Burberry, the consumer fashion brand, recently reported excellent financial results with a jump in sales of 30%. The growth has been driven by three key elements:
- Purchasing and revamping of stores in China
- Improved replenishment rates for stores
- A move from seasonal to monthly flows of products
- Implementation of SAP in stores to improve visibility
So what does this tell us about the value chain? In this case, China is driving growth for this brand as there is a growing middle class spreading across the country with disposable income. In order to keep up with demand more stores are opening. With scale, it is important to be able to keep track of inventory levels and re-order product. This is enabled by having an ERP system that links stores, distribution centers and suppliers. A further change in the supply chain is the acceleration of the styles from seasonal to monthly flows. This means the lead time from design to production must be shortened in order to keep pace with changing tastes and trends.
The above example proves that investing in the value chain helps growth and profitability for a company. Although this example is in the fashion world it can be applied to many industries. Most companies recognize the importance of China as an emerging market and the importance of a fast, responsive vale chain with visibility and connectivity.
Do you know of any companies investing in the value chain to drive profitability and growth?
I recently read an interesting blog post written by Michael Koploy of Warehouse Management Systems Guide describing some successful examples of Japanese companies quickly recovering from negative impacts of the March 2011 earthquake and tsunami. The author outlines some of the specific steps that have enabled Toyota, Canon, Fujitsu, and others to approach pre-disaster production levels much more rapidly than initially expected. Among the key actions these companies have taken, three stand out to me as most significant:
- Formal, proactive contingency planning
- Proactive investment in supply chain responsiveness and redundancy
- Supply chain collaboration
Not surprisingly, these themes very closely mirrored those outlined in a blog post by my colleague Lorcan Sheehan on the same topic. As a supply chain professional, I am pleased to see so much focus lately on supply chain planning and collaboration. And, of course, everyone should be delighted to see the kinds of positive developments in Japan that Mr. Koploy outlines in his article.
Every supply chain professional has had to make decisions with imperfect or not enough information at one time or another. While we would obviously prefer to have more information, and the best quality, this is a common issue that comes with the cost of collecting, maintaining, reporting and analyzing huge amounts of data. Companies have invested millions of dollars in systems and processes to track supply chain activities through their own operations. In many cases this is extended further logistics processes to customers and tier 1 suppliers.
Do we now need to look beyond this to increase supply chain visibility across multiple customer and supply tiers?
There are some emerging business drivers that certainly make this a topic for consideration, but the return on such investments will be driven by individual company circumstances.
- Product validation and chain of custody control: A number of industries have programs requiring traceability of product from manufacturing through to the point of consumption. These programs have been aimed at consumer protection to ensure that genuine product is being delivered and that it has passed through legitimate channels in getting to market. Examples include the food industry ‘farm to fork’ traceability which will be more important after the recent E. coli outbreak in Germany and the pharmaceutical industry’s ePedigree requirements which will require traceability of Pharmaceutical products in the state of California beginning in 2015. Similar serialization and traceability initiatives have been used in the software industry for some time to combat piracy, and there are other potential applications in high-end luxury goods.
- Risk management: Much of the supply chain fallout from the Japanese earthquake and tsunami came from the impact on component suppliers to the electronics and automotive industries. This exposed a blind spot for many major brands to their vulnerability to tier 3 and tier 4 supplier operations. As mentioned in my recent post on the topic of geographic risk management, geo-tagging of suppliers linked to products and revenue forecasts is emerging as a best practice in this area.
- Conflict materials: Many companies are considering a sustainability commitment that ensures their products are free from conflict materials. Unlike the Restriction of Hazardous Substances directive a number of years ago, this will require much greater visibility; not just into the material content but also into the source of these materials. At a minimum this will require a certification process, but it also may require visibility into tier 3 and 4 supply sources.
- Supply chain orchestration: Recognizing the multiple tiers in most supply chains and the increasing levels of outsourcing of manufacturing processes, there has been much discussion lately of a supply chain orchestrator role for OEM supply chain teams. This role would coordinate supply across multiple tiers and accelerate the communication and responses to changes in customer demand.
No one will argue that responsibility for supply chain extends across multiple tiers from commodity suppliers to customers. The question becomes what level of supply visibility will yield a positive return for your business?
This post, written by Matthew Gardner, originally appeared on the Sustainserv blog. Sustainserv is a global CSR and sustainability consultancy.
Sustainability in Your Supply Chain
In the past few years, we have witnessed a wholesale shift whereby businesses in just about every sector realize that sustainability is a topic that they must engage with in a credible and transparent manner. In many cases, it has become a basic expectation in the marketplace.
With this settled, we are now seeing new frontiers being established, areas where leading companies are pushing the envelope and laying the foundation for the next generation of best-practices in corporate responsibility, accountability and sound management. Nowhere is this more apparent than in the case of sustainable supply chain programs. Just as companies recognize that by paying attention to their own environmental and social responsibility they can realize significant benefits, they are now starting to expect the same level of responsibility from those companies with which they do business. In fact, one can reasonably argue that a seminal event in the wave of corporate responsibility was the supply chain scandals of the 1980's, when Nike was pilloried for substandard working conditions in its supply chain.
But what does this mean for companies now? How are companies implementing sustainable supply chain programs? We present here a few "ingredients" that can help a company start to come to grips with the sustainability of its suppliers.
First off, depending on the particular sector a company is in, there are many different frameworks that have been established to provide guidance for corporate social and environmental responsibility. For example, in the electronics industry, the Electronics Industry Citizenship Coalition (EICC) is a membership organization aimed at increasing environmental, social and governance accountability among its members. Interestingly, to be a member in this organization, a company must pledge to ask its own suppliers to also become members in EICC. Thus the premise of the EICC is to promote supply chain sustainability. So if a company is interested in increasing the sustainability of its supply chain, then it is worthwhile to explore what frameworks already exist that could help structure such an approach.
