Why Your Business’ Success Depends Upon Your Supply Chain
Whether you are the CEO of an expanding corporation or the owner of a fledgling enterprise, its fortunes are subject to an undeniable truth. The success of your business links inextricably to the performance of your supply chain. If you want business success (and who doesn’t?), you have to make your supply chain successful too.
Of course, it is helpful to have some statistics on hand to validate the statement above. First though, since the topic is “business success”, let’s be clear on what that looks like.
The definition above is not from any textbook, but is one that I am sure you will agree, describes a state of affairs that any corporate leader or business owner would be happy to attain.
Supply Chain and Business Success By the Numbers
Now for those statistics I mentioned. According to a survey by Deloitte from 2014, 79% of companies with high-performing supply chains achieve revenue growth superior to the average within their industries.
Conversely, just 8% of businesses with less capable supply chains report above-average growth. That figure highlights like no other how critical the interrelations are between an enterprise and its supply chain.
Given that something like 50% of businesses, regardless of their size, fail or close down within five years of launch, it can be deduced that poor supply chain performance commonly contributes to corporate or business failure. Similarly, one can assume that in many cases, businesses that fail do so because of financial problems—a fact that makes the following statistic also worthy of consideration:
Companies with global supply chains—a category which includes a fast-growing number of corporations, medium-sized companies, and even small businesses—can be standing on a cost base of which 90% is attributable to supply chain expenditure.
Again then, it’s not difficult to see how the financial health of a business depends on that of the supply chain, or how probable it is that supply chain costs feature strongly in the demise of many companies that become insolvent. Here are a few more sobering facts, to complete the big picture of business success and its dependency on supply chains.
1) In many businesses, the supply chain has never been subject to a design process, but has instead just … evolved.
2) According to a 2012 report into corporate insolvencies by the Australian Securities and Investments Commission, 44% of businesses in Australia failed because of poor strategic management. Supply chain strategy is critical to business success, but companies often underestimate its importance and hence pay it less leadership attention than other areas of operation.
3) It is also common for the supply chain to be the least understood area of strategic business management, which for an activity generating up to 90% of overall business costs, is alarming indeed.
So where does this all lead us? Well … it highlights just how important the supply chain and its management are to the success of businesses operating in today’s local and global markets.
So let’s dive a little deeper and look at precisely how the supply chain can make or break a business organisation. Each of the following seven sections in this post highlights how specific elements of supply chain management can contribute to the success or failure of a commercial enterprise.
The Top 7 Supply Chain Points to Address for Business Success
1. Supply Chain Strategy
In 2014, a survey by Tompkins Consortium delivered a shocking revelation. Of the business leaders participating in that survey, more than 50% considered supply chain to be a standalone business operating function. In other words, the majority did not recognise the need for close alignment between supply chain and general business strategies.
Now let’s rewind to the earliest paragraphs in this post, and the statistic relating to supply chain performance and revenue growth:
What’s wrong with this picture? It seems that many companies still don’t get the fact that the supply chain is the heart, lifeblood, and backbone of a commercial enterprise, all rolled into one.
If your company hasn’t focused much attention on supply chain strategy, now is the time to start, even if it means enlisting some external help to do so. A properly designed supply chain strategy is an enabler for achieving commercial goals and consequently, corporate success.
What does “well-designed” mean? It means that your supply chain strategy should support the overall strategy of your business. In far too many organisations, this is unfortunately not the case.
Remember, poor strategic management is a factor in 44% of Australian business failures.
Given the other statistics we’ve looked at so far, it’s fair to include poor supply chain strategy along with general strategic management in the figure above. So if you want to be sure of business success, review your supply chain strategy. If it doesn’t align with the objectives of your business, you have some work to do.
Mini Case Study: Walmart
Walmart may be the most famous example of a company that has succeeded primarily because of a well-developed and aligned supply chain strategy. Some of the company’s most notable strategy wins are as follows:
- Strategically removed links from the grocery supply chain
- Pioneered the use of vendor-managed inventory
- Built strategic partnerships with vendors to drive down prices
- Developed a process of excellence in supply chain collaboration
- Implemented cross-docking in its supply network to enable inventory reductions
- Established the strategic use of technology to gain supply chain efficiencies
All of the initiatives listed above support the company’s business strategy to be a leader in low-cost grocery retail, making Walmart a prime example of what enterprises can achieve when supply chain and overall business strategies are aligned.
