The Next Evolution of the Supply
How the next supply chain evolution has arrived and why the time is now to transform
1. How Did We Get Here? 2. Top Business Challenges to Address 3. New Realities Driving Change 4. 4 Pillars of Focus 5. Essential Toolkit for Transformation 6. 5 Retail Case Studies 7. Roadmap to the Future
From Supply Chain to Value Chain: How Did We Get Here?
The traditional global supply chain is focused on the sourcing of materials to provide to a manufacturer for production (to make the item). Then, that item is distributed to a retailer (or other sales channel) before it is purchased by a final buyer or end-user. Simply put, it delivers much-needed goods and services to consumers. While there are many variations, the traditional supply chain looks something like this:
CONTENTS
Chain
Value
Dive in to Explore:
>—----------------------------------------------- Flow of Goods —-----------------------------------------> Supplier>Inbound Logistics>Manufacturer>Warehouse>Outbound Logistics>Store>Customer <—-------------------------------------------- Flow of Information —------------------------------------<
Supplier
Inbound Logistics
Manufacturer
Enter the COVID-19 pandemic in 2020, and the supply chain experienced disruption that looked more like this:
Flow of Goods Interrupted
Supplier Issues Sourcing Material Shortages Multiple Manufacturers Switching to PPE Materials Inaccurate Production Timing
Inbound Logistics Issues Port Congestion Inaccurate Shipment Times
Manufacturer Issues Converted Factories Retooling Supply Chains for PPE
Warehouse Issues Fluctuating Inventory-to-Sale Ratios Warehouses Too Full Warehouses Empty Worker Shortages
Outbound Logistics Issues Shortage of Transportation/Truck Drivers Worker Shortages
Retail Store Issues Out-of-stocks Worker Shortages
Flow of Information Interrupted Unable to Forecast Inability to Restock Goods
Consumer Issues Shortages of Goods Price Increases Unsatisfied shoppers Poor Brand Loyalty Brand/Store Switching
While shoppers pre-pandemic never really understood (or cared to know) how their goods got to store shelves, for the first time, the whole world was watching the supply chain because they could feel its impact.
This moment created an opportunity for leaders to rethink the entire supply chain.
Retail and CPG business and tech leaders who say they’re transitioning from traditional linear supply chains to networked and autonomous supply chains
“[T]he value chain has evolved to organize functions under categories such as value-adding, i.e., R&D and new product introduction. Additionally, value chain can include supply chain-related logistics and warehousing along with support, such as technology and consumer experience or customer relationship management.”
What is Value Chain?
and supply chains took a major unprecedented hit.
The global world froze
— Ashok Viswanathan, Director of Supply Chain Analytics, Best Buy
Mission Critical: Business Challenges to Address Within the Value Chain
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First coined by Harvard Business School professor Michael Porter in 1985, “value chain” refers to the process or activities by which a company adds value to a product or service — from the initial product sourcing, through manufacturing, and all the way through its delivery to the end consumer.
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Completely Agree 30% Agree 45% Strongly Disagree 5% Disagree 20% Source: Genpact, “The CPG and Retail Playbook for Navigating Disruption While Driving Innovation”
Source: Genpact, “The CPG and Retail Playbook for Navigating Disruption While Driving Innovation”
The supply chain conversation is starting to evolve from a linear chain to a more data-driven, network-driven, and collaborative ecosystem in order to drive more value centered around the end consumer. While it sounds like the answer to the disruption of late, there are still challenges to achieving a true value chain transformation. Before addressing the potential roadblocks, it is important to note that most respondents of the RIS Value Chain Tech survey indicated that their companies fall somewhere between a supply chain and a value chain, with a skew more towards the traditional “supply chain” definition.
WIP - Chart here.
Here’s where industry chatter for a new transformation around the value chain has started to enter conversations. The value chain is defined as the evolution of the supply chain function from cost-center to value-creator, through the execution of strategic initiatives. The evolution from a supply chain to a value chain lets a company move from a linear system to a web of assets, data, and operational processes:
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1. Breaking down communication silos
2. Creating internal clarity
3. Supplier collaboration & risks
4. Increasing cross-organizational visibility
5. Speed to delivery
6. Sustainable strategies for improved efficiency
Consider these six business challenges that need to be addressed when considering a value chain transformation:
Revolution
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Do you agree that your business is transitioning from traditional linear supply chains to networked and autonomous supply chains?
