Changes in customer behaviors are one of the biggest disruptions companies will face over the next five years. In fact, according to PwC’s Global Operations Survey, 61 percent of operations professionals said that customer-driven disruption will be the single largest source of disruption they face in the coming years. And yet only 25 percent of respondents said they feel confident that their operations are designed to give their customers value and a distinctive experience, now or even three years from now.
A new PwC report, "Managing Operational Performance in Volatile Times," builds on those findings and evaluates data gathered by PwC’s Performance Measurement Group (PMG) over 15 years, from 2002 to 2016. As the findings were analyzed, three common themes emerged among top performing operations companies:
- Customer Relations: putting the customer first
- Inventory and Working Capital: moving from “reduce” to “optimize”
- Costs: controlling costs while upgrading capabilities
The organizations that outperformed their industry peers — and outperformed them by a large margin — have a more strategically balanced view of operational performance across a broad, cross functional set of metrics. In other words, businesses that have mastered the art of aligning strategy with operational performance are better able to sense the changing needs of customers and adapt and respond accordingly.
- Customer Relations: Putting the Customer First
It’s no longer enough to achieve on-time delivery to commitment. Instead, the top performing organizations look at on-time delivery to customer request. (And these top performers are meeting their customers’ requested delivery dates about 99 percent of the time.)
Customer demands for increased product variety (as measured by SKU counts) are making on-time delivery to customer request increasingly difficult. At the same time, customers are expecting faster order fulfillment, with the average order fulfillment lead time decreasing by 11 percent over the past 15 years, from 5.3 days to 4.7 days.
Those best-in-class operations companies all had made significant improvements to their supply chain capabilities such as strategic supplier management programs, network and inventory optimization, and integrated business planning. - Inventory and Working Capital: Moving from “Reduce” to “Optimize”
The PwC PMG research shows that that during the 15-year analysis period, median inventory levels rose 9.6 percent, a direct result of the aforementioned customer expectation of more SKUs and faster order fulfillment. To counteract, companies are asking suppliers for longer payment terms, but most companies have likely already reached their limit. Any further operational efficiencies have to come through optimized operations in areas like inventory management, demand planning, scheduling, and analytics and IT enablement.
- Costs: Controlling Costs while Upgrading Capabilities
Along with inventory, costs are under pressure as customers demand greater speed, reliability, flexibility and service. Meanwhile, both product costs and operational costs (as measured by overall supply chain management costs as a percentage of revenue) rose.
Tight supply chain cost management helps offset the increase in the cost of goods sold, but supply chain costs have also increased, albeit only slightly, as companies hire more supply chain personnel. Over the last 15 years, companies leveraged technology to be able to eliminate lower-paying roles in supply chain operations, but at the same time they added upper level positions in planning and analytics. These more highly skilled—and higher paying—roles are requisite if a company is going to upgrade its operational performance.
Best-in-class operations companies figured out what to do long ago. They outperformed their industry peers by an average of 50 percent in sales growth and 20 percent in profitability by mastering the art of aligning strategy and operational performance priorities.
Best-in-class operations companies figured out what to do long ago. They outperformed their industry peers by an average of 50 percent in sales growth and 20 percent in profitability by mastering the art of aligning strategy and operational performance priorities.
The 2017 APICS Executive Forums will feature PwC Principals presenting the report findings to an audience of global supply chain leaders, furthering the understanding of the shared traits of organizations that excel at navigating a dynamic and volatile market. The Executive Forum is an invitation-only event; for more information or to request an invitation, please complete this brief form.
