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Opinion article

How an effective supply chain strategy can be a competitive differentiator

Organisations that rise to the challenge by improving automation, reporting, forecasting and agility will result in better working capital position, and ultimately create supply chain capabilities that are agile, resilient, technology-enabled and sustainable, writes Nigel Edwards, Head of Supply Chain at KPMG Australia.

Pre-COVID-19, business supply chain strategy was focused on just-in-time inventory management and business development planning using e-commerce strategies. However, for the past two years supply chains have been sorely tested. The pressures of COVID-19’s unprecedented demand have created a perfect storm of supply chain stresses and strains, with organisations worldwide balancing the goal of customer service and cost-to-serve. We are not exempt here in Australia, with the consequences of the pandemic and recent geopolitical shifts creating new challenges that are impacting supply chains. In 2022 and beyond, local and global issues continue to evolve, including international shipping uncertainty, loss of capacity, increased costs and labour shortages, making it vital for businesses to implement a combination of strategies that address likely outdated supply chain processes to ensure their survival. 

Transitioning to the ‘new normal’ 

The ‘new normal’ is a future where supply chains face continuous disruption. Over the next two to three years at least, businesses will need to rewrite supply-chain strategies to protect themselves in this new landscape and enhance the maturity of their supply chain management function. They will need to streamline supply chain planning and execution processes by using advanced automation; investing in intelligent inventory demand, forecasting and merchandise planning solutions; harnessing big data and advanced real-time analytics to validate appropriate channels to market; and collaborating and integrating with new suppliers and third-party logistics partners. These are just some of the steps needed to achieve enhanced efficiency, productivity and ultimately, profitability. 

Supporting the transition to the new normal will also require tactical strategies, such as renegotiating contracts, locating alternative sources of supply to ensure inventory, adopting new assets and infrastructure, and overcoming labour shortages within and external to the organisation. These are all very complex undertakings that beg the question: What are businesses doing today to rise to these challenges?

Target Operating Model (TOM) 

Creating a new Supply Chain TOM with more mature planning and execution capability will enable greater agility and better organisation response to continuous disruption and uncertainty. Maturity uplift within your supply chain TOM only commences when the following five elements are addressed: processes mapping of critical planning and execution activities; reviewing and updating staff roles and responsibilities; understanding, and applying key performance metrics with all internal and external services providers; enabling technology interoperability throughout operational activities and with those intersecting functions such as finance; and adhering to governance policies where master data governance is paramount, as incorrect data permeates and corrupts all downstream business functions. 

Today, business is seeking to embed the agility that was required during the pandemic into their new longer-term operations strategy. Overall, these new supply chain TOMs must be oriented around end-to-end supply chain planning, predictive analytics, and greater investment in planning systems to optimise process, people, and technology. As alternative sources of supply are sought, increasing numbers of partners will be integrated into the business model, requiring a greater focus on governance, performance insights and the service delivery framework.

Sales and Operations Planning (S&OP) 

Due to capacity constraints (especially shipping lines), businesses now need to prioritise what stock gets delivered and when, and whether they are getting stock domestically or internationally. Companies across many industries are increasingly integrating predictive analytics into their supply and logistics planning activities to provide real-time data that supports tough operational decisions. Agile inventory deployment policies within fulfilment channels connected across the business have never been more important for the fulfilment of customers’ orders. Strategically, a shift from sales and operations planning to sales and operations execution is needed to reach the next level of maturity that supply chain management must achieve in the ‘new normal’.

Automation 

The delivery promise is now increasing in importance. To process orders efficiently to ensure they are delivered in full on time (DIFOT) at a reduced cost, businesses should investigate automation solutions. However, it is important to note that to gain the full benefit from automation, organisations will also need to review the impact of these efficiency gains across their entire network. For example, reviewing impacts on inventory replenishment to match the greater order picking capacity.

Advanced analytics and cost-to-serve modelling 

To make the right decisions about which channels and methods of delivery are the most profitable for products, businesses need to consider advanced analytics that measure cost-to-serve and segmentation optimisation. Data-driven insights are then used to plan the optimal portfolio mix of products and services to profitably delight customers. Increased visibility of stock keeping unit profitability via each channel – which is difficult to achieve in legacy systems – is allowing disruptors to tailor product and service offers to be more closely aligned to individual customer demographics, locations and fulfilment needs. 

During COVID-19, a range of initiatives was undertaken by both the public and private health care sectors and the transport and logistics sector. For health care, the cost-to-serve is paramount to ensure the best possible patient outcome by ensuring the best utilisation of working capital, whether medical supplies or equipment. Similarly, the massive increase in parcel volumes in these past two years has lead transport providers (local, interstate linehaul, freight forwarders and rail) to re-evaluate their cost models. With some overseas supply lines remaining in jeopardy, several industries will re-cost their onshore manufacturing capabilities. In all cases, advanced analytics (control towers) and cost-to-serve modelling toolsets will be in high demand.

All businesses, regardless of industry sector, are on their own journey to meet the ‘new normal’ and are aware that to address future supply chain challenges they will need to build or rebuild supplier relationships, viewing suppliers as part of their brand and integrating them into automated logistics planning. Organisations need to aim for agility and resilience beyond simple physical logistics and volume capacity. 

In the new post-COVID world, organisations that rise to these challenges by improving automation, reporting, forecasting and agility will result in better working capital position, and ultimately create supply chain capabilities that are agile, resilient, technology-enabled and sustainable.

However, to overcome many of these barriers, collaboration with supply chain partners will be key, ideally creating open platforms that further enhance the information exchange. With every part of the supply chain connected, customer behaviour and desires will feed directly into the supply process, and manufacturers will communicate seamlessly with upstream and downstream partners. In this way, a visible supply chain can become a competitive differentiator: driving predictive decision-making; giving businesses the flexibility to act swiftly on sourcing, manufacturing, logistics and storage; and enabling them to cope with disruption and complexity to become more resilient. 

CEDA's upcoming supply chain livestream on 20 May, 2022 will bring in senior industry leaders to unpack the data and deliver an outlook on global supply chains. Register for this event here.

About the authors
NE

Nigel Edwards

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Nigel is a Director in KPMG's Operations Advisory services and leads KPMG Australia’s Supply Chain Management Advisory team. For more than 20 years Nigel has consulted across a range of supply chain and logistics industry organisations, undertaking project management, business analysis, solution design and implementations for private, public and not-for-profit organisations. 

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