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Preparing functions for growth

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12th Aug 2011
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Individual functions, such as sales marketing, operations and the supply chain, can contribute to the overall objective, explains Rod Newing.

This follows on from an earlier article which looked at the overall need for organisations to keep costs under tight control, without damaging their ability to benefit from the eventual upturn.

Although these three departments constitute the internal supply chain, they are part of the multi-company external supply chain stretching from raw materials right through to the consumer.

Whereas improvements can be made internally, the largest gains come from working with suppliers and customers to find better ways of working together.

“In bad times, you are more likely to be looking for alliances that can help you with cost reduction and risk reduction,” says Vasant Prabhu, vice chairman and CFO of Starwood Hotels & Resorts, a hospitality chain. “In good times, you are thinking more about alliances that can help you with growth and investment issues.”

Case study: Skullcandy

Skullcandy, an audio brand, was growing more quickly than expected. Lack of inventory control and visibility over the supply chain was becoming a real pain point. The business implemented SAP ByDesign to deal with these issues and support future growth.

“When you have four or five different systems managing one process, it is challenging and humans make errors,” says Jeremy Andrus, Skullcandy’s president. “Integrated systems take all those potential human errors and reduce the risk, giving us a chance to focus more on customers and less on spreadsheets. We went from a small system and a lot of human labour and input to something that was much more process driven.”

CFO Research Services, in collaboration with Ariba, a supply chain software vendor, recently published ‘The New Deals, Why Companies are Deepening their Alliances with Customers, Suppliers, and Bankers in a Post-Recession Economy’. This report found that as the recession eases its grip on the economy, finance executives say they will take closer collaboration with customers, suppliers and bankers, the survival tactics they have used in recent years to cut costs and ensure liquidity, and apply them to pursuing top-line growth.

58% of respondents say their company is more likely to pursue strategic partnerships as a result of the economic downturn and nearly 80% say their company’s external relationships with suppliers, customers and business allies will be “very important” to their ability to thrive in the recovery. They will forge new partnerships and deepen existing ones to improve their working capital positions; forecast demand with tighter precision; and respond to emerging business opportunities.

The organisation’s ability to use its supply chain to reduce costs by increasing efficiency, and increase growth potential by speeding up its responsiveness, depends entirely on its staff and systems having the tools needed to communicate with each other to share information, especially forecasts and transactional data. Staff must also be able to work together, both internally and with supply chain partners, to innovate, solve problems and find new opportunities to harness technology or new materials to develop new products or make business processes for efficient and effective.

Sales and marketing

In a struggling economy, it is critical to keep existing customers loyal by continuing to give them a high level of service, while taking every opportunity to offer them new products and services, as well as attracting new customers. This means streamlining customer service and strengthening customer relationships. Organisations must analyse their customer base to identify their highest-value customers. These can then be prioritised with a higher level of customer service, as well as targeting them with relevant offers, based on their history or potential.

Most of all, organisations should ensure that all customer-facing staff have the information and tools they need not just to meet customer needs as quickly as possible, but also to cross-sell and up-sell. This converts a customer encounter or problem into an opportunity to build a more profitable relationship.

Case study: Li & Fung

Li & Fung, a 100 year-old global trading group based in Hong Kong, has created significant competitive advantage through innovation and skilled supply management. The group overcame internal silos to coordinate a complex network of suppliers that span more than 40 countries, creating an organisation with almost 35,000 employees and annual revenues of US$16bn.

“Competition is no longer between companies, but between supply chains,” says Victor Fung, the group’s chairman. “For example, to fulfil an order for shirts, the yarn might be sourced from South Korea, the dyeing and weaving from Taiwan and the final production completed at several mills in Thailand. At each stage we consider the best place to produce the component we need. The end-product becomes truly globalised.”

Technology provides a view of the entire process to all partners. Suppliers are informed of shipment dates and other key aspects of an order, allowing them to optimise fulfilment. They can also discover potential cross-selling opportunities, and even offer alternatives.

“It is this kind of intimate knowledge of suppliers and our ability to co-ordinate and influence them that put us in a position,” says Fung. “We can stitch together a network of suppliers to satisfy orders from anywhere in the world.”

“It is more important than ever that organisations protect their customer base, particularly as we prepare for an upturn,” says John Antunes, head of SME and the channel at SAP UK and Ireland. “To do this they need to ensure that skilled employees are able to work efficiently to provide the best possible services for the company. As a business grows, more and more pressure is put on existing systems to support the day-to-day operations. If these systems are inadequate, the skilled employees who have helped grow the business are swamped with time consuming administration tasks.”

