As the health and humanitarian impacts of the COVID-19 pandemic evolve, so do the business and economic challenges. Companies need to continually strengthen their supply chain’s ability to predict and respond with agility during prolonged periods of uncertainty. That means balancing immediate needs with the longer-term goal of building an intelligent, customer-centric supply chain that is resilient and relevant.
At the same time, companies are under more pressure than ever to manage costs and address critical pinch points in supply chains without tying up capital. Enter the "zero-based" supply chain — a holistic way to drive profitability that emphasizes the future over the past.
Zero-basing works by scrutinizing end-to end supply-chain spending to reset a company’s cost baseline, rather than drawing from past data. Companies can identify substantial untapped value by applying it to every part of the supply chain.
With costs of goods sold (COGS) contributing to 40-70% of a business’ cost base, optimizing supply-chain costs has always been a major focus for companies. By applying a zero-based mindset across the supply chain, organizations achieve the visibility needed to make deployment and cost containment decisions, identify opportunities for immediate relief and risk balancing, and reallocate resources to invest in future innovation and growth. With this approach, goals are based on market realities — not arbitrary percentage reductions on historical data. Companies build a cost-conscious, yet innovative, culture that is supported by data transparency and advanced analytics to ensure accountability and continuous renewal across departments. And by instilling organizational incentives, companies can promote information sharing and collaboration best practices across the organization.
Here are three zero-based actions companies can take to help shift cost curves, boost performance and build resilience across their supply chains.
Boost On-Demand Visibility
Now more than ever, companies need to understand what is happening in their supply chains — inside production sites, along transportation flows, and across partner ecosystems — in real-time to best respond to frequent demand changes. Ongoing shifts in consumer behavior (i.e. more at-home consumption, expectation of person and product hygiene), increased demand volatility from unpredictable events (i.e. natural disasters, social unrest) are new norms that will make visibility at deeper levels of granularity essential going forward.
To become more resilient and relevant, companies will need to create transparent visibility of supply and demand to understand risks and opportunities to act rapidly, combining financial and operational data across the organization and partner ecosystem. Companies need to be able to capture data, connect systems and build out their analytics capabilities. This will ensure they have a robust mechanism to understand their demand patterns and create visibility for scenario planning through intelligent control and monitoring capabilities.
Evolve Talent Strategy
Companies need to rethink talent across the operational value chain and focus on changing their organizational mindset on must-have versus nice-to-have capabilities. Organizations need to balance cost, capability and capacity to achieve the talent flexibility that is so vital in this environment. They can do that by taking steps to identifying what work is critical to conduct with internal resources, while exploring talent elasticity and liquid workforce pools to balance cost and safety with flexibility. Additionally, prioritizing building an ecosystem of partners, leveraging suppliers and contracting manufacturers, will provide agility and balance in cycles of disruption and recovery. And finally, but perhaps most important are the investments in technology and digital tools that companies must make to enable remote operations and amplify human and machine intervention.
It's clear that supply chains were not prepared for a global pandemic of this nature. In fact, recent research shows that just 10% of companies were on the right path to building resilient, customer-centric supply chains prior to the COVID-19 pandemic. Many companies moved quickly to mobilize a response that mitigated the immediate risks, but what’s critical now is building resilience into the core of their long-term strategy. That means re-examining how existing assets (physical and virtual / digital) and capabilities can be used going forward to best position them for success. Simultaneously, they need to re-evaluate how upcoming investments may contribute to accelerating recovery (e.g. by aligning with demand pools), while building resiliency.
Companies have an incredible opportunity to look back at the last few months to understand which elements of supply-chain operations met acute change in demand or were able to be repurposed for alternative use and learn from what worked. This will build capabilities to bridge gaps for future resiliency and may include tactics such as investing in operational analytics, manufacturing digitization, and data-driven scenario analysis. Ensuring resiliency now for success in the future means companies need to prepare supply chains and production networks to balance reliability with responsiveness.
Changing consumer behavior and expectations along with an uncertain economic environment and the potential for more unprecedented events underscore the need for agile and flexible ecosystems and analytics-driven supply chains. A zero-based supply chain can be the answer to help outmaneuver uncertainty by unlocking value required to accelerate this journey rapidly. By radically shifting costs curves and boosting performance across the supply chain, businesses can fuel sustained growth in the “never normal” world.
Kris Timmermans is a senior managing director and global supply-chain and operations lead, and Patricia Riedl is a managing director and global zero-based supply-chain lead, at Accenture.
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