Harnessing the Building Blocks to Deliver Supply Chain Excellence
As the legend goes, sometime in the 1660s a young mathematician named Sir Isaac Newton was sitting underneath an apple tree, pensively reflecting on the puzzles of the universe. As Newton drifted into a state of slumber, a lone apple that hung above unhinged itself from its branch and smacked the mathematician squarely on the head.
Who would have thought that history’s most famous concussion would lead to arguably the most important discovery in human history… the theory of gravity.
By Newton’s time, man understood many of the basic building blocks of the universe. Thanks to intellectual heavyweights like Ptolemy, Copernicus, Kepler and Galileo, we knew the earth was round.
And thanks to courageous adventurers like Columbus, we began to exploit this newfound knowledge, slaying the myth of sea serpents that inhabited the edges of our known world while discovering the riches that lay beyond.
Newton recognized that his discovery would never have been possible without the understanding provided by his predecessors. He famously observed that: “If I have seen a little further it is by standing on the shoulders of giants.”
Pretty humble given that Newton managed to synthesize the work of hundreds of scientists over thousands of years into a workable construct describing the inner workings of the universe!
In the centuries that have followed, Einstein and others have leveraged the Newtonian foundation to push our understanding of the universe to even greater heights.
But despite these advances, Newton’s achievement represents a true watershed moment
in human history. Before him, man understood most of the fundamental building blocks. After him, man understood, and benefitted from the power of leveraging these building blocks in new and exciting ways.
The story of Newton and his apple remains instructive today for partners across the consumer packaged goods supply chain challenged with finding “New Ways of Working Together.”
Most of the building blocks of supporting efficient and effective supply chain operations have been “discovered.” What separates the leaders from the rest of the pack is a Newtonian understanding of how to synthesize the building blocks, and the courage of Columbus to venture into an uncharted world to realize the benefit.
The 2010 Supply Chain Effectiveness Survey updates the findings from a similar effort conducted in 2001.
More than 40 retailers and suppliers participated in this effort involving a quantitative survey as well as senior executive interviews focused on understanding individual company priorities and perspective.
Seventy-five percent of companies and executives participated in both surveys providing unique insight into the evolution of supply chain operations over an eight year period.
We found a profound difference in this year’s interviews, indicating that the definition of “Supply Chain” has broadened, and that supply chain initiatives are increasingly focused as much on driving top line growth and mutual profitability as they are on bottom line productivity and cost control.
This year, with fundamentally the same group of supply chain executives and companies participating, the conversation broadened from the more tactical issues prevalent in 2001. We think this indicates that the definition of supply chain is evolving along with the role of supply chain executives who increasingly enjoy a seat at the table where corporate strategy is developed and executed.
The seeds of this shift were likely sown in several places:
- Industry Evolution—The Grocery Manufacturers Association (GMA) and Food Marketing Institute (FMI) are working together as never before towards truly collaborative business practices driving mutual top and bottom line benefit. The construct of the “New Ways of Working Together” program is driving more strategic connections across a broader range of enterprise activities. It serves as a powerful beacon illuminating the initiatives that will lead to mutual success.
- The Market—Grocery market share continues to fragment across an increasing array of channels, putting pressure on traditional grocers from every angle. This hyper-competitive environment drives the need for more creative approaches resulting in delivery of enhanced shopping experience without increases in price.
- Homogenization of tools—The past decade has witnessed incredible advancement of strategic and tactical systems and processes. As companies transition from home grown ‘host’ systems to more robust enterprise resource planning systems (ERPs), we find more trading partners sharing access to a broader set of foundational information supporting next generation advances in collaborative supply chain operations.
Regardless of the reason, we see the broader discourse of the 2010 survey as an indication that the traditional grocery industry is on the verge of its own Newtonian synthesis, reflecting a recognition of what needs to be done, an understanding of the tools available to support the mission, and an ever more present willingness to work together to drive mutual benefit.
As one retailer indicated, “We believe that most of the building blocks required to support effective collaboration are in place. What we have to do is find the best way of using the blocks with each of our suppliers to drive mutual benefit.”
We heard similar sentiments from many other respondents leading to the conclusion that there is a continuum describing how effectively companies are evolving in their discovery and collaborative use of the building blocks of supply chain excellence.
‘Flat Earthers’—To have survived into the new millennium has required adoption of a set of enlightened internal systems, processes, infrastructure and HR practices which have moved all survey participants beyond the “flat earth” thinking of the past. But while most understand the need for evolution, the realities of upgrading systems and infrastructure while enhancing internal and external practices, all within a very difficult economy, have left some further behind the curve than others.
‘Copernicans’—Copernicans, while still primarily internally focused, look outside of historic functional silos to seek enterprise-wide benefit. A great example of “Copernican” evolution would be one retailer whose leadership team has adopted a strong, shared set of internal performance metrics focused on margin and customer service. Individual functional areas within this organization are not punished for historically “negative” results such as increased transportation or handling costs so long as the added cost supports the common goals.
‘Newtonians’—Newtonians begin to realize the benefit of extending the concept of internal collaboration and shared metrics to their external relationships. Perhaps the best example are those companies which adopted the pursuit of Data Synchronization early on and have begun to realize the tremendous benefit associated with trading from a foundation of accurate and shared data.
‘Einsteinians’—Einsteinians operate their supply chains as a true end-to-end entity in which all participants share the same set of goals and work collaboratively to achieve those goals.
While no single partnership has evolved to this level across all areas, we heard evidence of a number of retailer/supplier partnerships dedicating themselves to the kind of open exchange of information and ideas which will fuel the evolution toward this final frontier.
Through our interviews, we have developed a sense that since 2001 most companies have evolved from an “early-Copernican” to a “pre-Newtonian” state in which the tools have been assembled, and a growing awareness of the best collaborative use of the tools is taking hold.
The challenge of the next decade, it seems, will be to leverage the power of this investment in infrastructure to define, deploy and deliver the benefit of collaborative processes leading to achievement of shared goals for success.
Through our interviewing, four broad areas were identified by a majority of respondents as being important focal points for their businesses. Not all of these areas have obvious connections to supply chain. We think that’s wonderful!
Supply chain executives are obviously connecting more than ever with the broader business, in the process helping to create more comprehensive capabilities for executing corporate strategy.
- Significant progress has been made in the definition, development and deployment of the fundamental building blocks supporting a consumer demand driven supply chain which will lead to improved shelf service levels. While everyone’s certainly not at the same level, all are now able to play with the same pieces if they choose.
- Virtually all retailers and suppliers are investing as never before to more scientifically and collaboratively understand and react to the needs of the end consumer.
- Advances in understanding end-to-end item profitability have led to increased private branding, market localization and an increased focus on expanding the ways in which we interact with customers.
- We’ve coined this new phrase to capture the essence of successful retailer/supplier relationships of the future. While Efficient Consumer Response (ECR) in the 80’s, Collaborative Planning Forecasting and Replenishment (CPFR) in the 90’s and Data Synch/RFID in the 00’s all promised to deliver the benefit of increased collaboration, the industry just wasn’t ready to capitalize. In this year’s survey, we see retailers and suppliers on the verge of leveraging all of the foundational building blocks that will finally allow us to exploit the power of crystal clear consumer demand information.
4 February 2010