Building micro supply chains allows organisations to answer customer needs, quickly and effectively.
Over the past decade, two of the biggest priorities underpinning many corporate growth agendas have included geographical expansion into emerging markets and the desire to maximise sales from the wave of the ecommerce phenomenon. These two growth priorities presented organisations with a vast range of new customers across many new markets – yet they came with a cost that was unforeseen by many. These customers demanded variety and mass customisation, as well as excessively high service expectations – like same day, free delivery and free returns – which has led to numerous operational complexities and an unmanageable level of cost within the supply chain.
The challenge for most of the organisations that embraced these growth agendas was the fact that their supply chains were not flexible, or fast enough, to satisfy this vast range of new customers and their unique service requirements. The exponential increase in customer segments that were created (often unknown) were not able to be serviced by the ‘one size fits all’ supply chain operating model.
In fact, supply chains were being adjusted to reduce cost, which led to the creation of large, integrated, regional/global networks, often outsourcing manufacturing to emerging economies in order to benefit from economies of scale. The variety and speed necessary to satisfy these new customers could not be achieved by these large integrated supply chain networks. Adding to the fact that supply chain disruptions and increasing trade tensions occurred frequently, many organisations have recently been questioning if this is the right supply chain operating model at all.
As an alternative, leading supply chain managers are benefiting from evolving their operating models and shifting towards micro supply chains. These alternative supply chain models leverage their highly flexible, decentralised nature and are able to alter production and delivery, scale volumes and introduce new products at short notice. By adopting a decentralised approach, micro supply chains create much value by being as close to the customer as possible, allowing organisations – in times of crisis or rapid change – to benefit greatly from their independence.
Building supply chains around customers
Micro supply chains balance the cost of complexity with the value gained from offering variety. They are based around customers not processes, and guide companies to customise products, policies, production systems, flows, and systems around specific segments. Micro supply chains are also highly flexible, enabling manufacturers to switch sources, production and delivery at short notice, to introduce new products and scale volumes up or down swiftly to adapt to changes in demand. They are also more decentralised, aiming to create as much value as possible, by keeping products largely generic until the final stages of the supply chain.
As micro supply chains are largely independent mini operating models, the way in which one customer segment is served should not impact other segments. Companies can run multiple standard work processes in parallel, reducing the costs of complexity that would typically be associated with multiple variations of products.
Tomorrow’s supply chain leaders will balance complexity and variety by recognising the sources of value from variety – like speed, service and cost – then optimise their fulfilment systems to provide unique value to all customer segments, using standard processes.
The three key steps to building a micro supply chain
Step one: Identify and understand the sources of value in the market be that speed, quality, price, convenience, service levels, product features or customisation. Create customer segments based on different value sources, aligned to each unique segment and size and assess these segments for competitiveness, margin potential and future growth. From this analysis, create a set of product and unique service offerings around these segments.
Step two: Gain an understanding of what drives cost along the supply chain, by measuring the cost of complexity within each segment.
Step three: Produce models of different value streams, in order to pinpoint the optimum balance of variety and cost, and to generate performance trade-offs. This allows for scenarios to be modelled, to show the cost and value of delivering different combinations of responsiveness, flexibility and cost to your key customer segments.
If you would like to discuss your future ready supply chain, please feel free to get in touch.