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Perspectives

New World Order: Moving From Supply Chain Savings to Supply Chain Gains

2014-07-31


Cost savings are no longer enough. Here's how forward-thinking manufacturers and retailers are turning their supply chains into value webs to achieve innovative productivity gains.

Cost savings are no longer enough. Here's how forward-thinking manufacturers and retailers are turning their supply chains into value webs to achieve innovative productivity gains.


Like all companies in the mobile information age, manufacturers and retailers are at a crossroads. To compete in a highly globalized and informed market, they must simultaneously grow revenues, reduce costs, and boost productivity like never before.

What role, then, can the supply chain play in meeting those objectives? Forward-thinking companies like Amazon are turning to "omnichannels" and social, mobile, analytics, and cloud technologies (aka SMAC) to exploit new markets, source non-core process, rejigger distribution, and carry smarter inventory.

It's all part of a growing trend to create adaptive supply chains or "value webs" as they are known. But before you can do the same, you must understand what you're up against.

Seven Modern Supply Chain Challenges

1. Instant gratification. Digital natives and millennial mindsets demand immediacy. When armed with more product information, price comparisons, and crowdsourced reviews than ever before, they're capable of crushing ill-prepared, passive, or otherwise traditional supply chains.

2. SMAC technologies. Not so much a challenge as an enabler of it, SMAC technologies affect everything from demand planning to research and development. But rather than taking a one-off approach manufacturers and retailers must overcome technological barriers and organizational resistance and holistically harness them to create more adaptive supply chains.

3. Shrinking product lifecycles. Not only do consumers want things "right now," they expect updates and revisions of those same things more often. Otherwise, they're happy to jump to the next offering.

4. Globalization and componentization. Over the last decade, the world market has become truly global. Consequently, disparate or "componentized" overseas sourcing introduces an array of implications, such as greater need for visibility, synchronized supply lines, consistent quality, regulatory compliance, and managing logistics.

5. Omni-channel commerce. Retail, direct, online, apps-with so many ways to transact, customers are further pressuring the supply chain, forcing the best companies to monitor social feedback and trending data to predict when and where an order must be fulfilled.

6. Off-premises computing. Although a key component to SMAC, off-premises or "cloud" computing is changing the way companies compute, order, satisfy, execute, and fulfill modern orders. As such, cloud computing has become a key enabler of adaptive supply chains, further cost savings, and information accessibility.

7. Demand-planning processes. No longer can supply chains solely react to demand, they must predict it using social, conventional Web, and trending data as real-time signals.

 

Figure 1

Other challenges undoubtedly exist, but accepting the above can put you in a better position to renovate your tired old supply chain into a modern and predictive "value web." Here's how.

Rethink Strategy, Reinvent Operations, Rewire Productivity

If you're familiar with our existing mantra on future-proofing the enterprise, you already know we're big proponents of "The Three R's" of change: Rethink, reinvent, and rewire. In our experience, the catch phrase is applicable to almost every function of every business. The supply chain is no different.

1. Rethink your inventory dashboard. As an early-adopter of SMAC technologies, Amazon became dominant by virtue of its hyper-efficient supply chain, which combines breadth of offering, quick fulfillment, and immediate order feedback. While most companies will not be able to replicate Amazon's staggering success, the giant e-tailer serves as a model example of distribution, warehouse management, and innovative delivery, including two-day delivery to anywhere in the country and "site to store" or "store to home" pickup options. Enabling these programs, however, involves a single centralized view of inventory, available-to-promise capabilities, and efficient order management software. In our experience, retailers that want to achieve breakthrough improvements must redesign their core warehouse processes, optimize store backroom processes, and modernize their IT infrastructures in order, warehouse, and transportation management. Most importantly, along with these process and IT changes, retailers need sufficient buy-in to ensure a successful transformation.

2. Reinvent your cost reductions. Failure to keep prices at "everyday low" or rock-bottom prices can threaten a retailer's existence. Manufacturers, too, must keep prices low to fulfill retail demand. But instead of simply focusing on the lowest possible cost structure, companies that survived the recent recession are now concentrating on novel ways to expand cost-reduction initiatives, such as continuously revisiting sourcing strategies for new, lower cost suppliers. For example, we recently helped a large consumer goods company cut working capital by 13% while boosting productivity to 20% using location-specific forecasts, monthly inventory cycles, and lighter warehouse management. We also lead a global flooring manufacturer to similar gains, including an 18% sales increase and 10% reduction in working capital thanks to master data management (aka "one version of the truth) and greater digital market penetration. The goal is proactive cost reduction, not just the survival or reactive kind.

3. Rewire your productivity. Speaking of productivity, U.S. manufacturing output was 16% higher in 2010 than the previous decade, despite the recession. Manufacturers achieved those continuous gains with supply chain systems that are particularly sensitive to volume, velocity, and variety. Specifically, the need to manage significantly higher amounts of market/consumer information, adapt to an increased pace of business, and manage a greater breadth of information sources. Only when the above are factored into your strategy will your organization be able to achieve greater supply chain productivity, rather than just cost reductions

Looking Ahead

As companies in manufacturing and retail strive to create adaptive supply chains, they need to identify the best supply chain strategies to operate with maximum speed, efficiency, and flexibility. In our experience, there is substantial urgency for C-level executives to address these shifts, and as detailed above, an adaptive supply chain is a critical weapon in responding to compressed market pressures.

For more information, read the full white paper, Manufacturers, Retailers Look to Adaptive Supply Chains to Increase Revenue, Cap Costs, Boost Productivity, or visit Cognizant's manufacturing practice for additional insights.

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