Automating and optimising your supply chain can help save money and facilitate growth. So could it work for your business?
It’s a rare organisation that wouldn’t want to increase its control over quality, price, delivery and responsiveness through supply chain optimisation (SCO) – yet few are taking the necessary steps to achieve it.
Other well-established benefits include the potential to reduce capital expenditure and inventory while increasing production. But what is SCO and how can it offer a pathway to growth? William Hickey, former Chairman and CEO of Sealed Air Corporation, sums up what it means to him: “It’s a supply chain that is an effective, efficient, controlled process, from customer order through material procurement, production, transportation and delivery to the customer. In addition, the time it takes employees to hand over tasks between shifts is minimised, feedback is in real-time, wait times reduced and process data and times are monitored digitally.”
Hickey, who is a senior advisor to Grant Thornton in the US, has not only implemented successful SCO at his former company, but also has years of experience in overseeing supply chain improvements at acquired companies. His view is that organisations tend to look at each area of their business as a discrete function instead of multiple parts of one seamless, continuous process. In doing so, they often concentrate on the front end of the business: the customer, product development, sales and marketing. This means they could be missing a real opportunity.
As Ward Melhuish, advisory manufacturing leader at Grant Thornton US, explains, it’s a board-level issue rather than something for the procurement department: “If you’re looking at SCO end to end, then it’s a business strategy, not just a supply chain strategy.”
One company that has invested in SCO and is reaping the rewards is Syn Strand, a family-owned US manufacturer with 60 employees. It has improved its existing IT software with the help of scheduling algorithms and now works much more closely with its sister companies. The impact on its bottom line has been particularly impressive, with multi-million-dollar savings. (See panel below, ‘The results of SCO: sales, savings and reduced inventory.’)
Don’t underestimate the size of the opportunity
So why aren’t more companies embracing SCO? Research by Grant Thornton in the US found more than a third (36%) of the 375 manufacturing executives it surveyed are yet to formulate such a strategy[i]. A separate international study across all sectors suggests even more entities globally have yet to embrace SCO (44%)[ii].
Hickey explains: “A lot of companies don’t understand it or appreciate the size of the opportunity. It takes a visionary somewhere in management to make the decision to say: ‘We’re going to rethink our supply chain and do it better.’”
The process is vital, because while some companies are contemplating their first step, competitors are striding ahead with the realisation they can benefit from shorter cycle times and lower working capital, which means they save money, are more efficient and can focus on quality.
What’s holding organisations back?
Directors surveyed for Grant Thornton’s International Business Report reported several obstacles to increasing automation along their supply chains. Concern about the financial impact was the main factor, followed by implementation complexity.
Regional and industry differences also emerged. While cultural aversion to providing increased transparency between suppliers was generally low, the Asia Pacific region was the most culturally averse to this. In industry terms, agriculture and tourism were the two sectors that had the most concerns regarding the implementation complexity of increased automation. The oil, gas, mining and quarrying industries focused more on cost.
Grant Thornton’s US report, The future of growth and the manufacturing industry: disrupting products, production and supply, generated more detail. For example, supply chain complexity and inefficiencies were cited as blockers (44%), but so were growing regulatory, tax and political uncertainty (41%); the sheer effort required to manage defensive priorities, such as compliance (37%); inability to source digital talent and skills (33%); and concern about ability to manage the tax implications of key growth strategies, such as acquisitions (19%). Inability to find funding sources was a further issue for 15% of respondents.
The report – which draws on the responses of C-suite professionals from various sectors, including food and beverage, automotive, metals and chemicals – warns that the gap between the leaders and other businesses will grow as technology widens the performance gap and makes it more difficult to catch up.
How do you master SCO?
Researcher Gartner ranks the world’s top 25 supply chains[iii] and its latest study says the top companies are particularly focused on three key things. First, they are creating digital connections across and within their supply chain operations such as combining Internet of Things sensors, cloud computing and advanced analytics. Next, they are using modular supply chains (where component parts are subdivided into modules that are easily replaced or interchanged). And third, they recognise that their own company’s health depends on the health and success of suppliers, partners, employees and customers – so they listen to and support their needs.
But it’s not only a concern for the likes of Amazon, Apple and Cisco. UK SME Aspect has hired a data analyst to give the property maintenance company a competitive advantage.
Managing Director Will Davies told the Daily Telegraph[iv] that the move has helped the company anticipate demand better: “When it rains, we get more roofing calls, and when it's cold we get more boiler calls. Severe weather is generally good for our business. If we can see a cold snap is coming and web traffic is increasing, we might need to hire 10 more engineers, and every engineer requires a certain amount of ‘stuff’ and it all impacts on our supply chain.”
What are the crucial success factors?
For those just getting started, Melhuish says a company’s approach to supply chain optimisation will depend on the nature of the challenge. “Any enterprise should consider what the problem is that they’re trying to solve,” he says. “Is it a market issue, are they losing bids, is it reliability, margin shrinkage, lead times or access to information?
“Think about differentiation and critical success factors. They will then lead you to the actions you need to take and the technological investments you’ll need to make. You have to have the outcome in mind first and then apply the right solution.”
Hickey suggests organisations avoid trying to tackle everything in one hit and recommends training to support employees. “Having been a CEO I wouldn’t want to put an organisation through lots of change at once. It’s a multi-year process and works better when people are part of it, particularly when you’re used to dealing with standardised and long established processes.”
The prize on offer is clear, but failing to act is not an option long term. The Grant Thornton US report offers a stark warning: “If a company does not want to be stranded on the wrong side of that chasm, it must initiate farsighted, strategic and profound change.”
Could SCO benefit your business?
To find out more about how to set a supply chain optimisation strategy, contact Ward Melhuish at Ward.Melhuish@us.gt.com.
The results of SCO: sales, savings and reduced inventory
Within the US, there have been efforts to help make manufacturers more competitive. After a successful pilot project in five states, the National Institute of Standards and Technology’s Hollings Manufacturing Extension Partnership (MEP) launched a new supply chain optimisation programme in 2014[v]. The programme employed a model where there was a coaching and mentoring partnership between MEP’s subject matter experts and participating manufacturers to address barriers to effective supply chains.
One company involved in the pilot was Syn Strand. Established in 1987, it specialises in the manufacture of monofilament products, which it supplies to its parent company Voith Paper Fabric & Roll Systems.
Syn Strand had been making efforts to reduce inventory and increase production speed. But the MEP approach revealed the key to improving profitability was actually better communication with its sister and parent companies and the integration of new planning and scheduling software.
The results? The institute reports that Syn Strand avoided $3 million in capital expenditure as a result of the optimisation programme, achieved $2 million in increased annual sales, saved $200,000 a year and retained eight full-time jobs. This was all while achieving a 10% increase in capacity and a 10% reduction in inventory.
Operations manager Bart Burford said: “The company is now able to maintain disciplined inventory control and institute management changes more quickly. We manage the entire system much more efficiently.”
[i] www.grantthornton.com - We surveyed more than 375 US executives. Respondents were C-suite and senior director level from a range of manufacturing sectors, including food and beverage, industrial machinery, automotive, steel and metals, and chemicals.
[ii] The Grant Thornton International Business Report (IBR), launched in 1992, provides insight into the views and expectations of more than 10,000 businesses per year across 37 economies.
[iii] www.gartner.com - Supply chain top 25
[vi] www.telegraph.co.uk - How data is transforming business supply chains
[v] www.nist.gov/ - NIST-MEP Supply Chain Optimization Program to Aid U.S. Manufacturers