Five smart supply chain trends for sustainable business

As businesses seek ways to prosper in the global economy, more should look to build supply chains that are protean, those capable of rapid adaptation to changing market conditions.

Supply chains represent the lifeblood of most companies; parts or ingredients are sourced from suppliers, they are then manufactured or assembled in to products, and finally these goods must be delivered to customers.

There are several on-going developments feeding into the growth of protean supply chains. Here are five of the most important.

Demand-driven

In the past companies relied on forecasts based on historical sales to predict what to make and ship to customers. But past sales are horrible at predicting the future, especially in a volatile global economy.

Companies are switching to use so-called "demand signals" as the basis for production and replenishment planning. The most commonly used demand-signal is a product bar code. When a retail clerk scans a bar code at the cash register, that signal about a purchase can then be fed into special software that recalibrates manufacturing and replenishment requirements.

Personal-care products giant, Kimberly-Clarke, is one of many consumer goods manufacturers using special software to generate shipment forecasts based on point-of-sale data received from retailers. As a result Kimberly-Clarke has been able to reduce its overall finished-goods inventory while improving service to retailers.

Customer segmentation

All customers are not the same. Individual customers have unique demands and some generate more revenue or profits to the business than others.

Although a customer segmentation exercise can be costly and time-consuming, it does give a company the ability to match supply chain processes and service levels to discreet customers.

Smart companies segment their lines of business to align their production, inventory holdings and distribution to provide appropriate discrete levels of service at reasonable costs. One company that's done this successfully is Dell. When it entered the retail market, Dell readjusted its supply chain for its different business segments.

Centralise supply chain information

In order to respond swiftly to market events and be able to change operations at a moment's notice, a company has to have an end-to-end view of what's taking place in its supply chain at the item level. It has to know what parts suppliers have on hand, and the whereabouts of both parts and finished products in the pipeline.

That's why many companies have set up command centres or control towers to centralise information from their supply chain partners in one location. Not only do these towers provide enhanced visibility, many are equipped with software to help companies make rapid adjustments.

For example, in 2011 when the floods in Thailand affected the operations of many electronic suppliers in the country, instrument maker Agilent Technologies used simulation software in its control tower to model the impact of parts shortages and then find alternative sources for needed parts or redesign products using available parts on hand.

Supply chain analytics

To determine the right supply chain response to changing market conditions, companies are deploying special analytical software to gain operational insights that enable action.

Today's analytical software is no longer merely descriptive, detailing current performance of operations. It can also be prescriptive, offering solutions to problems, or predictive, anticipating future events and responses to those events. Because the weather influences consumer spending (people buy more coleslaw on hot days, for example), one leader in this area, Tesco, feeds meteorological forecasts into special software to anticipate future consumer-buying needs and then works with its suppliers to have those items on the store shelves.

The 'omnichannel' challenge

As more consumers shop online and expect home delivery, retailers find themselves having to support supply chains for both physical and virtual stores. When e-commerce first began, many retailers set up separate distribution centers, dedicated to either online orders or physical stores.

Lately, many retailers have sought to create a "common pool of inventory" such that no matter where the product is held, be it in a store or a warehouse, it can be used to fulfill online shopping requests. Picking online orders from stores has proven demanding as store employees must multi-task, switching back and forth from customer service to order picking. In addition, unlike distribution centers, most stores simply don't have the granular level of visibility as to what items are available on the shelf. One UK retailer, John Lewis, is taking an innovative approach to the omnichannel challenge by developing hybrid distribution centers designed to fill individual orders for both retail stores and online sales.

Along with advances in software, new manufacturing technology involving 3D printing and robots will make it even easier for companies to undertake rapid restructuring of their supply chains in the future. To win in the marketplace companies of tomorrow will have little choice but to create protean supply chains.

James Cooke is the editor of CSCMP's Supply Chain Quarterly and the author of the new book: Protean supply chains: Ten dynamics of supply and demand alignment.

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