Networked value chain[SM]: Seizing the competitive edge in supply chain management - Cap Gemini Ernst & Young

Chief Executive, The, March, 2002

Are your inventory levels mounting? Do your customers complain about late deliveries? Is your once state-of-the-art supply chain software outdated? If you answer "yes" to any of these questions, then you should be examining your entire supply chain. Addressing specific areas, like inventory, customer service, or software will provide only short-term operational performance. To gain true, long-term competitive advantage-and reduce overall costs and increase efficiency -- companies need to take a more holistic approach to optimizing their supply chains. It is the integrated, end-to-end solutions, not the quick-fix, point solutions, that drive value and even revenue.

To assist companies in evaluating their supply chains, Cap Gemini Ernst & Young U.S. LLC (CGE&Y) has developed a high-level framework called the Networked Value Chains[SM] (NVC[SM]). Challenging clients to analyze their current business models, NVC provides a blueprint for achieving the ultimate, fully integrated supply chain, and identifies steps that companies can take to implement solutions that meet their specific business goals and needs, whether it is balancing inventory, raising customer service, reducing costs, or increasing revenue. Previously, supply chain solutions focused on improving one process at a time, such as procurement, transportation, or inventory. But invariably, when inventory costs plummeted, transportation costs rose, undermining the gains. NVC, on the other hand, reviews and incorporates several departments to help optimize results across the entire supply chain.

"Integrated solutions help optimize returns across multiple departments and help to trigger process and technology changes," says Pravesh Mehra, Cap Gemini Ernst & Young's B2B Supply Chain Service Leader in the Americas. By transforming the supply chain process and incorporating technological changes, the integrated NVC can help reduce costs and increase revenue, a true win-win.

Historically, supply chain management has presented numerous challenges. As new orders arrive, inventory moves in and out of the warehouse, and data changes quickly. NVC helps companies gain control of their supply chain data and workflow. "At the core of supply chain management is balancing demand and supply and gaining a handle on the demand on a minute-by-minute, hourly and daily basis," says Phil Robers, Cap Gemini Ernst & Young's Global Supply Chain Service Line Leader. "NVC integrates all of the different technologies and approaches including buying, transporting, designing, and manufacturing."

Building an adaptive supply chain

A key tool in building the integrated NVC is the NVC index, which enables companies to assess their supply chain capabilities, comparing its current practices to best practices. By using value calculators, consultants can determine whether it pays to improve certain areas and which are the priority areas to address. A consultant, for example, may opt to employ new software and databases to track demand and facilitate supply for the client. Making the supply chain visible to more staff enables the organization to better track order fulfillment, regulate manufacturing, and balance it with demand. Through NVC, companies can build an agile, "adaptive" supply chain and, ultimately, reduce inventory, quicken production, and meet changing customer demands and volatile market forces.

The adaptive supply chain and the adaptive enterprise

Indeed, an adaptive supply chain approach is especially useful today, when companies are competing in a volatile economic environment and are finding it increasingly difficult to forecast the future performance of their business or marketplace. An adaptive supply chain operation dynamically matches demand and supply, helps maximize revenue, and targets customers to boost revenue. It also enables a company to link order management with planning and forecasting and develop separate operations for customer segmentation.

By creating adaptive supply chain operations, companies are better positioned to tackle changes in the supply chain environment. Beyond that, an adaptive supply chain enables a company to become an adaptive enterprise, in which a company's key processes - and its technology - are capable of gauging and responding quickly to changes in the business environment, consider the best options to use capital, and grow ahead of its competitors.

NVC improves one company's forecasting and supply chain

A major technology company recently engaged CGE&Y to help it address some supply chain improvements in a key area - supply chain forecasting. By using the NVC, CGE&Y reexamined the company's supply chain operation. "You can't solve the larger issue by just looking at demand forecasting," asserts John S. Gloekler, vice president in Cap Gemini Ernst & Young's Supply Chain Practice and head of the team that created the NVC. Going beyond forecasting, CGE&Y analyzed the company's process flow, suggested revisions to its demand planning process and tied performance measurement affecting compensation into the process. The result is that the company's supply chain management function is improved in some key areas. That adds to overall functional performance improvement; specifically, the company is able to manage an integrated process of demand and supply more closely than before.