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Perspectives

Good to Great: Understanding Supply Chain Maturity (Part 1)

2016-06-15


An effective supply chain is key to satisfying customers while maintaining the highest levels of efficiency and effectiveness. But all supply chains are not created equal. Start by considering the four stages of supply chain maturity. (First in a two-part series)

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An effective supply chain is key to satisfying customers while maintaining the highest levels of efficiency and effectiveness. But all supply chains are not created equal. Start by considering the four stages of supply chain maturity. (First in a two-part series)


Supply chains matter—that much we know. But the notion of what constitutes an effective supply chain is changing in today’s fast-paced, high-demand and increasingly digital world. As value webs increasingly replace more rigid supply chains, suppliers and producers and even customers are working together in more flexible, modular ways to meet business demands. This is making it more crucial than ever for businesses to assess their own supply chain maturity and strategize on optimizing supply chain visibility, agility and effectiveness.

In our recent survey of over 300 supply chain managers working for top brands in virtually every industry, we found that very few companies have mastered supply chain planning. Just 10% claim to operate a “highly integrated” chain, and over 80% are a work-in-progress, still in the early stages of maturity. 

A majority of respondents believe supply chain planning will improve substantially in the coming years, thanks to tighter software integration. Based on our experience studying and improving supply chains at numerous Fortune 500 companies, we have developed a four-level approach to understanding supply chain or “value web” maturity (see Figure 1).

Figure 1

Level 1. Decentralized: Lacking in visibility, coordination. 

Organizations with decentralized supply chains should not automatically be considered laggards. Many of these companies’ processes — such as purchasing, order management and shipping — may be highly automated and perform extremely efficiently. These organizations also typically pay suppliers on time, bill customers promptly, hold adequate inventories to meet demand, and deliver the right orders.

But due to siloed systems, these businesses tend to exhibit little integration across their supply chain elements. Each unit operates independently, and the same process may be duplicated many times across the business, including procurement, ordering, inventory and sales. Different business functions may be so separate that they transact with each other as customers, issuing POs and invoices to govern the movement of goods and human capital around the organization.

This approach increases the chances of customer confusion (aka dissatisfaction), operational waste, an inability to quickly spot bottlenecks and poor forecasting. When certain events unfold—even simple, routine ones such as returns — each department may react independently, with little central coordination, hence the name, decentralized.

The lack of visibility and intra-organizational coordination of this type of supply chain can be devastating; an example is Jessops, a once popular UK retailer of photographic eqiupment and accessories, whose disjointed forecasting processes caused it to accumulate £16 million in excess obsolete stock. 

Level 2. Unified: Bringing the pieces together. 

Organizations at this level are beginning to embrace integration by co-joining supply chain teams — from various process stages, regions and business units — into a centralized function. Doing so reduces redundancy, coordinates planning and provides a single center of excellence to respond to supply-chain inquiries. 

The benefits of unification can be dramatic: greater efficiency, improved quality and better insight and oversight. Unified organizations can expect to reduce the amount of time spent reconciling financials and materials by 75%, according to our estimates. Their products and cash also move more quickly through each stage. Unification enables a “low-touch” operation, as it reduces the need for hands-on work between units. Possessors of unified supply chains enjoy a clearer picture of operations risk and the ability to derive meaningful insights into product development, pricing and promotion opportunities.

In order to reach this stage of maturity, organizations need to take fairly drastic measures, including moving, creating or disbanding staff, teams and facilities, as well as retraining staff, partners and even customers. Cultures must change, and data must be normalized, all without compromising day-to-day activities.

While a big improvement from decentralized supply chains, unified chains concentrate only on internal integration, leaving suppliers and customers out.

Level 3. Networked: Involving the wider ecosystem. 

The logic behind adopting a networked supply chain is that there’s only so much value that can be created within the organization’s four walls, as much supply chain work is performed by suppliers, logistics partners, distributors, resellers, retailers and customers themselves.

To create a truly efficient supply chain experience, information and instructions must flow from end to end, enabling full visibility, pre-and post-event reporting, and predictive analytics of customer demand. Networked supply chains exhibit many of the same benefits as unified ones, but to a far greater extent.

ERP providers such as Oracle and SAP have historically offered collaborative supply chain tools, enabling businesses to fold customers and suppliers into the supply chain. But the prohibitive costs and heavy customization these tools demand have deterred most organizations from pursuing collaborative supply chains. Cloud computing tools can help ease the financial burden, but software alone isn’t enough to realize a networked supply chain. 

To avoid errors and manual reconciliation, all “networked” activities, data types and milestones must have a common language and standardized way of collaborating, which requires all trading partners in the supply chain to use an agreed-upon format to assess purchase orders, sales, return authorizations, invoices, stock checks, late deliveries and goods sold.

With their process consistency and a solid end-to-end technology foundation, networked supply chains enable the business to get the basic supply chain principles right, effectively fulfilling customer needs, albeit with a level of manual management. However, they often lack the ability to manage variable, volatile or otherwise complex transactions across different order and fulfilment channels. That’s where the Holy Grail of supply chain comes in.

Level 4. Orchestrated: Achieving end-to-end excellence. 

Orchestrated supply chains are fully integrated across all regions and organizations. They use advanced technologies and automated, rules-based processes to quickly and effectively manage many different scenarios, as well as provide real-time feedback for better decision-making, fewer errors, smarter forecasting and higher profitability. The result: Businesses can meet customer expectations for timely, high-quality logistics, with zero errors and profitable operations.

Orchestrated supply chains stand out for their ability to deliver key outcomes, including support for diverse movement of goods, zero-touch interaction and predictive insights. They enable organizations to fulfill omni-channel orders automatically in the most appropriate way — including segmenting requests by value or prioritizing the most profitable actions. And they enable businesses to deal with returns, an increasing concern for electronics manufacturers, life sciences and consumer goods companies.

Ultimately, the orchestrated supply chain bridges different systems and data structures to create a single platform on which trading partners and customers can interact directly. By sensing and synthesizing external signals in the cloud, such as social media sentiment, supply chain messaging, retailer information, Internet of Things data — all the Code Halos surrounding customers, partners and the business — orchestrated supply chains can generate predictive and automated insights in real-time into supply and demand trends. Not only does this free experts to focus on exceptions and outliers, but it also enables the supply chain to be highly responsive or even proactive, mitigating risks and maintaining high standards of customer service. 

For example, in the event of a natural disaster, manufacturing shutdown or large-order cancellation, an orchestrated supply chain would deliver an alert to the right point, enabling the organization to adjust accordingly, saving time and money and increasing both customer and shareholder value.

Gauging, Ascending the Maturity Curve

Many organizations are still in the early stages of the supply chain maturity curve. For businesses with dozens of systems, hundreds of suppliers, thousands of outlets, tens of thousands of SKUs, and millions of assemblies, changing processes, people and systems is like steering an oil tanker: it’s slow-going and must be done with care to avoid disaster.

But it can be done. The highest level of maturity is possible with today’s advanced technologies, enabling organizations stay ahead of the competition, build customer loyalty, achieve agility and streamline operations to reduce cost, risk and waste. 

In part two of this report, we examine how orchestration can be achieved.

To learn more, read Why Value Webs are the New Supply Chains and Orchestrating a Supply Chain Competitive Edge, or visit our Supply Chain Management Practice

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Good to Great: Understanding Supply Chain Maturity (Part 1)