Change will be the only constant for supply chain management in 2012, industry consultants agree. Read their advice on how to be ready for change and make it work for you.
If retailers can’t ensure timely and adequate supplies of private label products are on their shelves, they can’t maximize returns on their private label offerings. In a world of economic uncertainty, supply chain management rules are changing, and changing quickly. Managers need to consider a new range of variables while still ensuring that what they need is where they need it when they need it there.
PLBuyer assembled this virtual roundtable of supply chain consultants to discuss what’s ahead for supply chain management in 2012 and what you can do to not only keep up with change but plan for it and prosper.
PLBuyer : What would you say is the state of supply chain management today?
Brian Shube: The events of the past year have been a wakeup call for many businesses. Economic volatility, combined with political upheaval and devastating natural disasters, have significantly affected firms up and down the supply chain. Managers are struggling with understanding the new realities and learning to cope with them.
Paul Lavery: I would say supply chain management is fluid and still maturing to meet fluctuations in global demand cycles. This fluidity is due to two factors: the economic impact of The Great Recession, and responses to natural disasters. Within the supply chain industry, process-and-information efficiency initiatives like global lean, multi-modal transport, trading partner information collaboration and on-demand production have evolved, delivering returns for those companies that have implemented them successfully. Further, sustainability initiatives have also evolved.
Scott Sopher: From a consumer products perspective, supply chain managers are starting to understand what new consumer and customer demands, abundant data and new regulatory requirements mean. Supply chains have become increasingly more extended with more contract manufacturing, production around the globe and other third party participants. Yet, financial constraints constantly loom as raw material costs increase.
Paul Strzelec: The state of supply chain management in many organizations has become too focused on execution disciplines with an emphasis on short-term decision-making, cost cutting initiatives, and transactional behaviors. Organizations need to shift to a planning for growth mindset by focusing decision-making on the full planning horizon, in addition to the here and now.
Companies need to do more to develop the required talent that is capable of leading effective decision-making processes and managing complex, demand-driven supply chains.
Rose Kelly-Falls: With the impending U.S. elections in 2012, we expect to continue to see volatility as the world reacts to our political landscape. The risk associated with this kind of volatility will incite paradigm shifts in how companies manage their business. To stay competitive, companies must think of creative ways to adapt quickly to fluctuations, because effective management is critical: a company’s supply chain is the blood of its business.
Josh Green: Supply chain management, as a discipline, has changed dramatically over the last several years. In the old days, everything was driven by relationships. If you had good relationships with your suppliers, you were all set. Now, relationships are not enough. Because of the volatility in global markets and the constant shifting nature of global supply chains, supply chain managers must also be great at collecting, analyzing and acting on data.
PLBuyer : What are your predictions for supply chain management in 2012?
Brent Forden: Product traceability is a huge trend that will only continue to grow in the new year. With increased regulations on the horizon, and increasing amounts of recalls highlighted in the news, companies are interested in adopting new technologies to help meet those mandates as well as mitigate unforeseeable costs.
In addition, sustainability concerns are on the agenda for 2012. Companies continue to be concerned with how to make the best use of the resources they have by reducing energy, space and packaging waste.
Shube: Customers have begun to recognize that resilience is becoming one of the most important attributes they look for in a supplier. Perhaps even more important than speed, efficiency, responsiveness and innovation is the ability to deliver predictable results regardless of the turbulence that surrounds us.
The interest in building sustainable supply chains continues to grow, spurred on by companies like Wal-mart whose green initiatives are encouraging its suppliers to develop more sustainable products and promoting awareness of sustainability issues.
Sopher: I see three trends: risk management; analytics; and, the elevation of supply chain managers.
A proactive approach to managing supply chain risk has become a business imperative as the span and complexity of today’s supply chains seems to be matched daily by emergent risks around the world.
Second, the use of supply chain analytics is increasing.
Third, with the need for proactive supply chain risk management-often enhanced by leveraging predictive supply chain analytics-supply chain managers may have a more active seat at the executive decision-making table, discussing strategies that could range from what products to produce to what markets to enter next.
