Bolstering Market Differentiation with Strategic Supply Chain Strategies
If you were to ask a group of design engineers what makes a new high-tech product or service successful, most would likely refer to the technologies that underlie the offering – cutting edge ICs, eco-friendly power management, innovative packaging, etc. – all optimized to achieve the performance goals and deliver a compelling user experience. And, of course, they wouldn’t be wrong. All the weeks and months pouring over technology specs to translate a fresh idea into a viable product design are absolutely critical to an organization’s ability to create value.
But, once a design is completed, that value is still largely unrealized. As your product moves to market, it could be beset with cost overruns, missed time-to-market windows and disappointing returns or it could achieve new benchmarks for performance, price, customer experience, market penetration and revenue generation. The difference between these two dramatically different outcomes is largely dependent on the design and execution of the extended supply chain.
The challenge is that companies who excel in product development and technology innovation often do not have an equally robust proficiency in the process and operational side of the product journey. To quote Elon Musk: “This supply chain stuff is tricky.”
Tricky is, of course, an understatement. Throughout the end-to-end lifecycle of a product, organizations must rely on tens or even hundreds of trading partners for various parts and services. Not only are these enterprises most often geographically dispersed, but they likely have dramatically different levels of business experience, technological sophistication and financial wherewithal. Throw in risks ranging from simple human error and global economic volatility to natural disasters, increasing demand for active social and environmental stewardship from both consumers and capital markets and the occasional Black Swan event, and the incredible complexity of modern multi-tier, multi-region supply chains should be readily apparent.
Finding value beneath the surface
Still, many organizations tend to underestimate their strategic value. One way to better understand supply chain complexity is to think of it like an iceberg – there is a lot more to it than meets the eye.
For example, above the water line, you can clearly see orders being placed, product pulled from shelves, packed and shipped to a production facility. But below the surface, there are innumerable logistical, physical, digital and financial elements that must be managed to ensure the optimal flow of product, data and capital. These tactical and strategic variables include things like value-add programming and kitting; master data management; trade compliance; warranty service, working capital management, multi-tier visibility, supply chain finance, production planning, alternate source selection, and physical and cyber security. When these elements are not expertly managed and coordinated, the risk of disruption, and your total cost of ownership, will increase exponentially.
A sea of partners
Recognizing their need for greater agility and resilience, an increasing number of enterprises are turning to external partners to help them navigate this diverse network of product and service providers. While there are many third-party companies offering an array of useful enabling technologies, platforms, consulting services and more, adding a piecemeal assortment of providers can add more complexity, and cost, to your operations.
With time-to-market pressures, budget constraints and customer expectations on the rise, there’s no time for trial and error. So, here are some tips to consider as you look to engage with a strategic supply chain partner:
- Seek end-to-end expertise. The supply chain extends throughout the end-to-end product lifecycle, so it is critical to find a partner who has a deep understanding of market dynamics that influence supply and demand and expertise that runs from the earliest stages of new product ideation all the way through end of life.
- Address the need for advanced technologies. As digital technologies like IoT, cloud, machine learning and AI further integrate into operational technologies, a strong supply chain partner should be able to skillfully incorporate these advanced technologies and complex physical supply networks to ensure the needed visibility to sense and respond to changes in market conditions. Fluency and expertise in the implementation of intelligent automation technologies like robotic process automation and process mining are a must have.
- Focus on total cost of ownership. Like many brand owners and OEMs, component suppliers are generally all about technology innovation and new product or service development. Supply chain agility and responsiveness are rarely a core competency. So, while it may be tempting to pursue preferential pricing by buying direct from a component manufacturer, don’t forget your calculation of the “total cost” of acquisition should include possible added expense from expedites, payment term penalties, missed production windows and other fulfilment disruptions.
- Supply chain management is a team sport. It’s critical to have a partner who can help break down strategic and technological barriers between external trading partners as well as internal silos among key stakeholders like your engineering and sourcing teams. Better collaboration and coordination throughout the design-to-supply chain journey can ensure component choices will satisfy critical brand objectives around time to market, user experience, and factors like environmental sustainability, ethical sourcing and recyclability.
- Partners should act as an extension of the organization. This means facilitating the flow of products and information between the company and various trading partners. If a partner feels more like a roadblock between you and your supplier network, it’s time to move on.
- There is no one-size-fits-all supply chain model. In the end, it’s about finding a partner that will take the time to understand the organization’s specific challenges and priorities and has the range of capabilities required to build a model that best meets its needs - from fulfilment and inventory management programs to sophisticated supply chain-as-a-service solutions.
- Trust as a cornerstone in supply chain excellence. Finally, organizations need a partner they can trust. Trust can be a pretty nebulous concept, so let’s examine what trust can look like in the supply chain. The increasing volatility across the high-tech sector has prompted many enterprises to consider shifting from “just-in-time” to “just-in-case” inventory strategies. Most component distributors should be able to establish a buffer inventory program for customers, but inventory for inventory’s sake can tie up precious capital resources and may add potential obsolescence risk if buffer stock ultimately goes unused.
In addition, it’s important to remember that assurance of supply is just one element of an effective supply chain resilience plan. Agility and visibility are also critical. A strategic distributor partner works closely with customers and suppliers to facilitate a more open exchange of capabilities and requirements, ensuring resources are best aligned to achieve the common goal of meeting market demand on time and at the right price. With techniques like scenario planning, value at risk calculations, deep-tier supply chain mapping and alternate source identification, distributors should work alongside their customers and supply chain partners to outmaneuver disruptions more quickly and cost-effectively.
As the commoditization of technologies makes it increasingly more difficult for companies to differentiate themselves, supply chain and operations have become a new frontier for competitive advantage. Companies today cannot, and should not, rely solely on the technical superiority of their product or a marked price advantage. Sustainable growth and profitability are the result of delivering a differentiated, value-rich customer experience throughout the entire product lifecycle. This requires both leading-edge technical and best-in-class supply chain execution.