Why Supply Chain 3.0 is Real?
“One thing I have noticed all good corporate leaders have in common is their ability to pick and extract the power from uncommon teams.”
Only Data Reveals the Overall Picture and Clarifies the Confusion
For this reason, when I wrote the book The 5-STAR
Business Network, our team did a 6 year longitudinal
study of the top 1,200 corporations around the
world. There were other reasons why this study was
conducted – which are given in Chapter 14 of the
book.
Table Of Contents
1
When I Explain To People That Supply Chain 3.0 Is Real, In General, I Get Three Type Of Responses.
2
who are the top 35 companies in these rankings?
3
Five Key Cornerstones of a 5-star Business Network
4
Why do so many companies use a global supply chain?
5
Suppliers development for global approach
6
Creating strong and flexible Supply Chain: “ Thinking globally, acting locally”
7
Success for 3PL (Third-party logistics)
8
Lean Supply Chain: Best practices”
9
Collaborative Supply Chain
10
Supply Chain Technology
When I explain to people that Why supply chain 3.0 is real, in general, I get three types of responses
Most of the McKinsey (or their clone) trained strategists ask me to show data to back up this assertion. On the other hand, more intuitive executives (mainly from sales and marketing backgrounds, as I observe) ask me to explain the benefits of supply chain 3.0. Finally, the third group – those who I call the transformational leaders ask a simple question – how can we use the power of supply chain 3.0 in effecting beneficial business transformations?
It is an important question – “where is the data to clearly demonstrate that Supply Chain 3.0 is real?” The data-driven crowd has a legitimate concern lest a couple of isolated examples be seen as heralding a trend. Having trained at a similar top-tier consulting house during my formative years in consulting, I fully understand and endorse their questions.
Why? Because all of us have seen people taking isolated instances and exceptions and making them so big in their own and others’ perceptions that these appear to be the predominant trends. Nay-sayers will take a few stray instances of setbacks, and blow them out of proportion to support their naysaying. On the other hand, almost all investment projects also have their share of overly optimistic projectionists.
I am absolutely sure, that this figure is unlike any other figure you might have seen before.
Firstly, the companies themselves come from around the globe – Novo Nordisk is from Denmark while Fanuc is from Japan and Flabella is from Chile. That was to be expected – if you make your research wide and deep enough you will find good companies everywhere. No country, or continent has monopoly on excellence. So much for all the hype about the Asian century.
Sure, development in Asia is creating unprecedented opportunities – but good companies around the globe are using that trend to their benefit. You do not need to be an Asian company to be excellent, but neither are all non-Asian companies uniformly good.
Secondly, because this ranking is based on study conducted over 5 years (not at a single point in time) the standards of excellence are much higher.
Another reason the usual suspects might be missing is because we looked far beyond tactical operations into the strategic contribution of supply chains to corporate results.
For example, rarely has anyone tried to gauge the impact of supply chain collaboration on innovation, new product development, pipeline of products, product phasing etc. But in our research, we took these into account. For details of the research methodology, caveats, cautions and warnings about not applying these results for investment decision making please read Chapter 14 of the book The 5-STAR Business Network.
This is critical because I do not want you to take the results out of context and make decisions based on flawed assumptions.
Five Key Cornerstones of a 5-Star Business Network
You can see them in figure 1 below. For the time being ignore the 5 colour coding, as well as funny three-letter acronyms (TLAs) in the figure.
Figure 1: Top 35 companies out of the 62 companies with Supply Chain 3.0
Five Key Cornerstones of a 5-Star Business Network
The time has come to talk about the 5 funny acronyms in the figure below. This is because we want to see how these are linked to the strategic contribution of supply chain management to overall corporate results.
Each of these names is quite self-explanatory and most people reading this article will not need too much explanation. I will only briefly outline them here because detailed explanations and examples mean that I will be recreating the book The 5-STAR Business Network or a version of it in this article.
One more important conclusion needs to be drawn from the data presented in Figure 1. You will notice that rarely is there a company that ranks high on each of the five key cornerstones of supply chain 3.0. Yet, all the 62 excellent companies that meet our criteria for supply chain 3.0 excel in at least three of the five key cornerstones.That shows you do not have to be perfect to arrive at supply chain 3.0 – you only need spikes of excellence in at least three of the five key areas.
The first is termed Fire-Aim-Ready (FAR) Innovation. Clearly, it is about creating new (better) products and services, as well as new (better) ways of configuring and delivering existing products and services. Many in supply chain – especially those from logistics or procurement – wonder what they have to do with innovation. This mindset of not-invented-here
survives from the days of materials handling (pre-supply chain gives supply chain a days, or Supply Chain 0.0 days) in many quarters and bad name when it manifests itself.
But let me ask them this – How did Apple create and launch products in nearly half the time it took its rivals while keeping utmost secrecy about the product features? The answer will give a clue to how important it is to choose the right suppliers and create the right supply chain arrangements that elevate the supply chain to lofty heights. Apple is only the most visible example, there are many more in the
So, what do these TLAs stand for? Figure 2 below shows the details:
Why do so many companies use a global supply chain?