Q:
30%
45%
5%
20%
Completely Agree 30%
Agree 45%
STRONGLY DISAgree 5%
DISAgree 20%
Here’s where industry chatter for a new transformation around the value chain has started to enter conversations. The value chain is defined as the evolution of the supply chain function from cost-center to value-creator, through the execution of strategic initiatives. The evolution from a supply chain to a value chain lets a company move from a linear system to a web of assets, data, and operational processes.
WAREHOUSE
OUTBOUND LOGISTICS
STORE
CUSTOMER
CLICK HERE
The Impact: 6 New Supply Chain Realities
The supply chain conversation is starting to evolve from a linear chain to a more data-driven, network-driven, and collaborative ecosystem in order to drive more value centered around the end consumer. While it sounds like the answer to the disruption of late, there are still challenges to achieving a true value chain transformation.
Before addressing the potential roadblocks, it is important to note that most respondents of the RIS Value Chain Tech survey indicated that their companies fall somewhere between a supply chain and a value chain, with a skew more towards the traditional “supply chain” definition.
Supply Chain/Cost-Center
1 2 3 4 5 6 7 8 9 10
Value Chain/Value-Creator
10 point scale
32%
(1-3 out of 10)
(4-5 out of 10)
24%
(6-7 out of 10)
21%
(8-10 out of 10)
56%
The lack of collaboration between internal departments is identified as the highest-priority supply chain obstacle (39%), according to the RIS Value Chain Tech survey.
“For many companies, that will likely require a change in mindset from the top, with risk, agility, and sustainability KPIs considered alongside traditional ones focused on cost, capital usage, service, and quality.”
— McKinsey, “Future-proofing the supply chain”
Fifty-eight percent of retailer respondents to the RIS Value Chain Tech survey believe they are past the early stages of collaboration, but only 1/4 indicate that their company is advanced in collaborative abilities and processes:
— Douglas Kent, EVP of Strategy and Alliances, Association for Supply Chain Management (ASCM)
“Supply chains are still recovering from pandemic-induced disruptions, and while there are some signs of increased stability, we won’t see a full ‘return to normal’ for some time. There are still a variety of disruptions occurring — this year alone, we’ve seen increased cyberattacks, labor shutdowns, and adverse climate events such as the wildfires in Quebec and Maui and the drought in the Panama Canal.”
Early stages: little to no end-to-end collaboration
29%
58%
16%
26%
How far along is your company in establishing end-to-end collaboration throughout the supply chain?
Advanced stages: complete end-to-end collaboration
13%
Don't know/ not sure
Supply chain leaders will need to have a deep understanding of all potential physical, financial, political, and social risks they may face.
Historically, companies have focused on maintaining the strictest levels of confidentiality, sharing only the data that is needed, at the moment that data is needed and not necessarily before. Evolving into a value chain will require that partners collaborate to reassess their relationships and how they interact and share information with each other.
Sixty-seven percent of global organizations believe meeting customer expectations for speed of delivery will be a critical factor affecting the structure and flow of their supply chains over the next 12-18 months.
— KPMG, “The supply chain trends shaking up 2023”
Sustainability will be prioritized by organizations in the U.S. and China, less so in Europe. Forty-one percent of U.S. businesses said they will increase their investment over the next 18 months.
Fifty-three percent of global organizations plan to increase their focus on sustainable sourcing.
— Capgemini Research Institute
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Where to Next? 4 Primary Pillars of Focus
After three years of disruption from the COVID-19 pandemic, organizational and economic effects, and the conflict in Ukraine, the need for further innovation has never been more clear. Here, we reference three new long-term transformation priorities as outlined by McKinsey & Company’s, “Future-Proofing the Supply Chain” article, however, we felt that there was a fourth critical pillar that wasn’t mentioned by McKinsey:
1. Resilience
2. Agility
3. Sustainability
4. Collaboration
Retail is a tenacious business, but there’s always room for greater resilience. Level-up responsiveness to adversity and thrive in a constantly changing environment.
Retail leaders are looking for technology that will transform their supply chains from simple functional (and often linear) systems to a holistic, integrated network focused on value creation. Look for advancements in AI, automation, last mile, and delivery systems, data-driven marketing efforts, and cross-organizational data visibility.
“The future of supply chain management largely depends on the adoption of technologies in automation, IoT, AI, and more in order to bring sustainability, visibility, and reliability to operations. The sooner companies realize that disruption is the new normal, the sooner they can focus on bolstering their risk management and digitization strategies, ultimately taking a more proactive — not reactive — approach to problems.”
