Do you have a 21st century supply chain?

The shock of Brexit underlines the need for organisations to create a more flexible – and ideally agile – supply chain that efficiently meets customer expectations and creates value for the business

When CEOs look to drive growth, they don’t always consider their supply chain. They ought to. Though traditionally seen as a cost-cutting function, the supply chain has always been a critical enabler of growth – and, if built to guarantee customer satisfaction, can help companies out-perform rivals.

In the globalised, volatile, digitally empowered, technologically disrupted 21^st century marketplace, building a demand-driven supply chain though challenging, is essential and shows up in the bottom line. The tangible benefits of this transformation can include a 1-4% rise in sales, 5-10% cuts in operating expenses and a 20-30% reduction in inventory.

Erich L. Gampenrieder, Global Head of Operations Advisory and Global Operations Center of Excellence, KPMG International says: “the two biggest challenges companies face confirmed by our latest research, are firstly, organizations often do not start with a consistent approach towards an end-to-end supply chain rooted in a clear supply chain vision. The plan for a demand-driven supply chain should be derived from the overall company strategy and tell stakeholders how and what their supply chain will look like in three years. Organizations also need the right mix of innovative and well-proven concepts – and the latter must be implemented by trained, enabled people working towards a common goal.”

In KPMG’s experience, there are five building blocks to upgrade your supply chain:

1. Align the supply chain with corporate strategy, integrate it with customer-facing functions and focus on fulfilling customer needs.

Your key performance indicators (KPIs) should not just be specific to the classic supply chain KPIs, where you might be inclined to use different values for the different product and customer segments your organization serves. Some should also be focused on customer satisfaction and net promoter scores.

2. Enhance visibility and share and use the information across functions so that every player in the supply chain knows what customers want and can trace the status of materials, parts and finished product.

Visibility is critical: how can you reconfigure your supply chain for a post-Brexit marketplace if you know little – or nothing – about your second and third tier suppliers?

3. Have the flexibility and agility to react to unexpected events and seize the opportunity to source new materials, revamp logistics, scale up or down, or enter new markets.

In the past decade the world has been shaken by three shocks – the Arab spring, Fukushima and Brexit – and supply chain leaders need to respond to such events quickly, decisively and intelligently.

Andrew Underwood, leader of the UK Supply Chain Management team for KPMG, says: “The consequences of Brexit will fundamentally change the financial impact of the physical flow of goods in and out of Europe, and to those countries where free trade agreements currently exist. While the specific consequences are some way off, clear and specific scenarios can be planned around VAT, customs duties and currency fluctuations – and supply chain executives need to take the lead here. Waiting for final trade agreements before planning for the post-Brexit supply chain will make it harder for companies to optimise their global sourcing options”.

4. Structure the supply chain so it is fit for local, regional and global competition and evolving regulations.

With Brexit looming, this task is more urgent than ever. Yet it is not just Brexit, trade – and the regulation of it – has become globally contentious. Companies can no longer factor in “business as usual” into their forecasts.

5. Address different customer needs and values by segmenting and differentiating end-to-end supply chains and ensuring you can efficiently provide products and services that your customers genuinely value.

Too many companies make the mistake of looking at it the other way: convincing themselves that what they have is really what the customer wants until the market gives them a painful reality check. Demand-driven supply chains can give companies the edge– with real time information, organisations can proactively work on fluctuations in the marketplace.

At the heart of the demand-driven supply chain is the recognition that procurement is dead. What do we mean by that? Simply those organisations, which regard procurement as a back-office, backward-looking process-driven function will fall behind. Procurement leaders should move out of their silos, understand what creates value for the business, anticipate uncertainties and think strategically. A flexible, adaptive supply chain will drive growth, not put the brakes on it.

For more on demand-driven supply chains, watch this video

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