May 17, 2020

European manufacturers failing on supply chain segmentation, report reveals

Supply Chain
Supply Chain Segmentation
european manufacturers
Dale Benton
4 min
European manufacturers failing on supply chain segmentation, report reveals
European manufacturers are failing to effectively use data and analytics when it comes to supply chain planning and segmentation, according to a new rep...

European manufacturers are failing to effectively use data and analytics when it comes to supply chain planning and segmentation, according to a new report from JDA Software Group, Inc., and WMG, at the University of Warwick.

The ‘Supply Chain Segmentation: A Window of Opportunity for European Manufacturing’ report surveyed 100 manufacturing organisations across Europe to benchmark their supply chain segmentation practices. The report revealed that only 18 per cent of respondents considered historic, present and future data in the supply chain planning process, while only 39 per cent of respondents stated that their segmentation models were data-driven. In fact, nearly a quarter (23 per cent) of organisations stated they simply utilise ‘rules of thumb’ over any kind of data-driven methodology.

“The survey highlights that the majority of organisations are not using dynamic or data-driven models. Indeed, more organisations are driving their supply chains forward by looking in the rear-view mirror, rather than looking at the road ahead. It is not just that there’s an over reliance on historic data, it is quite possible that organisations are being driven along the wrong road altogether,” said Hans-Georg Kaltenbrunner, vice president manufacturing industry strategy, EMEA at JDA.

“The research suggests that some organisations may not have the capability to accurately navigate their supply chain along the business roadmap, and a lack of analytics capabilities is widespread, along with a consistent end-to-end analytics approach. Given the apparent general lack of maturity across the space, the first movers will quickly gain competitive advantage.”

 

Strategic alignment or mis-alignment?

When it comes to implementing supply chain segmentation practices, only 29 per cent of respondents stated they did this in a ‘top down’ manner, indicating that the strategic nature of segmentation is not being recognised in practice. From a business process perspective, the need to bring together core supply chain processes (plan source, make, deliver and return) under one umbrella, and to use them to seamlessly connect customers and suppliers has long-been recognised. However, the results show that departmental and functional approaches continue to dominate.

 

Business process orientation isn’t well established

Only 8 per cent of European manufacturers have reached level three segmentation (out of four) while no firms demonstrated level four capability. An effective segmentation strategy should be informed by business rules from Integrated Business Planning (IBP), however the research revealed that only 5 per cent of organisations were at level three (of four) maturity. It is not unrelated that only 17 per cent reported a business process orientation was part of their operational design. This indicates that there remains significant room for improvement for manufacturers when it comes to keeping their supply chain management, new product development and customer relationship management aligned. Ultimately this lack of conformance is hindering overall business performance.

“Segmentation is not a new practice for supply chain management, yet our study reveals that it remains relatively under-developed. Supply chain segmentation should be the lens that focuses complex signals from the market, so that organisations can configure their supply chain assets, ensuring they are consistent with business strategy and deliver maximum profitability,” said Professor Janet Godsell from WMG, University of Warwick. “In theory, segmentation is a key business process and capability, to ensure business goals are realised in the hurly-burly of operation.

So, it is surprising to find that only 17 per cent of respondents had business process orientation as part of their operational design. Ultimately, business processes provide a way to connect the end-to-end supply chain, create integration, enable flow and deliver customer value at the lowest supply chain cost.”

 

Segmentation criteria is limited at best

The survey revealed that one third of organisations (33 per cent) are utilising just a single criteria to model segmentation, while over half (51 per cent) are only employing two. As a result, organisations are making important day-to-day commercial prioritisation decisions based on limited criteria. Furthermore, the criteria being using is often inconsistent between functions, meaning there is no end-to end commercial perspective driving supply chain and business decisions.

 Supply chain segmentation can become a significant contributor towards bottom-line profitability and service differentiation. Yet, the survey found that only in rare cases, for ‘product’ and ‘customer’ dimensions, margin was a goal at all – even then, as a goal, it was ranked fourth or lower. In general, volume and geographic measures dominated, further indicating a low level of supply segmentation sophistication.

 Franck Lheureux, regional vice president EMEA at JDA, added: “Manufacturers are facing ever more demanding customers.  For CPG organisations, this may even include developing profitable omni-channel fulfilment to support direct-selling models.  This requires a heightened focus on customer centricity, which in turn implies an unprecedented level of connectivity within the supply chain.

Segmentation has always had the potential to make a significant difference to an organisation’s profitability and agility, however it lacked the underpinning technology to make it happen.  However, this is no longer the case as the emergence of the digital supply chain means that segmentation has come of age.”

 Study Methodology

The study was conducted by WMG in August and September 2016, surveying online 101 large European manufacturing organisations.

You can access the study here - The ‘Supply Chain Segmentation: A Window of Opportunity for European Manufacturing’ report.

 

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.

The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.

A Multi-Vendor Sourcing Approach

“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.

“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.

But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?

“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.

Wielding Big Tech for Better Outcomes

So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry

“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality. 

“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”

Evolving Procurement Models 

From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view. 

“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.

“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”

“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”

But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?

“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.

The Challenges

These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.

On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.

Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”

He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”

As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”

 

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