The Dynamic Supply Chain

March 7, 2012
Moving from the 'integrated' to 'dynamic' supply chain model enables companies to view their supply chains as adaptable ecosystems of processes, people, capital assets, technology and data.

Fickle consumers. Shrinking product life cycles. Product and service characteristics continually influenced by social channels. The needs and buying methods of the modern consumer are both changing and accelerating, and manufacturers are struggling to catch up, let alone get ahead. Mix in geo-political chaos, tumultuous currency markets and natural disasters, and companies are trying to somehow reconcile their supply chains with volatility that is nearly twice as much as anything they have experienced in the past 30 years.

Furthermore, all signs indicate that the era in which we find ourselves is one of permanent volatility. And, this constant change that is part and parcel of today's macros business environment is the "new normal." It is creating a situation that is placing unprecedented pressure on how businesses source, manufacture and distribute products. For many, it may feel like they are fighting a losing battle.

In fact, 70% of executives who responded to a recent Accenture survey expressed concern about their inability to predict future performance, and more than 80% worried about the overall resilience of their supply chains in the face of unrelenting market challenges.

Fortunately, there is a way to design a supply chain that allows companies to take advantage of market conditions, giving them a powerful competitive advantage. Known as the "dynamic supply chain," it enables businesses to balance opportunities to drive new economic value and growth against the downside risks of any disruptive events that might occur.

Strengths Have Become Weaknesses

Most of our existing supply-chain strategies were conceived with the assumption of stability, and designed to plan, produce and deliver on a just-in-time basis, thus assuring lean operations and inventory.

In this environment, the supply chain was predominantly viewed as a lever to reduce costs. "Supply chain integration" -- the mantra of the recent past -- helped globalizing organizations secure key relationships across extended supply lines by tying the operations of critical partners together. The downside of this structure is that the slowest supplier defines a company's ability to respond to market changes.

Today, companies with such rigid supply chains are unable to keep pace with the current pace of change, which also impacts the dexterity with which they can deliver new products to market.

Transitioning to a Dynamic Supply Chain

Moving from the "integrated" to "dynamic" supply chain model enables companies to view their supply chains as adaptable ecosystems of processes, people, capital assets, technology and data. They strive for flexibility where it matters and focus their efforts on operational agility that drives profits, and not just short-term efficiencies.

In unpredictable markets, dynamic supply chains can meet the specific needs of each customer channel. For example: If a particular product is highly sensitive to media trends, a company might establish highly adaptable manufacturing and distribution networks for the front end of the product lifecycle and move more cost-effective methods toward the back end. Or if a customer segment is particularly cost sensitive, the supply chain for that product must ruthlessly drive out every last bit of waste or excess cost.

Although most companies strive to have a resilient supply chain, only 10% are actively managing toward that end, according to Accenture research. This group is rewarded for doing so, as they are 75% more profitable on average than their competitors.

First Steps to Dynamism

While the process of transforming into a fully dynamic supply chain model needs to be tailored to the strategic needs of each individual company (and even each business unit), there are three initial steps that any company can take to jumpstart the process:

Think "portfolio of supply chains." A company should first define the supply chains within its organization. This is done by aligning with overall business strategy, then segmenting supply chains based on product, customer and geography. Each chain is then evaluated by functional area to define which characteristics are considered unique and which are standard.

Define the dynamic operating model. There are four key capabilities within a dynamic supply chain, which when executed simultaneously, form a model that enables the right level of flexibility, adaptability and responsiveness.

Sense, Shape and Respond: Is the company equipped to translate data into insights that can be shared instantly with decision-makers across your company?

Flexible Product Strategy: Are your product-development strategy and processes completely aligned with your production and delivery capabilities? Are you positioning new products to get to market quickly so they are of the utmost relevance?

Agile Execution: Is the company nimble enough to satisfy its existing customers' fast-changing demands ahead of the competition?

Operational Hedging: Is the company ready to convert threats into competitive advantage by constantly optimizing tradeoffs?

Establish a value-sequenced transformational roadmap. Since every company seeks to manage change without putting existing business at risk, sequencing is as important as timing. A strong dynamic supply-chain roadmap is grouped into a series of capability releases that build upon one another. This starts with foundational activities and early wins that generate quick cash flow, as well as produce measurable operational and financial results at each step in the journey. Proper sequencing allows for transformations to become self-funding.

By converting to a dynamic supply chain model, companies can create and sustain multiple supply chains with a level of agility that allows them to respond to both opportunities and threats. As a result, businesses that make this transition will be positioned to readily embrace the unpredictable.

Mark Pearson is the managing director of the Operations consulting business domain at Accenture, a global management consulting, technology services and outsourcing company.

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