Supply Chain Management is complex and truly mastered by few. Building the organizational capability which orchestrates a multitude of activities that manage inventory, cost, and service is a challenging goal – one that requires strong alignment between Strategy & Governance, Operational Excellence, as well as the organization’s people, processes and systems.
For those of us who have made our careers in supply chain, one of the great challenges, and the attraction of the discipline, is the variety of differing opinions about what constitutes ‘excellence in supply chain’ and how it can be best achieved. Below are the foundational requirements to meet such a titled achievement:
- The Balance Between Service & Cost
For those seeking this holy grail, at its foundation, excellence in supply chain is measured by an organization’s capability to achieve the right balance between service and cost. But it’s not nearly this cut and dry — different business units within the organization typically require their own unique equilibrium of service and cost advantage, and it’s this factor that will drive the type of focus needed, and the capabilities required in each situation.
- Direct Linkage to Corporate Strategy
Supply Chain Strategy must be inextricably linked to the strategy of the organization. This enables the necessary capabilities to support the aims of commercial business to be reflected directly into the supply chain design. Determining where to focus both capabilities and resources will be driven by key objectives, the current level of supply chain maturity, and business challenges. Refreshingly, there is no right or wrong answer – the company must make choices about the type of people, processes and systems needed to respond when the market seeks an output.
- Design for Competitive Advantage
In a nutshell, Supply Chain Strategy is about enabling a company to meet its goals and achieve a competitive advantage. The competitor with the most responsive, efficient, balanced Supply Chain wins.
The nature of the business, the type of products, and the mission of the company will drive differences in supply chain design and the type of capabilities needed. A life sciences company, for example, may focus more heavily on responsiveness and service with less emphasis on cost than a fast moving consumer goods company reflecting both the nature of the products and the relative margins.
Regardless, it must begin by determining what the Customer values, then work backwards to design processes which deliver to these requirements (see below):
Done right, an adaptive Supply Chain can be a source of competitive advantage, as demonstrated by companies such as Apple, Wal-Mart and P&G. But when improperly misaligned, impacts to service and cost can be detrimental.
Some common customer values driving Supply Chain excellence are as follows:
Responsiveness: Time-based competition is now the norm, with customers requiring quicker availability and higher levels of customization. The focus is on agility. In organizations where this is critical to competitive advantage, strategies need to be adopted to enable speed of change and faster response to market needs.
- Capturing point of sale data to drive manufacturing
- Late postponement to enable customization
- Technological capability geared towards quick turn-around and short batch sizes
Reliability: Unreliable processes create uncertainty and variability. Equally, lack of visibility adds to uncertainty. Where reliability is key, management of uncertainty may require closer collaboration with external parties and optimization of end-to-end (E2E) inventory levels aligned to segmented trade-off between service level and cost.
Resilience: Today’s turbulent and volatile markets require supply chains that are capable of dealing with the unexpected and the unplanned. Contingency strategies, risk modelling and responsiveness to scenario “what-ifs” must reflect a company’s ability to truly respond. This ability to “bob and weave” becomes critical.
Relationships: As supply chains become more complex and as out-sourcing increases dependency on suppliers, the need for relationship management increases and the importance of internal and external collaboration as a fundamental people capability is essential. Having trusted partners can become the ultimate chess play if a “what-if” scenario becomes reality.
- Commitment to Continuous Self Examination
Operating an end-to-end supply chain requires a multitude of skills including Demand Sensing and Forecasting, Inventory Optimization, Synchronized planning, Delivery Optimization and Production Excellence. A weakness in any part of the chain can undermine the strategy, impacting customer service or driving up costs.
Achieving excellence in the execution of the Supply Chain and delivering the strategic goals of the organization requires all of the key functions to perform at the highest level, both individually and in effective harmony across the chain. The capabilities typically cited as critical to achieving the level of orchestration needed to improve service and manage costs are:
- Synchronized (E2E) planning capability – aligning production to the end-customer demand, therefore reducing the bullwhip effect and driving improved stability.
- Segmented Planning – enabling tailored configurations of the planning approach, including Demand Planning and response to different levels of volatility to different service models
- Demand Forecasting – determining what we expect to sell as a driver of decisions around what to make and when and where to hold stock to offset risk
- Cross- Functional Collaboration – planning for the entire chain and enabling end to end visibility; creating transparency and trust in people, processes and systems
- Multi Echelon Inventory Optimization – determining the perfect balance of inventory with service level performance; minimizing excess stock against “just in time” production
- Effective S&OP/ IBP – Sales & Operations planning that creates a sense of balance between Supply, Demand & Finance
- Business Intelligence Capability
Critical to aligning operational effectiveness with the desired outcome of the Supply Chain strategy is Business Intelligence. This extends beyond just the proficiency to measure performance, but rather, strives toward best in class operations that include the analytical expertise to monitor the E2E operation proactively responding to risk, imbalances, cost deviations and service levels in a way that is consistent with the goals of the segmented customer value proposition.
Excellence in Business Intelligence requires a combination of people proficiency, systems capability and data accuracy and completeness that enables correct decisions to be made at each point in the chain. Proactively managing “what if” scenarios with the data possibility to model cost impact versus service implications allows for trade off decisions to be made in a more informed manner.
For the advance Supply Chain enthusiast, a more advanced level modelling capability supported through excellence in Business Intelligence enables multi-echelon inventory optimization, capacity decisions, cost to serve reduction initiatives and risk assessments to be executed more effectively. Tools such as a balanced scorecard, supported by effective Business Intelligence, underpins a clear understanding of the actual performance, and, if done right, enables senior leaders to understand whether the company is on course — or not.
Now clearly, this is not an exhaustive list, nor is it comprehensive to all of the practices an organization must master to achieve Supply Chain Excellence. But for many, if organizations could enhance, improve or simply make positive steps forward, on any or all of these practices, they may indeed find themselves differentiated in the marketplace with which they serve.
Joy Taylor | CEO & Co-Founder | TayganPoint Consulting Group | firstname.lastname@example.org
David Evans | Director | Greedy Lemon Consulting
To read the article as it originally appeared in SupplyChainOpz, please click here.