Generating Supply Chain Value with AI
Published: March 10, 2023
Value is constantly moving across a global supply chain. However, much of it is hidden away, out of sight, and multinationals often do not realize and utilize its potential. If a company can discover these areas of opportunity and profit, it can take real concrete advantage and witness serious growth.
Create value, reinvest value
Even granular sites of value are critical in starting this journey, after all, supply chain professionals need to plant the seed for the C-levels to realize they can leverage greater top-line and bottom-line results. A supply chain structured on end-to-end value creation can create value which enables this reinvestment to be made across other elements of their business, whether in commercial, marketing, manufacturing, production, or elsewhere. This value can be identified and envisioned by the owners of those activities but only forced forward with the backing of C-level executives. They have the necessary power and influence to back such a program. Their advocacy is vital, and without it, these programs can, unfortunately, fizzle out. The question is: How can those at C-level drive end-to-end value creation forward and transform their processes?
Problem with Business Leaders
In modern business, leaders cannot be functionally agnostic. This means solving complex business challenges in traditional ways by ignoring data and not using the available tools to communicate. Leadership awareness is a crucial element to end-to-end value unlocks. Leadership can let businesses down due to a triple threat of ego, pride, and lack of understanding. This lack of knowledge is built on their ignorance of the value of the supply chain, which is key to the success of a business. Most companies in Gartner’s Top 20 are aware of the importance of the supply chain, but large yet peripheral companies were forced into this wake-up call due to the impact of the pandemic on their structures, processes, and overall livelihood of their entity.
Much has been spoken of the start-up ideology. These young budding entrepreneurs can be malleable and adventurous. While larger companies may not have the same room for innovation, they can take great inspiration from start-ups in departmental transformations and silo eradication. Agility and resilience combined with a holistic approach to the supply chain are best practices when the supply chain professional is at the center of the web of interconnected departments, from marketing to sales, supply to finance. Companies with a supply chain at the heart of decision-making can construct strong pillars in their quest for tracking down areas of greater profits, where value can be pinpointed and reinvested.
Teamwork in action
Visualize the supply professional at the center, like a Formula 1 car engine, driving the unit forward. The different pockets of the pit crew represent the various departments and facets of the business. If one is not aware of the plan or their role, the overall vision, direction, or strategy, you can have an engine running but no wheels. A successful business is wholly connected, where everyone knows their role and is fulfilling their duty. Synergy in vision from the individual to the whole allows all to run smoother, respond faster, and create value more efficiently. Prep, plan, strategize and have all the departments acting and communicating as a unit. Unlocking value across the supply chain requires this level of dialogue and interaction.
Synergy can also be implemented from the structure and process of manufacturing all the way to the customer – the shelf-back method. Companies should build products from the shelf back as it gains visibility from the first to the last step of product development and heightens communication, eradicating silos. Early on, products can be developed from the onset: linking value, costs, financials to manufacturing and marketing even before execution.
Rebounds and Results from the Pandemic
As companies rebound from the effects of Covid-19, the need to have strong and meaningful relationships between the manufacturer, retailers, and customers are now more critical than ever. The lower-level departments can prepare change management and transformation, but the C-level must give the final clearance. The tremors of the pandemic are impacting the consumers, and their appetites are changing, for example, being more eco-conscious and turning to e-commerce. Supply chain planners should target these areas of sustainability and technology as those at the top, at the C-level, will show more interest in pursuing processes that corroborate with new consumer expectations. Consumer loyalty is a convincing tool to win over those at the top table.
Communication bottom-up and top-down are essential as you must ensure there are no governance issues and silos that develop at C-level; all the executives are on board when making decisions. This relationship management requires an aligned framework across all stakeholders to ensure the goal in mind is delivered. This framework could cover the following elements:
- Managing post-lockdown challenges
- How do we share new insights and consumer behaviors?
- How do we drive value creation via loss analysis programs in the supply chain?
- How do we jointly deliver the sustainability goals of both parties?
The framework requires the cluster leader and VP of both parties to endorse the importance of the program. These leaders have complete oversight of all the overarching priorities; hence can revisit those focus areas and, in turn, setting the proper priority for the various stakeholders’ teams that need to take part in the process.
Defining the program
From the onset, a clear definition of your end-to-end value creation program is crucial and begins with recognizing the reality of the relationship with the retailer today.
- Are the basics to facilitate the move to the next level of engagement there?
- Can you work jointly on value creation as a business enabler?
- If the basics are not in place, what is the 30/60/90 day action plan to address the gaps?
- What resources, information, and decision-making processes will be there to address this critical step?
Once the basics have been delivered, document the retailer’s challenges and what tools or programs could be executed to address those challenges. This document must articulate the problem in the customer’s language to ensure their engagement in the program. Define clear milestones and project leaders to each project and the expected value creation post-execution of the program. Ensure the roadmap forms an integral part of all future CEO engagements to ensure the ongoing support from both parties to provide the resourcing.
With a clearly defined program, the following four steps are crucial to gathering momentum and trust-building. Firstly, keep it simple and focus on a maximum of five projects with the most significant impact. Secondly, look for early wins to build a sense of energy in the program. Thirdly, deliver and execute with excellence to ensure the C-suite continues to support the program. Finally, keep an open mind and create a culture of transparency; avoid a common pitfall of over-committing and under-delivering.
