October 2012
Global operations are all well and good in stable times, when just-in-time makes all the sense in the world. But unexpected changes like commodity price gyrations or natural disasters are rather good at highlighting the hidden constraints and vulnerabilities within many companies’ operations.
Suffice it to say that supply chains—and, to some extent, manufacturing operations—are not as dynamic as they need to be. And by its very nature, supply chain integration means that a supply chain can be only as good as its weakest link.
Now, in this period of permanent volatility, many executives are questioning whether things have gone too far. Fully 70 percent of executives who responded to a recent Accenture survey said they were dissatisfied with their organizations’ ability to predict future performance amid today’s market volatility. And more than 80 percent expressed deep concern about the resilience of their supply chain.
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In this podcast, the authors explain that in the drive to lower costs, organizations have actually made themselves less agile and dynamic; and explore how companies can renew their dynamism by developing the ability to sense the market, capture insight and make decisions accordingly. Media Help
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Profiting from uncertainty
But today’s more dynamic and agile practitioners are learning to profit from permanent volatility by adapting their supply chains to flex with the markets. Not only are they insulating themselves from the downside, they are also positioning themselves to take advantage of the upside. These companies are reimagining their supply chains as adaptable ecosystems of processes, people, capital equipment, technology and data.
Truly agile companies also have more nuanced views of resource allocation—moving away from a “peanut butter spread” approach and toward making quicker decisions to pursue the most promising opportunities. The best performers excel at incremental investment coupled with rapid and well-documented test-and-learn cycles. They will run numerous pilot programs concurrently, but their spending will soon shift toward the initiatives that start to show better or faster returns.
The payoff is considerable. Research by Accenture and the Massachusetts Institute of Technology shows that companies whose systems and processes can anticipate certain risks are as much as 75 percent more profitable than their competitors.
Accenture pinpoints four core capabilities that enable the dynamic operating capabilities that high performers are seeking.
First: There is great value in being able to move from insight to action—transforming data into a decisive response, and doing so quickly. The key, of course, is whether the company’s data does in fact create insight, and whether it is actionable. If the organization lacks access to real-time data—and cannot identify the right data in the first place—it is already lagging.
The organization must be in continuous monitoring mode so it can sense when a change has begun to happen. And it has to have the tools and capabilities to analyze and simulate—along with the talent and skills to use those tools. Companies such as Amazon have become masters at sensing and responding, helping to shape demand in close to real time.
Second: It’s important to have an adaptable structure—to design and implement an operating model that can easily capitalize on new opportunities and respond to disruption. Management teams need to ask themselves how long it has been since their operating models have changed—and how much the business environment has shifted since then. And then the more pressing questions: How long would it take to alter our operating model? Can we do it quickly enough to hold onto our market lead today and in the future?
Toward flexible innovation
Third: Flexible innovation is essential so the organization can continually innovate for growth and operational efficiency.
Procter & Gamble excels at ensuring that innovation continuously enables the company to be agile enough to cope with shrinking product lifecycles and launch new products quickly. The consumer products giant is particularly good at using crowdsourcing to boost its innovation capabilities and supply chain responsiveness. Not only can P&G more easily capitalize on immediate market trends in ways that a more traditional R&D arrangement might not be able to, but executives responsible for other corporate functions can better anticipate what they need to do to plan for sourcing, manufacturing, distribution and servicing.
Last but not least: Companies must perform agile execution—the ability to respond adroitly to major disruptions such as natural disasters but also adjust to everyday facets of volatility such as shifts in commodity pricing, greater demand swings, lead time variability or inadequate supplier performance. That helps explain why some leading European TV manufacturers are shifting production from China, and why companies that make TVs for the US market are reemphasizing the Mexican maquiladoras that fell from favor years ago as Far East costs became irresistible.
In addition, many more companies are making extensive use of shared services centers—operations centers, often internal to the companies, that are built around such core processes as procurement and that can be adapted faster than conventional functional organizations can change. “The recession allowed us to consolidate operations into shared services across multiple business units,” says one senior corporate strategist. “We now have an operational backbone that can support businesses that are much more dynamic.”
Although there are definite moves worldwide to embrace the four characteristics of truly dynamic operations, few companies are yet employing all of them. It’s apparent that many management teams are waiting to see who gets it figured out before they act. But the “fast follower” tactics that worked before will not work now. In today’s tumultuous environment, it is essential to be the fast leader.
About the authors
Gary R. Godfrey is a strategy planning senior executive within Accenture Operations. He is based in Atlanta.
Mark H. Pearson is the managing director of Accenture Operations. He is based in Munich.
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