Learn how OKRs and outcome-focus increase efficiency during times of economic downturn
For many businesses, supply chain optimization is a key competitive advantage while Industry 4.0 and Commerce 4.0 are on the rise. Logistics companies are facing a renewed focus on their role in this and must now find and deliver the right answers to challenges such as constantly changing market conditions, missing data-delivery and therefore missing transparency as well as misalignment along the supply chain.
The Corona pandemic, the war in Ukraine and supply chain shortage are only a few events demonstrating the need for this in the past years; showing that while the logistics industry is rapidly growing, it is also very volatile and easily disrupted. In this article, you will learn about how logistics organizations can react to disruptions faster and in a more agile way while increasing efficiency – with Outcome Management through OKRs.
Supply chain optimization in logistics: A key player
Logistics 4.0 lays the foundation for Industry 4.0 – and is the key factor for businesses to optimize supply chains. Therefore, the logistics sector has a high responsibility to enable the main features of Industry 4.0 such as networking, decentralization, real-time capability and service orientation. This makes supply chain optimization a top priority for logistics companies. With this, they are focusing on the needs and the value they create for customers to stay a reliable and resilient partner in the supply chain.
But to do so, the logistics industry has to overcome the main challenges it is facing right now. On the one hand, the industry is heavily affected by external circumstances, like natural disasters, political or economic events, as well as changing government regulations. On the other hand, the flow of information throughout the industry includes some hurdles such as the dependency on the reliability of partners, as well as a still insufficient digital communication. In this context, the industry still heavily relies on complex paper-based systems.
Furthermore, new competitors such as Amazon are pushing into the market and funding for logistics startups increased dramatically. One of the key factors was the supply chain visibility, which gained a lot of importance over the past few years while the new competitors were able to deliver exactly that by providing more flexible, agile and adaptable supply chains.
The industry is already addressing these challenges with new solutions:
- Artificial intelligence & autonomous logistics: Designing more efficient processes, facilitating data collection and preventing downtime
- Logistics 4.0: using innovative technologies and big data: Automation in business and logistics processes and interconnectivity of devices and companies with the help of internet of things (IoT), which enables networked warehouses or intelligent delivery solutions
- Robotics: Increasing the speed and accuracy of supply chain processes and reducing human error
- Multichannel logistics: Greater diversification of the distribution logistics channels to mitigate risks
- Structural change of global logistics: Trade conflicts and economic protectionism, as well as evolving compliance requirements
- Sustainability: Growing need for sustainable solutions impacting the choice of vehicle, fuel, packaging, etc.
What is supply chain optimization?
Supply chain optimization is all about improving the efficiency and adaptability of complex supply networks, making use of new technologies and more flexible business processes. Accordingly, businesses are adjusting their supply chains in order to ensure the highest performance possible and a successful and smooth customer experience. Meanwhile, the goal is to achieve an optimal placement of inventory and to minimize operating costs, including transportation costs.
Supply chain optimization can be broken down into three phases:
- Supply chain design: In this phase, strategic and long-term decisions are taken by upper management, for example choosing a warehouse’s location.
- Supply chain planning: In the second phase, in-depth market research is used to focus on demand and supply as well as competitors and their strategies to respond accordingly.
- Supply chain operations: The final phase entails the execution of the flow of products throughout the entire supply chain, considering also internal and external operations. It is heavily connected to supply chain visibility. This is where the logistics industry comes into play.
Why is it important and how does it affect the priorities of the industry?
The logistics industry – being the heart of the supply chain – has become a strategic sector of the economy in Europe as was recently evident amid the pandemic. Demand for logistics services has been rising steadily for years and will continue to grow at an above-average rate. The needs of manufacturers and consumers are becoming increasingly diverse and extensive. This trend is likely to continue, as additional demand for third-party logistics is forecasted for the coming years, driven by the booming e-commerce sector.
Customer expectations meet outer circumstances
This growth in demand also comes with increasing customer expectations. Both individuals and businesses expect to get goods faster and more flexibly. Studies show that 45% of customers expect a two-hour delivery window or less, compared to the 80% of eCommerce customers who expect real-time delivery tracking.
Meanwhile, both B2B and B2C customers are also looking for decreasing delivery costs, the majority of end consumers even expecting no costs at all. But with events occurring like the war in Ukraine as well as the economic developments it is causing, transportation costs are increasing due to rising fuel prices and inflation. Therefore, it is more important than ever for logistics companies to boost productivity and efficiency to reduce costs in other areas.
Competition is intensifying
While increasing their efficiency is one of the most important priorities for logistics companies right now, they also have to be as strategy-focused as possible to stay ahead of competitors. There are three main reasons for this:
- Consolidation of logistics companies is resulting in larger, more powerful organizations
- Global leading e-commerce giant Amazon entering shipping business with Amazon Global Logistics, offering comparatively low prices and becoming one of the biggest competitors
- New start-ups are entering the market using digital technology more easily than traditional logistics giants
- The industry’s current customers and suppliers are increasingly taking over logistics services themselves
How to face the challenges
With OKRs and Outcome Management
Just like the outer circumstances, supply chain optimization is constantly changing. Therefore, being responsive is one of the key factors for logistics companies to optimize their strategy execution – and stay competitive. This challenge can be faced with the introduction of Objectives and Key Results (OKRs) to manage supply chain strategies toward digitalization.