2. Supply Chain Network Design
Along with the design of supply chain strategy, the design of the supply chain itself, especially the part dealing with outbound distribution from plants or warehouses, is instrumental in the success or failure of businesses.
Given this impact on business success, it’s disconcerting to realise that just 22% of companies take an active approach to supply chain network design.
For the rest, there may be no predefined structure for moving materials and products through the stages of fulfilment. Typically, networks evolve through a series of discrete changes and developments, each addressing needs as they arise and few considered as deliberate steps toward a strategically integrated supply chain.
Such an approach results in unnecessary cost, a lack of resilience, and unwanted challenges in meeting customer service requirements – yet sadly, it’s still the approach most commonly taken.
If your supply chain network design has not been under the microscope, and you care about business success, it’s probably time to consider the benefits of a design review and optimisation exercise. You may well find opportunities for savings and service improvements, perhaps enough to substantially improve the chances of business success.
Mini Case Study: Whirlpool
Following its acquisition of competitor Maytag in 2005, Whirlpool found itself entering an unprecedented period of growth, at which point the management team recognised the need to continuously optimise its supply chain design and make it more flexible and adaptive to ride out economic fluctuations.
As a result, the newly merged company developed a systematic methodology for network design optimisation, based on the following four principles:
- A continual process of high-powered modelling and network design analysis
- A disciplined approach to the collection, cleansing, and standardisation of supply chain data
- Development of analytical and network design skills within the company’s supply chain teams
- The perpetuation of knowledge surrounding supply chain network design (eliminating the reliance on tribal knowledge)
This formula has enabled Whirlpool to endure and thrive in the 13 years since it set out to build an adaptive supply chain, but of course, the work never ends.
In 2017, the company began to look at new options for warehousing, knowing it would need to start placing inventory closer to customers if it wanted to compete in the challenging omnichannel retail space. Today its supply chain analysts and designers continue to explore new initiatives, like the use of shared warehousing as a fast and flexible way to scale the distribution network as necessary.
3. Supply Chain Service Performance
Profitable revenue growth is a sure sign of business success, and one of the most critical factors driving profitable growth is customer service and most importantly, customer satisfaction.
Customer satisfaction is highly dependent on the supply chain, and if you want to be successful, your business must manage its supply chain with that in mind. That means the customer must be a primary focus when considering supply chain strategy, network design, and performance management. To put that claim into some perspective, consider this data revealed by Gartner from research conducted in 2014:
The study found that by this year (2016), 89% of companies expected to be competing primarily on the basis of customer experience.
That should be sobering news for any business not yet focused on supply chain excellence as a lever for business success. The performance of your supply chain will undoubtedly impact customers’ perception of your business and the service they receive from it.
The following supply chain performance issues can all have a negative impact on customer satisfaction and therefore, hamper the success of your business:
- Slow time to market for new products
- Long delivery lead times
- Delays in response to customer service requests
- Weak order fill and on-time delivery performance
- Inventory shortages
- Poor product or service quality
If you recognise any of these problems within your own company’s supply chain, don’t despair. As long as you can identify the root causes and begin to address them, you will be on your way to a more successful supply chain and to creating an enhanced customer experience. In turn, operational performance and business success will be under greater control and will lie less in the hands of Lady Luck.
While the root causes of supply chain performance issues often lie with weaknesses in strategy and/or network design, that’s not always the case.
If your supply chain strategy is well-considered and aligned with business goals, and your distribution network is designed to meet your objectives, some of the problems in the list above might well have discrete causes that you can address directly. For example, supplier performance issues can cause problems with inventory, order fill, on-time delivery performance, and customer-order lead times.
5 Supply Chain Service Lessons to Learn from Zappos
The Zappos shoe brand has become synonymous with customer service excellence and with good reason, from its formative years to its existence as an Amazon subsidiary, the online footwear retailer has striven endlessly to provide superlative service to match the high quality of its popular products.
Any company wishing to leverage its supply chain as a service differentiator can learn many lessons from Zappos. For example, the following five pieces of advice, which were highlighted by a 2012 Entrepreneur Magazine article and are every bit as relevant today, can be applied by any enterprise with an outbound supply chain serving online shoppers.
These five strategy elements all helped Zappos to become one of the world’s favourite e-commerce retailers by driving high levels of customer service. They also addressed another area of supply chain operations critical to overall business success—cost management.