Reinventing the Supply Chain Function
Technology is helping companies not only transform their operations but also reinvent and rewire how they work. Accenture just published a paper that describes this phenomenon of Total Enterprise Reinvention(1) and how devising a whole new way to organize their business is helping companies grow their revenues and cut their costs. As the paper suggests, every function is being impacted by this revolution. But the supply chain function has been at the forefront. The almost universal adoption of the Amazon/Uber model by retail customers has played a dominant role in this.
Workers in most companies live in two different ecosystems almost every day. A highly efficient retails customer experience driven by companies such as Amazon and Uber and a poor, archaic and inefficient experience within the walls of the enterprise they work for. Buying something online just takes a few clicks, the payment for the goods is very simple and straightforward, delivery information is available at their fingertips with frequent updates sent to their phone or email, and the returns process is easy. In contrast, buying something at work is complex, the invoicing and payment process is antiquated, visibility into the supply chain once an order is placed is mostly non-existent and the returns process is complicated. Old habits, poor process, and poorly configured and integrated systems are all to blame for this mess in the workplace. Working in such vastly different ecosystems has increased frustration in the work force and supported an accelerated case for change in the supply chain function.
Before we discuss the case for change and how to approach it, we need to first understand the distinction between transformation and reinvention of the supply chain. Transformation in my opinion refers to working within the confines of existing processes and systems and is often sub-optimal at best. One favorite term making the round through companies over the past several years is Robotic Process Automation (or RPA) for short. RPA’s help in automating mundane tasks by studying the work patterns of employees in systems and automating the clicks they make to complete a transaction. This makes the task more efficient but is still enabling the existing process which might be antiquated. Several companies go through Enterprise Resource Planning (ERP) system upgrades but end up implementing the existing process in a new system. This is like upgrading to a 20 Seer air conditioning system and not upgrading the furnace and expecting better results. Also, when functions are transforming in a silo no one is studying the impacts of the changes they are making on the other functions that they work with such as finance, accounting or operations making the transformation less effective. Moving the pain point from one function to another doesn’t necessarily make their enterprise more efficient.
Consider a company that decided to outsource its transactional procurement to a low-cost region. They clearly reduced their costs by wage arbitration but in doing so they increased frustration in all the functions that worked with the outsource procurement organization. Language barriers, cultural barriers, time zone differences, six sigma optimized operations staff with little knowledge of the business all make day to day operations a misery. Companies that jumped to outsource their procurement in this manner introduced a lot of frustration in their workforce. The frustration was experienced not only within the company’s internal operations but also extended into its supply chain. Suppliers who previously picked up the phone and called someone to resolve issues or disputes had to endure a lot of frustration dealing with outsource staff that had limited knowledge to solve the issue. Payments were withheld and invoices were rejected multiple times. Until senior management from the supplier(s) intervened with a threat to hold back supply, there were no interventions being made to drive issues to resolution. So clearly trying to make things more efficient without re-designing processes by involving the various impacted parties is only shifting pain points from one to the other and not necessarily making everyone more efficient. As a result, the business is not able to realize the best value from its efforts in terms of increase in revenue and decrease in costs and improvements in efficiency of its operations.
So, what are some of the changes that the supply chain function should consider for reinventing itself and how should they go about making the change. Starting with a clean slate should help to prevent ideas from being trashed even before they are proposed. Engaging a cross-functional team of internal customers and suppliers along with supply chain professionals would be important so all the key players are engaged. The team should be empowered to think creatively and not be encumbered by existing ways of working. The retail customer experience makes it less complex for folks to imagine what work should look like in the future. An Amazon like ordering and fulfillment system with full visibility to the tracking of the shipment should be the ideal to aspire to. Jobs and roles would also need to be discussed. In such an automated workplace of the future many of the transactional functions in the supply chain will mostly be eliminated. The category manager will become the buyer to deal with exceptions and the buyer role as it currently exists will no longer be required. Similarly, the accounts’ payable role should also be mostly eliminated as payments should be approved on delivery and skeletal staff dealing with exceptions is all that will be required. Regional/local warehouses should get eliminated and remote vending machines for consumables and an Amazon like locker placed in a strategic location for the service personnel to access for other parts is closer to reality. Can all high value direct procurement and sourcing be handled by engineers will be critical for the team to answer. The tension between the engineers who specify the equipment and the procurement staff with limited knowledge of what they are buying needs to be addressed head on. A bold move for some companies at least would be to have project engineers that are trained to source and negotiate. This will eliminate the need for having that done by a procurement professional and eliminate the tension between the two functions.
Companies that move fast in implementing this kind of change to their supply chain would build a significant competitive advantage. They will see it increase their revenues as they will be able to fulfill their orders better, they will have better margins as their costs will be more optimized, their efficient ordering and payment systems will make them attractive to their supply based and prospective employees.
1. Total Enterprise Reinvention - Accenture, Jan 16, 2023
