Executive Briefings

Supply Chain Optimization for a Changing Business Environment

Analyst Insight: Optimization. It sounds simple enough, but when was the last time you thoroughly reviewed your supply chain, and more specifically, the transportation network and associated cost structure for complete optimization? Optimization has many spokes, yet the goal is to improve service and reduce costs. For many companies this awareness is event-driven, occurring only when something negatively impacts the supply chain such as congestion at ports or anywhere along the transportation network, supplier issues, or an imbalance in inventory. – John Haber, President & CEO, Spend Management Experts

Supply Chain Optimization for a Changing Business Environment

In a global business environment that is undergoing great change from the likes of ecommerce, near-sourcing, robotics and more, supply chain optimization needs to become part of an organization’s strategic plan. Companies that participate in strategic planning on a frequent and regular basis realize better results than their competitors. Those companies that fail to consistently evaluate supply chains and carefully plan, forecast and communicate may experience dire consequences.

UPS, one of the greatest global supply chain companies, learned the importance of optimization during the 2013 holiday season. Since then UPS worked with customers, collaborated with supply chain partners and made financial investments to optimize its network for 2014. Previously, however, the company was already at work on its On-Road Integrated Optimization and Navigation (ORION) project. Designed to reduce an average of 7 to 8 miles traveled from daily driver routes, upon full implementation in 2017, ORION is expected to generate $300m to $400m in cost savings.

Furthermore, MIT recently recognized that supply chain strategy can be credited with bringing better performance and millions of dollars in savings. For example, the 2014 World Cup in Brazil presented a unique opportunity for Nike, the shoe and apparel retailer. By working collaboratively with its logistics partners, Nike was able to respond quicker to volume spikes, boost service and delivery while reducing costs. This helped Nike realize a 10 percent year-over-year increase in revenue.

Another example is Procter & Gamble, which retooled its supply chain to meet growing demand from emerging markets, its fastest-growing geographic segment. P&G estimates this will result in a 1-percent to 2-percent increase in sales, 2- to 5-percent margin improvements and 5- to 10-percent improvements in asset utilization.

In today’s changing business environment, to successfully optimize a supply chain, a process needs to be implemented. One suggested process involves a four-step cycle.

1. Visibility. Gather data into a centralized location to build the foundation. Businesses can’t even start the planning process without having the proper data.

2. Transparency. How do we effectively analyze the information to best understand our business and competitors? How do we develop short-term and long-term strategies to grow our business if we don’t have the people and processes in place to make the information transparent?

3. Strategy. Are we spending enough time properly strategizing? Determine if there are opportunities for improvement and where they lay. Develop the strategy that provides the best scenario to execute on the opportunity.

4. Execution. Frequently we’ve developed a sound strategy but often fail due to poor execution. This may be due to timing, new challenges, spending cutbacks, and a lack of resources. These can be valid – but successful organizations overcome these challenges. They have contingency plans in place as a result of a robust planning process.

                                                            The Outlook

To achieve success in today’s business environment, supply chain optimization must be incorporated into a company’s strategic planning and forecasting processes. The supply chain is dynamic and continuously evolving and should be managed like any other aspect of a strategic plan and reviewed on an ongoing basis– not just once a year event when budgets are due.

In a global business environment that is undergoing great change from the likes of ecommerce, near-sourcing, robotics and more, supply chain optimization needs to become part of an organization’s strategic plan. Companies that participate in strategic planning on a frequent and regular basis realize better results than their competitors. Those companies that fail to consistently evaluate supply chains and carefully plan, forecast and communicate may experience dire consequences.

UPS, one of the greatest global supply chain companies, learned the importance of optimization during the 2013 holiday season. Since then UPS worked with customers, collaborated with supply chain partners and made financial investments to optimize its network for 2014. Previously, however, the company was already at work on its On-Road Integrated Optimization and Navigation (ORION) project. Designed to reduce an average of 7 to 8 miles traveled from daily driver routes, upon full implementation in 2017, ORION is expected to generate $300m to $400m in cost savings.

Furthermore, MIT recently recognized that supply chain strategy can be credited with bringing better performance and millions of dollars in savings. For example, the 2014 World Cup in Brazil presented a unique opportunity for Nike, the shoe and apparel retailer. By working collaboratively with its logistics partners, Nike was able to respond quicker to volume spikes, boost service and delivery while reducing costs. This helped Nike realize a 10 percent year-over-year increase in revenue.

Another example is Procter & Gamble, which retooled its supply chain to meet growing demand from emerging markets, its fastest-growing geographic segment. P&G estimates this will result in a 1-percent to 2-percent increase in sales, 2- to 5-percent margin improvements and 5- to 10-percent improvements in asset utilization.

In today’s changing business environment, to successfully optimize a supply chain, a process needs to be implemented. One suggested process involves a four-step cycle.

1. Visibility. Gather data into a centralized location to build the foundation. Businesses can’t even start the planning process without having the proper data.

2. Transparency. How do we effectively analyze the information to best understand our business and competitors? How do we develop short-term and long-term strategies to grow our business if we don’t have the people and processes in place to make the information transparent?

3. Strategy. Are we spending enough time properly strategizing? Determine if there are opportunities for improvement and where they lay. Develop the strategy that provides the best scenario to execute on the opportunity.

4. Execution. Frequently we’ve developed a sound strategy but often fail due to poor execution. This may be due to timing, new challenges, spending cutbacks, and a lack of resources. These can be valid – but successful organizations overcome these challenges. They have contingency plans in place as a result of a robust planning process.

                                                            The Outlook

To achieve success in today’s business environment, supply chain optimization must be incorporated into a company’s strategic planning and forecasting processes. The supply chain is dynamic and continuously evolving and should be managed like any other aspect of a strategic plan and reviewed on an ongoing basis– not just once a year event when budgets are due.

Supply Chain Optimization for a Changing Business Environment