What is Supply Chain Restructuring? Approaches

What is Supply Chain Restructuring?

Supply chain restructuring is the process of redesigning or reorganizing the components of a supply chain to improve its efficiency, reduce costs, enhance agility, and increase customer satisfaction. The goal of supply chain restructuring is to optimize the flow of goods and services across the supply chain by reconfiguring the relationships, processes, and technology that connect the various entities involved.

Whenever the best supply chain practices, such as supply chain optimization and integration, fail to achieve the desired changes, supply chain managers may require resorting to supply chain restructuring. Supply chain restructuring is all about integrating product and process engineering with supply chain functions.

Additionally, it may also involve integrating supply chain functions with marketing and other business functions. Supply chain restructuring also involves taking into consideration, the existing supply chain processes and architecture. In addition, it involves introducing innovative concepts, such as product redesign, process redesign, and network redesign, in the supply chain to improve customer service.

Supply chain restructuring may involve a range of activities, including:

1. Network design: The first step in supply chain restructuring is often to redesign the network to optimize the flow of goods and services. This may involve changing the number and location of warehouses, transportation modes, and the allocation of resources across the supply chain.
   
   
2. Process redesign: Supply chain restructuring may also involve redesigning the processes involved in manufacturing, logistics, and delivery to improve efficiency and reduce costs. This may involve the adoption of new technologies or the automation of certain tasks.
   
   
3. Supplier management: Restructuring the supply chain may also involve reviewing and renegotiating supplier contracts to ensure that they are aligned with the company’s strategic goals and objectives.
   
   
4. Technology adoption: The adoption of new technology, such as IoT devices, artificial intelligence, and blockchain, can also play a significant role in supply chain restructuring. These technologies can enable greater transparency, accuracy, and efficiency across the supply chain.
   
   
5. Collaborative partnerships: Restructuring the supply chain may also involve forming collaborative partnerships with other companies in the supply chain to enhance agility and reduce costs. These partnerships may involve sharing resources, knowledge, and expertise to optimize the supply chain for mutual benefit.

Supply Chain Restructuring Approaches

Supply chain process re-structuring involves making changes in one or more dimensions of the supply chain by adopting any of the following three approaches:

• Postpone the Point of Differentiation
  
• Alteration in the Shape of the Value-addition Curve
  
• Advancement in the Customer Ordering Point

Postpone the Point of Differentiation

According to this approach, the point of differentiation should be close enough to the end of the value curve. It means that all changes that are made to introduce differentiation in a product should be made near the customers at the delivery time. It is important as this may help in carrying out the majority of activities at the aggregate level instead of the variant level. For example, paint companies produce paints of different varieties in different colors.

They usually postpone the point of differentiation till the far end of the value addition curve. For example, Asian Paints offers four types of emulsion brands. All emulsions comprise a base and a stainer. The stainer is the element that when added to the base, produces an emulsion of the desired color. Paints comprise 99 percent of the base and 1 percent of the stainers.

The base for all emulsions remains the same whereas the stainer is manufactured in various colors. Stainers are available in about 150-250 shades. The process of mixing the base with the stainer is called the tinting operation.

Now, Asian Paints has shifted its tinting operation to the retail level. It means that the retailer produces emulsions having a particular color in tinting machines (paint mixing machines) only after getting an order from a customer. By doing this, Asian paints are not only changing its Made to Stock (MTS) model to Configure to Order (CTO) model, but also saving billions by reducing the inventory level at the variant level.

Alteration in the Shape of the Value-addition Curve

Most cost addition in products should be shifted to the end of the supply chain. This helps in decreasing the level of inventory. Shifting the majority of cost addition towards the end of the supply chain is important because if any unpredictable changes occur, the organization can incorporate those changes with minimum cost.

Advancement in the Customer Ordering Point

It involves shifting the customer ordering point or customer entry point near the start of the value-addition curve. This helps the organization move from the MTS model to the CTO model of the supply chain. The advantage of the CTO model is that most activities can be done against an order.

When activities are performed based on order, the level of forecasting reduces. In a supply chain based on the CTO model, the point of differentiation occurs after receiving the customer’s order. Therefore, in such a scenario, there is no requirement of preparing variant-level forecasts.

At this stage, it is important to differentiate between supply chain restructuring and supply chain integration/optimization. This difference is explained, which shows the impact of supply chain restructuring and supply chain optimization on the shape of the value-addition curve.

Supply chain integration and optimization lower the value-addition curve, which means that there is an overall reduction in cost and time involved in the supply chain. Additionally, there is also an absolute shift in the point of differentiation; however, the relative position of the point of differentiation does not change.

Please note that supply chain integration and optimization only lower the value-addition curve; they do not affect its shape.

On the contrary, supply chain restructuring may have one or more of the following impacts:

• Affecting the shape of the value-addition curve
  
• Shifting customer order (entry) point
  
• Shifting the point of differentiation

These changes may be reflected in terms of changing product design or product service bundle offered to customers. Supply chain restructuring involves making major changes in the supply chain such as moving from the MTS model to the CTO model of the supply chain. All these changes lead to the increased efficiency of the supply chain along with reduced costs for an organization.