Supply Chain Edge Road to Maturity Best-in-Class Supply Chains White Paper

The Road to Maturity: Key Characteristics and
Competencies of Best‐in‐Class Supply Chains

By Mike Edie, Chief Operating Officer, Supply Chain Edge

www.supplychainedge.com
Copyright 2012 Supply Chain Edge LLC. All rights reserved.

The Supply Chain: A Key Foundation of Success
• In a challenging world, a nimble, scalable supply chain keeps costs low, helping
companies fight off tough competitors while growing in new markets. Robust supply
chains also allow companies to provide better service, thus defending existing
customers.

• However, while some companies are deriving benefits like these from their supply
chains, many others see the supply chain as a cost center—not a source of value.

• In this presentation, Supply Chain Edge (SCE) explores the stages of supply chain
maturity, highlighting the key success factors of deriving more value from this critical
function.

Copyright 2012 Supply Chain Edge LLC. All rights reserved. 2

The Benefits of a More Sophisticated Supply Chain

• Companies with more sophisticated supply chain capabilities reliably outperform the
competition:
– They are likelier to have strong service performance, distribution and logistics cost
performance, and inventory performance. Strength in these areas is directly linked to better
sales, profitability, and return on capital, and fosters competitive advantage.1

– By transforming its supply chain, Dell achieved $1.5 billion in cost savings between 2008 and
2010 while reducing complexity, forging stronger customer connections, improving internal
collaboration, and boosting forecast accuracy.2

– PolyOne Corp. implemented a series of supply chain management improvements that helped
generate $218 million of free cash flow and reduce net debt by $223 million, all during one
of the worst economic recessions in history.3


Four Stages of Supply Chain Maturity
• SCE has identified several key attributes
that define increasingly higher levels of
supply chain sophistication.
• Overall, there are four stages of supply
chain maturity:
– About one‐quarter of companies have only
reached the first level, and excel solely at
basic supply chain activities.
– The remaining three‐quarters possess a
range of capabilities, with a general
progression toward more proactively
managed, customer‐focused supply chains.
• Using these benchmarks, companies can
guide their own supply chain
improvement programs.


Stages 1 and 2: The Foundation
• About one in four companies have
reached only a basic level of supply chain
competence. They have myriad
opportunities to improve supply chain
capabilities and move to the next stage,
which represents nearly half of all
businesses.

• Stage 2 companies generally:
– Integrate logistics issues into their
outsourcing decisions
– Understand which logistics activities are
best performed in‐house and which can be
done more effectively by someone on the
outside
– Can analyze costs, service levels, and IT
performance to identify needed logistics
improvements


Stages 1 and 2: The Foundation
• Stage 2 companies also generally are
proficient in:
– Regulatory compliance related to shipping
and warehousing
– Import/export management
– Optimizing spending on maintenance and
repair operations (MRO) and other indirect
goods and services
– Finding, hiring and retaining skilled supply
chain professionals, as well as knowing
when to go outside to get help (for
example, by hiring a 3PL)


Stage 3: Proactive Adaptation
• A major difference between Stage 2 and
Stage 3 companies: The latter proactively
update and optimize their supply chain
structures and capabilities.
• Stage 3 companies know when to
reconfigure the supply chain function’s
structure and governance to keep its
performance levels high, thus avoiding
disruptive once‐in‐a‐lifetime
transformations.
• These companies also focus on continual
improvement of the supply chain’s
performance, such as tailoring distribution
and transportation capacity to
accommodate spikes in demand (either on
their own or with a 3PL).


Stage 3: Proactive Adaptation
• Stage 3 companies shift talent as
conditions and opportunities dictate, and
actively manage knowledge and best
practices within the supply chain function.
• Through robust sales and operations
planning (S&OP) processes, they can
forecast demand more accurately,
boosting efficiency and tightening the link
between business strategy and execution.
• Many Stage 3 companies have integrated
their WMS and TMS platforms with ERP
systems, thus attaining a transparent view
of supply chain performance.


Stage 4: Perfecting the Supply Chain
• For Stage 4 companies—including leaders
such as Walmart, Proctor & Gamble, and
Estee Lauder—the supply chain is a source
of differentiating value. It brings better
products to market more quickly than
competitors can, delivers higher service
levels, and supports wider margins.

• Stage 4 companies actively monitor and
improve supply chain performance, and
focus on coordinating and integrating
supply chain functions and activities.

• They generally share three key priorities:
supply chain visibility, cost control, and
customer service.


• Stage 4 companies typically have a robust
process in place to not just monitor supply
chain performance, but also to quickly
identify and remedy the root causes of
any problems.

• They generally have mastered demand
and supply planning, and can accurately
forecast demand down to the individual
SKU level—as well as ensure
manufacturing and distribution are on the
same page.

• They also are committed to adopting
advanced supply chain technologies, and
can build compelling business cases for
the right solutions.


• Finally, Stage 4 companies understand the
importance of involving supply chain
personnel in customer relationships. Many
actively make connections between their
supply chain experts and those of client
companies, who then collaborate to
ensure that the entire value chain
functions as smoothly as possible and is
responsive to changes in the marketplace.

• In short, for these companies the supply
chain has become an instrument of value
and differentiation—not a source of cost
or complexity.


Conclusion
• The world is not becoming an easier place in which to succeed. Hungry new competitors are
seeking growth in established players’ home turfs, while customers are more demanding of
great service and ongoing innovation. At the same time, the economic environment
continues to provide a significant dose of volatility and unpredictability.

• Improving supply chain competence can help companies overcome these challenges. Even in
its most basic form, a well‐functioning supply chain is a bulwark against competitive threats
and market volatility. At the highest levels of maturity, the supply chain is a key weapon in
the battle to do more with less, boost responsiveness in a changing environment, and hold
on to finicky and demanding customers.

• While the supply chain has great potential to generate business value, companies must
actively invest in it and in their supply chain management capabilities. By learning from both
the beginners and the leaders, any company can move ahead on the road to supply chain
maturity.

Read our full point of view on this topic.


Sources
1: “The Race for Supply Chain Advantage: Six practices that drive supply chain
performance,” McKinsey & Company, 2008.

2: “The Top 25 Supply Chains: Leadership in Action,” Gartner Inc., 2010.

3: “Improving supply chain management drives a turnaround in tumultuous
times,” Thomas J. Kedrowski Supply Chain Management Review, September
22, 2010.


14

Contact Information

Joe Brady
Senior Partner
joe.brady@supplychainedge.com
p. 440.937.5151
www.supplychainedge.com


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