Short excursion: What are OKRs?
The OKR framework – the most successful framework for outcome management – is based on results-oriented goal setting and collaboration. OKR stands for "Objectives and Key Results" and is an agile leadership and goal management framework. It is used to set ambitious goals (objectives) that deliver measurable results. OKR is used to bridge the strategy execution gap because the framework links strategies to outcomes and improves focus, transparency, alignment and employee engagement.
Want to know more about the basics of OKRs? Check out our info page about the OKR framework, including further content to dive even deeper.
No more running from fire to fire
While the demand for seamlessly running supply chains is growing, the current disruptions the logistics industry is facing keep organizations from staying radically focused on long-term strategies. Instead, they focus on urgent and short-term challenges and thus run from one fire to the next – but lose sight of the big picture. Especially for logistics companies it is crucial to building a focused vision for the outcomes they want to achieve, since they are highly dependent on a frictionless execution of a global strategy among different regions, customers or modes of transport.
Radical focus with OKRs
Implementing the OKR framework in logistics organizations helps to stay radically focused on what matters most: the business outcomes; the value the company creates for their customers. Or in other words: Coming one step closer to a transformed and digitized supply chain. The digitization part starts with making the broader strategy visible and a paradigm shift in people’s mindsets. OKRs are a valuable tool for defining objectives, planning strategies, and guaranteeing that initiatives connect to digital transformation goals – overall resulting in improved efficiency and a more flexible organization, able to adapt faster to changing circumstances in the market.
How OKRs boost the supply chain digitization – in four phases
Phase One: Planning Outcomes
Building bridges between teams and leadership
End-to-end transparency is one of the biggest priorities of supply chain operators, as efficiency gains significant importance. In an organizational structure with end-to-end transparency, every member of every business process along the supply chain has access to all information leading to improved visibility and focus on the overarching strategy.
The OKR framework can help teams and business units understand the organizations’ strategy and how they might contribute with their own outcomes. The first step of every OKR cycle – the process component of the framework – is for leadership to set the overall organizational goals for the coming quarter based on the relevant business KPIs, and presenting them to the company.
The organizational goals will then be made accessible to everyone, at all times. The easiest way to do so, particularly for larger OKR programs, is with the help of a respective OKR tool. Goal overview features make sure, every member of every unit can access the organizational goals to contribute to them with their own outcomes. Drafting tips included in OKR software contribute to enabling teams to draft high-quality Objectives (focusing on the value created for the customer) and Key Results (covers the promises in the Objective with leading indicators).
Phase Two and Three: Alignment and execution around outcomes
Building bridges between teams and departments along the supply chain
Tying into the end-to-end transparency, communication between partners and departments along the supply chain is key for logistics organizations. This is why enterprises must overcome complex stakeholder management and cultural hurdles in a global context.
Once all business units and teams are set on their goals contributing to the organizational goals for the upcoming quarter, the OKR cycle foresees that they coordinate with each other. This alignment phase enables cross-functional collaboration and improves communication. Software can support this with features such as Contribution Requests or Check-ins, the ladder creating space for regular exchange also during execution. This helps to stay informed of the progress and identify blockers.
To identify and manage cross-team dependencies and to avoid double work within a value stream, OKR software provides helpful alignment visualizations. After the alignment, the value creation network is visible in graph features; showing the connection of all the goals in an organization. With this, it is easy to spot unaligned teams and identify where resources and collaboration need to be improved.
Phase 4: Adapting to changing circumstances
As the demand for new, segmented and customized services is driven by customers, the logistics industry needs to be able to adapt quickly to changes. Thereby they can keep up with new competitors entering the market, using new technologies for higher productivity and efficiency.
The OKR framework supports data-driven ways of working to make execution and adaptation easier. Respective OKR tools provide the right analytics like the Strategy Execution Report. This will help identify OKRs that are not or little progressing as well as identify teams that require support in their strategy execution. With this data, organizations are enabled to plan faster strategy to execution cycles to achieve process excellence and therefore increase efficiency. At the same time, enterprises can reveal risks and blockers quickly to react faster to changing market conditions.
The use of outcome-centered work with the help of the OKR framework creates added value in logistics processes. Implementing Objectives and Key Results in a logistics organization can help to be more agile, react to changing customer needs as well as increase transparency and alignment across different teams and external partners along the supply chain. A data-driven way of working paves the way for more efficiency and adaptability in an industry that has to face many challenges, changes and disruptions. But with Outcome Management, logistics enterprises can transform their strategy execution in a future-proof way.