Executive Briefings

What Supply Chain Transformation Really Means, And How It Is Driving Change in Manufacturing

Supply Chain Transformation is a term that has become a bit tarnished from over use, but leading companies like Apple and Procter & Gamble have put legs to this concept and turned their supply chains into competitive weapons, says Roddy Martin, senior vice president-supply chain at AMR Research.

The key to successful supply chain transformation is to take an end-to-end view, he says. "Change in the supply chain is not just about traditional functions of logistics, transportation and warehousing, but the end-to-end translation of demand all the way back into operations and the supply side of the business," he says.

The recession was a wake-up call for many companies in this area, says Martin. "Demand suddenly changed and, because many supply chains were not as connected as they should have been, a lot of working capital and inventory were locked up in the supply chain." Even big, industrial companies that traditionally have not thought of demand in terms of the ultimate consumer have become much more "demand aware," he says. "The leaders of these companies are asking, 'why were we not agile enough to see the change in demand and respond to it?' As a result, the supply chain has bubbled up as one of the core capabilities that could be used as a competitive weapon," says Martin.

Another trend in supply chain transformation is sustainable continuous improvement, as opposed to "blindly applying lean methodologies to look for waste," he says. "The problem with more and more lean initiatives is that there is a real risk of taking out so much cycle time and flexibility that operations become rigid," Martin says. "That is a problem in a demand-responsive environment." The right approach to continuous improvement is to match core capabilities to the characteristics of the product and the market, rather than blindly execute a methodology, he says. There also needs to be a larger component of training and skills development and more focus on change management than in the past, he adds.

These supply chain changes are driving similar trends in manufacturing, says Martin. Manufacturing has traditionally been removed from real demand in the marketplace but as supply chain visibility improves, top companies are shifting to a model based less on capacity utilization and more on making what the market demands. "Leading companies are sensing and shaping consumer demand and using their supply network to produce anywhere in world," he says. "If a product is out of stock, they need to be able to tell the manufacturer to make that product," he says, adding that this is not information that can wait for an end-of-the month report.

To respond to this changing environment, manufacturers are focusing on new metrics, skills and how manufacturing sites can be connected to enable collaboration. "Manufacturing definitely is being pulling into a tighter role with the entire end-to-end business," says Martin. "The really big change is much tighter integration between manufacturing and the supply chain and much better visibility."

Organizational structures are reflecting these shifts as well. "What we generally see now is that manufacturing reports to the senior vice president of supply chain, who is part of the organization's leadership team," Martin says.

To view this video in its entirety, click here.

Supply Chain Transformation is a term that has become a bit tarnished from over use, but leading companies like Apple and Procter & Gamble have put legs to this concept and turned their supply chains into competitive weapons, says Roddy Martin, senior vice president-supply chain at AMR Research.

The key to successful supply chain transformation is to take an end-to-end view, he says. "Change in the supply chain is not just about traditional functions of logistics, transportation and warehousing, but the end-to-end translation of demand all the way back into operations and the supply side of the business," he says.

The recession was a wake-up call for many companies in this area, says Martin. "Demand suddenly changed and, because many supply chains were not as connected as they should have been, a lot of working capital and inventory were locked up in the supply chain." Even big, industrial companies that traditionally have not thought of demand in terms of the ultimate consumer have become much more "demand aware," he says. "The leaders of these companies are asking, 'why were we not agile enough to see the change in demand and respond to it?' As a result, the supply chain has bubbled up as one of the core capabilities that could be used as a competitive weapon," says Martin.

Another trend in supply chain transformation is sustainable continuous improvement, as opposed to "blindly applying lean methodologies to look for waste," he says. "The problem with more and more lean initiatives is that there is a real risk of taking out so much cycle time and flexibility that operations become rigid," Martin says. "That is a problem in a demand-responsive environment." The right approach to continuous improvement is to match core capabilities to the characteristics of the product and the market, rather than blindly execute a methodology, he says. There also needs to be a larger component of training and skills development and more focus on change management than in the past, he adds.

These supply chain changes are driving similar trends in manufacturing, says Martin. Manufacturing has traditionally been removed from real demand in the marketplace but as supply chain visibility improves, top companies are shifting to a model based less on capacity utilization and more on making what the market demands. "Leading companies are sensing and shaping consumer demand and using their supply network to produce anywhere in world," he says. "If a product is out of stock, they need to be able to tell the manufacturer to make that product," he says, adding that this is not information that can wait for an end-of-the month report.

To respond to this changing environment, manufacturers are focusing on new metrics, skills and how manufacturing sites can be connected to enable collaboration. "Manufacturing definitely is being pulling into a tighter role with the entire end-to-end business," says Martin. "The really big change is much tighter integration between manufacturing and the supply chain and much better visibility."

Organizational structures are reflecting these shifts as well. "What we generally see now is that manufacturing reports to the senior vice president of supply chain, who is part of the organization's leadership team," Martin says.

To view this video in its entirety, click here.