Micro supply chains achieve a level of flexibility and resilience that traditional supply models cannot match. It’s the right strategy for uncertain times.
Traditional “one size fits all” supply chain operating models are cost-effective but lack the flexibility to deal with uncertainty and fail to satisfy the complex demands of contemporary consumers, who expect a variety of products and services and same-day delivery. For KPMG, micro supply chains are the answer.
MICRO SUPPLY CHAINS
“Micro supply chains are finite, decentralised, agile ‘mini operating models’, with flexible supplier contracts and relationships, and manufacturing closer to the point of purchase.”
In micro supply chains, production and assembly of products should be local to the end market, embracing the move towards “modularisation”, i.e. products consisting of common components that can be easily customised to suit the requirements of individual consumers, propelled by the evolution of 3D printing.
Local production and assembly means shorter transport routes, which both saves on logistics costs and reduces your company’s carbon footprint. Shorter transport routes will also cut the cost of returns or “reverse logistics”. In the US, the annual cost of reverse logistics is set to reach U$550 billion in 2020, according to KPMG.
Other features of micro supply chains are short-term contracts, which make it easier to scale volumes up or down, and greater collaboration across industries and between competitors.
BUILDING A MICRO SUPPLY CHAIN
- Create customer segments. Simply offering variety is not enough. Identify sources of value in the market, eg convenience, cost, customisation, quality, service, speed and product features. Create segments based on these sources of value. Evaluate these segments. Identify opportunities to differentiate your offering from your competitors, increase profit and grow your business. Create product and service offerings for these segments.
- Measure the cost of complexity. It is important to understand the cost involved in different segments in the supply chain, eg labour, infrastructure, logistics and supplier costs.
- Model different value streams. This will enable you to calculate the cost of different offerings and help you find the perfect balance between variety and cost.
Adopting the micro supply chain operating model will allow you to provide customised offerings for specific groups of customers without driving up cost.