As seen in The Times, our recent article explores how in a period of uncertainty UK businesses need to rethink their approach to supply chain technology.
This article first appeared in The Times.
For businesses being forced to rethink their supply chains in the face of Brexit uncertainty, it must be tempting to curse the referendum result. But the truth is that whatever view businesses take of the UK’s decision to leave the European Union, they would have been forced to confront supply chain transformation sooner rather than later. And that may turn out to be a positive thing.
The reality of today’s fast moving marketplace is that Brexit is just one source of disruption, argues Iain Prince, managing director at KPMG. For many businesses, the trade dispute between the US and China may have an even more significant impact on the flow of goods and services. And that’s just geopolitical factors. Dramatic structural shifts such as the relentless advance of ecommerce and digital disruption also require businesses to ask some fundamental questions about whether their existing operational ways of working are fit for purpose.
“Supply chains simply have to become more responsive and agile,” Prince says. “Moreover, get it right and your supply chain can be a source of competitive differentiation, rather than a middle office process.”
Indeed, many organisations now have an enormous opportunity to improve performance and their supply chain management. This isn’t just a question of coping with challenges presented by Brexit, or any other driver for change; rather, it’s a chance to take an insight led approach to transform the supply chain into a flexible and agile network which supports growth and embraces the digital evolution.
How, though, do businesses achieve that transformation, or even begin the journey towards an optimised supply chain?
“We tend to think in terms of three phases: disruption, transition and transformation,” Prince says.: “Look at what will happen over the next two months, what will happen during the transitional phases as you make changes to the supply chain, and then how you will transform for the longer term".
That process will require organisations to map out and understand what may be sprawling supply chain networks that have developed over many years. “Do you have an awareness of the end-to-end supply chain inside and outside of your business?” asks Lorraine Mackin, partner and head of insight led performance improvement at KPMG. “Who are your suppliers and who are their suppliers? Who are your customers and who are their customers?”
The introduction in recent years of software such as enterprise resource planning (ERP) has helped businesses run more efficiently, but may also have reduced people’s understanding and insight of what is going on in their organisations, Mackin warns. That understanding now has to be regained – and the results need to be considered in the context of how the world is changing.
This will mean reviewing supply chain exposure to a range of potential impacts. Are new trade barriers and tariffs a potential problem for the business? What does increased protectionism mean? How will changing regulation and social attitudes affect the supply chain? Issues such as a changing workforce and the evolution of the gig economy may be relevant here, for example. Is the company’s tax position, whether direct or indirect, changing because of its supply chain practices? Will customs practices cause supply chain headaches? And what about foreign exchange, where currency valuations have become more volatile in recent times?
Based on this preparatory work, companies can begin to redesign and evolve their supply chains for the future. “The challenge is to optimise the supply chain to both manage cost and improve your ability to serve the customer,” says Mackin. “To have a supply chain that is agile enough to change when necessary, whether that’s switching suppliers, managing inventory levels, sourcing from different territories, or something else.”
New technologies can help plan this optimisation more thoroughly and effectively. For example, specialist analytics software makes detailed scenario planning more straightforward, enabling organisations to run sophisticated “what if” testing on their supply chains, according to a huge range of very granular variables. For example, Prince says KPMG was able to use these analytics to help a client identify the daily, rather than the monthly, impact that Brexit would have on its business.
Technology may also provide many of the solutions for supply chain optimisation. The advent of 3D printing, for example, has the potential to turn existing global supply chains for manufacturing upside down. The introduction of autonomous vehicles can utterly change logistics. Cloud computing gives organisations access to exponentially more power to manage responsive supply chain processes and practices.
The challenge, then, as organisations consider optimisation is to focus on transformation. The insight gained into how to improve everything from procurement and scheduling to logistics and fulfilment can also underpin more strategic work.
“Once organisations have that granular awareness, they can ask more fundamental questions,” adds Prince. “They can begin to rethink their channels to market. What would it mean to bypass a distributor and go straight to the consumer, for example or how might customers be given more opportunity to buy straight from the manufacturer?”.
In other words, supply chain management has the potential to move from being an operational issue to a key influence on the organisation’s business model. What starts out as a debate about managing short-term uncertainty can drive fundamental change that improves the business’s growth prospects.
For this reason, supply chain management is increasingly becoming a board level issue. “Senior leaders, non-executives and investors recognise that the supply chain is intrinsic to everything the organisation now does,” says Prince. “In that sense at least, Brexit represents a huge opportunity – the question isn’t just how your business will cope with uncertainty, but also how you will revolutionise your supply chain to disrupt a channel or enter a new market.”