Executive Briefings

Being Fit for Growth During Digital Transformation

Analyst Insight: Most products arrive in the hands of customers through traditional processes. Sales and operations build forecasts, make procurement plans, and order the necessary materials to produce the products, and manufacturing builds the products at the planned production rates. Distribution plans are established to account for some variation in demand, and customers are promised specific delivery dates. If all goes well, the gap between demand and supply at every point in the system will be small. But that rarely happens. –Eduardo Alvarez, principal, PwC, and Rodger Howell, principal, PwC

Being Fit for Growth During Digital Transformation

Over the course of the next few years the gap will close as smart supply chains and services - or, more broadly speaking, digital value-chain solutions - continue to build on digitized manufacturing and asset management to include external activities and end-to-end optimization capabilities.

But companies that want to make the smart supply-chain ecosystem a reality can't simply gather the required technologies. They must also define the outcomes they want to achieve, build the necessary capabilities, find the people with the right skills, and manage the shift to a culture that's willing to carry out the effort. In other words, they must invest to transform their entire organization to achieve the desired outcomes.

This need for investment can seem at odds with the perennial focus of supply-chain executives on wringing costs out of the system. But this is not necessarily so. In fact, supply-chain cost management is fundamental to becoming “Fit For Growth” (FFG), which is a transformational process that helps senior leaders explicitly link the company’s strategy to the growth agenda, cost transformation, and sustainability. The goal of FFG is not merely to cut costs, but to identify where best to direct investment for competitive differentiation and growth, and redirect investment away from activities that don’t reinforce the company’s competitive advantage.

The first step on the FFG journey is to define the distinct value proposition the company’s supply chain brings to market, and the three to six critical capabilities that differentiate the company, support its value proposition, and merit investment. Generally speaking, the company should spend more than competitors on these capabilities to reach and maintain best-in-class service.

For all the other activities necessary to run the supply chain but are not differentiating, the company should aim for best-in-class efficiency and cost. These activities do not need to be the best and are often candidates for outsourcing. During this FFG evaluation, companies might also identify some activities that no longer—or never were—necessary. Ideally, the company will exit from these activities and focus more resources on the capabilities that matter.

The smart supply chain consists of about 50 unique processes across every element of the Supply Chain Operations Reference (SCOR) framework — plan, source, make, deliver, return, and enable. With the FFG process in mind, companies must decide which of these processes and enabling technologies are most appropriate and deliver the most value, depending on their existing supply chain maturity and levels of collaboration with their supply chain partners.

The Outlook

The goal of the digital supply chain, of course, is to better support the primary business goal of every company — to get the right product into the customer’s hands as quickly as possible in a responsive and reliable way, while increasing efficiency and product quality. This won’t be an easy task; it will take commitment and investment in distinctive capabilities, people and processes. But there is no time to waste. We believe that the first movers who follow this FFG journey to a digital future will enjoy a significant competitive advantage.

Over the course of the next few years the gap will close as smart supply chains and services - or, more broadly speaking, digital value-chain solutions - continue to build on digitized manufacturing and asset management to include external activities and end-to-end optimization capabilities.

But companies that want to make the smart supply-chain ecosystem a reality can't simply gather the required technologies. They must also define the outcomes they want to achieve, build the necessary capabilities, find the people with the right skills, and manage the shift to a culture that's willing to carry out the effort. In other words, they must invest to transform their entire organization to achieve the desired outcomes.

This need for investment can seem at odds with the perennial focus of supply-chain executives on wringing costs out of the system. But this is not necessarily so. In fact, supply-chain cost management is fundamental to becoming “Fit For Growth” (FFG), which is a transformational process that helps senior leaders explicitly link the company’s strategy to the growth agenda, cost transformation, and sustainability. The goal of FFG is not merely to cut costs, but to identify where best to direct investment for competitive differentiation and growth, and redirect investment away from activities that don’t reinforce the company’s competitive advantage.

The first step on the FFG journey is to define the distinct value proposition the company’s supply chain brings to market, and the three to six critical capabilities that differentiate the company, support its value proposition, and merit investment. Generally speaking, the company should spend more than competitors on these capabilities to reach and maintain best-in-class service.

For all the other activities necessary to run the supply chain but are not differentiating, the company should aim for best-in-class efficiency and cost. These activities do not need to be the best and are often candidates for outsourcing. During this FFG evaluation, companies might also identify some activities that no longer—or never were—necessary. Ideally, the company will exit from these activities and focus more resources on the capabilities that matter.

The smart supply chain consists of about 50 unique processes across every element of the Supply Chain Operations Reference (SCOR) framework — plan, source, make, deliver, return, and enable. With the FFG process in mind, companies must decide which of these processes and enabling technologies are most appropriate and deliver the most value, depending on their existing supply chain maturity and levels of collaboration with their supply chain partners.

The Outlook

The goal of the digital supply chain, of course, is to better support the primary business goal of every company — to get the right product into the customer’s hands as quickly as possible in a responsive and reliable way, while increasing efficiency and product quality. This won’t be an easy task; it will take commitment and investment in distinctive capabilities, people and processes. But there is no time to waste. We believe that the first movers who follow this FFG journey to a digital future will enjoy a significant competitive advantage.

Being Fit for Growth During Digital Transformation