Podcast #48:
Profitable Growth Podcast
Supply Chain Management: Part 4 of 10

By Jim Tompkins, CEO, Tompkins Associates

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Hello, this is Jim Tompkins the President and CEO of Tompkins Associates and Tompkins International. Today we are back with Part Five of our 10-part series on Profitable Growth. Joining me today from our German office is Darius Zand, Managing Director with Tompkins International. Darius, thank you for taking time to join us today.

Jim

Profitable growth can be reached from an operational or a strategic perspective. Help us understand your view of this from the Supply Chain perspective.

Darius

The operational and the strategic focus are two different approaches. Focusing on the operational gap between the status quo and the potential business position without the strategic view is a balance improvement approach is important, but it is more important to achieve a better profitability. This potential business position can be reached just by rationalization, cost reduction or employee motivation. In that operational view the supply chain has an important role in reducing costs.

Having the strategic view and focusing on the gap between the strategic target and the status quo, the supply chain has a strategic role in closing the strategic gap of the business. In that view the Supply Chain is an enabler for profitable growth. Answering your question regarding market scenarios we could use the matrix of Ansoff (product/market strategy) as a starting point:

and expand it by the dimension of regions (local/national/international/global) as well as the dimension of autonomy (autonomic/cooperation/integration).

In addition to that I would propose to add the actual economic situation to the market scenarios, because I think that supply chain topics can also differ (or could be a mix) depending of the following:

Scenario 1: profitable growth in growing markets
Scenario 2: profitable growth having market stability
Scenario 3: profitable growth in market downturn

Implementing the strategy is another very important topic which allows Tompkins to support our clients. This closes the loop to the operations. You must have excellent anticipation and planning processes in place. Running the business accordingly allows smooth, stable and harmonized supply chains, which is the base for profitable growth. Unanticipated scenarios and not having processes in place covering the changes, leads to interruptions. Exceptions not planned and processes not in place to cover them lead to increasing costs which are reducing the profitability.

So on one hand the operational view to the supply chain can save companies profitability by reducing costs, on the other hand it’s important to communicate the much more important strategic role of the supply chain, which is facilitating and enabling profitable growth as well as highlighting the value of strategy implementation.

Jim

Let's focus on the actual market situation. What are the major challenges of a profitable growth strategy for the supply chain?

Darius

I see various challenges for the supply chain in the actual market situation. There is strong growth in China, Latin America, and Brazil. On the other hand the comeback in the US and Europe, This needs to collaborate stronger in the entire Supply Chain.

Giving you just the highlights, the major challenges are:

1. Maximum flexibility and Customer Orientation in all processes to faster react to customer demands.
2. Standardization with Benchmarking and Best Practices is a must for transparency, speed and continuous improvements. It is inevitable to be open, learn from others and adapt best solutions.

Two bigger challenges are the SC Organization and the Collaboration:

1. The Position of the supply chain in organizations is a big topic. The supply chain is well accepted and should be understood, but internally in some organizations there still is not adequate awareness and acceptance which is important to implement it right and represent the supply chain in the board of directors.
   Actually many companies are still organized by functions and not process oriented and have supply chain or even worse Logistics, as a department assigned to Purchasing or Production. This is accompanied by well known problems with interfaces, non-harmonized targets between departments, etc. State-of-the-Art organizations know that the Supply Chain Excellence is the main factor to facilitate profitable growth. These successful companies implement modern, holistic acting organizations to implement a successful, profitable growth strategy and obtain competitive advantages.
2. Is the Collaboration: already medium-term the probably key factor for an organization to survive is the competency to collaborate. The time of acting in closed units is over. The principalities and boarders have been overhauled by the Globalization, which was not neither stoppable nor reducible. After the Globalization now ensues the next logical key step which is the cross-company Collaboration in the entire Supply Chain. Companies which raise these potentials first will have significant competitive advantages and will expand their market position and ensure their growth.

Jim

Darius, you said a major factor is Collaboration. What is your view of the practicality of this today and are companies really eager to participate in collaboration?

Darius

Already in the downturn of the economy we have seen the issues caused by poor collaboration and communication between organizations. In the first month after consumers’ demands decreased, forecasts were still unchanged and sent to suppliers who still ordered and produced, but finally didn’t receive call-offs and had huge inventory costs. Having this in mind, their actual behavior became skeptical and critical regarding high increases in volumes. As a result of missing trust we now have shortages leading to missing order fulfillments.

Finally we have very high costs for all partners in both market scenarios. The answer to these problems is the collaboration with open communication, more speed in the information flow, openness, sharing of major changes at a very early stage, and communicating in both directions. We also need suppliers communicating very early exceptions in their supply chain, as this has a direct response to delivery times.

Actually, Tompkins is working on a very innovative Collaboration project involving major competitors, as well as suppliers to set-up a new model of cooperation. We have had lots of discussion about open communication and having all participants committed. I am very sure this will be the approach for the future. Companies who continue to operate while isolated, and try to resist the collaborative approach, will be overtaken.

Jim

As firms pursue a profitable growth strategy, what are the major success factors in the Supply Chain?

Darius

We have demonstrated that the supply chain has a major role in closing the strategic gap of the business and that the Supply Chain is an enabler for profitable growth. The actual market situation has signified comeback in established markets and growth in emerging markets. This should be under scrutiny for changes, because it’s still not very stable as we have seen in development over the last few weeks. Therefore, in addtion to what we have discussed, I would suggest focusing on 4 factors:

1. Profitability and Agility, in order to have the flexibility to react on various market situations
2. The SC organization should be composed of a central supply chain focusing on strategy, the global model, standards and best practices, as well as decentralized SC units with enough freedom and flexibility to manage operations successfully.
3. In- and Outsourcing decisions are to be taken with much consideration. After the downturn, we now have very lean organizations which actually are starting to re-construct and in-source again. Besides strategic reflections, core competences as well as flexibility, agility and costs should be taken into consideration. Especially against the backdrop of cyclical fluctuations risks, and advantages should be weighted.
4. The profitable growth strategy should be holistic and sustainable and has to be implemented by operations, taking the bulk of responsibility. This should be accompanied by controlling (not vice versa). As noted, the Supply Chain is the base for success and having the right processes in place allows for smooth, stable and harmonized supply chains. This is the base for profitable growth.

Jim, thank you for letting me share my experiences on profitable growth. Back to you.

Jim

Darius, thank you very much for being with us today, I know our listeners really appreciate your insight and have enjoyed having insight with a European flavor.  I hope our audience will join me in a couple weeks as we look at how enhancing technology can lead to continued profitable growth. I look forward to speaking to you all real soon.

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