In a perfect scenario, businesses would be able to accurately predict-and even shape-demand for their products, and then orchestrate supply to meet that demand.
Such a customer-centric nirvana requires visibility into systems across the business as well as interconnections of applications, data, and business processes from the supply chain to finance to marketing to sales to customer service.
Getting there certainly doesn’t happen overnight; it’s a process, and each stage needs to set the foundation for the next. Unless company leaders keep this vision of horizontal end-to-end integrated processes firmly in mind and build the appropriate capabilities as they modernize their operations, their transformation efforts will fall short, says Roddy Martin, Oracle’s vice president of product marketing for supply chain.
“Business transformation is an intricate, multiphase evolution-and there are no shortcuts,” Martin says. “No company stumbles along and suddenly finds itself with an integrated, demand-driven business.”
Gartner has identified five phases that companies go through in transforming supply chains:
- Stage 1: Traditional supply chain; the organization is siloed and reactive.
- Stage 2: Functional focus; the supply chain organization makes project-based improvements to small functions.
- Stage 3: Area focus; ‘centers of excellence’ are formed in the demand and supply areas of the supply chain organization as they focus on building functional excellence within silos
- Stage 4: Integration; the supply chain is demand-driven, with outside-in, end-to-end processes integrated with other key business operations areas (enterprise resource planning, marketing, sales).
- Stage 5: Value creation; the business is capable of creating value and shaping demand through a fully integrated digital ecosystem.
So how do companies get from where they are to digitally well-oiled, customer-centric machines-and where do most stall out along the way?
The Right Focus
The first step is taking a hard look at current operations. If a business is stuck in reactive mode, with very little visibility into its global supply chain or the marketplace, it’s likely in what Gartner refers to as stage one on the supply chain maturity journey.
At this point, companies only become aware of product shortages and excesses days or weeks after the fact, Martin says, and they’re not able to respond fast enough to what’s happening in the marketplace.
So they start to make improvements in specific project areas-and enter stage two. “They may identify that their big problem is that they have too much inventory or are stocking out of products or have reduced quality in manufacturing,” he explains, so they start tackling those issues.
It makes sense to go for that low-hanging fruit first. In a recent report, IDC noted that in the world of supply chain technology, “The days of multiyear, multimillion-dollar implementations are on the way out,” because the desired results didn’t pan out. Instead, the report said, some companies focus on more-targeted projects with more rapid ROI opportunities.
While these quick wins are critical, Martin warns that even at this early stage, companies need to focus on both addressing the immediate, project-level challenges and on ensuring that these approaches build the foundation for future organizational transformation efforts on a broader scale.
The Right Incentives
“Most companies are in the middle of stage two, making improvements to individual functions,” Martin says “But to move from stage two to stage three in transforming their supply chain (and their business), they need to progress from a focus on small-scale, project-level improvements to improving the capabilities of whole functions-like transportation or logistics.”
When companies expand their transformation efforts during stage three, they often build functional “centers of excellence,” and their incentives and metrics are focused on things like upping productivity or cutting costs in those respective areas.
“The problem is that a focus on improvements in a single area likely transfers new issues to another area,” Martin says. “For example, you may drive transportation costs down, but not realize that in turn the service levels are affected. When companies don’t have end-to-end visibility, they can’t see the trade-offs that they’re making or the unintended consequences on a larger scale.”
In other words, they’re still trapped in stage-two thinking. The only difference is that the silos are bigger.
That’s why, as a company progresses in its transformation, it must also adjust and realign metrics throughout the organization to set appropriate new incentives that rise above traditional silos.
“The ultimate goal is metrics targeting overall service levels and business growth,” Martin says. “To get there, leaders must focus their areas on getting beyond greater efficiency in current operations-an inside-out approach-to a new business operating model that expands beyond supply chain to include integrations with ERP, marketing, and sales: an outside-in model.”
That’s not easy, which is why so many companies cease to make progress after earning solid wins in stages two and three. In the IDC FutureScape: Worldwide Manufacturing 2016 Predictions published late last year, the analyst firm predicted that customer centricity and transforming operations would be two of the most complex and costly challenges that manufacturing organizations will be addressing in the next few years-because they involve the entire organization.
If the technology choices, business process changes, and talent management shifts are not aligned to move toward the company’s overall strategic vision, the organization will join the ranks of those stuck in stages two and three, Martin says.
Companies that are stalled in these early stages may have silos that are killing their numbers. But they’ll fall further behind competitors that have progressed to stage four, in which the supply chain’s data analytics becomes central to the development of new offerings, and stage five, where the organization is able to respond to business opportunities so fast it can shape demand-like leveraging data from wearable technology to push targeted promotions.
“Once the leadership team understands the end goal and the capabilities needed to get there, they can go back to the business and make the necessary changes happen,” he says.
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