Careful with Unconventional – it add another disruption
Digital Business – only Gartner’s definition which is pretty narrow.
. We would submit that “Performance Optimization” is more reflective of how our clients view the goal. The 3 key goals we uncovered through our research last year leading us to change our 3 agendas to 10 key initiatives showed that three goals are:
Cost reduction / Optimization. What we’ve seen is clients tune the cost based upon the outcome required to serve particular customer segments. Instead of spreading cost reduction generally across SC functions (logistics, manufacturing and sourcing) or within one function (logistics or sourcing) more sophisticated companies will drive costs down to a larger degree in certain SC segments and a lesser or not at all in other SC segments. For example, customers that are highly price sensitive and willing to trade-off customer service (additional services) or lead time require a low cost and efficient SC. For that SC segment an optimal approach to cost would mean driving costs down as much as possible. In contrast, another customer segment that is less price (willing to keep paying current price or even pay more) sensitive but require shorter lead time or more services requires an agile SC response. For that SC segment cutting costs would lead to a sub-optimal result. In particular, it can lead to lost sales – the customer segment requiring high service and willing to pay for it – don’t get served appropriately. The key point here is SC Segmentation. That approach aligns the right SC operational and corresponding costs to the right customer segment.
Performance optimization. Optimal performance means aligning the metrics and incentives to drive the desired outcome. From a cost perspective this means looking at total SC costs – not measuring costs within an individual function only. A trap companies fall into is each SC function trying to reduce cost. If initiatives are done in isolation, the cost reduction in one SC function may negatively impact costs in another function or might have some other impact that negatively impacts overall performance. For example, shifting inbound shipments to less frequent shipments can enable a manufacturer or retailer to reduce transportation costs but results in high inventory levels and higher warehousing costs.
Strategic Alignment. It is common for SC leaders to focus on cost reduction even if the way the company competes is not on low price. The root cause is lack of alignment between the corporate strategy (and the brand promise) and the SC strategy and the goals established within the SC organization. The strategic alignment impacts multiple aspects of SC from the design of the physical SC network to way functions / operations work.
Our analysts align their research and writing to 10 key initiatives that supply chain executives have told us are most important to them.
Each key initiative is built on a foundation of key questions facing supply chain executives that drive our research and focus.