Turbocharging the Supply Chain: Why Network Operators are investing in this capability to support the next wave of growth and innovation (and what to focus on now)…
The past 18 months have been unprecedented. Incredible strain has been put on supply chains as Network Operators responded to Covid-19, EU Exit, increasing climate change pressures and freight delays such as the Suez Canal closure which impacted an estimated $40bn in global trade. These events have highlighted how exposed operators are to supply chain disruption with many operating ‘lean’ supply chains, which often lack resilience and agility to respond. The companies that had invested and innovated in their supply chains were able to adapt faster and respond to new market opportunities, making near real-time decisions on product sourcing and routing through the supply chain when disruptions occurred. These new challenges come during a backdrop of increased socio-political complexity such as government interventions on the use of High Risk Vendors (HRVs), massive infrastructure investments in 5G and FTTP rollouts, and increasing market rivalry to secure network quality and reliability accolades.
Supply chain and commercial leaders in these organisations have a big mountain to climb. The roll-out of new network demands a different approach to the steady state model. As volumes climb, engineering teams are scaled, and material flows put pressure on warehousing & distribution capacity and on the wider supplier base. This capacity requirement needs to be responded to well in advance. Based on our research warehousing demand in 2021 surged 34% above the long-term average, vacancy rates fell to a historical low of 5.3% and prices are now expected to rise by 10% this year alone. Commercial and procurement becomes a key capability as this quickening pace must be balanced with the need to optimise component costs and logistics budgets, whilst also tightly managing cash flow.
Innovative organisations are also finding opportunities to improve. The decommissioning of legacy network equipment presents both a challenge and a commercial upside if operators can redeploy assets or dispose of them to drive residual value back into the business, but sustainable and secure processing of return equipment needs careful management and capacity. As supply chains move beyond peak volumes at the height of a rollout, they must then quickly turn focus to the ramp-down. With new networks inherently more reliable and underpinned with technology, the operating model shifts to virtual and remote management ways of working. This change requires the organisation to transform both in size and skillset, and design both a different supply chain and commercial model to match.
The role of partner management has also become increasingly complex for both mobile and fixed line operators in recent years. Network supply chains require a multi-tiered ecosystem of partners to work together to deliver outcomes, and the most successful operators continue to focus on attracting (and retaining) the best talent in the market by building closer relationships with key partners. Many organisations are implementing structured relationship management programmes to align corporate objectives with key partners, and actively gather direct feedback on their attractiveness as a buyer in the market. Innovation through procurement is also now a key differentiator and requires a new approach – not just opening the door to the market through formal tenders – but investing time with technology providers and implementation partners to develop new innovative solutions which give a competitive advantage. The pace of change is rapid, with major new advances in mobile and cable technologies opening new possibilities and complex commercial decision-points, for example optimising decisions on when to retire legacy platforms and products based on the changing cost of delivery. We predict that partner management will need to become more flexible and agile, with much more frequent (and less formal) engagement with the market to fully leverage the opportunity. Risks remain, and political interventions related to HRVs in the UK have driven a new focus on 3rd party risk management across many operators, with procurement now playing a key role to manage operational resilience of the network.
To succeed in this complex environment, we have identified five focus areas for supply chain and procurement leaders in network operators:
1. Supply chain digital twin – developing a virtual model of the supply chain enables organisations to test different scenarios and the impact against their business goals in near real time. With so many variables at play, the best organisations are able to quickly assess multiple options and make faster informed decisions across network capacity, supplier sourcing, engineer optimisation and logistics. Leveraging tools in supply chain network design, demand forecasting with machine learning and roll-out optimisation modelling are some examples used in practice today. At one leading UK telco, the digital twin approach was extended into the partner organisations to optimise material flows and holding across the supply chain, removing the requirement for the supplier to invest in new warehousing space. Another telco, recognising that container prices have inflated by 160% between Asia and the UK in the past year, changed sourcing strategy to remove unnecessary freight costs and lead time.
2. Integrated business planning – successfully navigating the complex supply chain landscape requires organisations to have a much more agile and coordinated approach to aligning engineers, contractors, materials and suppliers inside and outside their business. High integration and common understanding enables effective pace and minimises cost of failure for all parties. There are many lessons which network operators can learn from other industries. A dynamic market of technology providers is now able to provide near real-time analytics and improved decision making across the supply chain ecosystem. Our research shows that advanced supply chains typically see 20-40% reduction in working capital, 10-20% lower warehouse and transport costs and 2-5% procurement spend reduction.
3. Strategic partner management – the lines between ‘buyer’ and ‘supplier’ are increasingly blurred for major telco organisations, with both playing a critical role to deliver major programmes and operate the network. Many telco organisations are putting more focus on structured partner management programmes to secure additional resources and investment from the supply chain. The leaders in the market are developing true mutual partnership models which provide long term business opportunities on both sides of the relationship. For example, investing in joint partner R&D to develop network innovations which are not widely available in the market, such as one European telco that co-invested in new fibre splicing technology that reduced install time and increased repeatable quality.
4. Intelligent and sustainable asset management – supply chains must leverage the opportunity to enhance visibility and management of new equipment being installed into the network as well as processing faulty or decommissioned kit which is returned through the supply chain. Reliable spares provision, maintenance and life-cycle management will be critical for sustaining the best and most reliable network. At one UK mobile telco they have gone a step further, where their decommissioned equipment is being refurbished and re-purposed to support developing countries in Africa build mobile infrastructure, giving the equipment a second life.
5. Net zero supply chain - many telcos have made ambitious statements about moving to net zero emissions during the coming years, and the supply chain will have a critical role to play as the function is the most energy intensive element of the business. In the UK, transport is the highest carbon-emitting sector, with 11% of all emissions attributed to HGVs and vans alone. To meet government targets, current levels will need to reduce by 70%, demanding supply chain leaders to fundamentally re-think the current approach. We are seeing sustainability measures increasingly baked into tender evaluations, and many telcos are also exploring opportunities to move to green energy provision and self-generation. Many operators are now working towards a green supply chain and making significant investments in Electric Vehicles (EVs) both within the organisation and across supply chain partners. One UK telco is targeting to migrate their entire van fleet to EVs by 2030.
We believe that supply chain and procurement teams have a critical role to play in the coming transformation of mobile, fixed and cable networks, and will need to build capability to effectively support 5G and FTTP whilst driving the green agenda. Network operators are waking up to the fact that the supply chain can be a true differentiator when speed to market, resilience and cost efficiency are more important than ever. Getting the right kit to the right places at the right time and cost will be a point of competitive advantage, with the winners seeing 12-20% lower supply chain costs and 10% plus improvements to their customer experience, but only if the right investments are made.
Our team is passionate about helping operators to build better supply chains. We would love to hear your thoughts on the topics discussed in this article and how you see these challenges impacting your organisation.