To make the most strategically sound decisions about reinventing your supply chain, multiple dimensions should be considered.
You know you need to reinvent your supply chain for the digital age. The question is, what do you prioritize, particularly if some of your past investments haven’t paid off as expected? What’s the most impactful order of investment across planning, procurement, manufacturing and logistics?
The answer should be less about advanced technologies and more about focusing on delivering the outcomes that will add the most value for your business. This is what makes establishing priorities such a challenge: many companies don’t take the time to define strategic imperatives for their supply chain operations. This is mostly because decision-making often occurs in corporate silos, failing to take a more holistic view. Even within the supply chain function, you may find teams in planning, for example, not communicating with those in procurement about how they’re investing for the future.
What’s more, there are so many different lenses you can apply to making sound decisions on reinventing your supply chain.
So, let us help you narrow it down. The following three supply chain perspectives can enable you to prioritize more clearly.
The foundational lens
Here’s an apt saying: “A chain is only as strong as its weakest link.” This is about supporting fundamental capabilities to provide the foundation on which to successfully build out more competitive-edge capabilities and even a full-scale transformation. It focuses on such mainstays as your strategic operating model, functions and infrastructure — for example, structuring your manufacturing or distribution network, deciding which functions to keep in-house, finding the best possible outsourcing partners or determining how and where to operate.
For instance, an EY team worked with a company that had a new supply chain executive who wanted to be transformational, coming from an organization with an industry-leading supply chain. However, he quickly realized that the planning function at the new company lacked some fundamentals; even the most promising of advanced technologies would be undercut and fail to deliver on their potential. The first step for that company was an upgrade of the planning processes, after which they were prepared to productively launch a major, more expansive transformation.
When an organization no longer dramatically lags behind in any area, the focus can be on building out competitive capabilities. You need to choose these new investments wisely, however. Consider the following critical questions:
- Which investments have the greatest potential financial benefit — typically revealed through metrics such as net present value (NPV) or return on investment?
- Which investments are the least complex and easiest to achieve relative to the others?
- Do we need to break down organizational silos and set cross-functional objectives to achieve success?
Look to prioritize those investments with the biggest potential payoff for the way your company wants to work.
This isn’t necessarily a strictly linear progression. Every company is different. The important thing is to establish a data-driven baseline of your foundational capabilities, and then deploy an agile implementation approach to help turn your weaknesses into strengths and achieve quick wins.
The problem-solving lens
This lens is all about solving immediate business challenges. Think about your pain points:
- Do you have trouble with on-time delivery?
- Are there unpredictable hiccups in inventory management?
- Is there a need for cash?
- Are there workforce-readiness issues that need to be addressed?
- Are there specific areas that you already know need improvement based on key performance indicators for building customer loyalty?
It is critical to get a comprehensive, end-to-end understanding of your situation that clearly articulates the upstream and downstream variables that are creating your challenges.
If you start with an overarching challenge in need of a solution, you will have a framework that addresses current and “real” issues head on. This approach takes into account critical factors such as your stakeholders, the strategic objectives to be achieved, a plan to marshal resources (internal or external), and timelines for completion, budget and ROI over both the short and long terms. This approach also includes ROI that’s not directly quantifiable, such as more effective portfolio management of stock keeping units (SKUs) or better governance. Starting with a challenge can be the catalyst for addressing your broader supply chain and operations as well.
The transformation lens
Transformational change is the third lens. If you are contemplating business model change, you want the reinvention of your supply chain and other aspects of your operating model to fully embrace and employ digital capabilities while also including a simultaneous overhaul of your business processes. This approach is highly strategic and requires buy-in and commitment across your organization, from business to IT, top-down and across all levels.
It’s also likely to require cultural change. You can’t succeed at a comprehensive supply chain reinvention unless you bring your people with you. True transformational change involves people and processes in addition to technology. And it’s not enough that they just follow a new procedural guidebook — there’s a big difference between “doing digital” and “being digital.” By “being digital,” we mean having advanced supply chain performance in your DNA and embedded in everyday decision-making.
The approach also needs to be customized to your company. There is no off-the-shelf, one-size-fits-all transformation. You must do what’s right for your organization based on its specific strategy and needs.
Prioritizing supply chain investment is no simple task. So, we recommend that you dedicate some part of your supply chain organization to future-readiness. Create a supply chain center of excellence. Establish two champions: one looking at immediate activities with major future implications, and another whose focus is three to five years out. Build a realistic vision and road map that explains the journey and destination with the organization. These can be critical factors in implementing successful transformations.
Finally, don’t make the mistake of thinking of your investment priorities as a checklist with a beginning and an end. Reinvention is a process, not a project. You should establish a process to revisit and revise your journey as needed. In a time of continuous disruption, the only path to meeting your goals is continuous improvement. That should be your top priority.