Austin Haygood
Dec 21st, 2016

As we reflect back on 2016, a few interesting themes emerge on the importance of operations in business:

Some of the biggest brands in the world are promoting talent into key leadership positions with a foundation in operations.  David Taylor is just over a year into his role as President & CEO of Procter & Gamble.  He was a plant manager for over a decade before starting over in an entry-level position, as an assistant brand manager.  James Quincey is moving from COO to CEO of Coca-Cola, after leading the recent merger of three Coke bottlers in Europe.  Bali Padda is moving from COO to CEO of Lego, his career at the Lego Group spanning multiple roles in operations.  These are just a few high profile moves demonstrating that talented operational leaders can aspire to, and ultimately achieve, high profile leadership positions in the largest branded organizations in the world.

Operations continues to be a key focus for business success.  “Over the last five years as we’ve strategically shaped our portfolio, we realized that there had been under-investments in America and that transforming our supply chain infrastructure was a key component of ensuring that our supply chain is an enabler for growth,” says Kees Kruythoff, president, Unilever North America.  “We think we have set ourselves up with a supply chain that has become a competitive advantage, providing flexibility in a more fragmented consumer environment.”

Investment and innovation in analytics are transforming operations.  Our news feeds are full of organizations talking about the digital transformation and its strategic importance to their operational transformation agenda.  Even Walmart’s 2016 Annual Report states “Our plan to win is clear… The use of data, algorithms, advanced forecasting capabilities – and more – is of extreme strategic significance.”

Why is operations at the forefront of company performance and how can it be a competitive advantage?

Ever evolving customer demands force business complexity.  Before the Lego Group’s transformation, service level to retail customers was an abysmal 62%.  Its cost structure included a three-level distribution network with 80% fixed costs and minimal process or system standardization.  From a logistics standpoint, the supply chain was anything but agile.  Five years later, Lego’s customers rated it “best in class”, with a service KPI of 96% on a two-hour window.  Cost structures were converted to 85% variable and overall savings totalled 30% against a baseline set in 2005.  Bali Padda stated, “The world is being disrupted in many ways.  How do we become a lot more agile to face the challenges that will come to us tomorrow?”

Innovation in Operations enables the pivot of resources from more traditional operational roles to more forward-shaping business strategy partners.  Look at the example of Costa Coffee using sensors in machines to drive automated replenishment.  They innovated through operations to consolidate their team and run operations out of a war room, focusing on predictive module failure.  This allowed a significant pivot of people from performing replenishment work to driving new operational innovation in other parts of the business.

Innovation in the channel of distribution The emergence of online/omni-channel is forcing companies into one of two places: be extremely efficient or divest.  The latest edition of Supply Chain Digest references RSR’s recently released new benchmark report on supply chain execution, through a survey done with primarily US based retailers.  “What was “close enough” in a pure store-based environment and its consequent relatively low percentage of merchandise returns has become completely unacceptable in an omnichannel world.  Supply chain execution as it relates to managing inventory no longer works the way it used to, and retailers are struggling to adjust.”  The companies who are evolving quickly to best support the growing omni-channel are positioning themselves for a strong competitive advantage over their peers.

Allows businesses to link to consumer and positively impact the consumer experience James Quincey is faced with how to expand the portfolio beyond sugary sodas to coffee, tea, protein drinks, energy, and lower calorie soda, while continuing operation divestment in NA.  “We’re going to adapt to the changing customer landscape,” he reportedly said in a recent conference call.  He pledged to modernize the company’s marketing and distribution at a time when people vastly rely on online shopping.

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In the face of so much change, what can business leaders do to ensure their operations take them to future success?

Experiment with Analytics.  Operations leaders are important and are expected to make an ever increasing positive impact in their organizations at a faster pace.  In the face of more technology innovation, companies are becoming more conservative.  They are waiting to see what their competitors do first, particularly in leveraging new technology.  But success hinges on the ability for supply chains to adapt as they are continually faced with changing business models.  Do not wait for others to innovate and then fast follow.  Put yourself out there.  The early adopters of analytics are driving a transformation in operations and creating value in their organizations.  Particularly the retailers and manufacturers who are leaning into the application of advanced analytic solutions within their organization are widening their lead over competitors.

Focus on Continued Development.  Kevin O’Marah of SCM World shared that people who display the following set of traits – analytical intuition, problem-solving skills, and an instinct for appropriate risk taking – are business leaders, people with the right stuff.  The field of analytics is rapidly evolving, making it difficult to keep the pace – staying close to current trends and new ideas.  Success and survival now require operations organizations to understand the role technology and analytics can play in driving value in their organizations.  A great book to reference is Managerial Analytics by our own Dr. Michael Watson.  His book helps people sort through the field, understand what is new, and helps supply chain professionals understand the difference between using analytics and “competing on analytics”.  Successful companies are also starting to create longer-term strategic partnerships with external organizations to continue to drive innovation through partnership to allow on-going knowledge transfer internally.

View Operations as an Engine for Growth   Years ago Steve Hochman, VP of Global Retail Supply Chain for Nike, said “I don’t see the supply chain as an operational discipline; I see it as a way to grow companies”.   The impressive performance of Nike over the years has qualified that statement.  In the latest earnings release, Mark Parker, Chairman, President and CEO of Nike, Inc. said they are “transforming retail by connecting the digital and physical experience and ushering in a new Era of Personalized Performance – through product, consumer connections and our supply chain.  Nike’s strategic investments in these growth opportunities continue to deliver long-term value to our shareholders.”

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In 2016 we saw numerous examples of how supply chains are being recognized as what separates great companies both in profitability and consumer experience. Here at Opex Analytics we are inspired by such accounts that reveal the impact of highly successful and efficient operations. Having said that, we challenge you, in the face of a new year, to identify ways you can create your own success story. How can you positively impact not only your supply chain, but how your customers perceive your business as a result of experimenting with what’s possible and growing your organization’s capability?  Where you lag, seek out new opportunities to work with partners who can inject fresh thinking and analytical horsepower into your organization.  Embrace analytics as a means of empowering your operations to be the engine for growth that is possible.  At Opex Analytics, we wish you a continued journey of value creation into the new year.

Kristen3

Kristen Daihes Partner at Opex Analytics