Supply Chain Transformation: An Opportunity for GBSAdd bookmark
Supply chains for product companies will likely see big changes in coming years as they undergo significant transformation. There are powerful forces driving this change, both internal and external. The ways supply chains traditionally contribute value to enterprises and their customers, as well as a physical vs. knowledge duality of the work, makes this transformation less than straightforward. I also believe that Global Business Services (GBS) organizations have an opportunity to play a key role in future supply chain operating models by developing and providing digitally-enabled knowledge services to execute key aspects of the work.
COVID-19 has had an impact on nearly all aspects of our work and personal lives. Supply chains built for a pre-Covid world have been hit hard. But it is not just the pandemic that is driving a re-evaluation of supply chain operating models. The external environment is changing fast. Customers have come to expect perfect availability, near-instant delivery and they often react en masse to promotions and buying events. A five-star or one-star review can supercharge or kill demand for a product. Digital transformation and automation in supply chains require adding new capabilities, and geopolitical shifts that were already straining legacy operating models before Covid-19 can be expected to continue into the foreseeable future.
On top of the external environment, forces inside every enterprise are causing supply chains to adapt as they are being asked to maintain/reduce costs in the face of an increasing eCommerce sales mix and shrinking margins.
The way in which supply chains traditionally contribute value to enterprises and customers makes transformation harder than in other functions, but also provides an opportunity to think differently. Manufacturing and supply chain operations historically had missions to maximize value by achieving targets for cost, quality, and service. The order of targets was no accident. In my experience, cost was priority #1 (per unit product cost); priority #2 (operating expenses); then quality comes next (primarily because it can impact cost through scrap, returns & recalls); and finally service, which encompasses product availability and delivery to the customer (inventory and logistics costs).
A shift in marketplace power dynamics from suppliers to customers has now occurred with the result that the value equation must be revisited for companies and their supply chains to succeed, given the new reality. More of the value “pie” must now go to customers or they will choose competitors or substitutes rather than buy your product.
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Unlike many functions in a modern enterprise, the supply chain has aspects which are location specific and involve physical processes (manufacturing, warehousing, transportation, etc.) while other activities are knowledge/information-based (forecasting, purchasing, planning, etc.). You can digitize/automate some parts of the supply chain, but the product must still be made, Shenzhen will still be 8,000 miles from New York, and goods will take at least six weeks to arrive via standard ocean shipping.
In a recent Wall Street Journal article on technology trends in supply chain, Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting, said: “We have spent hundreds of years perfecting the physical movement of cargo, but we are only scratching the surface in terms of how we efficiently handle the movement of data.” This focus on supply chain information management provides an excellent opportunity for GBS operations to add more value to the enterprise.
The Supply Chain Operating Reference (SCOR) is a standard process framework established by the Supply Chain Council/APICS, a 3rd-party industry body. SCOR has six high-level steps: Plan, Source, Make, Deliver, Return and Enable. Many companies wisely built their manufacturing and supply chain organizations consistent with this process model.
Although many companies tweaked their model by outsourcing Make to contract manufacturers, the value equation remains biased toward internal cost outcomes and a hard/soft divide of digital advances (physical robots, warehouse automation, etc. vs. cloud, RPA/AI, etc.) offers the opportunity for a more fundamental change to supply chain operating models within an enterprise. Grouping similar people, processes and technology elements as an organizing principle disaggregates the SCOR so that some parts best fit into GBS, others are outsourced to specialist scale partners, and leadership/management reside within the headquarters function, with GBS support.
GBS operations that have mature order-to-cash (OTC) and indirect source-to-pay (STP) processes are well positioned to add value contribution by incorporating supply chain knowledge services from the Plan and Source domains. There are similarities in people/process/technology to work already being done in GBS, and these activities are not subject to location or physical limitations like other parts of the supply chain.
To be prepared to add these services, GBS organizations need to continue to build data, technical, and analytical capability, so they can be applied to increase value (not just reduce cost) from the assumed supply chain activities. I suggest an agile approach to transition where pilots that target small portions of supply chain work (e.g., forecasting for a minor business unit or direct sourcing for a small product line) can be expanded quickly once success has been proven and trust is built.
Re-balancing the elements of value and separating knowledge services from physical/location work can remove constraints that inhibit the ability and agility to adapt rather than reacting to powerful market and internal forces. Global business services will play a key role in future supply chain operating models by providing digitally-enabled knowledge services that drive customer-value focused supply chains.
New supply chain operating models become possible when cost is not the only component of value, and all activities do not need to be performed/controlled in a single, siloed organization.
Product company supply chains will change in coming years as they transform to adapt to seismic forces from customers, digitization, and realities of a post-Covid world. These are mega-trends putting pressure on how supply chains have traditionally operated. The very make-up of value that supply chains deliver to enterprises and customers as well the differing nature of physical vs. knowledge work calls for an innovative approach. I believe GBS organizations need to be part of the solution by providing digitally-enabled knowledge services to execute critical, high leverage supply chain activities. These are my thoughts on how supply chains can transform with the help of GBS. I learn best by listening to other perspectives and experiences so that I can integrate the best thinking to build an even better view. How do you see change to supply chains playing out and how will GBS be impacted?
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