The next element of a solid approach to increasing the sustainability of your supply chain is to formulate a supply chain code of conduct. This is a formal set of requirements and expected behaviors that a company imposes on its suppliers. The elements of such a code of conduct can vary depending on which issues are most material to your sector. Most codes require compliance with basic human rights principles, while others extend to requirements for environmental and social reporting.
The level of rigor of a supply chain code of conduct can vary significantly. In some cases, companies craft some vague language and then bury the code of conduct into the back pages of a long supplier contract or RFP, never to be seen or discussed again. However in other cases, the supply chain code of conduct has real teeth, including the option for unannounced audits, financial penalties or even contract terminations to ensure compliance. Of course there is the risk that a key supplier may not be able to meet the requirements of a such a code of conduct. Some companies phase-in the requirements of their codes over a period of time, allowing their suppliers, especially key suppliers, time to come into compliance.
The bottom line is that it comes down to risk management. Companies want to manage their risk and understand where in their operations the greatest risks are located. With the inclusion of environmental and social factors in the assessment of a company's overall footprint, it now understood that risks in the supply chain can also come from these factors. The time has come for companies to address these risks directly.
While examples of vertically integrated or ‘fully internalized’ organizations still remain, these are probably the exception rather than the rule. By now, most companies have externalized peripheral or non-core activities, if not outsourced critical aspects of their operations. This move has precipitated a shift from the functional organization to perhaps what Miles, Snow and Coleman1 started to describe as ‘the Network Organization’ back in the early 90s.
Given that an organization ‘is only as strong as its weakest link’ executives are now required to reach outside of their own organization’s perimeter to ensure their company’s continued success. The issue is that educational curriculums and, most importantly, mind-sets seem somewhat ‘stuck with the old model.’ Functional organizations indeed called for functional experts. But what expertise is required when these functions are outsourced?
I have experienced a number of successful transitions from in-house operations to outsourcing and what most of these had in common was the realization that you can no longer manage these operations as you did before. While a company retains full control, operations are now executed through a new relationship, usually with the partner’s business manager. Shop floor walks that might have been a daily occurrence are a thing of the past, now substituted by a number of elaborate scorecards, review meetings and other reports. The initial temptation to micro-manage or recreate the old model is also overcome as trust is established and the benefits of the ‘new model’ start to materialize.
In the functional organization, these would have been some of the skills typically developed right from college to enable a successful career:
- Subject matter expertise
- Team building
- Leadership, team management and delegation to direct reports
- Trouble shooting and tactical hands-on attitude
Instead, today’s business leaders need a toolset that will ensure a successful partnership. This must consist of:
- Vendor selection and benchmarking
- Internal and external executive relationship building
- Negotiation skills
- Setting of service-level and strategic objectives
- More generally, a balanced mix of control and trust, formal and informal communication often from a distance
These skills are inherent to most successful executives. But is it by design? Also, how are these new types of responsibilities affecting job satisfaction? Last month, my colleague Jeremiah Benge discussed the idea of a ‘Chief Customer Officer’ sitting at the top table, should more companies start considering the appointment of a ‘Chief Outsourcing Relationships Officer’ sitting alongside or even replacing the more traditional and material-driven procurement function’s head? Have you made this transition yourself? If so, we would be delighted to hear about your experience.
1. Miles, C. C., Snow, R. E., and Coleman, H. J., Jr. 1992. Managing 21st century network organizations
Over the last year, we have had some serious disruptions in global supply chains - many of which were completely out of the control of companies and governments. Volcanoes and earthquakes have wreaked havoc on global supply chains and many companies needed to scramble resources to cope with the massive disruptions.
One piece of the puzzle that is affected by any changes in the geopolitical environment is the price of oil. High oil prices are a constant challenge in the supply chain and sudden increases in price can mean the difference between a profit and a loss for many companies. Previous price hikes due to instability in the Middle East threatened the world economy. But with the recent unrest in Libya something very different has happened with the price of oil. I read an article in the Financial Times called “IEA Makes Bold Move to Lower Oil Prices” (free registration required). The article states that the International Energy Association (IEA) worked with governments to control the world supply of oil and utilize strategic reserves to compensate for the loss of Libyan oil. The plan worked, and over the course of the Libyan conflict the oil price steadily decreased due to the intervention and coordination of the world’s largest nations and oil producers.
In order to drive stability in the global economies and supply chains, governments must coordinate their efforts. The above example clearly illustrates this.
Do you believe governments can do more to help global supply chains?
I recently had the pleasure of attending LLamsoft’s first-ever summer conference. For those of you who don’t already know LLamasoft, it is a specialized supply chain technology company that has created software tools to optimize supply chains (and much more!). The purpose of the conference was to collaborate and share ideas with other experts in the supply chain world. The individuals that attended the conference were from leading companies in the transportation, consulting, consumer electronics, manufacturing, retail, oil and defense industries.
My takeaways from the conference are:
- There is a clear trend toward detailed supply chain modelling that accurately model costs and scenarios across industries to help solve the toughest supply chain problems.
- Supply chain software tools are being used not only on a strategic level, but also on a tactical level connecting directly into ERPs to assist in the planning process where there are complicated demand scenarios.
- Large companies are increasingly building internal resources that utilize supply chain software on a daily basis and they see this resource as a core competence.
Thanks to the team at LLamasoft for putting on such a resourceful conference.