Designing Our Value Chains for Planet and Profit

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This week, we had an amazing, interactive discussion with our community of COOs and global chief supply chain officers on the critical intersection between supply chain and product lifecycle management. As part of a two-hour roundtable discussion, we explored the following topics with these leaders: How can supply chain better integrate with product development to design products for circularity and optimized supply and distribution? What does “good look like” in terms of governance between commercial/merchandising and supply chain teams for a product portfolio balancing growth and strategic customer needs against relative profit contribution? How can brand owners orchestrate ecosystems and leverage them for greater overall profitability and resilience? To open the conversation on the first two questions, I shared results from a short survey we conducted with our Global CSCO community, which spans both B2B and B2C industries. Supply Chain’s Growing Role in Product Lifecycle Management The results show that more than half of companies are driving the use of common product platforms. Also, greater than 40% have a formal governance process for product portfolio management, in which supply chain either provides support or is an equal partner in decision making. What Did We Learn? Here are some key takeaways from the group sharing and discussion at this roundtable event: On Supply Chain’s Role in “Design for X (supply chain, sustainability, etc.)” … One company, leveraging common product architectures, removed 25% of unique components from its bills of materials without sacrificing quality and enabled a money-losing factory to eventually generate tens of millions of dollars in profit. An industrial company uses digital “bills of process” that allow product designers to know whether changes to a product or its components will drive the need for new manufacturing equipment, which it seeks to hold to a minimum. Many of the attending apparel companies currently offer or are designing products that are “made to be remade” or upcycled/resold, applying circular principles to the initial design. For some, including high-tech companies that centrally manage cloud infrastructure, circular product designs are sold to customers with the triple benefits of lower investment cost, reduced environmental footprint and operational simplicity (i.e., convenience). On Product Portfolio Management … Many companies, particularly in consumer products (CP), reduced their product portfolios by one-quarter to one-third in 2020, to free up capacity and maintain customer service levels amid supply and demand disruptions. One CP company did a deep dive into its portfolio and found that SKUs driving 20-25% of revenue growth were margin decretive. By trimming unproductive SKUs from the long tail of its portfolio, it was able to avoid building an expensive new plant to support new growth and just added a new production line, at a fifth of the investment cost. Some companies in CP and high tech have attempted to calculate and/or tax the cost of complexity related to adding new products. In most cases, this did not prevent new product introductions, but did drive healthy tension with engineering teams to strip out non-value-added product complexity and stay within an expected margin envelope. On Leveraging the Broader Ecosystem for Greater Sustainability and Profitability … Some companies are partnering with material suppliers to innovate new inputs made from recyclable old products (e.g., cotton, rubber, plastics). One company described its supplier relationship management journey as driving an increasingly broad set of objectives over time: first cost only, then cost and product innovation, and now cost, innovation and sustainability. An identified barrier to driving suppliers to a common design platform is that it can slow down the pace of innovation, particularly new ideas sourced from start-up partners. There is no clear one-size-fits-all approach that works across all design scenarios, driving a need for segmentation in design policy. We look forward to the next gathering of this esteemed group, as part of our annual Leaders Forum event. It will focus on how supply chains can address dynamic customer requirements and supply disruptions in the near-term while also “Winning the Long Game” — solving some of the world’s longer-term social and environmental challenges, as part of winning in the marketplace. Stan Aronow VP Distinguished Advisor Gartner Supply Chain [email protected]

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This week, we had an amazing, interactive discussion with our community of COOs and global chief supply chain officers on the critical intersection between supply chain and product lifecycle management.

As part of a two-hour roundtable discussion, we explored the following topics with these leaders:

How can supply chain better integrate with product development to design products for circularity and optimized supply and distribution?
What does “good look like” in terms of governance between commercial/merchandising and supply chain teams for a product portfolio balancing growth and strategic customer needs against relative profit contribution?
How can brand owners orchestrate ecosystems and leverage them for greater overall profitability and resilience?

To open the conversation on the first two questions, I shared results from a short survey we conducted with our Global CSCO community, which spans both B2B and B2C industries.
Supply Chain’s Growing Role in Product Lifecycle Management

The results show that more than half of companies are driving the use of common product platforms. Also, greater than 40% have a formal governance process for product portfolio management, in which supply chain either provides support or is an equal partner in decision making.
What Did We Learn?
Here are some key takeaways from the group sharing and discussion at this roundtable event:
On Supply Chain’s Role in “Design for X (supply chain, sustainability, etc.)” …

One company, leveraging common product architectures, removed 25% of unique components from its bills of materials without sacrificing quality and enabled a money-losing factory to eventually generate tens of millions of dollars in profit.
An industrial company uses digital “bills of process” that allow product designers to know whether changes to a product or its components will drive the need for new manufacturing equipment, which it seeks to hold to a minimum.
Many of the attending apparel companies currently offer or are designing products that are “made to be remade” or upcycled/resold, applying circular principles to the initial design.
For some, including high-tech companies that centrally manage cloud infrastructure, circular product designs are sold to customers with the triple benefits of lower investment cost, reduced environmental footprint and operational simplicity (i.e., convenience).

On Product Portfolio Management …

Many companies, particularly in consumer products (CP), reduced their product portfolios by one-quarter to one-third in 2020, to free up capacity and maintain customer service levels amid supply and demand disruptions.
One CP company did a deep dive into its portfolio and found that SKUs driving 20-25% of revenue growth were margin decretive. By trimming unproductive SKUs from the long tail of its portfolio, it was able to avoid building an expensive new plant to support new growth and just added a new production line, at a fifth of the investment cost.
Some companies in CP and high tech have attempted to calculate and/or tax the cost of complexity related to adding new products. In most cases, this did not prevent new product introductions, but did drive healthy tension with engineering teams to strip out non-value-added product complexity and stay within an expected margin envelope.

On Leveraging the Broader Ecosystem for Greater Sustainability and Profitability …

Some companies are partnering with material suppliers to innovate new inputs made from recyclable old products (e.g., cotton, rubber, plastics).
One company described its supplier relationship management journey as driving an increasingly broad set of objectives over time: first cost only, then cost and product innovation, and now cost, innovation and sustainability.
An identified barrier to driving suppliers to a common design platform is that it can slow down the pace of innovation, particularly new ideas sourced from start-up partners. There is no clear one-size-fits-all approach that works across all design scenarios, driving a need for segmentation in design policy.

We look forward to the next gathering of this esteemed group, as part of our annual Leaders Forum event. It will focus on how supply chains can address dynamic customer requirements and supply disruptions in the near-term while also “Winning the Long Game” — solving some of the world’s longer-term social and environmental challenges, as part of winning in the marketplace.

Stan Aronow
VP Distinguished Advisor
Gartner Supply Chain
[email protected]

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