Green: The pendulum will swing away from supply base consolidation in favor of supply base diversification. Recently, high profile supply chain disasters are leading supply chain managers to tolerate a bit of increased cost in the name of reducing risk.
As a new generation of supply chain professionals enters the field, they will speed up adoption of technology. Because these younger workers are of the digital age, they will be interested in-and comfortable with-using technology to increase supply chain efficiency.
Kelly-Falls: In addition to continued volatility and ongoing commodity price fluctuations, we’ll see a major focus on talent management within supply chain management. Finding the right mix of business, strategic and relationship management skills combined with copious experience can be quite difficult in a new hire. It’s important that companies pay attention to three things. First is young talent-take a chance on a potential manager with less work experience. Second, mix that young talent with experienced supply chain professionals to nurture and teach them. And third, be willing to hire from other industries. Knowledge of the industry is easily learned, but the skills and passion for supply chain management is not-it’s valuable and transferable.
Saverio Barbera: More emphasis will be given to visibility, analytics and the ability to collaborate as global companies move toward achieving their business objectives.
Strzelec: We expect that 2012, in many ways, will be a continuation of 2011’s focus on addressing the supply chain talent gap. In 2011, leading companies invested in establishing talent development programs designed to add critical skills and competencies to their organization, such as portfolio and planning capabilities. In 2012, these same companies will leverage the talent development programs to develop the skills and competencies in their organization, including evaluating decision-making performance in the context of planning for a growth mindset.
PLBuyer : What elements would you say make for a well-run supply chain?
Sopher: A well run supply chain should include:
* Pro-active global supply chain risk management, including the extended supply chain.
* A well-defined supply chain strategy that ties into overall business strategy. Simple as this may seem, it remains a challenge for many companies.
* Deep supply chain analytical talent and capabilities.
* Performance metrics that incorporate the extended supply chain. Measuring and analyzing performance of both internal and extended (suppliers, shippers, etc.) supply chain organizations is invaluable.
Strzelec: Two words-leadership required. Leadership is critical and ensures the right balance between planning and execution, as well as the effectiveness of the decision-making process. When transactional execution dominates the daily schedule, planning gets pushed into the background, and strong leadership is required to create a renewed focus on planning for growth. Without this leadership, execution behaviors will continue to introduce volatility, emotional decision-making and constrain growth.
Green: It starts with great people. Well-run supply chains are run by forward-thinking managers who are comfortable with change and who are constantly on the hunt for ways to improve, both themselves, their organizations, and their organizations’ processes.
Of course, a well-run supply chain depends on having great supply chain partners. A well-run supply chain will have at its core strong manufacturers-companies with the required capabilities and a track record that inspires confidence. It will also have equally strong providers of ancillary services-shipping, banking, insurance, etc.
Process is the final piece. A well-run supply chain will have a well-defined process for orchestrating the interaction of the various supply chain partners.
Forden: The ability to have everything integrated, which provides visibility across all aspects of an operation, will be imperative. A holistic view of transportation, warehousing operations and labor, and getting all the information you need from a singular source, will play into success in the coming year.
Shube: I believe communication is the key element to any well-run supply chain. Opening lines of communications with both customers and suppliers during times when things are running smoothly is the best way to ensure the ability to quickly respond when things start to go badly. These open lines of communication facilitate uncovering potential bottlenecks in the supply chain and encourage collaboration among partners to bring about greater efficiencies and cost savings.
Barbera: You need: visibility/accuracy of supplier information, supplier information analytics and the ability to collaborate and exchange information.
Kelly-Falls: Understanding the financial impact of decisions is very important to managing the supply chain effectively, as is understanding risk factors, operational issues, demand signals, and customers’ needs. Most critical for a well-run supply chain is strong leadership by a person or team that has an in-depth understanding of the business.
PLBuyer : What challenges do supply chains face in 2012?
Shube: I fear that we are going to continue to face significant financial unrest in the coming year. Firms with global supply chains (by which I mean nearly every firm) will face increased uncertainty and volatility with regard to prices.
