Originally published in Consulting US
This article addresses the digital supply chain, and how companies can differentiate themselves by pursuing value rather than just cost reductions. The editor points out when companies are segmented into silos and there is no alignment between functions, there is often a negative impact on cost and structure.
Steve Bowen, CEO of supply chain and operations consultancy Maine Pointe (an SGS Group company), recently spoke to The Institute for Supply Management (ISM) about optimizing supply chains in a rapidly digitizing era. Bowen highlighted the importance of seizing value creation opportunities and developing a holistic supply chain view in a digital age.
Bowen notes that companies should try to differentiate themselves by pursuing value rather than only cost reductions in their supply chain management. Many companies turn to procurement, endeavoring to reduce the number of suppliers to get better cost advantages.
Instead of trying to squeeze everything out of a supplier, companies should try to create a synchronized and collaborative environment which doesn’t penalize, but helps partners, according to Bowen, who recently penned the book “Total Value Optimization: Transforming Your Global Supply Chain into a Competitive Weapon.”
Total Value Optimization (TVO) follows the above premise, embracing the customer-facing approach of Six Sigma combined with data analytics and technology which create value for all stakeholders.
TVO, critically, helps companies have a more detailed, end-to-end view of their enterprises and supply chains.
Many companies are segmented into silos, negatively impacting their operations. One major problem is a lack of alignment among management in procurement, finance, sales, marketing, and other departments on the definition of an end-to-end supply chain. “If you can create that common definition, understanding, and alignment, that’s the beginning of a cultural change within the company,” Bowen said.
Another problem is a lack of collaboration between enterprise functions, including operations, new product development, and procurement. Engineering may make purchase decisions without consulting procurement, for example.
That approach can negatively impact costs and structure. According to Bowen, TVO builds a collaborative team, including suppliers and procurement, which has product development knowledge and works together to make product choices. That team would also make sure to consult data analytics as well as procurement during the design phase.
Bowen cites a few illustrative Maine Pointe engagement where client firms achieved a more holistic supply chain view.
One client firm lacked knowledge about alternative suppliers, while exhibiting significant sourcing risk with 35% of supply coming from China. Maine Pointe helped the company find additional sources in Asia and Europe to replace 60% of Chinese supply – resulting in approximately $10 million in savings when the 25% tariffs hit. The firm’s de-risked supply is more diversified, but has the ability to reallocate volume with suppliers as trade conditions change.
Maine Pointe also helped a client firm in the oil and gas industry reduce its number of suppliers by half, while connecting with new suppliers. The company also restrategized its capital equipment purchasing. Together, the two initiatives saved the company more than $220 million, according to Bowen.