By John Hintze
Report shows companies that use data to drive integration and innovation in supply-chain management do better financially.
Companies with superior supply-chain capabilities are tops in terms of financial performance, and those capabilities make concerted use of big data tools, although a good old-fashioned handshake can also play an important role, according to a Deloitte Consulting survey released in mid-April.
The survey of more than 400 executives of retail and manufacturing companies worldwide, titled “Supply Chain Leadership: Distinctive Approaches to Innovation, Collaboration and Talent Alignment,” found 12 percent of participants indicating they outperformed peers in terms of inventory turnover and service levels.
High industry turnover can impact customer service if a company’s supply-chain experiences frequent disruptions, since products may be delivered late or incomplete. Deloitte calls the companies excelling in both turnover and service supply-chain “leaders” and the remaining 88 percent that are not excelling “followers,” and it finds the leaders outpace their peers on many fronts, especially in terms of integration, innovation and talent—areas that are often data-driven.
“The 12 percent found a way to break the paradigm that says there’s a tradeoff between customer service and how quickly inventory turns over,” said Kelly Marchese, principal at Deloitte.
Nearly all of those firms indicated they were operating at or above their peers in terms of revenue growth and operating margin, compared to only 38 percent of supply-chain followers making that claim. Integration, in which companies proactively share data and information with suppliers, was a priority among 92 percent of supply-chain leaders compared to only 64 percent of followers. And closely related innovation, providing the most advanced tools to collaborate with suppliers and bolster supply-chain efficiency, was a priority among 96 percent of leaders compared to 65 percent of followers.
Toyota is one company that has long been considered a leader in terms of collaborating with suppliers, but the impact of the 2011 tsunami on its supply chain prompted the realization it could do much better, and it has invested in a “number of key enhancements to its supply-chain systems,” according to an executive familiar with the program.
The car company’s legacy freight payment and routing system, for example, required extensive effort to change routes or modes of transportation. So it implemented new software enabling it to configure multiple routes between each point of origin and destination, allowing it to respond quickly to changing conditions and events. It also helps reduce manual deviations that require significant human resources and make financial tracking more difficult; now all tracking and payments retain a clean audit trail.
The system also provides a transportation volume forecast (TVF), from the supply-chain’s start to finish, giving Toyota a baseline to gauge daily, weekly and monthly flow of parts through the supply chain, with the goal of predicting or identifying anomalies as early as possible and adjusting to them as needed. The system also monitors key data points along the supply chain, to identify problems early and respond accordingly. And on the customer front, the company’s new estimated-time-of-arrival (ETA) system ensures every dealer has up-to-date delivery data. “This allows [dealers] to communicate accurate information to their customers and contributes to overall customer satisfaction,” the executive said.
Fortifying Supply Chain = Revenue Growth and Profits
Other notable gaps between supply-chain leaders and followers include placing a senior executive in charge of the function, as well as adapting specific supply-chain strategies for different customer segments, to best balance costs with the level of service provided. Supply-chain leaders also integrate supply-chain management with other key divisions in the company, including finance, corporate strategy and sales and marketing, to make better corporate decisions.
The benefits to optimizing the supply chain are clearly apparent in terms of the leaders’ financial performance. The survey showed 79 percent of the leaders have revenue growth that is significantly above average, compared to 8 percent of followers. And 69 percent of leaders have an earnings-before-interest-and-taxes margin that is significantly above average, compared to 9 percent for followers.
Successful integration with suppliers has other facets as well. Kurt James, VP of supply chain at McDonald’s Japan, noted in a different study co-authored by >Ms. Marchese and published in March that good old-fashioned relationship building is key to developing cohesion and collaboration with suppliers. He said the leading fast food chain’s “open protocol policy creates a two-way street of transparency, allowing McDonald’s clear views into the operations of suppliers and, in turn, providing suppliers with equally clear sightlines into our operations.”
Another key element of supply-chain success was innovation. Ms. Marchese said many companies have collected reams of data but often don’t use it to >predict where disruptions may occur. Those out front are using algorithms as well as technology to visualize the data, to uncover insightful patterns that are difficult to discern using spreadsheets.
Yet another important distinction setting leaders apart was the likelihood of them actively recruiting supply-chain pros with strengths in analytics and cross-business functions—folks that can augment big data with perspective and insight. “There’s recognition from nearly all companies but even more so from supply-chain leaders that there’s a need to find talent with greater analytical capability and a broader view of the business,” Ms. Marchese said.