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Y2010 & Ahead – value chain trends in emerging economy – Part 1

It takes a crisis to bring out the best of our innovation and constructive potential. A crisis helps us focus on finding and doing the right things and breaking the barriers and maintaining status quo.  This has been a common theme for most of my clients who I have been associated with in Y2009. As the economic recovery seems to be taking roots, I anticipate the following trends to strengthen especially in the manufacturing sector, as we look at Y2010 and beyond.

1. Customer side equations will take prominence over rest of value chain: This is one of the key shifts I have observed to be happening across the cross-section of the clients I have worked with in 2009. The customer focus seems to have taken a fundamental shift and I observe that organizations today are not just focusing only on standard pre-sales (SFA – lead generation, lead capture, lead qualification and conversion) and post-sales case management activities, but are also looking to find deeper insights into customer behavior, segmentation and develop deeper relationships. Customer service function, which traditionally used to be a peripheral function, is becoming more central (most of my customers are increasing spend in augmenting customer service capabilities and integrating customer service with backend functions) to organizations as part of the new customer acquisition and retention strategy.  

2. Supply Chains will get more integrated with marketing and service chains: While supply chains will continue to become more organized and get more attention in the new ecosystem, my opinion is that the supply chain function itself in undergoing a fundamental shift and the boundaries between traditional planning and execution functions is almost becoming non-existent. Demand Planning has come a long way from just being statistical forecast driven numbers to consensus & collaboration based forecast to now also include market intelligence, competitor analysis and getting directly plugged into the upstream CRM function – lead generation and lead qualification. Similarly supply planning is no longer a batch oriented process where plan which gets created first, then shared and then modified and re-planned. Supply signals today are more received, processed in real time and corresponding supply decisions – new order, supply transfers / deployments happen much more frequently in some cases on hour- to-hour basis. Today the focus is more on improving the execution efficiencies and strengthening the visibility through better and real time connections with suppliers, channel and distribution partners and customers.  There are clear signs of convergence of supply chains with the marketing & sales whether it’s forecast consensus or collaboration or determining the shipment plans from manufacturers to retailers (the shipment based on historical patterns are being replaced more by weekly store / shelf plans based on sell-through as well as marketing calendars). Similarly the post-sale customer service integration with supply chain function is also tightening – whether it pertains to quick replacement of a service part or cutting lead time on repair of a defective part. Some of my clients are clearly investing in these areas and focusing on improving service capabilities by restructuring supply chain function to strengthen in reverse logistics and post sale customer service operations.

3. Speed and responsiveness will be key drivers for spend on new initiatives: As the economic recovery sets in, I see clients focusing on improving the capability to sense and respond to the new growth opportunities and make investments in every area of value chain to enable speed and responsiveness. This includes augmenting lead management capabilities to also drive rapid growth through channel partners, to rapid product introduction leveraging design partners, to ensuring supply coverage of critical commodities, to enhancing capabilities to provide more customized offerings based on modular configuration, pricing and quoting ,to tighter and effective allocations management, smaller and frequent replenishment loads through distribution partners, enhancing customer service and leverage social media to control returns, recalls as well as find new opportunities to increase cross-sell and up-sell through customer service centers.
While I find the above trend to be shaping up in almost all sub-sectors of manufacturing, it’s especially more visible in the high-tech and consumer electronics sectors where rapid product introduction every 3-4 months means there is only one chance to plan & execute the entire plan including inventory levels, allocations,  supplier / manufacturing orders. The “plan driven execution” strategy is giving way to “execution driven re-plan”. As Dan Gilmore of SC Digest describes this as “shortening of gross margin” cycle, the need for improving speed and responsiveness is no longer a differentiator but a necessity in today’s extremely competitive environment.

