Supply chain transformation requires new operating models

Most companies know they need to transform their supply chain, but struggle with the execution. The main obstacles are the lack of a clear business strategy, lack of budget, and conflicting priorities. This is according to the E2E Ecosystem Transformation Survey by Efeso Management Consultants and Supply Chain Media. During Webinar Wednesday, Efeso shared insights into the findings. ‘This is the time to question your operating model.’

By Marcel te Lindert

The first outcome of the survey: business strategy is the main driver of supply chain transformations. ‘This is a logical outcome, but we see an important change with respect to this topic,’ claims Kristof De Coster, Vice President of Efeso Belgium. ‘Not so long ago, companies formulated a business strategy for the next five or ten years. Based on that business strategy, the supply chain department developed a roadmap with a long-term focus. But since the pandemic, companies can only look two or a maximum of three years ahead. This means transformations have a shorter lead time and need to deliver results faster.’

Equally unsurprising is the main goal of those transformations: to increase resilience and agility. ‘Of course, this has everything to do with the disruptions of recent years and their major impact on our supply chains. We speak to many companies that are striving for a more resilient supply chain, but are struggling with the question of what that means for them in concrete terms,’ De Coster states. ‘In addition, we see many transformations being initiated to support new business models. This is also what we see in practice: companies are faced with the choice of implementing new business models and building the best supply chain to do so. But with the right balance between cost on the one hand, and resilience and agility on the other. Because more resilience comes at a price.’

Lack of decisiveness

So there is no doubt about the need for supply chain transformation. But in practice, many transformations do not go as smoothly as hoped. One major cause is the lack of clarity on business strategy. ‘Many companies struggle with translating the business strategy into a supply chain strategy,’ explains Jörn Grosse Wilde, Vice President of Efeso. ‘And perhaps they lack the courage to make a bold decision: this is the direction we are heading in. And if this turns out to be the wrong direction, we will turn around again. A lack of decisiveness can slow down the transformation.’

Another major hurdle concerns a lack of financial awareness and the necessary budget. ‘Companies always want a rapid transformation that will pay for itself. But a supply chain transformation is not completed in three or six months. It takes time, and a robust business case,’ states Grosse Wilde. ‘In addition, we see many companies struggling with setting the right priorities. We notice that a lot of companies are busy migrating to SAP S/4HANA. This requires a lot of people and resources, which are therefore no longer available for supply chain transformations such as the implementation of end-to-end supply chain planning.’

Legislation and regulations

In addition, Grosse Wilde sees geopolitical conflicts and tensions having a negative impact on supply chains. ‘One frequently mentioned factor is China’s economic development and its rapid progress in various sectors. Not only in the automotive industry, which is currently hitting German companies in particular hard, but also in chemicals, pharmaceuticals and e-commerce. In all these sectors, new, fast-growing competitors have emerged in a short time. That creates tensions.’

The stringent legislation and regulations, especially related to sustainability, don’t help the situation in Europe. More than half of the supply chain executives surveyed say that new laws such as the CSRD and CSDDD are making their jobs more difficult. ‘These result in additional administrative burdens and distract attention from other issues on supply chain executives’ plates. All these rules and regulations will not make things easier in Europe in the coming years,’ Grosse Wilde predicts.

Operating model under discussion

The survey shows that supply chain executives face a tough task. It is up to them to make their supply chains more resilient, agile and sustainable, while also keeping costs under control and supporting new business models. ‘That forces them to question their operating model,’ De Coster emphasizes. ‘This is the time to do that. Not so much because the existing operating models have been inadequate in recent years, but because they are not suitable to meet all future objectives.’

Implementing new operating models is not easy. Not least because – as also shown in the survey – there is a lack of clarity about business strategy within many companies. ‘But there are several steps that supply chain executives can already take. If they are aiming for more resilience and agility, they need a mature supply chain. To increase maturity, it may be necessary to say farewell to operating models that do not support it. Again: this is the time to challenge yourself and rethink the existing operating model.’

Dot on the horizon

What is needed for a successful transformation? The survey answers that too. At the top of the list of necessary capabilities is agility, followed by flexibility, collaboration and visibility. Digital tools are also important, such as end-to-end control towers. ‘If we look at artificial intelligence, we see that its application in production and supply chain planning scores highly. Many software vendors offer promising solutions in that area. Not far behind is the application of machine learning in forecasting, something several companies have already achieved good results with,’ says Grosse Wilde. ‘It is somewhat disappointing that digital twins score relatively low. But many companies realize that it takes a lot of effort to build a digital twin of their entire supply chain.’

Whether the current supply chain transformations go smoothly or not, companies’ ambitions remain as high as ever. By 2027, the supply chain executives surveyed hope to have implemented planning systems featuring AI technology. They want to have an S&OP process that spans their entire ecosystem. They also aim for a flexible and hybrid production network that increases their agility. And they want employees who know how to use technology to respond quickly to disruptions. Grosse Wilde: ‘2027 is just three years away. All these ambitions may not be achievable for most companies, but they are a dot on the horizon. That dot helps them to set the right priorities and start their transformation.’