Even as companies struggle to cope with volatile market conditions, they could soon find themselves up against another hurdle as they prepare for the next phase of growth—the perils of not focusing on their supply chain. While sales and growth have been the focus of Indian companies, investments in supply chain platforms have not merited similar attention. The challenges are further compounded by a weak logistics infrastructure that has not kept pace with growth, consumer needs and preferences that continue to evolve and the complexities created by regulation such as inter-state service taxes which have resulted in companies setting up warehouses in most states where demand exists.
Take some typical scenarios faced by chief executive officers (CEOs) today:
A CEO reviewing operations in a retail outlet was shocked to find that many of his products were “stocked out” while for a much larger number there was a stock-pile of inventory. Operating margins had not improved even after a five-fold growth in business. Wasn’t scale supposed to improve the company’s operations?
Another CEO conducted a quarterly review with his top managers as sales were falling below target while costs were rising. He found that although sales teams complained that products were not available, inventories were at record high. The procurement team claimed that it couldn’t make supply more reliable because it lacked timely information about requirements, despite the investment in IT tools for planning.
These broken supply chains can no longer serve the needs of an increasingly complex business dealing with globalization, product proliferation to meet regional differences and more stringent customer needs. Now is the time to visit the supply chain because not fixing it is the greatest bottleneck to growth. While the opportunity at hand is large, capturing it requires action across functions and not just by the operations team. Thus, fixing the supply chain needs to be on the CEO’s agenda.
Streamlining the supply chain can:
• Unlock cash through a 20-50% reduction in working capital (primarily inventory) across the value chain
• Lower costs through a 15-40% reduction in supply chain-related expenses (e.g., inbound logistics, production costs, outbound warehousing and logistics)
• Increase revenues by 5-15% through better service levels and higher customer satisfaction
The next question is where to begin and how to go about the transformation especially keeping the India challenges in mind. We believe there are six best practices that separate leaders from laggards.
Set the aspiration: The aspiration should be defined by the CEO as it enables the execution of the overall strategy and is about making continuous cost-service trade-offs across business functions.