industry insider trAnsforminG Your suPPlY chAin Some supply chains consistently achieve better results. How do these companies achieve superior performance? A supply chain executive has a difficult challenge to face: not only do they manage a complex topic that requires the ability to deal with probabilities rather than facts, they also need to co-ordinate activities across functions, often in the face of conflicting metrics, incentives and priorities. With the pressure in today’s environment — increased complexity, cash requirements, competition and customer demands — it is even more important to have a supply chain that delivers. Given this challenge, we embarked on a major research project last year, interviewing and analysing the supply chain practices of more than 60 companies in <strong>Europe</strong> and Better cost performance North America. The research assessed the Figure 1: There are true winners in all performance of the respondents’ companies dimensions - cost, service and inventory - in every sector. in more than 50 aspects of supply Zara, which has driven a competitive advantage tool. They leverage formal training, intensive chain management, including business through its responsiveness with short, reliable mentoring relationships and thorough processes, corporate culture, network replenishment periods. With this strategy, the performance evaluations to attract and retain the configurations, organizational structures, relatively high logistics costs are offset by lower talent to run a successful supply chain. strategy, supporting infrastructure and the capabilities of personnel. After interviewers plotted the executives’ responses on a scale of one to five (five was the highest), the results were organized into tertiles and compared with supply chain performance metrics provided by the respondents on cost inventory and service levels. Our aim was to answer two fundamental questions about supply chain performance: • What separates the best from the rest? • How does a company become one of the best? Does it Really Matter? In a word: yes. Across industries, we have consistently found that the front-runners offer significantly better service than the industry average — with noticeably lower logistics and inventory costs (Figure 1). What Separates the Best? When we examined the relationship between companies’ survey scores and their performance, six broad practices emerged as being significant. Strategic focus: Winners make supply chain strategy an explicit part of their business objectives. One example is fashion retailer, 14 Better service performance inventory and fewer markdowns. Segmentation: Leading companies reduce complexity by segmenting the supply chain to avoid “one size fits all” execution. For example, one consumer goods producer leveraged differentiated planning to concentrate on key accounts with high fluctuations to increase forecast accuracy while reducing costs by 20%. Optimized network: A high-performing supply chain regularly reviews its entire network — including production facilities and warehouses — to ensure that it delivers required service performance at the minimum possible cost. Lean value chain: Winners use standard methodologies, including lean manufacturing, to produce efficiently and effectively. However, “lean” is not purely a production topic, many successful companies are applying it across the supply chain. Lean warehousing, lean planning, and lean retailing all reduce waste, variability and rigidity in the supply chain. Integrated planning: Even flexible supply chains require systematic planning with clear allocation of responsibilities (who is responsible for what) and quality process inputs (historical data, market knowledge, etc). Talent management: Market leaders consider talent management to be a strategic Getting There From Here No single company in our survey could claim to have mastered all six of these differentiating practices. Many companies, however, have managed to achieve dramatic improvements in their own supply chain performance. Not surprisingly, both the programme design and its execution are critical for a successful transformation. When driving a supply chain transformation, winners do two things: they identify pain points and improvement levers that will close the gap between them and the “best;” then they design and execute an effective transformation programme. The reward is an optimal supply chain in terms of service, costs and inventory — and a sustainable competitive advantage. In the next articles in this series, we will look in more detail at the methods that successful companies have used to transform, sustain and enhance their supply chains. • For more information Jochen Grosspietsch is an associate principal in the Barcelona office of McKinsey & Company, and Daniel Swan is an associate principal in the Chicago office (www.mckinsey.com). For more detailed survey results or to do supply chain benchmarking for your company, please e-mail jochen_grosspietsch@mckinsey.com. www.scemagazine.com may/June 2009
AUSTRIA | BELGIUM | CZECH REPUBLIC | DENMARK | FRANCE GERMANY | HUNGARY | ITALY | LUXEMBOURG | POLAND | ROMANIA SPAIN | SWEDEN | THE NETHERLANDS | UK www.prologis.com looking for space? these companies already have Since entering <strong>Europe</strong> in 1997, ProLogis has expanded its presence in strategic distribution markets into 15 <strong>Europe</strong>an countries. Whether distributing goods around the corner or across the world, customers rely on ProLogis’ ability to deliver.
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