Optimizing business processes beyond an organization’s four walls

“The supply chain stuff is really tricky.” – Elon Musk, business magnate and investor

“The real competition is between supply chains, not companies.” – Martin Christopher, emeritus professor of marketing & logistics at Cranfield School of Management

The resilient design of supply chain and distribution processes has an outsized impact on customer satisfaction and profit. When it comes to driving supply chain optimization and ensuring compliance, however, it is no longer sufficient to consider only the processes within your own company. Process management must encompass the entire supply and distribution networks including external partners and vendors.

In this article, we, Software AG, explain why supply chain optimization and compliance is vital to achieving operational excellence. Furthermore, we explore how process excellence teams can expand their focus to include both internal and external processes.

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Supply chain management drives business success and resilience  

Despite the (sometimes painfully experienced) risks of globalization, outsourcing and offshoring continue to be important drivers of competitive advantage. One downside of these strategies is that they can increase supply chain complexity.

The resilience and optimization of supply chains and distribution networks has become vital to business performance. Global events — such as the energy crisis, pandemic and the invasion of Ukraine — have strained global value chains and led to supply shortages for electronic components, computer chips, pharmaceuticals, and food, among other items. In fact, over 80 percent of companies have experienced significant supply chain disruptions in the last two years, according to Deloitte.  

Six major challenges companies face in managing their supply chain and distribution networks are:

• Fluctuations in demand for consumer goods have increased due to the proliferation of e-commerce and shortened product life cycles.
• The frequency of disruption is increasing due to political crises, raw material shortages and natural disasters. Organizations must be able to adapt to disruptive events in real time.
• Supply chains account for more than 25 percent of global CO2 emissions, making supply chain management an essential component in the fight against climate change. On average, supply chain emissions are 5.5 times higher than a company's direct emissions.
• Although logistics focuses on the physical transportation of goods, it has a large, complex digital footprint that is vulnerable to cyberattacks. Supply chains are increasingly threatened by major cyber risks like ransomware, phishing, and interception of information along supply chains.
• Digitization of information contained in documents such as invoices, export certificates and waybills has come a long way. Data integration between partners still needs improvement, however, as data silos hamper collaboration.
• Increased compliance requirements hamper collaboration between companies. The German Supply Chain Act, which went effect January 1, 2023, aims to ensure that actors all along the entire supply chain uphold social and environmental standards. Even though the requirements are graded according to the different stages in the supply chain, companies must conduct thorough due diligence into suppliers and respond to violations with remedial action.

Process management is vital to supply chain optimization and compliance

Supply chains and distribution networks are currently experiencing a series of technological and conceptual innovations that bring disruptive changes (such as autonomous trucking, robotic warehouses, multispeed supply chains and options on local sourcing). Now, however, it is also imperative to benefit from the methodological experience of process management.

Since the 1990’s, process management has been woven into the fabric of business operations across all functions. Process excellence methodologies and tools have merged and evolved into holistic process lifecycle management (often in the form of an enterprise management system). The time has come, however, for centers of process excellence and process experts to increase the strategic value they deliver to the business.

By extending the domain of process management to entire value chains and end-to-end processes, process excellence teams can maximize business impact. Best practices for accomplishing this include:

• Make sure that management understands the need and the benefits of end-to-end process optimization.
• Engage with your key suppliers and distributors to align goals and methods for end-to-end process management.
• Expand the company's process map to provide an overview of the entire business ecosystem.
• Extend your process management lifecycle to end-to-end processes. This includes defining operational excellence goals, mapping to-be processes, implementing a holistic performance management and monitoring as-is processes.
• Establish an agile procedure that combines continuous design (with a focus on resilience and efficiency) and process monitoring/analysis insights.
• Establish holistic risk management framework that integrates all relevant compliance issues that affect end-to-end processes including sustainability, data security, quality and business continuity.

Companies have recognized the need to strengthen supply chains and distribution networks as a strategic differentiator. An efficient, transparent and agile supply chain increases resilience to disruptions, volatile freight rates or fluctuations in demand. Process management will only fulfill its strategic mission if processes are understood end-to-end and the tools and experiences of the last 30 years are applied to end-to-end processes.