Of course reliability and cost effectiveness is important. But speed is the new supply chain differentiator. What works today won’t necessarily work tomorrow – a simple maxim that couldn’t be more appropriate to modern supply chains.
We live in an age of consumerism and globalisation. Whoever can deliver wins the contract. Product attributes are becoming increasingly equal as information flows faster. Consequently demand cycles are increasingly volatile, driven less by product advantage than by logistics advantage. Goods need to go from research and development to the shelf in record time in order for companies to compete for a slice of rapidly evolving markets. Logistically, the goalposts are continually shifting.
To master the modern supply chain environment, we must first understand the concepts of speed and agility.
A brief history
Outsourcing the transportation function was the first real step in the modern evolution of supply chains. It helped reduce manufacturers’ capital costs but problems were rife as communication problems countered the advantage of lower costs and lower capital expenditure. Customers became unhappy. Outsourcing represented one step forward and two backward.
Poor communication between outsourced transporters and warehouse operators all but demanded integration of these outsourced functionality components and supply chain management. Integration of all logistics functions – from freight forwarding and warehousing to inventory management and transportation has been the focus for sophisticated supply chain practitioners for the last decade or so.
Modern supply chains
Today, outsourcing some or all of the logistics functions and then optimising them, have had a tremendous impact on the income statement and balance sheet of many companies. It has also fundamentally decreased risk profiles for many distributors and marketers. A logistics partner with the expertise to re-engineer and take the supply chain off balance sheet can substantially reduce the amount of capital required to sustain operations, improve profitability and service levels and mitigate business risk for producers and marketers of products.
It has been said that 85% of potential logistics cost savings come from integrating the supply chain, but optimisation also positively affects cash-to-cash cycles, customer service and loyalty and sales. And while logistics outsourcing may have had cost reduction as its original objective, globalisation and shortening life cycles have brought lead time reduction and reactivity to the fore. While the savings can be dramatic, the ability to react quickly to demand is fast becoming the Holy Grail.
Fixed overheads become variable costs and fixed assets become cash. As importantly, the ability to scale or reduce logistics operations in order to react to changes of demand becomes possible with the right outsource partner.
Agility and flexibility
Wherever agility and flexibility are critical, you need quick information from the marketplace that’s reliable and accurate. Visibility helps to identify problems such as availability, stock shortages and excess stock. Creating integrated visibility enables supply chain managers to assess customer demand in time to satisfy it. Their market share possibilities increasingly depend on it. The hitherto academic view that information management systems provide, along with demand planning and inventory optimisation, make it possible to drive effectiveness through agility and flexibility has come home to roost in reality.
Responsiveness
Only by getting the right goods to the right place at the right time can you give a product a chance to compete and to succeed. Being able to respond timeously and effectively to fluctuating demand helps to prevent lost sales, and also to reduce write offs of excess stock.
On the other hand, a lack of speed or agility can lead to excess stock as trends and fashion change, or out of stocks and the sure knowledge that an organisation never knew the potential of a product.
Being able to move goods quickly to high-demand areas and withdraw stock from low-demand areas is vital. Keeping tabs on demand patterns and the efficiency of reverse logistics systems also contribute to agility and flexibility.
The level of inventory cover and turnover is a good indicator of the agility, flexibility and responsiveness of a supply chain, and can be used as a reliable measure of efficiencies and effectiveness.
For most supply chain managers, the biggest challenges remain planning and forecasting. In the context of a continually evolving supply chain, the inventory models and business prediction instruments still in use today are less and less likely to work accurately as demand becomes more driven by innovation and availability of supply. But while we are becoming less and less able to predict demand, we can react to it... And those who react fastest will be able to corner markets better than their competitors. Reactivity and supply chain agility will begin to rival innovation as the primary driver of competitive companies.
As the market continues to change at pace, an agile, flexible and responsive supply chain can open the way to clear competitive advantage. Partnering with a logistics expert who understands this as well as the environment that you operate in – and has the capital and capability to continue to improve the supply chain on an ongoing basis – is clearly the only way to ensure and sustain success.
Contributed by Ken Light, Chief Business Development Officer, Crossroads