— Douglas Kent, EVP of Strategy and Alliances, ASCM
How to Transform From Supply Chain to Value Chain
The ability to remain agile allows retailers to stay competitive and responsive to market volatility.
It takes two sides to fuel a conversation and retailers today must communicate collaboratively to keep the ecosystem in motion.
Sustainability cannot exist without circularity and connectedness. Set the stage for a more sustainable future through tech-enabled value chain processes.
(HOVER MOUSE OVER BOXES:)
The next evolution of the supply chain will need to focus on four primary pillars.
As leaders look to repair broken supply chain systems and transform operations into new centers of value creation, the World Economic Forum and other organizations have identified new realities propelling their efforts.
Reality No. 1: Supply Chain Is Now a Focus of C-Suite and Investors
Executives cite supply chain turmoil as the greatest threat to growth — more than rising raw material costs, higher taxes, labor shortages, or geopolitical instability, according to McKinsey.
Business and tech leaders who say they haven’t yet recovered from the pandemic shock on the supply chain Retail CPG
72% 65%
Global Supply Chain Bottlenecks; Trade/Logistical Disruptions Rising Prices of Raw Materials Energy Crisis Higher Taxes Sustained Geopolitical Turmoil
Source: Capgemini, “Advancing Through Headwinds: Where are Organizations Investing?”
Reality No. 2: Consistent Operations Outranks Innovation
“For a long time, supply chain was viewed as a kind of operational activity, about moving boxes from point A to point B” at as low of a cost as possible. “[Now the focus is on] how do we get inventory into locations where we think it is going to generate the highest sales for us and the best profitability.”
— Dennis Mullahy, CSCO, Macy’s via Fortune Magazine
10%+
iPhone 13 production Apple was forced to cut in 2021 because suppliers couldn’t deliver enough chips
Source: Bloomberg, “Apple Set to Cut iPhone Production Goals Due to Chip Crunch”
10 weeks
Production time Nike lost from Vietnam suppliers in 2021 because transit times took twice as long as usual
Source: Nike, FY 2022 Q1 Earnings Release Conference Call Transcript
Reality No. 3: Relationship Dynamics Are Shifting
Top Risks to Business Growth in Next 12-18 months
Ford and GM both formed new alliances with chip makers during the pandemic to exert greater control over their supply chains.
Source: The Wall Street Journal, “Ford, GM Step Into Chip Business”
“There is a recognition that resiliency is impossible unless buyers, suppliers, and other parties along a value chain are willing to share data and collaborate.”
— Tarek Sultan, CEO, Agility Source: World Economic Forum, “5 Ways the Covid-19 Pandemic Has Changed the Supply Chain”
Reality No. 4: Retail Strategies Are Getting a Rewrite
Both retailers and their supplier brands know that inventory shortages can quickly lead to unsatisfied customers; once a shopper is forced to try another brand or go to another retailer, they may not return. As a result, retailers have begun to rewrite their retail strategies to ensure they have sufficient inventory, while others are focused on reimagining merchandising to help with stockouts.
70+
Product categories in which Kroger increased its safety stock during the pandemic
Source: The Wall Street Journal, “Supermarkets Alter Layouts, Use Decoys to Fill Gaps Left by Shortages”
71%
Supply chain leaders who expect to revise inventory policies in 2022 and beyond
Source: McKinsey & Company, “Taking the Pulse of Shifting Supply Chains”
Reality No. 5: Large Corporations Want to Pair Global and Local Manufacturing
The pandemic only exacerbated existing vulnerabilities in corporate supply chains, including an over-dependence on international manufacturing. Temporary trade restrictions and supply shortages, combined with the U.S.-China trade war “have triggered a rise in economic nationalism,” according to the Harvard Business Review.
Global supply chain leaders who said in 2020 they had moved manufacturing and sourcing out of China or planned to in the next 2-3 years
33%
Source: Gartner, “Weathering the Supply Chain Storm Survey”
Reality No. 6: Tech Innovation Is Transforming Production Processes and Distribution Models
$13 million
Revenue growth a CPG recorded in six months thanks to improved supply chain network visibility via IoT and advanced analytics
Source: Deloitte, “Case Studies: Digital Transformation in Supply Chain”
89%
67%
64%
60%
57%
While we know that creating a “boundaryless organization with cross-functional integration, team alignment and a strategic focus on customer value” can be a massive undertaking, Best Buy’s Director of Supply Chain Analytics, Ashok Viswanathan, explains that a value chain assessment involves two major activities:
Identifying the firms, products, activities, stakeholders, and geographic locations involved in taking a good or service from concept through production to the final consumer.
