I just heard Dwight Klappich, Research VP at Gartner interviewed on Supply Chain Digest and in the conversation he talked about supply chain process maturity.In that interview he made the following statement:
“90% of level 4 or 5 (supply chain) maturity organizations are above average or are leaders in their industry. Regrettably, conversely, you find out that for level 1 or level 2 maturity organizations, half underperform their peers, and almost all the other half are only average.”
With outcomes like Dwight mentions, organizations must at least understand what Supply Chain Process Maturity is and why it is important. There are a number of scholarly articles written on the subject and depending on who you read there are 4 or 5 levels in the maturity model. For the purposes of this discussion, we are using the CIPS model (Chartered Institute of Procurement and Supply - www.cips.org ),
Generally speaking, the process maturity levels can be explained as follows: ad hoc (Level 1), defined (L2), linked (L3), integrated (L4), extended (L5). Other studies break the supply chain into 4 levels of maturity. As organizations increase their level of process maturity they achieve real operational and financial benefits. The more mature the organization’s processes the more streamlined their supply chain operations become, the more visibility they have of product across the supply chain, the lower their total landed cost of product, and the greater their utilization of capital. Bottom line: Business with mature supply chain business processes are more profitable and therefore more competitive.
How does Supply Chain Process Maturity deliver results?
Streamlined Operations: As organizations move up the process maturity latter they are able to use technology to systematize the collection and sharing of data across functional areas and supply chain partners. They reduce manual activities related to data collection and management and increase the value-add of their employees and outsourced resources. They are better able to analyze and evaluate their supply chain options to take advantage of cost reducing opportunities.
There is often a rationalization of the supplier and service provider network. The more mature the supply chain processes the better able the organization is to measure the performance of their global supply actors and optimize their supply and logistics activities.
Purchase order management, coupled with logistics and trade compliance collaboration is more sophisticated and allows the organization to take advantage of lower cost opportunities by taking advantage of Ex works or FOB terms as opposed to CFR, CIF, or DDP terms, Trade Agreements, transportation optimization, tariff mitigation opportunities, and inventory rationalization.
Global Supply Chain Visibility: Global product visibility improves exponentially as process maturity evolves and collaboration between supply chain partners increases. Enhanced visibility supports visualization which in turn provides greater organizational understanding of product level management anywhere across the product’s supply chain lifecycle.
Visibility across all aspects of the supply chain increases the effective management of a product/SKU from an operational, risk management, sustainability, and financial perspective. Cross-functional visibility provides increased contextualization resulting in better demand/supply optimization. A holistic view of the supply chain allows for the reduction of risk from a transactional, regulatory, legal and financial perspective. Comprehensive visibility
Lower Total Landed Product Cost: Total landed product cost is an outcome of the entire procure to receipt activity. It really goes further back to the pre-purchase stages of design and sourcing. The more mature the supply chain processes are, the better, more integrated, and more collaboratively all the functional areas required to bring a product to market will operate resulting in optimally lower landed product cost.
Total product landed cost is a function of multi-functional, multi-disciplined activity. From the inception of a product (Marketing, Design, Engineering), to purchasing (Sourcing, Purchasing, Replenishment), to inbound logistics (Logistics, Traffic), to Trade Compliance (Product Classification, Denied Party Screening, Tariff management, Customs management), to Proof of Delivery (Warehouse /Lot receiving, FTZ, Proof of Delivery), to Payment, all these processes influence the landed cost of product. To ensure the lowest possible cost for a product requires collaboration of these various functional business units to eliminate costs (purchase, duty, freight) and take advantage of real cost mitigation opportunities.
Increased Capital Utilization: As supply chain business processes mature there is more communication and collaboration between internal business functions and external business actors (suppliers and service providers). The greater intra and inter organizational interactions are relating to supply chain activities the more efficient the processes become resulting in less inventory “safety stock” across the entire global supply chain.
More mature global business processes result in greater inventory optimization across the entire supply chain. The impact of improved product management throughout the entire source-receipt process is lower inventory levels which have a direct impact on cash flow, warehouse utilization, and freight spend. Reducing product and associated supply chain costs results in more internally generated capital to grow the business.
What is important is that an organization understand the importance of its supply chain business process maturity and position itself realistically against the paradigm so that it can mature and take advantage of what maturity has to offer.As Dwight Klappich pointed out, companies that reach high levels of maturity definitively outperform their peers. This has real consequences for poor performers because it means they are leaving critical value on the table - value that drives their future well-being and opportunities for growth.About 3rdwave
Ned Blinick is Chief Product Officer of 3rdwave.co. He has been involved in global trade for too many decades and he loves making the global supply chain simpler for everyone. If you would like to engage with Ned he would really enjoy the opportunity of communicating with you or your boss. He can be reached at (416) 510 8800 ext 234 or at firstname.lastname@example.org.