While I’m a firm believer that innovation, not emulation, is the way forward for any company wishing to differentiate through its supply chain, I also believe that reinventing the wheel is something to be avoided if possible.

What I mean by this is that there’s no harm in observing companies with best-in-class supply chains, noting the processes, practices, and initiatives that serve them best and adopting them in a way that fits your own enterprise.

 

Bob Iger Quote

 

So in order to perhaps spawn some ideas for your supply chain excellence efforts, I thought I’d offer a brief overview of how four leading organisations are achieving their successes and cementing their mastery of the 21st century supply chain.

 

4 Leading Operators with the Supply Chain X-Factor

 

1. Unilever’s Supply Chain: A Lesson in Responsibility

If Gartner’s Top 25 Supply Chain rankings are anything to go by, Unilever is THE world leader in supply chain operations, at least in 2016. So how has the FMCG giant secured such success?

 

Unilever Carbon Footprint Statistic

 

The answer lies in the company’s commitment to corporate responsibility and sustainability. By way of its sustainability objectives, Unilever is enhancing all the characteristics inherent in best-in-class supply chains.

 

The Sustainability Drive

Unilever has sustainability at the very heart of its business model, extending all the way through the supply chain from distribution to procurement. For example, by 2020, Unilever expects to sustainably source 100% of its raw materials, even those used for packaging.

 

Unilever’s pursuit of environmental responsibility even reaches out to consumers, by developing products such as washing powders which are effective with minimal quantities of water.

 

Of course Unilever also recognises the sustainability impacts of its internal supply chain activities. Through initiatives such as sustainable power utilisation, 600 tons of carbon was removed from the firm’s supply chain over a three-year period to 2013, with the added advantage of massive cost reductions, according to its Chief Supply Chain Officer.

 

Sustainable Supply Chain Lessons from Unilever

If you spend some time studying Unilever’s supply chain model, you’ll find plenty of ideas that you might take away and seek to apply in your own organisation. For example, the following two points are worth considering for any business aspiring to supply chain sustainability:

  1. The adoption of sustainable practices is a cost saver.
  2. The biggest challenges lie in the parts of your supply chain that you have little control over, but that shouldn’t stop you from targeting sustainability in areas such as customer and supplier behaviour.

Is sustainability a viable growth strategy for fast-moving-consumer-goods brands? Unilever believes so, as evidenced by its vision to double in size as a company by 2020, while leaving a smaller carbon footprint and placing less demand on the environment than it does today.

However, success with sustainability does require significant change, not only in policies and procedures, but in the very culture of a company and its partners.

 

An effective sustainable supply chain requires total alignment, which for Unilever, has meant parting company with some suppliers unable or unwilling to share their customer’s mission and vision.

 

This no-nonsense approach, along with the appointment of a Chief Sustainability Officer heading a division devoted to sustainable strategy, is a clear indication that Unilever’s executive team fully accepted and committed to the need for change. This is something to take on board too, not only if you’re considering a sustainable supply chain, but for any major change initiative.

 

2. McDonalds Supply Chain: An Appetite for Collaboration

While McDonalds as a company has the capability to polarise popular opinion, there can be no doubting the company’s supply chain success. However, McDonald’s leaders are the first to attribute this success as much to the company’s partners as to internal management effectiveness.

 

Ray Kroc Quote

 

Collaboration has become something of a supply chain buzzword of late, not without good reason. But in fact, McDonalds has been nurturing a collaborative culture since the company launched back in 1955.

 

The premise is simple. If McDonalds’ restaurant owner/operators and suppliers do well, so does the company and its shareholders. The philosophy? “None of us is as good as all of us.”

 

That philosophy is responsible for the global reliability and consistency of McDonalds’ product and service delivery. Of course this wouldn’t be possible without some kind of system, and McDonalds has that honed to a fine art too.

Guided by a number of key rules which support standardised processes while enabling individual solutions within each supplier/buyer relationship, the McDonalds supply chain is focused on excellence in four key characteristics, namely:

  • Cost mitigation
  • Health and safety
  • Quality
  • Innovation

 

Outcomes First

One of the rules guiding McDonalds in its supply chain operation is to focus on outcomes, not on transactions. The company will only work with suppliers prepared to involve themselves in long-term relationships.

