The top 3 steps for achieving superior performance are:
• Make sure the supply chain strategy supports the business strategy
• Ensure strong internal collaboration
• Choose the right metrics
It’s no secret that, in today’s global business environment, superior supply chain performance is essential to competitive advantage. According to research by PwC’s Performance Measurement Group (PMG), there’s a strong correlation between superior supply chain and superior financial performance. Specifically, companies with top-flight supply chains can realize 50% higher annual sales growth and 20% higher profitability than their competitors. That makes sense, given the supply chain’s role in driving breakthrough innovation, customer satisfaction and operational efficiencies.
To drive robust supply chain performance, many companies put one individual in charge, either a chief operations officer (COO) or a chief supply chain officer (CSCO). With the right leadership agenda these positions can make a major impact on performance. In some organizations, however, the appointment of a COO or CSCO may unintentionally lead other senior executives to view the supply chain as “somebody else’s problem.”
A supply chain consists of a vast range of activities and interactions that touch virtually all of a company’s functions, as well as those of suppliers and customers around the world. No executive—however skilled, innovative, or persuasive—can drive top supply chain performance singlehandedly.
Because the supply chain is critical for revenue growth, it should be the concern of the entire senior management team, not just the COO or CSCO. This includes the head of sales and marketing, who relies upon the supply chain to deliver products in a way that is consistent with the overall customer value proposition; the head of strategy, who depends upon it for expansion into new markets; and the head of product development, who relies on the supply chain to achieve time-to-market and time-to-volume goals.
Three Steps for Achieving Superior Performance
For these reasons, it’s important to make a concerted effort to make the supply chain everyone’s business. This means aligning the executive team on a supply chain strategy that supports the business strategy. It also means making sure the senior management team—and the functions they represent—collaborates closely in managing the supply chain. Lastly, it means measuring the cross-functional aspects of supply chain performance that reflect the company’s strategic goals and the outcomes that matter most for customers.
Make sure the supply chain strategy supports the business strategy. First and foremost, top companies design their supply chain strategies with one key purpose in mind: to support their chosen primary basis of competition. This is true regardless of whether the company competes on the basis of innovation, customer experience, quality, or cost.
Take, for example, a global manufacturer of eyeglass lenses that competes on the basis of innovation. The company has two distinct types of customers: large retail chains that sell mostly standardized lenses and small independent opticians that sell more customized ones. To meet these different requirements, the company’s supply chain strategy features two different supply chains, each with its own sales channels, operating model and asset footprint. This approach has allowed the company to produce the innovative products the independent opticians had come to expect without sacrificing the delivery speed or lower costs that retail chain customers had come to expect.
Ensure strong internal collaboration. Leading companies make sure that all senior executives who are in charge of functions affected by supply chain performance are involved in designing the supply chain strategy. But that’s only the first step. Successful implementation of any supply chain strategy also depends on cross-functional collaboration in execution. That means ensuring alignment between functions on the roles different individuals play in the decision-making process—who is responsible for making the final decision, as well as who is consulted. When employees in different functions can collaborate on improving things like the design of product packaging, they can uncover new sources of value for the customer and differentiation for the company.
A manufacturer of computer peripherals provides an apt example. The company sells its products in retail brick-and-mortar stores, where the packaging needs to project an image of innovation and quality. A snazzy packaging design that highlights the product’s look and feel may be suitable from a marketing perspective, but not from a supply chain perspective because it limits the number of items that can fit on a pallet for shipping. To resolve these differences, the company asked its marketing and supply chain teams to collaborate in the packaging design process. The resulting products achieved the goals of both—packaging that allows the company to get products to customers more efficiently while communicating innovation and quality.
Choose the right metrics. Leading companies also use metrics to make the supply chain everyone’s business. This means getting the management team aligned on measuring the few outcomes that matter most to customers—outcomes that, by and large, are cross-functional in nature, such as order fulfillment cycle time, the time from when an order is placed by a customer to when it is received. It’s also important to share key data via a scoreboard of some sort so that managers across all contributing functions can share a common view on performance and jointly define both corrective and preventative actions.
Consider a chemicals producer that sells its fungicides to farmers all over the world. The company is adept at delivering the fungicides within 24 hours of the customer placing an order, even though those products can require as long as 18 months to produce. This is quite a feat, given that the company sells more than 1,000 basic products and many variants as well.
Because of the high priority it places on the customer experience, the chemicals maker measures customer delivery performance relentlessly. Not surprisingly, the company updates performance data daily and makes it available to people across the business. Moreover, it measures performance from both the customer’s perspective and the company’s in order to keep tabs not only on whether the product was delivered when the customer wanted it, but also whether the company delivered it when promised. This frequently updated and shared view of performance drives a high level of internal collaboration to achieve what really matters—products that are available when customers need them.
How Does Your Company Stack Up?
Industry leaders know that the supply chain, deployed as a strategic asset, can drive better top- and bottom-line performance. They understand that all relevant functions have to be adept at using the supply chain to achieve their strategic priorities, whether entering new markets, launching new offerings or creating greater efficiencies.
How is your company doing compared to the leaders? Here are three questions to consider at your next executive-level meeting:
- Has your management team agreed on a supply chain strategy that advances the overall business strategy?
- Does each management team member understand the activities in his area that impact supply chain performance and the role he or she should play in making decisions on matters that affect supply chain design and execution?
- Is your management team aligned on the key measures of success and the needed levels of performance, both for their individual functions and across the end-to-end supply chain?
In today’s fast-changing global markets, creating value for the customer—and differentiation from the competition—demands an integrated approach to supply chain operations. From the CEO down, the supply chain is everyone’s business because, ultimately, the customer is everyone’s business.
Joseph Roussel is a France-based PwC partner who focuses on strategy and operations. He advises companies on transforming their global operations and regularly leads executive education sessions in operations innovation and transformation. Roussel recently co-authored the book Strategic Supply Chain Management: The Five Disciplines for Top Performance, Second Edition. All examples mentioned in this article are taken from this book.