By Doug Kimball, product marketing director, Srini Muthusrinivasan, industry strategy director, manufacturing, JDA.
Seamlessly managing business in today's ever-changing omni-channel environment is similar to competing in the Formula 1: superior skill, agility and collaboration is needed to succeed. Similarly, business success comes down to how quickly a company can spot and react to market trends, disruption and changes in consumer demand. The foundation of this is supply chain agility and collaborative relationships with supply chain partners.
In reality, we rarely see suppliers, manufacturers, third-party logistics (3PL) providers, warehouses or retailers operate in unison, and the evolution of today's connected consumer has only amplified this problem. Smart technologies have become an intrinsic part of the shopping experience, giving consumers more power. Additionally, the impact of ubiquitous social media has meant they are more informed and influenced by peers. As a result, they demand a personalised shopping experiences tailored to how and when they like to shop. They're also willing to pay more for such experiences. But regardless, they expect their preferences to be met.
The impact of omni-channel in manufacturing
Fearful of being left behind, many companies have embarked on a "me-too" omni-channel game plan, to offer consumers more personalised products and services. The problem with this is that is does not provide a return on investment. In fact, a PwC/JDA study states that only 16 percent of companies can fulfill omni-channel demand profitably today. As businesses sell and deliver products across multiple channels, the high cost of fulfilling orders is eroding margins. Additionally, 67 percent of companies report that fulfillment costs are growing, as they increase focus on selling across channels.
One reason for this cost increase is the complexity and high costs of managing a fulfillment network driven by consumers. Smaller order quantities, more order variants and temperamental consumers who now have access to many different shopping channels are all playing a part.
In turn, this has created a plethora of planning and distribution challenges across the whole supply chain. In the face of increasing competition and rising demand volatility, companies often make ambitious offers in order to win sales — without considering the true cost of fulfilling those offers.
Because of this, manufacturers and their trading partners need to work together to meet a balance between too much product and not enough. By tightly connecting the planning and execution processes to actual demand, inventory visibility can be increased and products can more effectively flow through a synchronised supply chain.
To achieve this level of seamless supply chain planning and execution, companies must introduce a new type of supply chain: in comes the supply chain grid.
Introducing the supply chain grid
In today's omni-channel environment, companies can no longer operate a linear supply chain and hope to win the game. Instead, industry-leading companies are taking supply chain planning and execution to a new level by embracing the concept of the supply chain grid. The defining attribute of the supply chain grid is the interconnectedness of all of the nodes, which enable enhanced levels of collaboration and provide companies with critical, alternate pathways when inevitable supply chain hiccups occurs. With this new supply chain strategy, companies can raise their game to a new level, embracing new approaches for collaboration, customer-centricity and segmentation:
The design of the supply chain grid supports continuous multi-directional collaborative communication. Yet, despite the benefits of this approach, few companies have embarked on this level of collaboration with their trading partners. Instead, in response to omni-channel pressures, companies are making fulfillment decisions without a holistic view of inventory, labor and transportation availability and costs. Often, they sacrificing long-term profitability in order to service short-term customer satisfaction.
It's no longer enough to share transactional data with trading partners. Retailers and manufacturers must be willing to engage in higher levels of collaboration — such as shared visibility into forecasts and demand intelligence or data transmission via the Internet of Things — if they want to achieve game-changing collaborative performance.
Increased collaboration can lead to leaner supply chains and more reliable supply chain plans. Yet, seasoned supply chain practitioners know that not everything goes according to plan. An unexpected surge in demand, a shipment held up at port, unexpected factory shutdowns, or a last-minute order from a priority customer — all of these scenarios represent supply chain disruptions or bottlenecks that can threaten a company's profitability.
In order to be agile and responsive to these types of changes, and ensure that customers' needs are being met in a profitable manner, companies need to adapt their operations to mirror the supply chain grid. By executing on the most profitable, expedient course of action, companies can be sure they're continuing to meet their customers' needs, without sacrificing margins.
Finally, the market has embraced and recognised the need for segmentation. Since not all customers are the same, there's always a clear business need to provide differentiated service levels, and that requires companies to structure their supply chains appropriately. Instead of adopting a one-size-fits-all supply chain strategy, companies must segment their supply chain operations to balance the cost to serve with the value of each customer segment.
The supply chain grid provides companies with the dynamic foundation they need to easily execute their segmentation strategies. The supply chain grid is not static, neither is the data associated with each path that a product may take in it's journey. The cost to serve an order could be different every time — even if that order is for the same product, from the same region and for the same customer. The benefit of the intelligent and adaptable supply chain grid is that it serves up the most profitable routes/decisions based on the latest collaborative intelligence.
By using the supply chain grid concept, a company can set up all of these segmented paths so that they can co-exist — and thrive — together.
Winning the game
Executing the same supply chain strategy across your organisation won't win you a place on the podium. However, if you can enable interconnectivity between the planning and execution processes across the supply chain, you'll have greater flexibility to efficiently and profitably meet consumers' ever-changing needs, every time. As a result of this increased information flow and collaboration via the supply chain grid, relevant decisions can be based on current and future reality, and actual trends driven by end-consumer demand. The end result: a responsive and synchronised supply chain that can help businesses react to disruption, as well as execute new plans to outperform your competitors and take the checkered flag.