Using more sophisticated analytical techniques and tools can help to determine the effectiveness of each marketing campaign, helping both to save money on future campaigns and to increase their effectiveness through better targeting. Analysis can also help to identify changes in buying patterns, helping the organisation to respond rapidly to new trends and opportunities.

“Customers are becoming increasingly discerning buyers,” says Mike Darby, a partner within Deloitte’s consulting practice. “They no longer want something - they want it today, in the colour of their choice, with their personal stamp on it. If they are to attract and retain business, this means being able to respond quickly to rapidly changing customer preferences.”

It is also important that the sales staff record accurate pipeline information, in order to validate the sales forecasts that drive much of the decision-making. The organisation must also ensure that it maintains consistent brand, presence and inventory management across all parts of the company that deal with customers across multiple channels.

Operations

The operations department is responsible for supporting sales and marketing through effective execution of a wide range of processes, including procurement, manufacturing, logistics, distribution and supply chain management. The effortless flow of large quantities of information is vital to cutting down costs and speeding up response times.

“Information is often held by individual procurement or manufacturing teams,” says Chris Purcell, product marketing manager at Epicor, an ERP provider. “Total visibility can find anomalies, help consolidate costs and ensure that you are always balancing cost with availability and quality.”

The first step to both cutting costs and handling growth is to eliminate time-consuming and error-prone data re-entry, resulting from multiple systems that are not integrated. Even worse, is entering data being read over the telephone as it is read out from a customer’s system, when the order should be received electronically to avoid manual effort and errors.

“Operations must support growth by making themselves as agile and lean as possible,” says Hugh Williams, managing director at Hughenden Consulting. “That will ensure that the supply service is as flexible and responsive as it can be, with the sole objective of giving the sales and marketing team a sustainable competitive advantage. That could mean implementing short lead times, rapid and controlled responses to changes and fast introduction of new products or modifications, without sacrificing quality standards.”

The obvious areas to start are automating common internal tasks and exchanging electronic data with business partners, vendors and suppliers across the supply chain; providing collaborative systems to help staff communicate and collaborate across time zones and between organisation; and using ‘self-service’ techniques to let users generate their own reports.

All financial managers know about the importance of minimising capital tied up unproductively in inventory. However, Williams warns that inventory also has a huge impact on operational costs, needing people to monitor, move, store, find and count it. “Industry experience tells us that every £100 of inventory costs a minimum of £25 to manage,” he says.

Supply chain

Case study: ClearChoice

ClearChoice Careers is an online recruitment consultancy founded in May 2009. It started with a small marketing budget and no brand recognition. At the request of one of its key customers, it joined the Ariba Network, a network of 500,000 companies of all sizes in all industries around the world, primarily to ensure that the company’s invoices were paid.

“We joined with little knowledge of what impact it would make upon our business,” recalls Shirley Brzeski, managing director at ClearChoice. “We were pleasantly surprised by how it streamlined our cash management and accounting administration processes.”

The network’s business matching service has significantly raised ClearChoice’s profile among the world’s leading and largest companies. “It has been instrumental in the realisation of our expansion plans,” says Brzeski. “We have achieved a 500% increase on gross profit from year one to year two of trading.”

The supply chain involves working with external suppliers, customers, outsourcing service providers and other partners. “Building a business is about more than finding leads,” says said Jason Kurtz, vice president, network and financial solutions at Ariba. “It is about connecting with the right buyers at the right time and effectively managing trading relationships throughout the commerce lifecycle.”

In most organisations more costs can be cut or more efficiencies realised by working externally to find better ways of doing business as a supply chain, than by just working internally. In particular, time must be analysed, not just volumes, to reduce response times.

“Organisations have to deal with rapid change in their supply chain,” says Epicor’s Purcell. “Raw material availability alone has become more volatile and costs have risen dramatically. Agricultural input costs are 2.5 times higher than 2008, copper 2.3 and cotton nearly five. Managing costs and availability in the supply are key to success in securing growth and future sales.”

However, there is a final warning from Deloitte’s Darby about the need for supply chain functions to have a more prominent role in delivering business performance. “Board level perceptions of supply chain as a ’back office function’ must change,” he says. “A significant investment must be made in recruiting and training the best people to lead what will be a complex, but increasingly critical area of the business.”

Take a look at Rod Newing’s initial article in his Agenda for Growth series - Surviving into growth.

Rod Newing is a freelance writer and journalist writing on general business, management, technology and health issues.

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By Jim
15th Dec 2011 08:23

The comment on consumers as discerning buyers is not very insightful.  This has been the case for quite some time.  While being responsive to consumers' demand is key, supply chain operations need to be proactive, not reactive.  

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