Driving Best in Class Supply Chain Performance
Navanit Samaiyar, Senior Vice President Genpact
Companies are increasingly focusing on how to sustain their business today while positioning for future growth. A company's supply chain represents an untapped opportunity to realize increased short and long-term cash flows and cost savings.
Inefficient supply chain processes can contribute to cash 'leaking' out of a company's operations. The cumulative impact of this lost cash can drain the company's competitiveness and profitability.
Taking an End-to-End Approach
Companies that can implement more efficient end-to-end supply chain processes, enabled by best-in-class technologies, stand to free up working capital and cash and prosper as the business cycle turns toward growth. This end to end process implementation needs to address all the segments of a supply chain which cover:
- Forecasting and Inventory Planning
- Sourcing and Procurement
- Fulfillment and Logistics
- After-Market Services
Improvements should be focused on looking at root causes to ensure a "one-time fix" rather than a succession of "quick fixes." This eliminates small incremental gains and helps maximize improvements in a company's working capital and costs.
A holistic approach that focuses on improving the effectiveness of supply chains by combining process knowledge and insights with focused IT capabilities, targeted analytics and reengineering can add substantial value to a company.
Opportunities for Increasing Cash Flows
Based on its deep supply chain experience and business process management expertise, we have discovered that each supply chain area (refer to above figure), offers untapped opportunities for improvement that can impact an enterprise's cash position.
The following are examples of how companies can realize the benefits of transformation within their own supply chains to become best-in-class.
Demand Forecasting and Inventory Optimization
Best-in-class enterprises are adopting a customized approach to inventory planning and demand forecasting that factor in variability within the planning cycle. This allows them to make informed decisions through accurate forecasting and better manage the interplay of risk and inventory.
Did You Know?
- Efficient and comprehensive demand forecasting capability can result in 5% less inventory, 17% perfect order fulfillment and 35% shorter cash-to-cash cycle time.
- Lack of dynamic planning can result in 10-15% excess inventory buildup.
- Visibility to inventory in pipeline can reduce overall inventory by 10%. Best in class companies have 2 times more visibility to inventory stocking across supply chain.
- Visibility on 'material scheduling' can bring down inventory by 6-8% during supplier/ configuration changes.
Sourcing and Procurement
The sourcing and procurement process has a direct impact on a company's bottom line by lowering the total cost of ownership for the goods and services that an organization purchases. Best-in-class organizations are moving beyond strategic sourcing to end-to-end source to pay transformation to drive savings and bottom line impact.
Did You Know?
- Payment performance improves supplier relationships and increases sourcing leverage, resulting in 1-2% additional savings and ~3-4% impact on cash flow.
- 3-4% increase in cost savings can be achieved with 30-40% increase in spend visibility of addressable spend.
- A 5-10% deflation on sourced components can be achieved through Should- Cost analysis.
- 60% of defective sourcing can be eliminated through process standardization and improved supplier communications.
Fulfillment and Logistics
Companies need to maintain an efficient transportation network to support their supply chains. Best-in-class companies are moving to periodic network redesign and carriers cost and performance benchmarking. They are also implementing processes and technologies to enable greater visibility into their in-transit inventory.
Did You Know?
- In a dynamic environment periodic network redesign or monitoring of key network metrics can deliver 2-4 X as much saving as compared to tactical network tinkering.
- 6-7% decrease in freight cost can be achieved by regular monitoring of usage of LCC and benchmarking analysis.
- 5-10% of freight bills have payment leakages leading to ~1% of spend being overpaid.
After-market services (AMS) acts as a way to retain customers by driving higher customer satisfaction levels. Top performers in AMS are able to drive customer satisfaction levels by up to 10 percentage points and are finding ways to reduce costs and improve productivity within their AMS operations.
Did You Know?
- Consolidation of service engineer and parts dispatch centers / teams can improve customer response time and parts on time delivery by 30%.
- Field Engineers and service managers spend 30% of their time doing administrative and analytical tasks which can be done in lower cost locations releasing capacity onsite.
- Increasing asset uptime by 23% through remote monitoring reduces emergency technician dispatches by 30% reducing overall service costs by 20%.
- 15% of total warranty costs can be avoided by auditing 50% claims processed through an effective audit reasoning matrix.
Continuous Supply Chain Improvement
A structured approach can help organizations realize the benefits outlined above across their supply chains by:
Focusing on Effectiveness and Efficiency of their Supply Chain Processes by:
- Taking an end-to-end, enterprise-wide view, working beyond traditional organizational silos and not just focusing on efficiency within individual processes or business units.
- Focusing on business outcomes such as margin and cash flow, which makes visible the effectiveness of a process in driving business results.
- Measuring performance at each step of an entire business process.
Ensuring that changes are comprehensive rather than incremental through:
- Planning and implementing the transformation using an end-to-end approach that addresses the full range of supply chain processes.
- Change management cross both external and internal stakeholder.
Ensuring broad acceptance of the changes through:
- Senior-level executive support to drive these initiatives.
- Cross-functional teams support.
Using best-in-class processes and technologies to enable these improvements:
- Apply Six Sigma Lean rigor into the processes so that improvements are ongoing and repeatable and not limited to individual projects.
- Leverage appropriate technologies (new and existing) that enable the optimized processes.