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Network Transformation is Vital to Competitive Advantage

Jeff Bezos knows a thing or two about networks and customers. He also knows about building competitive advantages. One especially relevant point Bezos made back in 2008, just as Amazon’s growth was starting to accelerate, was that “if you are competitor focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering.”

So, customer experience needs to be at the heart of any supply chain strategy whether your customer is a consumer or another business, and core to your supply chain strategy will be your manufacturing/sourcing and distribution networks.

In addition, the supply chain disruptions caused by the pandemic and compounded by war in Europe, meaning we need to recalibrate what ‘business as usual’ looks like, as pre-pandemic trends in the digital economy have been amplified. E-commerce, same-day home delivery, and easy returns are the new normal. All businesses - brick-and-mortar, B2B, and digital, face similar changes in expectations.

Digital is driving customer expectations

Before Bezos, Bill Gates predicted back in 1999 (last century!) that not only would the digital economy be faster, but the consumer expectations would rise sharply as consumers were empowered by incredible access to information, not to mention the penchant many have for writing Google reviews! Delighting them is critical to survival for most businesses.
And not only consumers but your trading partners are also expecting more frequent, smaller, quicker deliveries with full track and trace, and high Delivery in Full on Time (DIFOT) performance.

Traditionally, it had been the case that an organisation would only look at their supply chain networks in response to some significant change in their business. This strategy is unwise today.

All organisations whether involved in consumer e-commerce or servicing other businesses must look to their supply chain network to ensure they remain competitive. Responsiveness, agility, resilience, and speed help create advantages.

Organisations may also need additional capacity to accommodate growth and build a broader geographical presence to service new customers. Equally, they may want to introduce new product ranges, provide support for new services (home deliveries & returns), adjust arrangements due to the expiry of significant leases, or rationalise a network that has grown through multiple acquisitions.

An increasingly important driver will be the need to better manage risk caused by the increasingly Volatile, Uncertain, Complex, and Ambiguous (VUCA) nature of our world today. (See our previous blog series on supply chain resilience).

Strategic alignment is the key to success

Whatever the factors are driving a review of your network, your customer, be they a consumer or another business, must lie at the heart of your network design.

The supply chain network is one of the key structural enablers to delivering customer service outcomes, as well as innovation and reliability at an acceptable cost.

All well-managed supply chains will have their strategy aligned to the overall company strategy, signed off by the executive and board. Well-governed organisations will ensure their leaders are chosen and rewarded by achieving objectives that are aligned across disparate business units to deliver the strategy.

Achieving that strategic alignment needs to be framed in the long term since supply chain networks typically require significant investment and commitments. A key challenge is to predict what customer expectations and growth will be in 5 – 10 years, the further out you plan the less accurate the forecast will be, so it is important to build sensitivity into your network modelling.

Network transformations are typically complex and may require significant capital investment to achieve the return sought, but you would expect benefits in the 10 – 25% range, and emerging technology and practices may add more.

The network design and optimisation task will answer the fundamental questions - how many warehouses and/or factories do I need? What size? What level of automation? Where will they be located? What functions will they perform? Where will my stock be ranged? What will it cost to implement and operate? What are the financial returns? What is the roadmap?

The answers to these questions must align with the supply chain and business strategy, otherwise, it is unlikely the board will approve the investment required and many weeks of analysis will be wasted.

Investing in a very lean, low-cost network is counterproductive if your customers stop buying from you.