This article was originally published on Forbes.com.
There’s a reason why overstretched supply chains in the Asia-Pacific region are keeping executives around the world up at night: They won’t help companies support the next wave of global growth in a vastly different cost environment. And many are holding global companies back from delivering on their business strategies.
We interviewed business leaders about their supply chain capabilities, asking them what the biggest changes taking place in the Asia-Pacific region are, where they would like to improve and what they see as the obstacles getting in their way. Their biggest worries: dealing with rising costs and getting a handle on diversified products and increasing service levels. They are also concerned about customer satisfaction and making their supply chains more flexible and agile. And they struggle with misaligned organizations and a shortage of talent.
Multinational companies established supply chains in the region for a low-cost model that has eroded. Now, companies must reassess their entire footprint, the role of each plant and their future capacity investments. In addition, supply chains were built for a time when global companies introduced fewer products and at a much slower pace. Shortened product cycles in an expanding geographic footprint requires more effective planning and the ability to ramp up capacity quickly and manage complexity without building up too much inventory.
Also, today’s supply chains came into being when technology options for forecasting and demand planning were less robust than they are today. Meanwhile, the movement to e-commerce has raised the bar on fulfillment options to customers, as well as time and costs for both online and brick-and-mortar businesses. This requires companies to invest in digitalization of supply chain processes to achieve real-time visibility into inventories, suppliers and suppliers’ networks to optimize planning.
Some companies are getting it right—redefining their supply chains as a strategic asset for competitive advantage. For instance, based on benchmark data from SAP Value Management Center, we found that top-quartile performers could reduce their order-to-shipment cycle by up to 10 days or boost forecast accuracy by up to 10 percentage points compared with average performers.
Winning companies take the first big step of translating their unique growth strategy into specific objectives for their supply chain, such as improved cost competitiveness; increased capital efficiency; and better ways to manage complexity, demand uncertainty and shortened time to market for new products. As they design the full network—spanning procurement, manufacturing and distribution—to deliver these new supply chain objectives, they’re positioning themselves to grow revenues over the long term while improving margins and capital efficiency.
Learning from the best
We asked executives to prioritize the areas that are most important to tackle first. Their responses helped us focus on the four biggest questions companies must ask and answer if they want to pull ahead of the pack.
Is your supply chain aligned with your strategy? The best companies are clear on how they will win today and in the future, and they translate that strategy into equally clear requirements for their supply chain. Consider the widely different approaches taken by China’s e-commerce leaders Alibaba and JD.com. Alibaba’s strategy to quickly expand across different businesses required a flexible model, so the company relied heavily on third parties from the start, joining forces with 14 strategic partners with more than 1,700 distribution centers and 100,000 delivery stations. JD.com maintained a different strategy: Focus on customer service. Because its strategy emphasized controlling the customer experience, JD.com opted to handle all logistics in-house, maintaining its own network of 118 warehouses and more than 2,000 delivery stations, providing same-day delivery to 130 cities and districts in China and three-hour delivery in six major cities.
Is your supply chain designed to serve your most valued customers? Companies can gain an edge by tailoring their supply chains to prioritize high-value customers. Samsung Electronics uses shared resources for its B2B and B2C customers, but it prioritizes critical B2B orders, providing those customers with products that are made to order and delivering industry-leading order-fill rates. This approach helped the company grow its B2B business to 6% of revenues in 2013—and it’s on track to represent nearly a quarter of 2020 revenues.
Is your organization supporting your supply chain? Winners design supply chain organizations to ensure effective collaboration, with clear roles across functions. They also build a talent pipeline to support future growth. Haier excels at both. As the company grew from a single product line in home appliances, Haier evolved its supply chain organization. It established a dedicated supply chain management department to coordinate all supply chain functions. This department helps deliver economies of scale through central sourcing and provides increased oversight. Its emphasis on organization and talent has contributed to Haier’s 25% annual growth over the past 14 years.
Is your supply chain winning or losing in the digital race? Finally, the best companies capture their share of the booming e-channel growth while improving supply chain visibility and performance. In 2010, Chinese home appliance retailer Suning saw the opportunity to compensate for declining growth in its physical stores by investing in online capabilities. It laid out an omnichannel strategy, positioning its online platform as a multicategory e-commerce site to feature third-party offerings and established a cross-border e-commerce business. It focused its offline efforts on growing in China’s lower-tier cities. The supply chain it built to support this two-pronged strategy included centralized sourcing for products offered both online and offline and shared distribution facilities. Suning gave supply chain priority to its online channel, including a separate sourcing process for online-only products. This approach helped Suning grow overall revenues by nearly 6% from 2011 to 2013, despite declining sales in physical stores.
When global companies ask us where to begin, we typically tell them that the first big step is to translate their strategy into specific supply chain requirements and equally clear objectives, by customer segment and channel, and to use these objectives to design the supply chain footprint of the future. Left unchanged, the supply chain capabilities that helped multinationals in the past will only hold them back in the years ahead.
Written by Peter Guarraia, a Bain & Company partner based in Chicago, and Miltiadis Athanassiou, a partner based in Zurich. Both are leaders in Bain’s Performance Improvement practice.