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How to Not Screw Up A Supply Chain Redesign

APQC recently spoke with Murillo Xavier, one of HP’s most acclaimed supply chain strategists and author of Strategic Sourcing- Suppliers are from Mars, Customers are from Venus. During a recent interview Xavier discusses how market leaders are redesigning their supply chains in this modern economy.

Murillo Xavier will be speaking on our free webinar: How Leaders Adapt Their Supply Chain

How do organizations know when it’s time to redesign their supply chain?

Many supply chain professionals believe that a scorecard containing the key performance indicators of your supply chain is enough to understand when it is time to redesign your supply chain. They believe if the indicators start to deteriorate, there may be a problem and a potential need for redesign the supply chain.

Ideally, you should think about redesigning your supply chain before its performance is affected. Supply chain executives should be aware of major shifts in the market or in the current structure/strategy of the company. For example:

  • new laws and regulations,
  • changes in the product portfolio,
  • mergers and acquisitions (M&A),
  • new disruptive technologies, and
  • changes in customer preferences.

Executives need to constantly evaluate how these major shifts affect their current supply chain and decide whether it is time to redesign it. This decision may depend on several factors including the status of the competition, the magnitude of the change, the benefit the new design will bring, the availability of resources, and others.

What is the most common mistake organizations make in a supply chain redesign?

Perhaps the most common mistake organizations make when they redesign their supply chains is not to take into consideration the company strategy. The key driver for a successful redesign is the overall strategy of the company. The strategy should describe how the company expects to grow. That includes what customers, products, market segments, and geographies the company will be targeting. In addition, the strategy should state how they intend to win. In other words, how would the company differentiate themselves?  For example, they could compete in price, quality, customer service, distribution, product customization, product availability, portfolio variety, or in many other ways.

The answers to these questions may lead to very different supply chain designs. Unfortunately, many companies still see supply chain as a single cost line in the profit and loss statement (P&L). Therefore, it is not uncommon to see redesigns focusing only on cost, ignoring major opportunities to use supply chain as a competitive advantage, aligning it to the company strategy.

Supply chain should be treated as a strategic area of the company, capable of affecting not only the bottom line, but also the top line of the P&L.

How much should a redesign focus on the current technologies in planning?

There are 3 main flows that should be taken into consideration while redesigning a supply chain:

  1. Material flow

  2. Information flow

  3. Financial flow

The information flow is where we have all the planning activities. It is essential to careful consider the information flow during any redesign, since it enables the material and financial flows. If planning is not aligned to the other flows, we may expect major impact on the supply chain including shortages and/or excess inventory.

New technologies are helping the information to flow faster along the entire supply chain allowing companies to react faster to shifts in demand and to better synchronize their processes across the supply chain. These new technologies are enabling more complex designs and trends such as the decomposition and horizontalization of the supply chain. In other words, they promote better collaboration across partners in order to add value and create innovation.

What is one thing a redesign plan for supply chain must have to succeed?

If you have worked long enough in supply chain, you probably heard the expression “orchestrating the supply chain.” At a certain point, many companies and professional associations believed that managing the supply chain was not enough to translate how hard it is to plan and coordinate everything that goes in a major supply chain.

Just like in an orchestra, every instrument counts. Every movement should be perfectly executed at the right moment and in coordination with all the others. Many times one musician is not even aware of what another musician is doing. So, the conductor has the hard job of leading each member of that group to do their best and deliver something to the customer, greater than what any individual could.

The only way that works, is if everyone in committed to the goal. In a supply chain redesign, it is no different. Even in small redesigns, there may be a number of stakeholders that need to agree on the future state of the supply chain and commit to the changes ahead. If they don’t fully agree with the design, the supply chain may never realize its full potential.

Read the full interview here.

Join us for our August webinar to hear Xavier discuss:

  • what drives supply chain design,
  • the question of 'is there a winning design,'
  • how new technologies are influencing the design of supply chains, and
  • the right time for a redesign.

*Stay up to date with our upcoming supply chain management and product development research, webinars, and more by visiting our expertise page.

 

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