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What opportunities are hidden in your supply chain? 

What opportunities are hidden in your supply chain? 

By Ken Tysiac 
May 18 2013

Throughout the supply chain of 5.11 Tactical, employees are constantly watching for opportunities to innovate. It’s part of the culture at the private US manufacturer, which makes clothing and tactical gear for military, law enforcement and firefighting personnel.

“We’re constantly looking at how we can innovate along the entire supply chain – literally back to when we’re making the cost sheet on the product all the way through to when we actually pay and receive that inventory,” says Brenda Morris, CPA, CGMA, who is the CFO of 5.11 Tactical.  “At each channel along the way, we try to infuse a business process review and are constantly talking about that.”

Executives at her company and others are aware that plenty of opportunities for manufacturers are located – and sometimes hidden – in supply chains.

Companies can find ways to create competitive advantages in their supply chains but need better real-time information about what’s going on with their partners, according to KPMG’s fourth annual global manufacturing outlook survey report.

According to the report, companies can find competitive advantages by:

  • Gaining real-time, end-to-end visibility in their supply chains.
  • Deepening collaborations with partners in the supply chain to create efficiencies and flexible, demand-driven operations.
  • Placing their partner network at the centre of their strategies to generate fresh ideas and innovation.

About half (51%) of 335 global manufacturers participating in the survey said partnerships with suppliers will define the direction of their innovation. Fifty-seven per cent expect that at least 10% of their revenue will come from innovation.

But challenges remain:

  • About one-third (34%) said their biggest concern with respect to innovation is aligning it with business strategy.
  • Complexity in collaborating with suppliers and partners was rated as the biggest innovation challenge by 32% of respondents.
  • Almost half of the respondents said their companies do not have visibility of their supply chain beyond Tier 1 suppliers.
  • Outdated communication technology is a problem; 44% of respondents still use email, fax and mail to communicate issues about the demand in the supply chain.

Obtaining real-time visibility across all tiers of the supply chain can help increase speed to market, reduce expenses and manage risk, according to Jeff Dobbs, a KPMG partner who is global sector chair for diversified industrials for the firm in the United States.

“Moving toward a demand-driven supply chain is probably the single most important step a global manufacturer can take today,” Dobbs said in a news release. “… The winners will be the ones who can network [in] real time across their entire supply chains, reducing the information lag that costs companies significant time and money.”

That real-time interaction seldom exists in practice. Just 9% of survey respondents said they have complete visibility of their supply chains.

Morris said 5.11 Tactical has depth in its supply-chain visibility, but there’s always room to go deeper. Her company is in the midst of an important initiative to increase visibility, which she believes could increase margin and awareness of challenges throughout the chain.

“I’d like to enhance our visibility along the entire process, and to me that’s all technology and the ability to interact with your vendors, and your sourcing office, and all of your suppliers much more dynamically,” Morris said.

Locating supply chains closer to major markets is a tactic executives are using to help manage supply chain risk and continuity. More than half (58%) of respondents to the KPMG survey said they plan to regionalise or localise their supply chains.

At 5.11 Tactical, localisation is used in fast-turn manufacturing and distributing. Customised embellishments, embroidery or screen printing can be done locally on T-shirts or uniforms. And a specialised, high-end, creative order for a small population such as an elite military team can be filled much more quickly if it’s done locally, Morris said.

Wherever innovation occurs in the supply chain, establishing a process to manage it is critical, she said.

“You don’t want to hamstring creativity and innovation by having too many guardrails,” she said. “So that’s a balance, all the time.”

Editorial Director Jack Hagel contributed to this report.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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