Use Case I – Pharmacy Channel Business Inventory Challenge
We had a commercial challenge with a leading pharmacy customer facing immense pressure on inventory levels in their distribution center. They wanted to partner with a leading FMCG organization to understand how they could reduce these levels, which would, in turn, allow them to reinvest those savings into the business, thereby driving further consumer off-take in their stores without any additional investments from the manufacturer. The need to gain the support and resources allocated to execute the framework was sanctioned by the VP and CEO to ensure the various C-level stakeholders understood the importance of this project. Once this has the alignment and support of the business leader, the following steps are:
- Define what were the current business results on service and other commercial elements. If they were not on track, what was the action plan to ensure the customer’s basic needs were resolved?
- Clearly defining the scope that the customer wanted
- Refining the problem statement and obtaining alignment to the final problem that needed to be addressed
- Aligning on the resources required to execute the project
- Calibrating on how savings would be shared.
Once all that was aligned, a supply chain loss analysis program was implemented that traced the steps from the shelf back to order placement, using the Value Stream Mapping (VSM) methodology. This analysis identified losses across the supply chain relating to replenishment cycles, i.e. Order to Delivery, inventory holding optimization tools, and supply chain trading term optimization. Once the various projects were identified and aligned, a 90-day action plan was put into place with a clear Plan, Do, Check and Act program to measure and monitor progress. This program had regular connections with the key stakeholder to drive closure on the 90-day action plan and break down any barriers the teams faced.
Due to the loss analysis actions, the customer reduced their inventory levels by $600M. This was then reinvested into additional promotions and more broadsheets at no cost to the manufacturer, translating into improved top-line growth with the customer, a better bottom-line for the customer, and further market share growth.
Use Case II – Finding a Win-Win Solution with a Retailer
We had a persistent challenge with one of the largest retailers we serviced. The issue posed by the customer was that the operational trading terms were not sufficient to stop the practice of not returning damaged products to the manufacturer’s distribution center. Furthermore, they required a 1% increase in the trading terms to justify not returning products to the manufacturer’s distribution center. Based on this challenge, the business enrolled the support of the supply executive and the sales executive. Crucially, they were endorsed by the VP of the cluster and the retailer CEO. This top-to-top support enabled the team to allocate the resources to undertake the project from both parties and promptly address any barriers. The team used the customer engagement tool to manage the business challenges by:
- Understanding the current business and supply chain results
- Clearly outlining the problem that needed to be solved
- Aligned on the loss analysis program and executed a virtual supply chain walk (shelf back to the customer) to understand if there were any losses within the supply
- Once the failures were identified, the single largest opportunity raised was the opportunity to utilize the customer’s truck empty mile leg to complete collections from the manufacturing distribution center
- The financials were after that assessed based on the rate received from the retailer to utilize their truck for their orders
- The process was thereafter mapped out from order creation until delivery to the retailer’s distribution center and encompassed elements of ownership transfer and liability transfer of the product once it was loaded on the retailer’s vehicle
- Once financials and the mapping were completed, a pilot followed to ensure any gaps in the process would be addressed
The pilot project successfully led to all deliveries in that specific region being collected by the retailer’s vehicle. This enabled the retailer to utilize their empty mile leg while gaining a separate revenue stream that addressed the 1% gap in trading terms and helped the manufacturer reduce their spending on that specific lane. This change supported the manufacturer’s aim to reduce its Co2 emissions as part of its sustainability program and enabled the retailer to utilize its fixed asset better.
Many barriers had to be overcome to succeed. The process above requires the willingness of the retailer to share their plan for the coming three years transparently and what role the manufacturer can play to enable that vision. Furthermore, both parties need to outline how the value gained will be managed post-execution of the loss analysis program and how it will be invested to improve the relationship between businesses further. Ensure that senior leadership and the CEO support the program to have the proper resourcing allocated to the program.
From my experience, there were crucial learnings that I took from both Use Cases:
- Delivering on the basics is critical before engaging in value creation, but this should not limit the engagement with the retailer
- Strong leadership across retailer and manufacturer are critical for the success of the program
- Ensuring the decision-makers are part of the program is vital to driving projects to completion
- A well-defined value creation sharing process must be in place from the start
- Value creation can be delivered when both retailers and manufacturers partner to address the challenges they face in their respective supply chains
- Starting with the basics is always a good point of departure and then build on those results
- Drive the value creation program via a well-defined phased approach that delivers against the retailers’ and customers’ goals.
For your business strategy, you must align at C-Level where and how the support of the supply chain executive can answer the top and bottom-line needs to ensure the proper resourcing is available. Always define by a customer what are the critical challenges that need to be overcome and how supply chain executives support you to overcome those challenges. Aim to win over stakeholders early, and then the resulting early momentum will garner support and fuel investment. Define an unmistakable drumbeat on how progress will be evaluated – Plan, Do, Check, and Act program. Determine a clear scope of the program, this avoids trying to solve all challenges across the supply chain at one time. Align on digitization projects that could be enabled via this program. Technology is the answer to keeping these projects afloat, embrace them, utilize their power. It will make all the difference. Value is everywhere, and you just have to track it down, and then you will have the critical catalyst to convince all stakeholders and all at the C-level to back you.