There may have been a time when building a better product was enough to bring the world to your door. But if that time ever was—and it's doubtful—it is no more.
Winning customers and earning their loyalty requires not only excellent products, but a supply chain made up of reliable, flexible, responsive and interconnected business partners. A well-designed supply chain is one that can deliver the "perfect" order—the right product, in the right quantity, to the right location, at the right time—consistently and at the lowest possible cost. At the same time, it must be able to respond to changing market and customer conditions. Though the description makes it sound simple, many companies will attest that putting all the right pieces in place—and in action—is far from simple. And the reality that supply chain excellence is not broadly understood—even in many boardrooms—only makes it harder.
Supply chain performance is too often defined through specific metrics such as customer service, order and inventory accuracy, fill rates and delivery times. Yet these discrete metrics, while important, provide too narrow a view and can mask the supply chain's true potential and the far-reaching benefits it can deliver. Still, as businesses begin deliberating how to achieve supp ly chain excellence, they often overlook the most critical element of them all—linking corporate strategy with logistics strategy.
You can't make that linkage happen without getting the CEO's attention. And the quickest way to do that is to demonstrate the financial improvements that supply chain excellence can provide. For instance, if a core competency of the business is to grow revenue and market share through customer service—delivering the perfect order and responding promptly to changing demands—it's imperative to link the supply chain's design to that goal. Study after study has demonstrated the critical link between supply chain excellence and market share and revenue improvement.
How so? A responsive and efficient supply chain provides customer service that is better and more consistent than the competition's, attracts customers away from the competition, creates tools for penetrating new markets and brings the customer back for more.
Providing excellent customer service is no longer a choice in many business sectors. Companies must be able to meet or exceed their customers' demanding service requirements, epitomized by the service expectations of mass retailers such as Wal-Mart, Target, Home Depot and Lowe's. Manufacturers and distributors of products face pressure to improve supply chain performance to meet these retailers' distribution schedules and strict service requirements. Stumble here and you lose the business. What's critical is to design the supply chain in a way that serves both customers and the company.
One recent high-profile case illustrates what's possible. Unilever completed an extensive supply chain optimization program that truly transformed its distribution network and operations. The impetus for the changes was the daunting task of merging the supply chain operations of three recently acquired companies with three distinct product lines. Each of these companies relied heavily on major retailers to sell its products and faced intense pressure to enhance its supply chain performance to meet its customers' own distribution schedules. Realizing the significant role that customer service played in achieving the financial performance goals, the company focused on upgrading customer service to exceed the industry's standards. Senior executives at Unilever determined that the company needed to build a world-class supply chain to improve its customer service levels and its competitive position. Optimizing its supply chain, they theorized, would eliminate significant inefficiencies across its operations and further contribute to bottom-line savings. However, the plan the company adopted targeted not just operational improvements but strategic imperatives as well. The plan's overriding objectives included enhancing and improving Unilever's top-line growth, operating margins, customer service and shareholder return.
Unilever's existing distribution network consisted of 15 distribution centers spread across North America. The supply chain optimization plan that emerged recommended replacing them with five new mega-distribution centers strategically located in the U.S. Northeast, Southeast, Southwest, Midwest and West. In total, the new network would include approximately 5 million square feet of distribution space in the company 's most strategic distribution markets.
In the end, the efforts generated the results Unilever had sought. Customer service levels improved markedly, with one-day service levels rising by almost 20 percent. Additionally, through eliminating supply chain inefficiencies, the company reduced its total logistics costs by approximately 7 percent. These savings helped the company achieve a payback on its entire project investment in approximately one year's time.
Unilever's experience demonstrates the significant value a supply chain optimization program can have in improving a company's operating and financial performance. As customers' demands and service requirements continue to escalate, it's vital that manufacturing and distribution companies optimize supply chain networks to fulfill these requirements. But as outlined in this article, supply chain excellence is becoming imperative in achieving competitive advantage, growing revenues and market share, and reducing operating costs—all critical in delivering the goods, physical and financial.
Gartner, Inc.
