Supply chain management needs to be used to drive new ways of achieving profitable growth, says consumer packaged goods (CPG) specialist Don Mackenzie.
US-based Mackenzie, worldwide director of industry marketing in CPG for enterprise resource software vendor JD Edwards, says that while innovation can be used to drive value in immature markets, in mature markets most of the more traditional sales and marketing tools are ill-equipped to provide profitable growth.
Many companies have reduced costs through re-engineering in search for profits, and while reducing costs is necessary, it’s not a sustainable resource of revenue or profit growth, says Mackenzie.
“Today, as we approach 2000 and beyond, we really need to start looking to supply chain management in driving new ways of actually getting profitable growth into the organisation.”
PricewaterhouseCoopers principal consultant Suzanne O’Leary, who spoke at a supply chain management seminar held last week in Auckland, says in the past companies looked at the functions within the supply chain — such as warehousing, distribution and freight management, production planning and the factory — as separate functions reporting into separate parts of the organisation.
Now they have a focus on the supply chain as an “end-to-end activity” across the organisation that services a particular customer group.
“We’re looking back up the supply chain to our suppliers, and our suppliers’ suppliers, and starting to realise that an integrated whole can give us a competitive advantage.”
Mackenzie says supply chain planning is an important tool to develop value and efficiency in organisations.
“A lot of the clever algorithms we have available to us in these planning systems will allow you to see your organisation so differently from the past.”
Mackenzie says the supply chain has evolved over the years, from the non-integrated, disparate systems (accounts payable and general ledger) of the 1970s to the ERP (enterprise resource planning) solutions that came to the fore in about 1990.
He says many businesses need other applications, however, and many developed their own systems to stay competitive.
He says technology now allows these previously non-integrated applications (such as transportation, e-commerce and customer service management) to be integrated.
O’Leary says that among the factors affecting the supply chain is globalisation, particularly with New Zealand’s “level playing field”.
“We’ve seen that in the automotive industry — in fact, in a couple of years we won’t have an automotive manufacturing industry in New Zealand and that will therefore have an effect on the suppliers to those industries.”
One way to improve supply chain management is analysis of costs against products and customers to truly understand their profitability.
O’Leary recently did a project for a major multinational which found 49% of the products in one country were returning a negative contribution, once logistics costs were assigned.
She says another important issue, in which not all New Zealand organisations are doing well, is data integrity, particularly in aspects like inventory accuracy. “In most companies we treated the warehouse very much as a back-room function. We haven’t invested in our people who run those areas of our business and it’s one of our largest assets.”
She says she has seen good software not being fully utilised, or which comes up with wrong answers, because of the poor data integrity.