You might ask why there are only 650 companies in the dataset when we started with 1,200 companies. The reason is that over the period of the study (five-years) many of the top 1,200 companies were acquired, or merged with other companies to change names. Also, many others dropped out of the top 1,200 companies and were no longer of interest to us. In the end only 932 companies survived (we have ignored banks, insurance and utility companies) over 5 years in their original form to be useful for a longitudinal external study
But let me ask them this – How did Apple create and launch products in nearly half the time it took its rivals while keeping utmost secrecy about the product features? The answer will give a clue to how important it is to choose the right suppliers and create the right supply chain arrangements that elevate the supply chain to lofty heights. Apple is only the most visible example, there are many more in the
of this nature. Some companies (mainly in Banking, Finance, Insurance, Utilities, and other such sectors) were not of interest to us because of their opaque supply chains and highly regulated operations.At this point, it is useful to also state that every company in the dataset was given a ranking based on the quintile it fell into on each of the five measures. That is why the maximum possible points were 25. A full methodology is available in the source document, but the reason was that external data is rarely reliable enough to rank more accurately than that
The second measure of interest to us is the $eed-to-$tore Efficiency. This, is of course, the darling of the
supply chain crowd especially those coming out of logistics background. Right product, in right place, in
the right quantity, at right time (there are many other Rest that people add on, but we will stay simple here) – is
the catchphrase. The aim is to churn the cash faster so
that more of it sticks around for longer. But let me ask them this – How did Apple create and launch products in nearly half the time it took its rivals while keeping utmost secrecy about the product features? The answer will give a clue to how important it is to choose the right suppliers and create the right supply chain arrangements that elevate the supply chain to lofty heights. Apple is only the most visible example, there are many more in the
Even if in some cases, such as Amazon’s margin of 1%, where the profit margins are very low placing them lower on $eed-to-$tore efficiency measure than would be warranted from other internal variables, this deficiency will be made up in other measures such as Market Value to Profits ratio (for example in Amazon’s case it is 125 compared to the market average of 14.9).
Let us see how that happens
Consider Figure 5 which shows similar detail for Market Value to Profits Ratio for the same 932 companies in a descending order. Obviously the order has changes this time and Amazon is not middle of the pack in this figure; rather it is one of the top performers. We use this measure as a proxy for Fire-Aim-Ready innovation – a variable which is notoriously very hard to define and measure. However, as a proxy, market price has built into it the expectations of future earnings coming from investment into useful and profitable innovation.
Profit Margin on Sale
Again the proxy may not be perfect. For example, Amazon is ranked one of the highest on this measure though there are other companies that might be far more innovative.
However, when measured over a database of more than 1,000 companies, and using rankings, rather than absolute numbers for these variables, it is possible to have a discernable spread of data on each of the variables of interest. The top 20% of the companies for each variable were given a score of 5, the next 20% were given a score of 4, and so on, with the bottom 20% of the spread given a score of 1.
Transaction Optimization Profitability (TOP)
measures the ability to simultaneously minimize the costs, and maximize the revenues on each transaction that a company enters into. Consider this – there are companies today that change their pricing dynamically more than 10 million times a month.
Why? To able to maximize their revenue based on the pricing power they gain out of big data analytics. On the other hand these, and other, companies are constantly looking at ways to shave off fractions of pennies from each of their cost creators. There is a full discussion (chapter 10) of this in the book The 5-STAR Business Network and, if time allows, I might even write a whole book on this topic alone at some time in the future. This is after all the hallmark of supply chain 3.0.
just the foreword by an illustrious strategist and CEO (Philippe Etienne, Managing Director & CEO, Innovia Security Pty Ltd) is worth reading. Here is an excerpt:
“Today, when I mentor C-Level executives on how to make the jump to the role of CEO, many struggles to move their thinking from functional excellence to crossfunctional leadership. In many people’s minds, even the characterization of a corporate leader seems to
Advanced Product Phasing (APP)
measures the ability of a company to create a pipeline of products that lead it to sustain its market leadership. How many one-hit wonders such as Blackberry have you seen? Is Apple, after Steve Jobs, losing its Advanced Product Phasing capability? How can a company balance its drive to milk the current products with its drive to create new products? These are some of the interesting questions that you can explore in more detail once you start thinking in the realms of Advanced Product Phasing (APP). Suffice it to say here that it is one of the key cornerstones of supply chain 3.0.
Results-focused, Modularised Outsourcing (ROM)
Finally, Results-focused, Modularised Outsourcing (ROM) is so important to supply chain 3.0 that I have already written a follow-up book to talk about this concept. If you read nothing else on this topic,
measures the ability of a company to create a pipeline of products that lead it to sustain its market leadership. How many one-hit wonders such as Blackberry have you seen? Is Apple, after Steve Jobs, losing its Advanced Product Phasing capability? How can a company balance its drive to milk the current products with its drive to create new products? These are some of the interesting questions that you can explore in more detail once you start thinking in the realms of Advanced Product Phasing (APP). Suffice it to say here that it is one of the key cornerstones of supply chain 3.0.
speaker to a whip wielding slave-driver.
One thing I have noticed all good corporate leaders have in common is their ability to pick and extract the power from uncommon teams – teams of internal experts and external service providers who can aggregate, work well together under pressure, and create the magic called success.”
measures the ability of a company to create a pipeline of products that lead it to sustain its market leadership. How many one-hit wonders such as Blackberry have you seen? Is Apple, after Steve Jobs, losing its Advanced Product Phasing capability? How can a company balance its drive to milk the current products with its drive to create new products? These are some of the interesting questions that you can explore in more detail once you start thinking in the realms of Advanced Product Phasing (APP). Suffice it to say here that it is one of the key cornerstones of supply chain 3.0.
“One thing I have noticed all good corporate leaders have in common is their ability to pick and extract the power from uncommon teams.”