4. Cost will continue to play critical role in decision making: While the recovery is onset, focus on keeping costs low will not only continue but will take on new levels including looking for complete outsourced model for not only peripheral functions (payroll, accounting etc), but also for mainstream functions such as supply chain planning, customer service & support. Another key trend is sharpening focus on breaking the silos in multi-divisional / LOB structure and standardizing / automating processes and reduce duplication and management overheads. On-demand / pay-as-you-go barriers are seems to be getting lowered, however the skepticism around data security & privacy are still prevalent. Another dimension of cost prudence is reflected in the cost of (non-)compliance and maintaining reliable business partners (increase in supplier risk in the downturn has made most of the organizations re-look at their sourcing strategy and evaluate supplier viability for continued business). I have also observed another shift in most of my clients in terms of signing up for new initiatives. Most of these are short term initiatives with well defined ROI. Even large initiatives are being chunked up into several smaller ones with deployment not exceeding more than 8-9 months at a time (the average initiatives these days are now 2-3 months at max). 

5. Asset Management will gain more prominence and will help in accelerating “green” initiatives: Asset management which has traditionally been more dormant or passive function seems to be gaining traction with more and more organizations focusing on leveraging assets (plant, fleet, machinery, buildings, office equipment) to not only support the ongoing operations, but also to change the mix to incorporate more “green” and reduced carbon footprint. The US federal initiatives and incentives on Smart-grid is already generating significant momentum from the industry bellwethers such as HP, GE and IBM. Quite a few of my clients are making investments in new projects ranging from understanding the existing carbon footprint to determine what / how they should invest in new assets and / or leverage the new assets to meet their new “green” goals. The journey in this direction has just started!

In the next part of this blog I will share some insights on technology / IT trends linked to the above themes.
As always, will be curious to know your thoughts and comments!


Comments

One of the things I observed was that the businesses in order to improve the speed, efficiency and effectiveness of the execution aspect are willing to invest in workflows, personalized content mgmt, multi channel technologies - email/ sms alerts, windows pda customized screens etc

Vikram, I completely agree with your comment. This is indeed one of the supporting trends on the technology side. The workflow management itself has advanced and we see convergence of BPM and Rule Management technologies. I have covered these aspects in my technology blog which will appear shortly.

Thanks for reading and commenting.

Some interesting thoughts for 2010. The shift in supply chain focus from cost elimination to revenue enhancement is an important one that took a back seat in 2009 for understandable reasons. In an environment where nobody could define the market ‘bottom’ the economic certainty in pursuing cost reduction was an easier bet and probably a necessary one for most companies. With more stability emerging in forecasts for 2010 but little in the way of market volume recovery it is time to rebalance that equation. Investment decisions will remain conservative but we are already seeing leaders in the high tech space use this time to build share in a difficult market environment.

Hi Lorcan, thanks for your comments. I absolutely agree with your views and I see the opening up of funding for new initiatives in many of my high tech clients. The key shift is in the kind of initiatives passing the go-no go threshold and I see the ones that are getting the green signal pertain to #1, #2 and #3 in this blog. Another key change in the new spend trend is projects with shorter ROI getting approved quickly. Would love to hear how's it working for you and if we can help. You can reach out to me at: atulcp@infosys.com

We too are experiencing that prospects and customers are focusing a lot more attention on customer satisfaction as it pertains to on-time delivery of orders, but also to the enquiry-to quote and quote-to-order processes.

I couldn't agree more with your second point. Overall the trend we are observing is that consumer behavior is pervading B2B transactions with ever shorter lead times. Coupled with the adoption of Lean and postpone strategies, companies have to be very responsive to changing demand, blurring the lines between planning and execution. These are the business drivers for your third point about agility and responsiveness.

Cost will always be a driver in supply chain management. If we adopt any of the Lean concepts it should be the elimination of waste. All to often I come across situations where the information and decision lead time exceeds the physical lead time to manufacture and/or deliver the order.

Sure Trevor. You have hit the nail on the head regarding the longer information (not data) aquisition lead time compared to the SC lead time. Due to rapid product introductin in almost every sub-segment (especially in manufacturing) now, the need for real time analysis of change is paramount to making the right decisions within shrinking decision making window. Kinaxis' toolset is clearly equipped to address this need.

Thanks for your comments.

Nice article and well explained. In the end it was interesting to know that the difficult times have turned the companies "greener" - I never thought about it. Would wait for next part.

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