Achieving Competitive Advantage: Aligning Product, Marketing & Supply Strategies

Transcription

1 Achieving Competitive Advantage: Aligning Product, Marketing & Supply Strategies Forum Date 09 July 2009 Chair Charlie Wagstaff, Founder & Managing Director, Criticaleye Speakers Nick Miller, Crimson &Co Séan Rickard, Cranfield School of Management Andrew Moore, George (ASDA) Peter Watson, Criticaleye Introduction This Criticaleye Forum, sponsored by Crimson and Co, looked at competitive advantage gained through supply chain excellence. Companies must ensure supply chain, marketing and product strategies are strongly aligned to lead in their industry when the economy bounces back. Speakers at this Criticaleye Forum included Nick Miller, Crimson &Co, Séan Rickard, Cranfield School of Management, Andrew Moore, George (ASDA), and Peter Watson, Criticaleye, who explored many aspects of supply chain and what leaders should demand of suppliers to gain advantage. Speeches A good supply chain can easily adapt to new customer propositions, said Nick Miller, Principal at Crimson & Co, the first speaker of the day. The current economic climate has brought the need for this adaptability to the fore. Though difficult, turbulent times also present opportunities. To embrace these opportunities you need to develop new customer propositions quickly and faster than your competitors, he said. How can your supply chain help you do this effectively and efficiently? 1

2 Alignment The supply chain must be aligned to your company s business needs. It is a relatively simple notion, but it s surprising how little it is implemented in the business world, Nick said. A commodities product company competing on price will fundamentally need a low-cost supply chain. To achieve this, you could for example take manufacturing to a country where it is cheaper to operate. Much research shows that a supply chain aligned to business needs creates an enormous competitive advantage. Supply chain segmentation Few organisations offer one product to a single customer group. Therefore most companies need to be able to serve efficiently many different needs from the same basic infrastructure, in effect running many supply chains at once. Supermarket chains offer a great example of this in action as they have expanded into different sales channels and different expanded product ranges such as home delivery and catalogue sales. Adaptable supply chain The real key to success is an adaptable supply chain, one that can support a new customer proposition not just quickly, but economically and sustainably. A new segment is created in the supply chain does this click smoothly into place, or disrupt, create cost and complexity? An adaptable supply chain has: - Mature, strong processes in all areas. If you have these skills and capabilities they can be applied to new needs triggered by a new customer proposition - In particular, strong, integrated planning processes which have a truly end-to-end view. SO&P is a good example; this is often the key process for managing change and keeping the alignment of supply chain to business and marketing strategy. This effectively polices the supply chain alignment. Andrew Moore, Supply Chain & Merchandising Director at George, a whollyowned subsidiary of Asda/Wal-Mart and third largest retailer in the UK by volume, launched his talk with a quote from the founder of Wal-Mart. When asked his views on the recession in the 1980s and San Walton said, I thought about it, but decided not to participate. But being in the value sector doesn t necessarily mean that you will do well in a recession, Andrew warned. Woolworths is a good example of this as is the wide discrepancy between sales of value retailers in the US. In order to gain competitive advantage, George focuses on five key areas, which Andrew then summarised for the group. 2

3 Customers This is the most customer-centric company I have ever worked for, he said, adding: Our mission is to save our customers money everyday. Every month, George (Asda) talks to 10,000 customers through surveys, customer blogs and listening groups. This provides insight into what customers like and don t like about the brand. It also gives George an understanding of what is going on in the lives of its consumers. For example, research has found that George s consumers are now nervous about job security, which has resulted in changing spending habits. Product We ask customers, What do you want of George and what do you expect of the product? Andrew said. And the answers are consistent. They want clothing that has been well designed, reliable quality and great value. We buy about 30,000 different products a year. Every product we buy is designed in house; nothing is bought on spec or the grey market. Following a period of underperformance (where too much focus was placed on price and not product), George now works on a basis of no compromise. We were driven by price, but price doesn t work alone. There has to be a balanced equation of price and quality to equal value, he said. Supply base George has a dedicated team of suppliers that manufacture all of its merchandise. I think good management of a good supply base is the source of competitive advantage for any retailer, Andrew said. He meets with top suppliers on a monthly basis and has found that by working together, they can strip away cost, unnecessary time and process. George has all of its suppliers factories independently audited, upping the demand for speed and quick response to new and emerging trends and ensuring a sharp focus on ethical compliance. Process Getting the right merchandise in the right stores at the right time is easy to say, asserted Andrew, but not easy to do. For George that means speed throughout the supply base and physically throughout the chain. In this volatile market we need to be able to respond as quickly as possible to emerging trends, Andrew said. The supply chain, warehousing and logistics network, is key to creating competitive advantage. We own our warehouses and trucks which is 3

