How a shared service, IT outsourcing or even business process outsourcing (BPO) approach would work within a complex supply chain
by CapGemini
Many organizations have, or are beginning to consider redefining, redesigning and recreating their supply chains. By the end of this decade, innovative ideas and practices are forecast to be come commonplace within the business domain. Businesses looking for higher growth, profitability and customer loyalty inevitably focus on their supply chains – many view this as a prerequisite. The supply chain forms the core of most businesses. In a world of globalized manufacturing, it connects hundreds, perhaps thousands of suppliers, and ensures the smooth running of processes that span continents.
As the wider marketplace also embraces globalization, the supply chain connects millions of customers, collects revenue for goods and services, defines how much profit the enterprise makes, and plays a critical part in retaining customer loyalty. The supply chain has been through a number of transformations. New models and technologies have been developed and there has been considerable progress in making supply chains faster, more accurate and increasingly responsive; however, the next stage of transformational change is now imminent. In some organizations, redefining, redesigning and recreating the supply chain has already started. These pioneers are soon to be joined by other early adopters and, by the end of this decade, innovative ideas and practices are forecast to become commonplace within the business domain.
Rising volatility
Complexity is endemic in Supply Chain Management and the level of volatility is now rising exponentially. Customers have more channels to choose from and expect perfect delivery, faster – often in much lower quantities than before– and are more willing to drop existing suppliers and search for others better able to meet their expectations. It is difficult enough to manage today and, as the number of products and product variations continues to rise and the range of Stock-Keeping Units (SKUs) and channels to market expand, the task can only become more difficult. Existing supply chains are already struggling to cope with these developments. As change continues, or even accelerates, a breaking point for many existing systems and processes is now in sight. In most supply chains there is a lack of end-to-end visibility and process integration.
This means management teams often lack the insights needed to make the right changes, nor do they have the process levers to pull, once a new approach has been developed. When you add to this the burden of infrastructure complexity due to the persistent presence of legacy technology, and the growing difficulty of finding enough people with the right skills and knowledge, the future could hold considerable challenges for many businesses.
There are four key issues threatening competitive performance, profitability and brand reputation today:
1: Costs and working capital: supply chain professionals are under pressure to reduce overall costs, while access to and returns on working capital are critical concerns. Improved cost efficiency requires better planning and execution, and that, in turn, depends on effective analytics and organized, seamless processes. What arise are questions regarding how these are to be developed, accessed and utilized.
2: Response to volatile demand: customers expect delivery on time and in full; however, this a growing challenge in a marketplace that is becoming ever more volatile. As customer loyalty drops and demand extends, the task of making supply chains more responsive in order to cope arises. Finding a method to do so without negatively impacting working capital comes to the forefront.
3: Integration, visibility and collaboration: weak links in the enterprise’s supply chain will cause disruption and loss. The only way to identify and eliminate such weaknesses is to improve end-to-end visibility. Today visibility remains problematic due to the lack of reliable metrics and an inability to measure outcomes at every point.
4: Talent: a common problem for many supply chain management teams is recruiting the right people – people who combine the ability to build and understand complex mathematical models with deep understanding of the relevant processes and technology platforms, and who also have a comprehensive appreciation for the realities of the business. Current experience suggests there are not enough of these people to go around, while keeping the current workforce is proving difficult. Similar issues have arisen in other complex process landscapes and have been addressed through a combination of new technology platforms and targeted outsourcing.
Sharing
In order to understand how a shared service, IT outsourcing or even business process outsourcing (BPO) approach would work within a complex supply chain we need to look at the core components in a standard supply chain model and identify the areas in which targeted intervention can make the greatest positive difference in the shortest possible time. Many companies are reluctant to outsource mission critical processes; however, there is increasing evidence to support the view that BPO is especially well suited to driving transformational change in core processes.
Now there is reasonable cause to argue that a similar approach will also deliver measurable benefits within the supply chain. Capgemini believes that the most logical and attractive areas for intervention are Supply Chain Master Data Management; Order Management; Logistics Management; and Planning and Optimization. These can each be addressed as individual activities and can be substantially improved through targeted BPO. Master data failure to define master data processes with sufficient rigour often leads to faulty data being entered, and that can prove costly. Only when true visibility is achieved can supply chain managers identify waste and redundancy, eliminate weaknesses, enable fast efficiency gains and foster a strategic approach to performance improvement.
Master data
The single most important factor in driving this kind of change for the better is master data. Current experience suggests that even large and capable organizations often lack standard processes across the entire internal supply chain organization, or clearly defined metrics for measuring process performance.
The goal is to gather the right attributes for supply chain masters from multiple departments and divisions within the organization; to integrate, validate and cleanse the data; then update the data in the right set of systems to further aid supply chain planning or execution. This enables a ‘single version of the truth’ to be built and shared, and it also ensures true visibility across the entire supply chain. Given the key importance of volatility on supply chains, it is somewhat paradoxical that demand planning remains problematic in many organizations. This can potentially be traced back to the fact that traditional supply chains are designed to respond to demand but not to proactively identify emerging demand in advance. Demand forecasting, leading o better demand planning, requires a combination of reliable statistical models and advanced analytics, supported by personnel with skills in advanced modeling and focused system design. The general flaws in demand planning mean that cost-saving opportunities are often hidden just beneath the surface in many organizations.
Supply Chain optimization can potentially make a tangible difference in a wide range of areas, including:
• optimizing the entire supply chain network – this consistsof manufacturing locations and distribution centers;
• determining the optimum locations for these manufacturingand distribution centers;
• optimizing routes and modes within the logistics network;
• optimizing inventory levels across the different nodes within the supply chain.
On the long-term path to transformation, optimization and advanced planning is a classic ‘quick win’ for large organizations, and can be offered as a managed service to resolve pressing issues not just in strategic areas like supply chain design, but also in more tactical areas like daily optimization of routes and modes. The potential for fast change is often limited because of a chronic and near universal talent shortage. The key requirement is for people who understand their business environment well, are able to build mathematical models that represent this accurately and then use this to drive positive action in the physical environment. Order Management requires collaboration with a wide range of processes and stakeholders, external as well as internal. Improved performance, even by modest percentages, will expedite the order-to-cash cycle, reduce cost per order, improve quotes conversion and raise levels of customer satisfaction, thus reducing churn. These all constitute substantial benefits to the business, and the ability to access world-class integrated systems and know-how at once, without the need for heavy capital investment and years of development, helps to further highlight the potential of BPO.
Last mile delivery
Logistics remains key to accurate, on-time delivery right across the supply chain. The physical aspect of logistics has been widely outsourced for many years, but with shipping and last mile delivery largely recognized as specialized activities, managing logistics generally remains an in-house supply chain management process. Data analytics digs deeper into the available information to clearly outline key trends, sustainability and emissions performance data, while analyzing time and costs for each specific transport mode, providing real-time reporting on all relevant aspects of performance. Given the need for delivery performance that is faster, more accurate, at a lower cost and likely to drive higher levels of customer satisfaction, absolute best practice in data management, process execution and analytics will constitute future norms.
Insights can be leveraged in order to help enhance operational efficiencies and effectiveness by using data driven decisions at strategic, operational and tactical levels. It encompasses reporting on the entire BPO delivery as well as analytics covering the complete value chain, starting from sourcing, manufacturing and distribution through to logistics.