioritized COE project plan. Many companies prioritize projects based on their ability to improve cost or quality over all other factors.
Go After Quick Wins
Even though supply chain design can identify major breakthroughs in cost savings or service, some recommendations can be disruptive and time-consuming to implement (open four new DCs, rationalize 200 products, etc.). In order to establish early credibility for an emerging COE, many companies will identify quick-win projects that are much easier to implement and still deliver significant cost benefits (product flow-path, inventory right-sizing, DC-to-customer assignments). Be sure to consider business goals and priorities when identifying projects, and don’t be afraid to advertise the successes around the company! Quick multimillion Rand wins can gain executive attention and establish early credibility for the supply chain designers, and are often used to justify further investment in staff and technology.
Get Out In Front of the Predicted Supply Chain Talent Shortage - But Be Selective
The people side of supply chain design is often a forgotten aspect. Many companies assume once they have supply chain modeling software in place the savings will begin rolling in; however, technology is only part of the equation. Industry experts say an understanding of technology and an ability to work in a global environment are increasingly important in the supply chain, forcing managers to look for people with a rare mix of specialized skills to manage this crucial aspect of their business. As the supply chain sector grows and business focus more on differentiating initiatives that require significant supply chain investment and staffing, the demand for talent is rapidly increasing. At the same time, the gap between demand and availability of supply chain professionals is widening. Baby Boomers are exiting the workforce and GenXers are struggling to keep up. To complicate things even more, there is a significant skills gap as the industry demands workers with broad business acumen as well as logistics and analytical skills. Be aware that it may become more challenging to recruit for your COE, but don’t hire just anyone who has the right degree.
Successful team members should be effective problem solvers - people who think analytically and are natural researchers and implementers of new processes. Invest the time to find experienced members of your team. In addition, invest the time to find team members who are experienced in the business – who know the business and can talk to the business. This skill set bridges the analytical outputs with the business being able to understand the results and more importantly implement the changes that come from the analysis. On average, COEs with staff that have industry experience were over 25 percent more efficient with time and cost savings measures.
Pursue Design Mastery
Once you have a team of bright, talented analysts dedicated to supply chain design, be sure to invest in their growth and development. In addition to giving them powerful and easy-to-learn design technology, build a roadmap for supply chain design mastery for each analyst. Identify the milestones and requirements - and benefits - for each step in their progression from new hire to program leader. Establish a process for onboarding, project shadowing and technology training. Amid the analytical and technical skills, don’t forget the importance of learning and practicing skills such as presenting to a group, project management and influencing others.
Align COE Goals with Business Strategy
It’s never easy to get everyone on-board, especially executive stakeholders. Business leaders may not be fully immersed in the day-to-day details of the supply chain, and they need information quickly in easily-digestible formats. It’s paramount to work with and win over business leaders on the necessity of supply chain design as an enabler of overall business strategy. Below are a few steps to establish a successful relationship with these executive stakeholders.
1 - Engage from the top: Get C-level support that supply chain design is an integral part of the day to day business decisions. Start with explaining what supply chain design really does and use examples of the impact supply chain design has on companies just like yours
2 - Speak in their language: Business leaders don’t have time to dig deep into the details of proposed changes. Build easy-to-understand maps, graphs and charts to quickly convey the model recommendations
3 - Deliver, document, repeat: Don’t stay silent about your successes; use your quick wins as leverage to tackle larger organizational changes. Ensure that business leaders are kept up to speed on past and current projects and work to develop repeatable processes to further increase efficiencies in your team
Success Example: Cereal and Snack Producer: Building a Supply Chain Design Initiative for End-to-End Supply Chain Visibility and Improvement
Background / Challenge
The increasing frequency of new product introductions, seasonal product optimizations and changing company objectives were amplifying the cereal and snack manufacturer’s lack of internal design capability and end-to-end supply chain visibility. Challenges included:
Supply Chain Design Solution: Technology, People, Process
Converting their highly resource-intensive global supply chain network and capacity planning process into a standard, repeatable and automated process would drive improvements in:
They would also gain end-to-end living supply chain models from supplier to customer store, with rapid “what-if” analysis capability.
In order to build a sustainable supply chain design initiative to meet company goals, they began work on a supply chain design centre of excellence (COE), which incorporated three components: technology, people and processes.
Technology: Building the Modeling Platform
A standardized design platform and global project repository creates one standard for all planners. Rapid what-if analysis and automated model building process has reduced time-to-answer from months to days.
People: A Sustainable Global Team
The team has successfully grown from a single modeler outsourcing work to an in-house global supply chain design team. Apart from the cost-savings achieved by eliminating the need for external consultants, a streamlined single design group also helps ensure ownership and accuracy of projects and a knowledge-sharing environment reduces the learning curve for new team members.
Process: A Repeatable and Standardized Approach
By combining standardised design platform with a dedicated design team, they were able to establish a globalized and consistent process for supply chain planning. Cross-training helps ensure all models can be manipulated by any modeler, and standard templates for projects keep modeling approach, datasets and timelines consistent for delivery to business leaders.
This repeatable process has deepened the impact and buy-in to the supply chain design initiative with the organization. Decision makers now can expect a consistent feedback loop throughout projects and formal close-outs with a standard deliverable set, and quicker response time to requests, with time to answer reduced from months to days.
Contributed by: Rod Stout, Director, Business Modelling Associates