Use value to drive organizational change

From the September-October 2024 edition of Supply Chain Management Review.

September-October 2024

Back in late 2023, in response to global panic about the state of the supply chain, President Joe Biden announced the formation of the White House Council on Supply Chain Resilience. “We’re doubling down on our…

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As supply chains gained favor with the C-Suite, added scrutiny was, in some cases, an unwelcome consequence. Not only was more attention being paid to the operation, but so too was focus shifted onto cost, sustainability, and increasingly the journey to an outcome. Whereas supply chains were previously tasked with getting products to the end customer, now, management wants to know how it is getting there as well.

Matt Stekier

In some ways, the focus on the end-to-end supply chain is positive for many reasons. As the C-Suite now has a full understanding of the role supply chain plays, and more insight into the challenges it faces, resources are being freed up to create more efficient, resilient supply chains. The era of supply chain value has arrived, and it is driving organizational change.

Supply Chain Management Review spoke with Matt Stekier, principal at Plante Moran’s supply chain practice, on how creating value in the supply chain can help leaders drive the needed change for supply chain improvements. (This interview has been edited for length and clarity.)

SCMR: Organizations may define value differently based on internal objectives. Are there common themes that cut across organizations when defining your own value?

STEKIER: At their core, supply chain fundamentals are industry agnostic, however, organizations still need to consider factors such as their company size and industry to optimize the value they deliver. The more refined a supply chain operation is, the more it can be tuned to address the subtle nuances that affect how effectively it serves the larger organization. There are also important considerations related to compliance and other factors in specific industries.

SCMR: How is value defined?

STEKIER: On the most basic level, value is defined by whether and how much the supply chain operation contributes to the bottom- and top-line success of the organization. Historically, most supply chain professionals focused on the bottom line, which largely revolved around strategic sourcing practices and efforts to control costs. That of course remains an important focus, but as organizations have refined their supply chain operations the very definition of value evolved.

Common operational metrics are still crucially important. For instance, it’s still critical to effectively manage inventory levels to optimize capital tied up in materials and source materials from reliable suppliers at competitive prices while also maintaining quality. However, leading businesses are looking beyond factors like cost to realize the supply chain’s ability to directly affect top-line results, among them increased sales, greater customer satisfaction, and tighter alignment with brand attributes. While these ultimately influence the bottom line, they are far more holistic in nature, whether it is looking at alternatives like dual-sourcing agreements that may add additional costs but reduce risk or working more closely with sales and marketing on product pricing strategies.

Another example of strategic supply chain investment through this holistic lens is nearshoring. Nearshoring supports risk reduction with the additional benefit of reducing logistics costs. It also allows for less capital tied up in inventory as the amount of inventory in the supply chain is reduced. For example, if an organization manufactures goods in China, they may have three months of work-in-progress at the supplier along with three months of inventory in transit. This translates to three to four months of inventory in the supply chain at any given time. However, if they source from Mexico and transition to three days of transit time, they can cut their inventory in the supply chain by roughly 80% and still be safe.

When considering where a supply chain team can add value, there is also the concept of service. The idea that supply chain operations serve the larger organization is not new, but transformational supply chain leaders constantly ask if they are supporting the operations, facilities, and functions that create revenue. This mindset—that the supply chain team is a service organization that exists to serve constituents in other departments—is the basis for the more holistic and effective approach to supply chains we are seeing today.

SCMR: With the supply chain increasingly part of upper management at many organizations, how does this influence translate into organizational value? 

STEKIER: In recent years the C-Suite has grown more aware of the importance of supply chain strategies—something pandemic shortages only accelerated. More supply chain leaders rightfully have a seat at the executive table and are involved in discussions that chart the direction of the organization—not just reacting to questions about supply chain crises or issues.It is in these discussions that a service mindset is particularly crucial. It must be overtly clear that the supply chain operation serves the organization and is aware of the mission-critical concerns of the C-Suite.

This includes taking steps to ensure that the CEO is apprised of all supply chain factors that could affect the business’s strategic direction, informing the CFO of how supply chain decisions and developments could affect cash flow, and providing sales, marketing, and human resources with intelligence on factors that could affect the brand’s reputation among consumers and potential hires.

Supply chain experts can also add value to the product development process. By providing input on factors that could drive up or reduce the product costs—such as materials, size, and shape—they can help others in the organization to make informed decisions before testing and approval of a new product is complete. Creating such value demands that supply chain leaders ask questions, listen, and proactively provide operational insights with intelligence only it possesses.

SCMR:  In what areas is increasing value the easiest? In what areas is it the hardest?

STEKIER: The easiest way to increase value in the supply chain is to ensure that expenditures for supplies, transportation, and indirect materials directly support and maximize revenue. That means taking proactive steps to make sure that the supply chain operation is not tying up capital that could be used for research and development, expansion, marketing efforts, and other activities that grow the business.

Because of this, inventory management should be an initial focal point of any efforts to increase supply chain value. Additionally, contracts for indirect materials and transportation should be reviewed for requote and new contracts every few years.

Capital cannot be needlessly tied up in inventory that’s not being used, something which in and of itself often requires supply chain leaders to dive into bigger challenges, among them the optimization of the distribution network and coordinating  cross-functional planning.

Coordination of cross-functional planning is a critical, strategic initiative that can affect future top and bottom lines more than most companies realize. However, it often doesn’t have an immediate impact, and therefore is unfortunately harder to drive.

Determining where distribution points should ideally be located, considering the impact on logistics and determining if the carrier being used is the optimal partner are just a few of the many issues that quickly arise in any thorough look at inventory practices.

SCMR: How should supply chains approach this process? Are there technologies that provide a pathway forward?

STEKIER: Creating more value in the supply chain—creating a better future state—begins with understanding your current state. That means understanding how current processes work and examining them to determine whether adjustments or potentially a completely new approach is warranted.

Many organizations struggle with change on several levels. First, the people who are often most familiar with the internal processes may not be familiar with new, innovative alternatives. In much the same way, it’s often also difficult to objectively review existing processes and determine if a viable, more effective approach exists.

When managing the evolution to the future state, supply chain leaders must ensure that those who are directly affected by change, often those on the frontlines, are directly involved in modernization efforts.

It must also be remembered that the process is what will deliver the desired results—not the technology. Technology, however, is important and can be a differentiator if it’s leveraged correctly. Therefore, the ideal process must be determined first. Only then should an organization select and deploy a technology that supports and enhances the process. Organizations that fail to establish processes then deploy technology often end up with a system that merely does the wrong thing faster.

SCMR: Does this require a management culture change to accomplish?

STEKIER: Creating value in the supply chain requires a cultural change across departments that is difficult. Supply chain professionals who succeed lead by example. They are servant leaders who ask colleagues across the organization how they can help. They bring ideas to the table on how to do things better, faster, cheaper, and with higher quality. They also provide their organizations and teams with the right information, tools, and direction to create a supply chain that delivers maximum value while being efficient, flexible, and resilient.

SCMR: Thank you for your time.

SC
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