1. Value chain mapping:
2. Value chain analysis:
Looking at how and why these factors are linked together by analyzing the role certain factors, such as governance, institutions, and interfirm relationships, play in influencing the location, development, and competitiveness of a product or service.
For example, Viswanathan mentions Apple’s value chain as “renowned,” whereas Boeing is an example of a global value chain that did not work out so well. In short, it took a significant restructuring of the value chain, including Boeing assuming the responsibility for certain earlier outsourced capabilities for it to succeed.
Read the full Boeing story
Viswanathan adds that looking ahead, successfully managing a value chain requires strategic planning and efficient execution as outlined here:
Understand customer value and elements of the product or service that accentuate that value. Optimize each step of the value chain through mapping and analysis, leveraging technology and data, workforce upskilling, and focus on efficiency. Create an environment that facilitates integration and coordination in line with the strategy.
Artificial Intelligence Machine Learning Internet of Things Automation Intralogistics Smart Robots Cloud Computing Digital Twins Advanced Analytics
Value Chain Tech Toolkit
Leading By Example: 5 Real-World Case Studies
Key technologies that underpin and fuel the new value chain landscape:
Keeping an eye on the industry and your peers is a great way to learn tips, tricks, best practices, and sometimes, what not to do when tackling any implementation. Here are 5 real-world examples of organizations that are embracing the capabilities of the value chain to achieve more sustainable growth.
Lowe’s has begun to utilize the digital capability, partnering with NVIDIA earlier this year to fuse spatial data with its other data like product location and historical orders to form a complete digital picture. While the technology can have many use cases, Lowe’s has been working with avatars to understand how consumers travel throughout the store, what time of day, and what type of cart they are building, among other data.
Lowe’s taps into digital twins
Read article
Fresh Del Monte Produce invested a 39% stake in Jordanian and U.K.-based startup Decapolis, a blockchain-powered food safety and quality assurance provider with a view to improving food safety, tracking, and traceability across its products and services. By using QR codes, Fresh Del Monte can increase visibility into all stages of production, starting first with implementing the technology in its pineapple operations in Costa Rica, and eventually launching across all of its business segments.
Del Monte invests in traceability and tracking
Dollar General recently went live with its first distribution center to feature large-scale automation in South Carolina, with the ability to deliver half of the SKUs served from the facility to over 1,000 stores, lowering their cost to operate. This effort to automate the delivery of goods to individual stores is part of an overall effort to overcome supply chain issues.
Dollar General embraces automation
Walmart has fully embraced the use of AI in the workplace including the recent rollout of a new AI “assistant” — one of many generative AI tools in use — across 50,000 corporate employees. Additionally, CEO Doug McMillon told shareholders during a second-quarter conference call that Walmart would focus on enhancing its use of generative AI to better understand its customers and improve the supply chain, also pushing its technology savviness with drone delivery services in some stores.
Walmart expands generative AI efforts
The Absolut Company, a subsidiary of Pernod-Ricard, enlisted Opcenter from Siemens to cover its entire value chain, from receiving incoming materials to distribution of produced goods, including quality control, product planning and scheduling as well as reporting, trend, and advanced analysis. “With fully automated production lines and increased regulatory requirements there will be a need for increased traceability of product data and integration with business systems,” says Emil Svärdh, senior automation engineer for The Absolut Company.
Pernod Ricard gains digital edge
The Roadmap to the Future Awaits, What Will You Do About It?
That’s why RIS News and Retail Leader are joining forces to debut Value Chain Tech, a unique new annual event focused on the technologies that power the key pillars of value chain success.
Join a New Event for a New Era
Forward-thinking supply chain leaders have a once-in-a-generation opportunity to transform their operations into strategic, value-driven ecosystems that can play a pivotal role in shaping strategy and delivering organizational value.
Be a part of the innovation influencers at the forefront of driving the value chain forward. Level up your role, your business, and your industry.
Artificial Intelligence Machine Learning Internet of Things Automation Blockchain Intralogistics Smart Robots Cloud Computing Unmanned Vehicles 3D Printing Rcognition Technology Digital Manufacturing Solutions Three-Dimensional Simulation Advanced Logistics Technology Digital Twins Cross Organization Data Visibility Advanced Analytics Advanced Data Communcation
