The supply chain: the new engine for profitable growth

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“Supply chain management is about more than cost-cutting and efficiency improvement, it can also drive profitable growth,” says Ann Vereecke, Professor of Operations and Supply Chain Management at Vlerick. Together with Research Associate Tom Van Steendam and Doctoral Research Associate Maud Van den Broeke, and based on an extensive review of the available literature and real-life business cases, she developed and validated a theoretical and practical framework describing the different drivers and supply chain practices to effectively stimulate sustainable growth. Sponsored by Prime Foundation Partner PwC Belgium, this research also benefited greatly from the business expertise brought by Peter Vermeire and Alex Waterinckx, respectively Partner and Senior Manager at PwC.

Paradigm shift

“In an economic downturn it’s tempting to look for cost-cutting and efficiency improvements, but these measures risk leading to perpetual downsizing. It’s profitable growth that opens up opportunities to turn the tide and safeguard the future of a company,” explains Tom. This growth can be achieved in a number of ways e.g. by exploiting existing markets more intensively, or by tapping into new markets and niches; by improving existing products and services or by developing new ones; by creating more value for existing customers or by expanding the customer base. “A focus on profitable growth changes the role of supply chain management, which becomes a strategic rather than a purely operational component in the organisation,” he adds.

Six drivers

The research team found that, regardless of the chosen growth strategy, for growth to be profitable and sustainable, the supply chain should be robustly designed and supported by a set of six supply chain practices, identified as drivers for profitable growth: (1) connect, (2) create, (3) customise, (4) coordinate, (5) consolidate and (6) collaborate. These six Cs are formulated in the form of recommendations.

  • Connect: get close to the market and serve your customers tailored to their needs
    For most companies, this means rethinking their route to the market, which may be different depending on customer segments, markets, products etc. The common feature for all resulting supply chains, however, is flexibility and responsiveness to customer needs.
  • Create and customise: build a supply chain that can cope with innovation and creativity and that masters the complexity of choice and customisation
    Innovation and creativity are the keys to growth while customisation and personalisation of products are ubiquitous trends. So, the challenge is to create a supply chain that is agile enough to easily accommodate new products without loss of efficiency or extra costs, which also means that the complexity introduced by customisation needs to be managed well. To achieve this, the supply chain should combine internal and external expertise.
  • Coordinate: link all the partners in your supply chain
    In any supply chain coordination between the different players is essential in order to be able to deal with the impact of demand uncertainty. The more complex the supply chain, the more challenging the coordination.
  • Consolidate: group dispersed activities and integrate fragmented channels
    This will help to improve transparency, to get closer to your customer, to provide better access to data on final customer demand and to obtain more control over your supply chain.
  • Collaborate: work closely together with your customers, suppliers and internal departments
    While it is known that internal and external collaboration leads to improved efficiency and better service, this research also shows that collaboration drives profitable growth.

How to make it happen

“A growing number of companies are realising that supply chain management has a strategic role to play, in driving profitable growth by focusing on increasing agility and responsiveness to changing market needs,” says Tom. “We found that, by combining the six Cs, the supply chain builds the capabilities to successfully deliver on a company’s growth strategy, i.e. to grow sales without increasing cost or utilising more assets,” is how he sums up the findings of their research.

However, he warns that success is not achieved overnight, as the case studies illustrated. So, here is some useful advice:

  • Take your time
    Most supply chain projects take months or even years to accomplish and should be approached from a long-term strategic perspective. Use setbacks as learning opportunities to make you stronger.
  • Adapt your supply chain to cope with complexity
    With growth often comes added complexity. If you cannot avoid complexity creeping in, then make sure you can manage it so that it does not drive costs.
  • Ensure maximum interaction between sales and supply chain people
    Bringing their views together leads to a good understanding of the limitations of the supply chain, i.e. it will help you answer the question “How many new products can we add before complexity starts to drive costs that outweigh the benefits?”
  • Redesign your supply chain if necessary
    When gradual improvements are not sufficient to ensure that your supply chain will be an engine for profitable growth, you should consider a radical redesign. This takes courage and empowerment as well as a strong mandate from the board or the executive committee.
  • Ensure involvement and commitment from all stakeholders
    Careful and effective change management is the key to success for any supply chain project.

Eleven business cases

Based on an extensive literature review and business experience, the research team first developed a theoretical framework (1) explaining what growth is, (2) identifying the growth drivers and (3) assessing which supply chain practices can support these drivers. In a second phase, the framework was validated. To this end, the team conducted a series of interviews with COOs and supply chain managers of companies in different industries – in B2B, B2C as well as in retail. These interviews resulted in eleven case studies – success stories of supply chain projects that resulted in profitable growth – that enabled the team to critically assess the validity and completeness of the framework, and to gain an understanding of the challenges these companies faced in implementing their growth strategy.

Source: “The supply chain: the new engine for profitable growth” by Ann Vereecke (Professor Vlerick Business School), Tom Van Steendam (researcher Vlerick Business School), Peter Vermeire (Partner PwC) and Alex Waterinckx (Senior Manager PwC).

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