The supply chain is often the largest cost in any business. In many industry sectors, the supply chain accounts for up to 70% of business costs and a significant element of the balance sheet assets, including manufacturing plants and warehouses. It is also a significant driver of customer service and a source of business risk. Two recent examples illustrate this point: some problems at UK-based retailer J Sainsbury have been blamed on poor implementation of new supply chain systems; and ICI had a shake up in its organisation, resulting in the CEO resigning due to difficulties with a systems implementation at its Quest subsidiary. Making improvements in the supply chain is critical for businesses to create a competitive position, reduce cost and risk, and improve customer service.
Supply chains, however, have grown more complex and this complexity continues to increase. Supply chains are now global, have multiple partners, are progressively outsourced to third parties and suppliers, and are having to change more rapidly due to the ever-changing external environment. For example, Danfoss, a leading engineering company, currently has 70% of its plants in Western Europe and 30% in the rest of the world; by 2008, the company expects this picture to have been reversed.
As a result, supply chain directors and managers – those charged with making improvements in the supply chain, particularly in manufacturing industries – are finding it increasingly difficult to know where to start.
PA’s view, developed through numerous projects with our clients, is that there are three different approaches to identifying both what to do and where to start the supply chain improvement. The choice of approach will depend upon the current supply chain situation including factors such as supply chain maturity, level of change required and propensity for risk.
The three approaches are: to model the whole supply chain. This approach centres on detailed modelling of the extended supply chain, covering all aspects, providing a comprehensive picture, from which to make both strategic and operational improvements. Or to sample the failure points; this approach samples discrete elements of the supply chain in a ‘snap-shot’, identifying specific opportunities for improvement based on experience of fail points. Or the third approach,which is to map the product journey; this approach focuses on analysis of one product (and the information associated with it), as it journeys through the supply chain and designs the whole supply chain from a product perspective.
Choosing the right approach will maximise the delivery of benefits and minimise the risks in implementation. Indeed, we believe that adopting the most appropriate approach to supply chain improvement can deliver cost reductions of between 10% and 30%.
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