While this requires trust-building and commitment from both parties in each relationship, the result is more than worthwhile. Committed relationships between the company and its suppliers enable McDonalds restaurant operators to focus on the customer experience, without worrying about supplier performance management.

 

What is More Important Than How

You’ll notice that there is no question mark at the end of the heading above. That’s because it’s a statement, not a question. McDonalds’ suppliers know that they are not being micromanaged, and are free to develop innovations to improve service, reduce costs, and even create better products. In short, McDonalds is focused on what its suppliers can do to improve the supply chain, not how they do it (as long as solutions meet with McDonalds exacting principles of safety and quality).

 

Measurement Leads to Management

While micromanagement is not a McDonalds feature, it doesn’t mean the company is laissez faire when it comes to supplier performance. Suppliers are measured using factual performance indicators covering pricing, quality, innovation, and reliability, to name but a few of the measurement components included in the “McDonalds Supplier Performance Index,” as the suite of metrics is known.

The measurements however, are just a means to an end, with the KPI-driven conversations being considered more important than the actual metrics. Like everything else in the McDonalds approach to supply chain management, KPIs are in place to provide insight and support alignment, not to lord it over suppliers.

Now we’ve spent some time looking at a company focused on sustainability in its supply chain, and one with collaboration at its core, let’s move on to another renowned supply chain operator that tries just about everything to stay ahead of the curve.

 

3. Amazon’s Supply Chain: Acting Outside the Box

I probably don’t need to tell you that Amazon is a master of supply chain innovation, what with its passionate commitment to implementing drones in the future, the use of robots and advanced automation in its distribution centres, and the enterprise’s excursion into Uber-style logistics services.

 

Jeff Bezos Quote

 

In fact, it seems there are almost no home-delivery markets the former online book-store won’t try to corner, and no method it won’t try in order to do so. So diverse is Amazon’s range of fulfillment services in fact, that it’s becoming hard to tell if the company is a retailer or a third-party logistics provider.

 

However you wish to describe Amazon though, there is no doubt that its leaders are experts not only in thinking, but also in taking action outside of the box—especially when it comes to warehousing.

 

Indeed, if a warehouse is a box, Amazon is fully prepared to take its operation inside the boxes of other companies, especially if those companies are Amazon’s suppliers.

 

Boxes Within Boxes

Innovation is the key to supply chain excellence, and it’s something which sits at the very top of the Amazon business agenda. For example, one of the online-retail empire’s latest moves has been right into the warehouses of consumer goods suppliers such as Proctor and Gamble.

 

Yes … Amazon is moving into the consumer staples market and in order to do so, has set up dispatch operations inside its suppliers’ warehouses.

 

While it’s not uncommon to hear of vendors co-locating with customers, Amazon is reversing the practice and operating under its vendors’ roofs.

The operation works as follows: the supplier picks products according to purchase orders from Amazon, and then moves the pallets into Amazon’s fenced-off area of the warehouse. Here, a team of Amazon employees sorts the products into outbound orders, packages them, and dispatches them to its customers.

The aptly named “Vendor Flex” program also creates a win-win situation for Amazon and its supplier. Amazon doesn’t need to take up space in its own fulfillment centres with bulky items such as diapers and tissue paper, and P&G can supply Amazon without the expense of over-the-road transportation—the goods only move from one area of P&G’s warehouse to another.

 

The Incredible Value of Crumbs

So what can we learn from the example of Vendor Flex by Amazon? How about the fact that innovational concepts don’t have to be overly complicated in order to be brilliant? By taking an established concept (vendor-managed inventory) and turning it on its head, Amazon is making its entry into a new market less expensive and more practicable than it would otherwise be.

As a final takeaway from Amazon’s supply chain mastery, consider this: The company is selling consumer staples; commodities for which online demand is actually very low. Few consumers are currently attracted to online purchases of household consumables.

 

So why is Amazon going to the trouble of picking up crumbs in this particular market?

