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Re-defining the supply chain opportunity

Re-defining the supply chain opportunity
Well, in my research, I find that nine out of ten companies are stuck at the intersection of operating margin and inventory turns. And we kind of pat ourselves on the back that we have best practices, but how can we say we have best practices if we’re not making progress on those two very critical metrics that correlate very highly to market cap and market to book? And the other thing is, as we look at emerging technologies, whether it’s cloud, or cognitive learning, or robotics, or 3D printing, we have so much opportunity to take so much waste out of the supply chain. I’m like, let’s rewire and get on with it.
So one of the things I wanted to understand was, what were the correlations of supply chain metrics to value? Because the traditional supply chain has been very focused on cost and, as we try to become better business partners, people want to drive value chains, but they want to answer the question of what’s value? So we started by taking 15 years of financial data and doing correlations to market capitalisation, which is the number of shares outstanding times price, and also looking at market-to-book, and market-to-tangible book. And we found that we had a very high correlation on the cash-to-cash metrics on operating margin and return on invested capital.
We did not have a high correlation of return on assets, which is interesting to me because very manufacturing centric supply chains will often reward manufacturing on return on assets and throw the supply chain out of balance. One of the things I want to understand was why are nine out of ten company stuck? So I started doing qualitative interviews as supply chain leaders and started really looking at trends and I found that there were five fallacies. One was that the supply chain is a function. And as long as the supply chain is a function, really focused on customer service distribution, we can never really build the end-to-end supply chain.
Second thing is that many organisations have too many metrics and they’re very functionally oriented in their metrics and so there needs to be trade-offs and conscious choice around metrics. And so one of the things I write about, metric-like cost, should really be measured like a decathlete will measure when they go into the games where they have the functions to be second or third in cost, but it will add up to total cost. And it’s illogical because most supply chain leaders think they have to have the best manufacturing cost, and the best transportation cost, and the best procurement costs, but I find in the research that that won’t add up to the best total cost.
And what I find is that 12% of companies can actually measure total cost, which is an issue, so we’ve got to really focus on that. So that’s fallacy number two. Fallacy number three was that, if I have a project and the project meets return on investment criteria, then I can add project A, plus project B, plus Project C, and I can drive the metrics that matter. But what you find is without a clear supply chain strategy, people become very circular and they don’t actually drive the ball forward. The fourth fallacy is the building of value networks in the end-to-end supply chain and what does it really take to drive value?
And I find that people have really pushed cost and waste backwards in the supply chain, elongating pliables and not really owning the signals. And, in fact, you know, in the recent research the only thing I can find that people are proud of in data sharing is Excel spreadsheets and, you know, e-mail. And so how sad is that value chains are held together with Excel spreadsheets and, you know, email after two decades of investment at 1.7% of revenue. So, if we’re going to own a value chain, we’ve got to build win-win relationships and not push cost and waste backwards in the supply chain. And then the fifth fallacy is that we have best practices. I don’t think we have best practices.
I think we have evolving and emerging practices and I think they can be so much better with the new technologies and new approaches. I’m so excited about what we can do now with some of the new technologies. With cloud-based deployments, we can now have canonical infrastructures for many-to-many data models that can allow us to connect many trading partners to each other simultaneously. Very different, allowing bi-directional flows and really a system of record. I am also very excited about cognitive learning and roles-based ontologies.
About 9% of companies are looking at learning systems and I think we’re five years away from supply chains that learn as we sleep and a network of networks that allows connectivity between networks which is an issue right now for most companies. The third type of technology that I’m very excited about are visualisation and analytics. In the old days, you know, we said analytics and we thought about reports. But now, when we look at prescriptive and cognitive analytics, we’re able to see real insights that we couldn’t see before. Fourth, I love sentiment analysis. Most people don’t know what I mean when I say sentiment analysis so let me explain.
It’s really using unstructured text and looking at, what do our customers really think of our products? So this could be social sentiment off of Twitter, or it could be blogs, or it could be writing in reviews, but sentiment analysis allows us to aggregate and to listen and most organisations don’t know how to listen at all. And then fifth, I’m very excited as we put all these things together with robotics, and 3D printing, and internet of things and streaming data, to be able to build outside-in processes that can sense and adapt and help us to drive higher level results.

The need to move beyond supply chain as function, and embrace the end to end supply chain is critical if businesses want to realise their full potential.

Lora Cecere, also known as the Supply Chain Shaman, is a supply chain visionary who also understands software. It was our pleasure to welcome her to WMG as part of our Supply Chains in Practice (SCIP) networking event series.

It is interesting to reflect that many of the reasons that Lora identified as limiting the progress of the SC have been touched upon through this course, directly or indirectly. As we have discussed, SC is not a function, and something that needs to be considered in an end-to-end and holistic way. To do so requires organisations to have a coherent supply chain strategy; supported by measures that deliver a fair return to all along the chain, and are not limited to the performance of one company or department. As Lora rightly identifies, this is analogous to a heptathlete. They win, by being consistently good across a broad spectrum of sports rather than excelling in one.

Lora is inspired by the new technologies that have the potential to re-fine our supply chains. Cloud based applications, cognitive learning, visualisation, advanced data analytics, sentiment analysis and the internet of things, will come together to re-define the ways in wish buy and sell things, balancing demand and supply.

Personal travel is already being re-defined by the new business models of companies such as Uber and AirBnB. Their market mediating role connecting demand (for taxi’s and accommodation) with sources of supply, which were previously invisible. The art of effective supply chain management.

If you are interested in hearing more from Lora on the re-defining of the supply chain opportunity, please watch Lora’s full presentation to the WMG Supply Chains in Practice event on YouTube: Re-defining the supply chain opportunity (50:14)
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Supply Chains in Practice: How Things Get to You

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