4 important from a speed perspective. Even if we have the most efficient supply base, if we can t get the product into the store, we lose that benefit, he said. George has also invested in user-friendly IT systems so buying teams can become more responsive to the market and spend more time on innovation, quality and product development. The alignment of the supply chain and buying operations should be focused on customer service. This is about full availability meaning, the customers ability to buy what they want, in the colour and size they want, at the store they want. This is what their supply chain is working towards. Price Price is an obvious source of competitive advantage but how do you undercut the competition? Andrew suggested there are a number of factors that need to be considered: - Globalisation the ability to buy fabrics and products from high quality factories around the world. - A local cost to operate. Removing unnecessary cost and non value adding activities from the business operating model. - And of course, scale to buy in large quantities to secure better values. Also playing into George s sustainable low pricing is a slick buying process and quick response time and scale. The next speaker, Peter Watson, an Associate at Criticaleye told of his experiences throughout different recessions. I joined GKN just as a recession was beginning and throughout that downturn, I noticed a lot of mistakes being made. We survived but only because of what we had done in the good times, not the decisions taken during the recession, Peter said. He felt that the hard decisions were often taken too late and that suppliers and customers failed on a regular basis, which was usually a surprise to leaders. A supplier or customer going out of business should not come as a surprise. Peter recommended that to stay ahead of the pack during a recession you have to know how secure they are. In these hard times you need to know before the customer goes into liquidation, he says. A downturn is also a good time to cut your supply base down. Another mistake that organisations make during recessions, Peter says, is freezing recruitment. It is his belief that you need more management in tough 4

5 times. Look for younger people who can put more energy into the company, he offered hard times require more resources because hard times are hard to manage. Finally, Peter warned that leaders remain aware of their firms images. You have to take tough decisions and ensure that your organisation is perceived properly by the outside world, he said, adding: Because although the times are hard, you can emerge from them. I suspect, like me, you are fed up with hearing about the economy, said Séan Rickard, Senior Lecturer in Business Economics at Cranfield School of Management. Sean then offered an overview of the current state of the economy. The economy runs on confidence. The more confident people are, the faster it will recover. It is people s attitudes that really matter, and we all have responsibility to play in that arena, he said. Séan believes that the evidence is gathering that the recession is bottoming out. Although there will continue to be bad news for the next couple of years, the full brunt of the storm has been weathered. The severity of the decline took everyone by surprise, which in itself is a good thing because it showed how responsive the economy is now as compared to recessions of the past, he said. The previous ten years saw amazing growth on the back of globalisation, which along with breaking down trade barriers, also featured the fantastic growth of places like China and India. The average rate of growth in the UK was three per cent higher than the previous 10 years. But we now know that a lot of that wealth was built on fiction. The wealth creation was delivered on banks inflating asset values and not creating wealth. Consumers were spending too much and increasing their debt levels. The government was spending like a drunk in a brewery ; there was too much emphasis on financial sectors and not enough on manufacturing sectors, resulting with the UK having one of the lowest manufacturing levels in the developed world. The recession is correcting these imbalances; the fall in the pound has improved our overseas deficit. People are now saving a lot more, which is something they should have been doing all along. Globalisation is not going to reverse itself but the pace will slow. Concluding, Séan argued that the swing towards protectionism is unfounded. If the UK does it correctly we will come out of the recession with a more balanced economy in the next four to five years. 5

6 The speakers were then asked questions by the audience. The following is a summary of the panel s responses. Question and answer Why do different retailers look at supply chain so differently? Different products need different supply chains; there are no silver bullet models. Your supply chain should depend on your competitive advantage, but the recession has had a Darwinian effect on cost-cutting and many retailers have started to entertain the idea of partnering with competitors. Will innovation and the web cause supply chain to change? Most agreed that the internet is causing companies to be more innovative with their supply chains. It is a disruptive technology, said a participant, but innovation comes from those you successfully exploit these types of disruptions. Selling merchandise on the web is becoming increasingly popular, but the speakers warned that you have to understand what your customer wants. A member of the audience said that Apple was a good example of this. In AMR research they won the award for the best digital supply chain and being the most customer focused. What factors led George to bring their supply chain in-house? George s supply chain is done in-house because it required complete control over the process. It was about bringing down costs, and increasing efficiency and control, Andrew said. It is also about reducing risk. He conceded that this is not something to which every company can commit. There is a significant financial aspect to owning one s entire supply chain. This then started a discussion about efficiency and control in the supply chain, and if retail companies should alight the empty space across the retail sector. The consensus was that this is not done because competitors would be unwilling to share their corporate intelligence. But the recession is changing people s minds about the idea. What are the new trends in supply chain? There is an increase in outsourcing, said a speaker, it may solve problems that some companies have, such as empty warehouse space, but it can cause new management issues. 6

7 Organisations are also challenging themselves to optimise their supply chains and looking at them more holistically. The idea of competitive collaboration was mentioned but many agreed that this was not happening because companies do not want to cede control of their supply chains. How is sustainability driving some supply chain initiatives? The consensus among the speakers was that sustainability is the main driver of innovation in supply chains, although, at the moment, economic sustainability is most important. Sustainability is a big driver for retailers. They are under pressure from the government and customers to reduce packing and the use of plastic bags. For further reading on supply chain from the Criticaleye Community, please follow this link to the Operations section of our website. Criticaleye ( as a community of senior executives, provides members with an experiential platform that allows them to innovate and develop by sharing business experiences and expertise with their peers from different industries/functions. For more information on Executive Membership please contact Tom Beedham on +44 (0) or tb@criticaleye.net 7