CFO Magazine recently interviewed me for an article on how supply chains are changing and the cost reduction opportunities those changes will offer. Manufacturers and distributors have to be faster and more agile in their approaches. Supply Chain innovations pioneered by Zara, Zappos and Amazon reveal the combined power of partnerships and speed, moving items from a designer’s desk to retail stores in as little as two weeks.
Here are four ways that supply chain thinking is evolving and offering significant opportunities for growth and profitability.
- Supply chains are moving from hard to soft
In the past, supply chain simply meant getting the right parts to the right place at the right time at the lowest possible cost, but now, in addition to that, supply chains incorporate ideas, services, consumer channels and networks of distribution that flow both ways. SaaS (software as a service), 3 and 4 PL distribution, and other outsourced services are changing the way companies relate to their supplier partners and customers.
Amazon is disrupting Omni-Channel distribution (the process of combining brick and mortar stores with online service and direct to consumer delivery) by developing their own delivery services and in store operations using their own stores as well as others, like Kohl’s. Alibaba, China’s Amazon, can deliver a package all the way across China in a few days for less than $2.
- Costs are becoming less flexible
Buyers used to negotiate part prices, volume discounts, add-on services and freight. That negotiation contributed to cost reduction, as did concurrent engineering and design changes. Now buyers negotiate long-term contracts for services, which create a fixed cost for two years or longer.
Financial experts suggest that companies shift costs from fixed to variable to provide flexibility, but supply chain changes are causing just the opposite to occur. The trend toward fixed costs will likely cause new practices to emerge, making contracts shorter with automatic extensions or more flexible in their ability to increase service and reduce costs.
- Transport is transforming
With Amazon and others entering the package delivery market and the advent of autonomous vehicles and even drones, delivery mechanisms and practices are changing rapidly, putting us on the precipice of a highly disrupted transportation market, even as the very definition of a shipment is changing.
Previously, items were palletized and loaded onto trucks or trains, or both. Now, with package delivery improvements and direct to consumer shipment through Omni-Channel practices, things are moving by the case, box, and package. In addition to outgoing delivery, returns are becoming a major issue in direct to consumer sales. The issues of return logistics and what to do with the flood of used items present significant challenges for supply chain professionals.
- Supplier Partnerships and professional skills are changing
With the shift to soft items, contracting, reverse logistics and rapid deployment, supplier partnerships are becoming even more important. In addition, the skill set required of supply chain professionals has evolved far beyond executing POs and negotiating with suppliers. Today’s companies need expertise in partnerships, long term contract skills, and deep logistics knowledge.
Flexible and innovative supply chain strategy is critical for your company’s ongoing growth and profitability. Call me if you would like to explore how your company can be on the leading edge of this disruptive era in supply chain management.
© 2017 – Rick Pay – All Rights Reserved.