Innovate your Supply Chain - The Mauritian CEO's Perspective

I am sure you have all heard of Supply Chain Management (SCM), however, after having had conversations with many Mauritian entrepreneurs, CEO's, COO's and middle managers it is clear that SCM's definition, purpose and scope are somewhat unclear. The confusion seems to be around Transport Management, Logistics Management, difference between trade and company logistics, and Supply Chain Management where each is sometimes mistaken for the other. 

In light of this I decided that I will do my best to clear up any confusion I can by writing the below article which focuses on “What functions belong to the modern supply chain?”. I will expand on each of the categories in the table in subsequent articles however for right now I would encourage you to look at the blueprint carefully and determine whether you are moving your company in the right direction or whether there are significant improvements that could be made.

I have thought of different ways to start this topic and each time I thought that I had it right, something was coming up as not quite right. I want to address the topic of the importance of Supply Chain Management in the modern economy. I however don't want it to be too scientific yet; we will have time for that. I want something that every business can relate to and I think I may have found it in addressing 'The symptoms of bad Supply Chain Management'

I will try to keep it simple and not exaggerate what SCM can achieve for a business but at the same time however please bear with me if you see some signs of fanaticism or as I like to call it...passion.

Let me start with a quick case study

Coles Supermarket, the second largest supermarket chain in Australia and 23rd by revenue in the world was recently taken over by Wesfarmers. The belief by Wesfarmers was that the powerhouse of the 1990's could be awakened again and make ground against its biggest rival Woolworths. The issue with Coles before the takeover was that customers were fed up of Coles substandard "fresh" produce and empty shelves that for years were a hallmark of the Coles shopping experience.

Coles Chief Executive Ian McLeod decided he would focus on the basics. Retailing 101. He decided there were 4 areas he wanted to improve to get the business right for future, sustainable growth. They are

1. Competitive pricing

2. Stock Availability

3. Store Presentation

4. Communication of all of the above

He has to date probably scores big A's in all 4 areas. Ok maybe an A- on availability of fresh produce however its only 3 years into the transformation and Coles has recently beaten Woolworths for the 6th consecutive quarter on comparable store sales growth, reversing a well established trend.

Ok, why did I start with this case study? The reason is because the above tells us the story of a business that was losing customers because compounded with other issues, it was not managing it's supply chain optimally. Some telling signs of bad supply chain management are

1. Unhappy customers hence shrinking customer base

2. High operating cost

3. Low margin

4. High or sub-optimal stock holding

5. Low stock availability

6. Higher that average obsolescence

7. Inability to quickly react to competition

8. Too much cash tied into unproductive inventory

9. Cannot supply on time or accurately to customer (you are a supplier)

10. Constantly find it a struggle to cope with peaks in demand

If we go back to the 4 tactics Ian (Coles Chief Executive) decided to focus on, we can see that 2 of the main areas are supply chain related. 

1. Competitive pricing - There are 2 ways a business can do this. The easiest is to reduce margin for volume. The other is to reduce COGS and operating cost, keeping margin at or close to the same level and betting on volume to deliver incremental sales and margin (Retailing's holy grail). It is estimated that reducing the cost of your supply chain by 1% can be equivalent to increasing revenues from 4 to 12% (we can debate that in the comments section which is why I strongly advocate leaving comments). Coles for example wants to occupy the 'lower cost'space in consumers heads.

2. Stock Availability - Define Logistics Management - Right product at the right place at the right time, in the right quantity and at the right price. Difficult to argue that this area of improvement does not belong to SCM.

We've got to give credit to our Merchandising and Marketing friends without whom things would be very different. They do a great job and creating a market and ensuring its viability. 

I think a catchphrase is now overdue. We need one word that encompasses the purpose of this whole exercise. The one word that allows us to achieve a much simpler, optimised, flexible and responsive supply chain - Lean

'Lean' is the 'art of creating more value using similar levels of or less resources' and many would agree that this is the basis of any successful business. One of the (better) ways of achieving 'Lean' is by adopting supply chain principles.

I have included the below figure to demonstrate what's on the top of the concerns facing supply chain professionals today. I am sure many of our readers will agree that while it may be slightly different for each of us, the underlying findings can be applied to your organisation. 

