Why the Supply Chain Should Take Priority Through Periods of Transformation

When a company undergoes a merger, period of rapid growth, or significant change in strategy, almost every function in the business is scrutinized. Legal structures are redrawn, IT systems get rationalized, finance processes are aligned, and the brand is reworked to reflect the new entity.

The supply chain, more often than not, is left until later. It absorbs the consequences of every other decision made during the change, while being required to keep service levels exactly as before.

The supply chain typically accounts for 5% to 7% of a business’s revenue. In absolute terms, for most mid-to-large enterprises, that’s a significant number. Yet in periods of strategic change, it’s treated as something to be managed, rather than optimized or used as a means to enhance the customer experience. The result is that organizations emerge from transformational periods still operating supply chains that were designed for a business that no longer exists.

In practice, businesses tend to opt for incremental adjustments to accommodate the change, and in isolation, each adjustment is understandable. Extending an existing contract during an acquisition avoids immediate disruption. Adding a new business unit’s volumes onto an existing network avoids a costly redesign. Leaving regional teams to make their own inventory and transport decisions avoids the difficult conversations that come from centralizing control. None of these choices is wrong on its own. Added together across several change events, though, they produce a supply chain that has grown by necessity rather than design.

The businesses that get the most value from a period of change are the ones that treat it as the trigger for supply chain redesign. Most businesses recognize the value of having a fully orchestrated supply chain, moving from a model where supply chain functions are managed independently and reactively, to one where the end-to-end flow of goods is coordinated as a single system, simultaneously optimized for cost, service level and resilience. But justifying the disruption is one of the biggest barriers to adoption. During a merger, divestment, growth phase or strategic shift, the organization already expects disruption. That window of tolerance for change closes quickly. Waiting even 12 months, once new processes have been embedded, makes the same redesign considerably harder to execute, more costly and more disruptive when it eventually happens.

There’s a significant benefit to acting decisively and using the moment of change to ask harder questions than the business would otherwise ask. Are supply chain decisions made with visibility across the whole flow of product, or within functional silos that each optimizes for its own part of it? Does the technology in place actually connect inventory, transport and fulfilment, or does it simply report on each in isolation? Is the supply chain generating value? Was the operating model designed for the business as it exists today, or for the business as it existed several change events ago?

This is a natural moment to step back from legacy contracts, inherited systems and established ways of working, and to establish what the supply chain should look like for the business going forward. By treating supply chain redesign as part of the change itself, businesses can capture efficiency and cost benefits that extend far beyond a single functional fix. 

When a network is planned as a single system rather than several disconnected ones, reduced duplication and consolidation free up working capital, better visibility leads to more efficient stock holding, newly acquired units integrate faster by adopting a common operating model rather than running parallel systems that duplicate costs, and service levels improve because decisions are made with visibility across the entire product flow.

The supply chain may not be the most visible part of a business transformation, but it’s often where the greatest value is either created or left on the table.

Jim Monkmeyer is global head, 4PL and supply chain orchestration with DHL Supply Chain.