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The new supply chain

Why consumer-products organizations should reimagine the traditional supply chain as a supply-value network

The term “supply chain” is a bit of a misnomer. A chain implies connectivity, rigidity, and linearity, whereas today’s landscape prioritizes flexibility, speed, agility, and adaptability. This disconnect is especially true of consumer-products companies. The traditional model of delivering large volumes of the same product to retailers and distributors is no longer the goal. Modern consumers expect the ability to personalize products and make purchases across a variety of channels.

And a vast and varied network of manufacturers, suppliers, third-party sellers, and distribution service providers are now needed to support every aspect of the consumer journey, from production to fulfilment. The supply chain is no longer a chain at all, but a networked ecosystem – one that blends multiple channels, interconnected supply systems, and a deep and varied network of partners, all with the purpose of serving consumers when and where they are.

Enabling consumer centricity, agility, and scalability

Many companies talk about a consumer-centric supply chain, but few live up to the challenge. In traditional models, the supply chain is usually a one way, linear path from a large-scale manufacturer to the retailer. The emphasis is on the mass production of goods and the speed at which they can reach shelves. Few, if any, members of the chain have reason to consider the consumer.

In a modern supply-value network, however, the path to purchase is not a sequential chain but an interconnected web. The consumers are at the center and every other aspect of the ecosystem is connected to them.

Businesses must begin this process by tracing the consumer journey. Companies need to identify the so-called “moment of truth” – the exact point at which a consumer makes a decision – and then facilitate the journey towards that moment.

This new model means businesses must completely rethink how to meet consumer demand within the supply-value network. For example, inventory may not necessarily need to be managed in traditional warehouses. Instead, companies may want to diversify assets so that they can support a variety of sales channels and delivery models. As shopping continues to shift online, many brands will need to prioritize the ability to make very small, but very fast, deliveries. As such, they may invest in non-traditional transportation methods, such as e-vehicle or bike fleets.

There is no longer a one-size-fits-all approach to supply chain. There are many different types of consumers to reach and the supply-value network has to mirror that. At the same time, companies must balance the need to serve a variety of customers and consumers with optimized business operations. They must ensure the business remains profitable, even as the demand for personalization, speed, and direct access grows.

Shifting to a nimble asset model

Shifting to a supply-value network will also have significant implications for manufacturing. Typical fixed-asset, high-volume production lines do not allow for the flexibility and responsiveness needed in today’s landscape. Being a giant with large, owned assets is no longer the only winning card. The ability to collaborate and build a resilient network that can quickly adjust to changes becomes the most promising bet.

In the modern retail landscape, it’s crucial to enable agile manufacturing and offer consumers a variety of ways to customize or personalize their orders – and create a supply-value network that supports those requests at every point in the consumer journey.

To enable this shift, many consumer-products organizations will need to convert to an asset-light manufacturing model. This means the majority of goods will be produced by third parties and that inventory holdings will be reduced or disaggregated. Operating in this manner will eliminate or reduce overhead costs on everything from real estate and equipment to labor and utilities.

In addition, companies will need to reconsider distribution networks. Large volumes of purchases are poised to move to direct-to-consumer channels, which will require a more flexible and mobile distribution network. Companies must not only focus on producing large volumes of products, but also on the ability to distribute them with speed and agility across an ever-growing array of channels. In the near future, success won’t just be a matter of getting products on shelves – but also on doorsteps and in consumer pickup centers and to marketplaces or third-party sellers.

Enabled by data, realized by people

To enable this next generation supply-value network, companies must leverage the power of data-enabled insights and technology. Data is the most crucial currency within the supply value network. The ability to understand the data and process and react to it are the key differentiators and enablers of success.

Consumer-product companies have long relied on biographical and transactional data to help segment consumers and predict demand. However, advances in intelligent automation, the collective term for data-enabled tools such as artificial intelligence (AI), machine learning (ML), and robotics, also allows companies to incorporate contextual data, which includes any combination of external factors that may inadvertently affect sales, such as weather, traffic, holidays, or tourism.

For example, construction or roadwork may create a dip in store traffic, which may cause perishable goods to expire; excessive heat forecasts may prompt people to switch to prepared meals or cold entrees, as opposed to foods that require heating or cooking. With these insights, the business can reroute inventory, offer new promotions, or change manufacturing plans.

Today’s supply chains are largely analogue, which means that even when consumer-products companies have near real-time insights to work with, applying them often requires manual human intervention. In a data-driven world, this is unacceptable. Every aspect of the supply-value network must be integrated and a great deal of the insights-based decisioning can be automated. Doing so can improve overall speed and effectiveness, while also driving down costs and reducing errors.

Developing this capability depends on the ability to bring data to the center of each business function. Companies must be more deliberate in organizing the business in a way that embraces data-enabled technology. For example, if a consumer wants to customize a product, the company will need to have the ability to service that preference across the supply chain. This is a completely new way of working and can be executed only if the company thinks about data and technology holistically.

Finally, while technology is a critical underpinning of supply chain modernization, companies cannot underestimate the human element of transformation. Shifting to a supply-value network model requires the organization to change its skills, culture, and mindset. These elements are, at best, underestimated if not outright overlooked.

Reimagining the supply chain

As consumer-products company reinvent the traditional supply chain as a networked ecosystem, it is worth remembering what an ecosystem is. As in nature, the supply-value network is complex and connected, responsive and adaptive, evolving and ongoing. It is also potentially fragile – requiring a delicate balance between serving the needs of the consumer, engaging the right third-parties to deliver, and maintaining profitability.

For this reason, the modern consumer-products company is much more than its core business. It is an orchestrator, overseeing multiple channels, interconnected supply systems, and a deep and varied network of partners. In embracing this new role, organizations might come to think of the creation of a supply-value network not as the end of the supply chain, but its latest evolution.