Your supply chain blueprint

Over time many people have told me that while they understand the principles of Logistics and Supply Chain Management, they were unclear about what functions belong to SCM. The below table aims to shed light on what belongs to the modern supply chain, whether it fits at a strategic, tactical and/or operational level and which functions it previously was sitting under.

	Industry	Strategic/ Tactical/ Operational	Primary owner	Supported by	Supported by	Improvements	Previous Owner
New Products	Retailing/ Manufacturing/ Services	Tactical	Merchandise	Marketing	Logistics	More efficient new products introduction and support	Merchandise
Sourcing and Procurement	Retailing/ Manufacturing/ Services	Strategic/Tactical	Supply Chain Management	Merchandise	Marketing	More efficient and cost effective procurement	Purchasing
Supply Chain Collaboration –(suppliers, intermediaries, third party service providers, and customers)	Retailing/ Manufacturing/ Services	Strategic	Supply Chain Management	-	-	Better information flow leading to more precise inventory management	No Previous Owner
Demand Planning and Forecasting	Retailing/ Manufacturing/ Services	Tactical and Operational	Logistics Management	Merchandise		Better inventory control	Marketing
Order Management	Retailing/ Manufacturing/ Services	Operational	Logistics Management	Merchandise	-	Better end to end visibility of order	Operations
Storage and Warehousing	Retailing/ Manufacturing/ Services	Operational	Logistics Management			Reduced storage and warehousing cost	Transport Management
Manufacturing Planning and Execution	Manufacturing	Tactical/Operational	Operations	Supply Chain Management		Better visibility of supply chain leads to better execution	Operations
Inventory Management	Retailing/ Manufacturing/ Services	Operational	Logistics	Merchandise		Increased performance visibility	No Previous Owner
Product Life Cycle Management	Retailing/ Manufacturing/ Services	Strategic and  Operational	Logistics	Merchandise		Better product life cycle and quit cycle management	Marketing
Distribution Management	Retailing/ Manufacturing/ Services	Strategic and Operational	Logistics			Reduced distribution costs	Transport Management
Transport Management	Retailing/ Manufacturing/ Services	Tactical and Operational	Logistics			Optimise transport resources	Transport Management
Reverse Logistics	Retailing/ Manufacturing/ Services	Tactical and Operational	Logistics			Better managed Reverse Logistics Process	Transport Management
Supply Chain Related Systems Technology	Retailing/ Manufacturing/ Services	Strategic	Supply Chain Management	Business Systems/IT		More efficient processes supported by decision critical information	No Previous Owner
Promotional Events Management	Retailing/ Services	Strategic/Tactical	Merchandise	Operations	Logistics	Optimise inventory returns	Merchandise
Network design	Retailing/ Manufacturing/ Services	Strategic	Supply Chain Management	Operations		Optimal DC network design	Operations
Process Improvement / Re-Engineering	Retailing/ Manufacturing/ Services	Tactical	Owning department	Supply Chain Management			Owning department

Developed by Girish Ramjuttun. This table cannot be reproduced without prior permission of the author.

As previously mentioned, I will be updating this blog with much more over time including videos and would love it if you could regularly check on updates. More importantly your views and comments are so important to me so please let me know what you think (feel free to offer constructive criticism) and how we can all further advance understanding of this critical business strategy.  

[1]. Aberdeen Group Research White Paper Strategic Supply Chain Planning, Three key Priorities of the Chief Supply Chain Officer

About Mauritius: The Mauritian economy is today at crossroads. It has changed from a monocrop economy based on production and export of sugar through a protection and subsidised based three pillar economy to a diversified service based economy strongly supported by agriculture and manufacturing. Since 2000, protection and subsidies have gradually been eroding leaving Mauritius to compete unsupported on the international market.

Mauritius is and will remain an export orientated economy for revenue generation purposes in the foreseeable future driven by the service industry. Local consumption is small and will find it difficult to support economic growth on its own. While agriculture's and manufacturing's contribution to economic growth will gradually dilute, they will remain important economic and social pillars as they keep generating employment and add to GDP.

 Mauritius is also in the process of diversifying its economic activities adding to existing pillars other activities such as the Sea Food industry, the tertiary education industry, the pharmaceutical Industry, the IT industry, the financial services industry, the logistics industry and the renewable energy sector