Businesses can benefit from strategic supply chain management that minimises risk, encourages innovation and boosts the bottom line, writes Nick Martindale
Running an efficient supply chain is not just about ensuring component parts and finished goods are delivered on time and in as painless a manner as possible. According to PwC’s 2013 global supply chain study, companies that use the supply chain as a strategic asset achieve significantly better financial results – up to 70 per cent higher in some cases – delivering greater efficiency and customer satisfaction, without increasing working capital.
Jolyon Austin, UK supply chain management managing director at Accenture, stresses the need for organisations’ supply chain strategies to support broader business goals and identifies three possible approaches.
“One is around service, another is cost and the third is around agility, so being responsive,” he says. “For instance, fashion retailer Zara has a highly agile supply chain designed to be able to rotate new designs into stores on a four-week cycle. So they don’t go to China or Vietnam; they source near-shore. It’s what customers expect and what gets them back into the stores.”
Nike is an example of a supply chain set up to meet the business’s proposition around cost, relying on Far East sourcing as a core competency, he adds, while Apple’s operations revolve around customer service.
Organisations that develop genuinely effective supply chains are likely to make themselves more competitive in a number of areas. First off is efficiency.
Alan Braithwaite, visiting professor in supply chain management at Cranfield School of Management and chairman of LCP Consulting, gives the example of healthcare business PZ Cussons, which recently undertook a supply chain optimisation project designed to boost production and reduce its number of facilities. “Going forward the manufacturer will be well placed for further improvements as its exposure to inflating costs is reduced,” he says.
A thorough understanding of a company’s entire supply chain can also reduce risk, both logistical and reputational. This is a core focus for Welsh contract manufacturer Axiom Manufacturing Services, which designs and manages the production of goods including aerospace and military hardware, and industrial equipment on behalf of a number of clients.
Organisations that develop genuinely effective supply chains are likely to make themselves more competitive
“We engage with our strategic partners, primarily UK distribution companies, and customers from the start to choose components which are readily available and which have a multitude of different options if one of those manufacturers tries to end the life of a component,” says Chris Nye, materials director.
Involving suppliers – and sharing risk across all parties – also means when products are in short supply, as in the immediate aftermath of the Japanese earthquake, they are more likely to be given to Axiom than other businesses, he adds.
Where it makes business sense to outsource operations, collaborative working relationships and a partnership approach can lead to both supplier loyalty and greater innovation.
Stephen Rigby, a partner in Grant Thornton’s business consulting practice, gives the example of the automotive sector, which relies extensively on supplier knowledge and innovation to help deliver new components and features within tight budgets.
“The outside of the vehicle is effectively produced by designers, but everything else is designed by the suppliers of each of those parts,” he says. “They call it black box design; they’re giving them a blank page and are using suppliers’ knowledge to specify it.” This is only possible with long-term relationships based on trust, Mr Rigby adds.
Then there is greater customer satisfaction, which should ultimately lead to increased sales. Consumer-facing organisations, such as Procter & Gamble, PepsiCo, Samsung, Marks & Spencer and John Lewis, are increasingly using customer information from social media or loyalty programmes to help shape their supply chains, according to Razat Gaurav, senior vice president, international, at supply chain organisation JDA.
“This is then harnessed to make important decisions on how they should plan their assortments, pricing, promotions, inventory and distribution strategies,” he says.
The use of the supply chain to deliver competitive advantage need not be the preserve of medium or large organisations, however. A Surrey-based seaweed extract firm has recently been able to draw on its relationship with its extraction provider Stan Chem to help it meet rising demand for its seaweed fertiliser product, which has resulted in the supplier – itself a small business – investing in a new production line.
“Together with Stan Chem, we realised we could either plateau out or go to the next level,” says Michael Hedges, managing director of Chase Organics.
Backed by an agreement between the two companies not to supply to or source from other businesses around the specific product, the new facility should pay off once it is completed later this year. “It will mean we can go far more on the front foot than we have been able to for the last year or so,” says Mr Hedges. “To be selling an agricultural product from here to China is quite a unique story.”