Kelly-Falls: Supply chains will face cost challenges in 2012 and for the foreseeable future. The purchase of raw materials and its associated pricing and volatility challenges, as well as increasing costs of distribution and transporting goods from China to the United States (including the volatility of oil and gas prices) will all pose complications that supply chains must be prepared to manage in order to succeed in the future.
Strzelec: We believe three major factors will challenge supply chain organizations in the year to come.
* Market Dynamics-The biggest challenge is volatility caused by increased market dynamics that require advanced planning and portfolio capabilities to provide early insights guidance on effective responses that maximize profitability of a company’s portfolio.
* Growth-The desire for companies to return to a growth trajectory and achieve growth aspirations will challenge supply chains, especially those organizations caught in a vicious execution cycle.
*The Consumer-The increasingly digital consumer. With smart phones and other technologies, organizations are able to interact more frequently and provide specialized offers that introduce new dynamics. The digital consumer will challenge supply chains to be more responsive and agile.
* Human Resource and Capacity Constraints-The global economic downturn has created an environment where companies have to do more with less. From a human resource perspective, less means fewer people will need to develop broader and deeper skills to perform effectively. From a supply perspective, as companies pursue growth opportunities many will experience capacity constraints and supply chains that are challenged to make effective decisions when confronted with trade-offs and consideration for the short and long-term financial goals and interests of the company.
Lavery: I expect a new round of commodity swings that will impact both product and transportation costs. This scenario will be a prime factor that may lead to a decreased return on operations.
Sopher: Beyond the typical challenges of cutting costs while improving service, improving use of analytics and global supply chain risk management, one of the major challenges is extended supply chain management. The old way of doing things was to take a micro (general manager on the ground controls local efforts) or macro (centralized business unit makes decisions across all locales) approach to supply chain management. A more holistic approach to supply chain management-thinking and acting as a strategist, not someone who runs a network of manufacturing plants-is one of the biggest challenges companies face right now.
PLBuyer : How can these challenges be overcome?
Shube: Firms may have to seek longer contracts with their suppliers, even sharing the risk of price volatility to guarantee that currency fluctuations do not impose undue burdens on specific firms and threaten the resilience of the supply chain.
Barbera: Companies will require a clearly defined roadmap that explicitly defines and prioritizes all required initiatives, and projects. The roadmap must incorporate people, process, technology and information elements. Sustained executive sponsorship, support and involvement is essential. Comprehensive communication plans, and an iterative execution approach to help accelerate value realization.
Kelly-Falls: Companies must implement risk management into every aspect of their supply chain, always assessing situations and possible risks before making decisions, and always asking what the organization can do that hasn’t been done before.
It all comes down to creativity. Firms must figure out new ways to develop longer pipelines for less expensive transport, keep less inventory that could pose new risks, and hedge against currency fluctuations and fuel costs.
Green: Make sure you understand the wide range of scenarios that could play out in 2012. It might be meaningful to carve out some time at the beginning of the year to brainstorm scenarios. This is not a planning exercise-but, rather, an exercise to ensure that your team is aware that things can go in a lot of different directions and that they’re mentally ready to adjust as things change.
Step two is arming your team with as much information as possible, from as many sources as possible. Supply chain management is information management. My recommendation is to work backwards. What decisions do you need to make? What information could help you make these decisions? What will you look for in the information to suggest one course of action versus another?
Finally, make sure you’re geographically diversified. Will these steps help you avoid uncertainty? No. But they will put you in a position to respond to changes as fast as-or faster than-your competitors.
Sopher: Shifting supply chain decision-making and organizational models away from how things have historically been done into a way that positions companies for growth is crucial. However, as with most things, it’s easier said than done.
PLBuyer Supplier Roundtable Participants
Saverio (Sal) Barbera
AVP, Solutions & consulting group, manufacturing retail distribution & logistics
Senior product manager, supply
Senior vice president, supply chain risk management
Rapid Ratings International, Inc.
Director of solutions enablement - supply chain
National leader of the supply chain & manufacturing operations service line
Deloitte Consulting LLP
Brian Shube Consulting, Inc.