The need for a new approach to complex, global supply ecosystems
Nov 13, 2015 5:18:00 PM
Customers are punishing companies they no longer trust. Research conducted by Proxima revealed that 45% of consumers would stop spending with a company whose supplier practices were called into question.
Consider for a moment a recent high profile example which saw the share price drop almost 10%, costing the company billions. This is an example of the power customers wield as they punish organisations that abuse the trust between customers and the brand.
Further, investors and the media are taking a closer look into corporate practices and supply chains and just recently the UK Government has introduced the Modern Slavery Act that will continue to heap even more scrutiny on organisations.
Business has fundamentally changed over the past decade and if business leaders want to remain competitive in a global market, they have to adapt and change the way they conduct business, procure goods/services and nurture closer relationships across a complex supplier network.
Success is no longer limited to financial success.
Wider forces such as risk, innovation, sustainability etc critically influence the success or demise of businesses today.
More and more organizations are looking beyond profit to evaluate their performance and direct their operations. Long-term value creation – for shareholders and other stakeholders – requires leaders to deliver on triple bottom line (TBL) goals – people, profit and planet.
These new measurements of success and supplier management aer having an impact at even the top most recognisable brands in world, proving that no business is immune to ignoring TBL outcomes. It’s not the end of days however, quite the opposite in fact, as those businesses which proactively consider TBL outcomes continue to outperform their competitors.
Take a closer look
Businesses are becoming more astute at co-ordinating third party suppliers; the management of intellectual property; and the select parts of the supply chain where value and risk are most evident. However, it is surprising how many businesses still remain ill-equipped to gain visibility and control into their supply ecosystem.
At Proxima, we first started looking at how the TBL outcomes affected business more than 10 years ago. Five years ago, we began to chart their effect and in 2011, we discovered that the average FTSE 350 business spent 69.9% of its revenue with outside agencies. Just 12.9% was spent on the in-house workforce in salaries and benefits – down from 15.7% in 2009 and from between 30% and 40% in the mid-1980s.
Business leaders today need to become agile in managing the financial, operational and reputational risks of the extended supply chain. Ultimately increasing the level of control and competitive advantage of the business.
In modern business, moving beyond simple financial metrics to measure business success is a must in order to gain better insight and more control, but no-one is pretending it will be easy to accomplish.
Businesses can get it right - the most obvious example of this is a brand like Apple. It designs attractive hardware and software, distributing them through high-margin, brand-defining stores. Everything apart from the marketing and distribution of their products / services is handled by third parties. Not just manufacturing, but many of the innovations found in its products! Just look back at recent battles in the courtroom regarding various patented technology. A risky model of doing business, but when done right can be highly successful.
As part of our continued research we have identified a concept in association with the University of Oxford that will provide modern businesses with a framework to effectively manage their TBL outcomes. We’re calling it Catalytics©.
What is Catalytics©?
Catalytics© is a strategic methodology built on five pillars that empower business leaders to start viewing supplier relationships as key assets that contribute to the strategic aims of the overall business. Catalytics© looks at TBL outcomes, not just costs and implementing efficiencies; it’s a new management practice that challenges traditional behaviours, attitudes, conventions and the business need, long before any deal is done.
We will be sharing more detail on Catalytics© in due course, helping companies break down the functional silos that hamper agility. Be warned – it will challenge the conventional way of thinking, but it will bring new ideas that improve the tangible capabilities of the modern day business that operates in a global market.