The World Economic Forum (WEF) released its annual Global Competitiveness Report last week. The WEF bases its competitiveness analysis on its Global Competitiveness Index (GCI). The index considers numerous determinants of national economic competitiveness. It outlines 12 pillars of competitiveness, categorized into three stages of economic development where the given pillars are most important. While reviewing the article for specific mentions of logistics and supply chain, it occurred to me that the CGI framework is also an applicable structure for analyzing the sophistication of an organization’s logistics processes.
The CGI basic requirements subindex includes pillars that are essential for executing basic tasks that often rely on manual approaches. Manual approaches to basic tasks often provide limited productivity improvements, but can be established quickly with minimal planning or capital investment. From a human resource perspective, the needed skills may be widely available with little required training. From a financial planning perspective, the costs are often variable with respect to volume and directly related to operations.
A manual warehouse with limited technology investment is a logistics operation that would fall into the Basic, Factor-Driven category. The warehouse would execute basic tasks, without the use (or limited) of technology. It would be a low-risk investment, and would likely achieve limited productivity gains. To achieve additional productivity gains, this operation should look to the pillars in the Efficiency Enhancers subindex.
The CGI Efficiency Enhancers subindex includes pillars that are essential for developing more efficient processes and increasing product and process quality. Included in this subindex are supply chain relevant factors such as higher education, to develop workers that can perform more complex tasks and adapt quickly to the changing demands of the working environment; and the deployment and use of technology, to enhance productivity, efficiency, and adaptability. From a human resource perspective, the workers must be able to perform more advanced tasks and use technology effectively. From a financial planning perspective, there are upfront, fixed capital expenditures that will require extended time to achieve time-to-value. This increase time until payback increases the risk of the investment.
A warehouse that utilizes a real-time warehouse management system (WMS), enhanced with supporting technology such as speech recognition and optimization functions, would fall into the efficiency-driven category. ARC Research by my colleague Steve Banker indicates that basic real-time WMS solutions provide efficiencies in the form of inventory accuracy, while more advanced WMS solutions provide additional efficiencies in the form of labor productivity enhancements. This more advanced warehouse can achieve substantial efficiency, accuracy, and overall productivity gains. And the fixed expenses from deploying the WMS can provide scalable improvements after investment payback has been achieved. The use of other supply chain software such as supply chain planning and optimization would also fall into this category. The use of optimization technology often requires advanced skill and knowledge, but the improvements in operational efficiency can be substantial.
The CGI Innovation and Sophistication subindex includes two pillars that are essential to delivering new, differentiated, and superior products and services. Included in this subindex are innovation and sophisticated business processes that support the creation of unique and sophisticated products and methodologies. From a human resource perspective, workers must be capable of improving on existing, advanced processes, and creating differentiation that will command a premium in the market. This differentiation will arise from developing superior or unique offerings that are not easily replicated by others. From a financial perspective, upfront investment in processes and products can be substantial and the potential returns from the investment are more abstract, less certain, and more risky than those from proven capital expenditures.
A company that develops a complex supply chain strategy to create a strategic advantage would fall into the innovation-driven category. As an example, leading supply chain organizations are currently developing omni-channel fulfillment strategies that will increase product availability, improve customer satisfaction, and ultimately increase market share. These operations serve more than the fulfillment function, they’re central to how these companies compete in today’s integrated commercial environment. Additionally, companies that work with their supply chain technology vendors to continually improve features and functionality in support of advanced processes are also examples of innovation-driven operations. Finally, the technology vendors themselves are innovators, as they must obtain a talented and knowledgeable workforce to produce products that structure and formalize knowledge into standardized processes for customers to deploy within their organizations.