 

Here’s the reason … even though American shoppers buy only 2% of their consumer staples online, that tiny portion of volume amounts to somewhere around $20 billion. Sometimes then, leveraging your supply chain to pick up small slivers of business can be a way to boost revenue considerably—especially if those small slivers are in big markets.

 

4. Zara’s Supply Chain: Lean, Fast, and Agile

No article about top supply chains would be complete without the inclusion of Zara, the star of the fast-fashion retail world. Zara has been hailed as a leading supply chain operator for years, standing out not only against its competitors in the fashion industry, but against most other best-in-class supply chains across every commercial market.

 

Success of Zara Fashion

 

The primary keys to Zara’s supply chain success are agility, speed, the successful application of lean thinking, and vertical integration.

 

Let’s look at these qualities in a little more detail:

Bucking the Outsourcing Trend: Unlike most of its direct competitors, Zara is an apparel manufacturer—not just a retailer. The majority of Zara’s lines are designed and manufactured in-house, with suppliers located close to its manufacturing plants. In fact, the whole supply chain is geared to introduce new products quickly—a feat which becomes a lot tougher with outsourced manufacturing.

Fast Response to Trends: The ability to get new products to market in a matter of weeks is what enables Zara to capture the interests of its customers, however fickle and fleeting they may be. Only a small proportion of the company’s product lines are introduced for the beginning of fashion season, with the majority being designed, manufactured, and shipped mid-season, in response to shoppers’ latest tastes.

Small Lots Mean Little Waste: Waste is a major issue in the fashion industry. As already mentioned, fashion shoppers can be fickle and what’s popular in one month can be almost unsellable in the next. Zara has created the perfect supply chain to beat this challenge, manufacturing products in minimal lots, utilising just-in-time logistics and replenishing outlets with small but frequent shipments.

Not Too Little, Not Too Much: Balance, as well as agility is a mainstay of Zara’s supply chain strategy. While inventory levels are kept low as a result of the company’s just-in-time approach, the company maintains a little more manufacturing capacity than is normally necessary.

This controlled level of excess capacity enables Zara to quickly respond when demand for a product suddenly takes off. The manufacturing operation typically runs at full capacity for 4.5 days per week, leaving options open to bring in an extra shift or two, or add temporary labour as and when required.

 

Learn to Appraise Trade-offs Like Zara

Zara’s supply chain may be exemplary, but that doesn’t mean the company has everything its own way. This is an important lesson that can be learned from all best-in-class supply chain operators. Trade-offs must always be made.

In Zara’s case, the company chose to forego the raw material and manufacturing cost savings achievable by running plants in Asia, or outsourcing to Asian manufacturers. Instead, the company took the more expensive route of manufacturing in Europe. This is a choice which drives an advantage over most of Zara’s competitors though, because:

  • Zara can manufacture higher quality garments in Europe
  • Zara doesn’t have to foot high transportation costs to ship products from Asia
  • Zara can get its merchandise into European and American stores very quickly

Zara chose to take a different path entirely from its competitors, instead of trying to compete on their terms. The result was a huge success, putting Zara in a playing field almost all its own (as most existing competitors would have to completely overhaul their businesses to match Zara’s model} and allowing the business to scale up and corner its market, denying access to startups that might otherwise try to emulate its strategy.

 

Watch and Learn from the Best in Class

Each of the four companies featured in this article have molded their supply chains in a way that supports phenomenal business profit and growth. Of course, even for these supply chain leaders, the journey will not have been an easy one.

Like your own business, these companies will have suffered hardships along the way. They will also have looked at what their competitors are doing, or at what was happening in the supply chains of other industries.

 

Each of these companies has learned valuable lessons in the course of fine-tuning their supply chains.

 

While it’s vital to innovate in your own way, studying the strategies and tactics of best-in-class supply chains, like those of McDonalds, Amazon, Zara, and Unilever, can help you to understand what might work in your own organisation.

As long as you can tailor the practices of these companies to suit your own business, I recommend that you feel free to steal their ideas with impunity. After all, there can be no better best-practice than that practiced by the best in class. The key point to remember is that it’s better to adapt, rather than simply adopt supply chain best practices.

 

Contact Rob O'Byrne
Best Regards,
Rob O’Byrne
Email: [email protected]
Phone: +61 417 417 307