Retailers and manufacturers are under immense pressure to increase the performance of their supply chains, so it is not surprising that many resort to tough tactics in response to growing competition.
When companies need to cut costs, increase margins or gain a competitive advantage, one response is to rationalise distribution networks or to improve efficiency by standardising systems, in order to achieve greater levels of integration and reduced costs. Supply chain optimisation is the ultimate goal, but what does this mean and how is it achieved?
Very often, the focus for the largest companies is on big step changes or ”transformations”. This may be the only option for survival or for gaining sustained competitive advantage, but it can lock management into a ”rationalise, standardise” loop, in which all the attention is on network redesign or IT systems.
In addition, there are barriers to achieving standardisation, which may include the need to accommodate legacy systems, service newly acquired stores and work with multiple operating locations, all of which conspire against establishing standards throughout an organisation.
Research on efficiency
Unipart Logistics, in partnership with supply chain software company Manhattan Associates, has sponsored White Space Insight to carry out research involving interviews with senior managers from major retailers and manufacturers about the impact of supply chain systems, people management and business processes on supply chain efficiency.
Initially, it is important to understand the main driver behind the need for change, whether it is improved customer service, survival, or to meet ongoing cost and margin objectives:”The key driver for continuous improvement is cost… obviously the customers are important but cost is definitely the driver,” is the view of one logistics director from a manufacturing company.
The challenge for organisations caught in the loop, is to find a way to break out of the cycle. Having made the initial change investments, how do companies create an opportunity to optimise their supply chains by continually driving for incremental improvements in people and processes?
It is not easy. Even if companies review and improve supply chain processes at an operational level and it leads to continuous improvement, the strategic significance of this activity may not be recognised and capitalised upon at a senior level.
During the research interviews, several companies stated that the correct supply chain systems can help organisations understand supply chain performance, but IT does not always provide the full insight. ”Another big issue with IT is that it”s tough to get all the different systems across the supply chain aligned and producing integrated information,” a retail supply chain director commented.
It is usual for across-the-board standardisation to require large scale systems changes, in effect supply chain transformations. Such systems implementations are inherently risky, so organisations may be making do with the systems that they currently have rather than take on large scale change.
The alternative is to understand, measure and continuously improve supply chain processes using lean working practices in order to create the best climate for controlled change and to significantly reduce the risk associated with major transformations.
Early findings from the research suggest that it does not always prove possible to align processes and systems functionality, though the benefits of achieving this alignment are hard to dispute: ”Process improvements and IT are of equal importance, one would not work without the other. IT enables the area of waste to be pin pointed and means the future improvements resulting from improved processes can be measured,” said a retail IT director.
Twenty years ago, Unipart pioneered the migration into other industries of lean principles aimed at removing waste through continuous improvement, originally developed by automotive manufacturer Toyota. The company developed The Unipart Way, a philosophy and way of working underpinned by a set of lean tools and techniques that have since been successfully applied to industry sectors as diverse as retail, the public sector and financial services.
The result is a way of working that allows continuous improvement or ”optimisation” to be achieved at the same time as standardisation. However this approach needs to be supported by a company philosophy that recognises the strategic value of continuous improvement.
Service up, cost down
We say it is possible to increase service levels and continually reduce cost at the same time. The challenge for organisations is to believe this is achievable and then structure the business to create a lean way of working, supported by training and people development programmes, whilst focusing all the time on the needs of customers.
Companies must recognise that lean is not an end in its own right. It is a journey, where the opportunities for continuous improvement and optimisation are ongoing. Even more important, standardising on lean processes that help to optimise the supply chain also provides a deep insight into the true dynamics around extended supply chain processes. Organisations, particularly in the retail sector, find that with this knowledge and control, it is possible to reduce the inherent risk associated with transformational supply chain change.
These and other issues will be discussed at the 2008 Supply Chain Leadership Conference which Unipart Logistics is hosting with Manhattan Associates on the 10th June in Oxford. The event, exclusively for retailers and brand manufacturers, follows on from a full day conference last year that attracted chief executives, directors and CIOs.
At the 2008 Supply Chain Leadership Conference, presentations from ”Top 500” retailers will offer insight into the themes of supply chain transformation, risk management and continuous improvement, using case study examples of success stories, whilst experienced practitioners will provide a deeper understanding of supply chain issues and solutions.
Delegates will hear about findings from the market research into lean working practices within the retail supply chain, and learn how to create a framework that values continuous improvement. To request a place at the Supply Chain Leadership Conference please go to www.supplychain-leadership.com.
Sue Pryce is head of marketing at Unipart Consumer Logistics. Email: firstname.lastname@example.org