Supply Chain Times 'They Are a-Changin'

July 19, 2019
...and perhaps for the better. Meanwhile, military procurement continues to raise concerns.

The article 75% of Companies Missing Growth Opportunities in Supply Chain (July 10) summarized an Accenture survey based on responses from 1,350 business executives. I tend to regard content from consulting firms with skepticism; however, I found this article both illuminating and exciting.

The survey results provided feedback about the status of supply management in industry and the start of what is perhaps a change in thinking regarding that function.

For example, according to the article, 78% of executives and their companies are "missing opportunities to leverage the power of the supply chain as a driver of revenue growth." The remaining 22% are shifting their supply chain strategy "from driving cost efficiencies to powering growth opportunities and achieving competitive agility.”

This is the first recognition I’ve seen that order-fulfillment responsiveness can help a customer company generate additional revenue outside of the piece-price reduction box many original equipment manufacturer (OEMs) find themselves in. I’m glad to see that just over one-fifth of the surveyed companies are beginning to regard their purchasing function outside of the lens of material variance.

The article also quoted an Accenture director, who said, “We’ve discovered that a small set of companies have supply chain and operations executives who are using digital with a purpose and collaborating across the C-suite, and other business functions, to create and implement customer-centric strategies that enable growth." The result, he said, is that "the supply chain and operations executives at these companies are taking a more influential role at the board table, adding a new unique perspective.”

Indeed, supply management should be regarded as a strategic --- rather than tactical -- function and, consequently, have a seat at the table in the development of company strategic plans. Through this participation, supply management can champion positive financial impacts by developing lean supply chain performance.

The study's authors also noted: “The intense focus on digital, customer centricity and ecosystems has enabled the Leaders in our study to shift their supply chain strategy from chasing incremental cost savings to creating new value, as part of a zero-based-mindset that fuels sustained growth.”

This comment ties supply management performance directly to the customer. In my opinion, the metrics of all functional departments should be tied to specific customer expectations in one way or another. Additionally, this point ties the importance of supply chain responsiveness to customer fill rate, a customer-focused executive level metric at most corporations, as well as to reducing OEM internal waste.

More on Military Procurement

The May U.S. Department of Defense's annual "industrial capabilities" report (PDF) to Congress was released publicly last month.  Its contents back up several conclusions in Picking Apart the Pentagon's Part Pricing (May 24), which discussed the Pentagon’s sole sourcing and reasons for it.

One important passage from the DoD report states, regarding aircraft design: "Defense-unique design skills are required to spur innovation and enable revolutionary platform development. Current modernization programs help sustain important capabilities, but do not provide enough opportunities to maintain skills to dominate major design and next-generation development work."

As the end of several advanced development programs approaches, "an absence of new requirements in the next five to seven years, and increasing numbers of retirees with critical experience, the industrial base workforce faces a shortage of critical design capabilities," it continues. "Maintaining innovation becomes nearly impossible while facing the constant threat of skilled aerospace, mechanical, electrical, and software engineers leaving the workforce and not passing along critical knowledge of next-generation technologies and fifth/sixth-generation enabling capabilities to new employees."

This passage should worry all Americans. I am glad the Pentagon recognizes the importance of the human element to the Department of Defense supply chain.

I don’t know the answer to the issues brought up in this report. Let me know if you’ve got any ideas about how to start fixing it.

Free Market Economics at Work

Relative to manufacturing and supply chain, Fifty Factory Tours that make America Great (July 2) indirectly supports an assertion made in Unwelcomed and Undervalued: The Trouble with Auto Tariffs (May 30). Specifically, four of the 50 featured firms are foreign automobile manufacturers that have opened plants in the United States and likely purchase a significant amount of parts from suppliers located in the U.S. In other words, there is no real business case for tariffs on imported automobiles since this is one instance where Free Market economics are working, i.e., manufacturers have elected to locate in their primary market.

About the Author

Paul Ericksen | Executive Level Consultant; IndustryWeek Supply Chain Advisor

Paul D. Ericksen has 40 years of experience in industry, primarily in supply management at two large original equipment manufacturers. At the second he was chief procurement officer. He then went on to head up a large multi-year supply chain flexibility initiative funded by the U.S. Department of Defense. He presently is an executive level consultant in both manufacturing and supply chain, counting Fortune 100 companies among his clientele. His articles on supply management issues have been published in Industrial Engineering, APICS, Purchasing Today, Target and other periodicals. 

Read Paul's articles

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