There are hundreds of supply chain metrics, many of them ‘standard’ to a degree – order cycle time is a pretty standard metric, though you can tweak the “when” for when the order arrives as well as when the delivery is handed the customer, but most serious supply chain professionals agree on major definitions.
Some organizations use far too many metrics – I recall a Supply Chain re-engineering and ERP implementation I was involved with, which had with 20 operational reports, only two of which were used. The cost to develop was amazing. The flip side is organizations that attempt to guide operations exclusively with financial metrics. An example may be to look exclusively at either total supply chain cost, or perhaps inventory. If you are organized to look at supply chain by P&L only, or worse, by general ledger line, it makes perfect sense to simply set up a metric, and report and try to manage and optimize the supply chain by that financial view. Continue reading
People, Process, and Technology – I’ve heard those stated over and over from a ‘framework’ point of view as the essentials of good supply chain management. I think it’s very incomplete. I’ve worked with companies with great people – dedicated 10- 20- and 30- year professionals in their supply chain roles. Processes, while not meticulously documented and automated, were well-understood, repeatable, and performed to expectation. A company may have great ERP, MRP, and other systems to have high fairly automated environments. Yet, customers are defecting. Inventory is out of control perhaps – both too much and too little, a wonderful paradox. Costs are escalating faster than inflation.
When I talk to these organizations, what is strikingly evident is that they are very internally focused – I did my process at the right time, our ERP has great capabilities, my team is very experienced in our product, we have a six-sigma team that’s constantly looking for improvements. The gotcha is when I ask about end-to-end supply chain performance, and market expectation – the blank look. Let me give you Joe’s five pillars of supply chain management – Markets, Metrics, People, Process, and Technology. Continue reading
I reviewed with a client recently the overall historic progression of supply chain thinking, and it had a somewhat jarring effect. I think we’re all familiar with the early ideas of what I call “General Ledger” driven supply chain – there’s a line item for Procurement, there’s a line item for Manufacturing, a line item for Logistics… And you optimize those organizations to be very efficient.
The problem of course is that efficiency in any one focus area may drive inefficiencies in the other – great purchasing may drive inefficient manufacturing; great manufacturing efficiency may drive terrible logistics to the customer. The highlight of this kind of thinking is essentially that you’re not just inwardly focused; you’re even blind to the issues in your own company. The next stage was focus on the supply chain, the great discovery: how you focus on orchestrating activities cross-functionally to efficiently move a product to the customer. Unfortunately, there you can also evolve the “General Ledger” supply chain to the “Product P&L” supply chain – the vital link to the customer is still hidden, and while you may be very optimal for a product, you’re not optimal in a market. Continue reading
One of the most challenging problems I encounter with Supply Chain teams, and executives, is the lack of credibility when they try to get support, sponsorship, approvals for major supply chain transformations. It was the #1 problem when I interviewed executives over the last 10 years in supply chain events. It manifests itselves in transformation programs when I hear “How do we know this is going to work?” or “We spend so much money on IT but we never see anything improve, how is this different?” in discussions with VP-level, or even C-level executives, and the teams begin to flounder. They’ve had this discussion before, and embark on one of three paths – discussion of features, discussion tools, or discussion of problems – hoping they can get buy in for a transformation project. Continue reading
I reviewed order management flow with a client some time ago, as part of a process capture exercise within a re-engineering program; it was within a business to consumer context. As orders flowed during the day, the local teams would review inventory manually, and then when it reached an appropriate reorder point, they would manually enter an order in their ERP environment. That order would then be printed out, and Faxed to a central warehouse. The central warehouse would re-enter the order in their ERP environment (which, by the way, was the same one), and an interface file would be generated with shipment parameters.
To make a very long story short, the order continued to be ‘touched’ several more times by humans until it was actually received in the destination warehouse to replenish stock. If something went bump, it was a manual process to adjust all the numbers in all the interfaces along the way. Keep in mind, this was essentially an intercompany inventory replenishment signal. It reminded me of a memoir of a child of a dysfunctional family – what seems strange to the reader, to the child of course was completely normal. I was wracking my brain to figure out why – why there were 12 steps or so, why the same process was performed over and over. Continue reading
I had to create a communication package once for the CIO, CEO, and President of HP on difficulties in their “going direct” supply chain process. Perhaps it was my Caltech Science background, or having a lot of raw data, but I came up with what I thought was a wonderful, lucid, though 400-page, presentation. My SC and IT team had been through the HP-Compaq merger, and we had reams of analysis of both companies, and likewise on the four or five attempts by both companies to try to leverage indirect fulfillment supply chains for direct sales (hint: it doesn’t work well). I started walking Bob Napier, CIO at the time of HP (Bob is no longer with us), through the presentation. He was an old Navy guy with a deep voice like dark polished wood, and he filled his office with a booming laugh. “Oh Joe. It’s the first time.” Continue reading
Supply Chain Benchmarking – an endlessly debatable topic. I wanted to share with you one way I like to use benchmarking, which is to frame a conversation with Supply Chain executive leadership around direction and distance of performance change required. My first pass at benchmarking years ago was for the CIO of HP, around IT cost as a percentage of revenue, to gauge whether IT budgets were in line with industry peers. We used one of the big-five consultancies, and 3 months and $400K later, we had the numbers, and had a great view of, by each tech market we were in, what level of tech spend was appropriate, and where budget changes may be mandated. I found the process very subjective, which it was, but valuable in the sense that it provided “bracketing” or bounding for what we should expect to set strategically. Continue reading
Some time ago I reviewed the KPIs of a group of clients, and what was fascinating was the range of time it took for them to gather only the most essential data – Perfect Order Reliability (OTIF), Order Cycle Time (OCT), Upside Flexibility (Lead Time), Total Supply Chain Cost to Serve (TSCCS), and Cash-to-Cash cycle time (C2C). One team took an hour to get the metrics, even to the detail of segmentation by major supply chains, and so on – it was more time to fill in a form than it was to gather the data (that’s telling you a little bit about form design too). They used standard metrics as part of their overall day-to-day supply chain management, and the infrastructure to report was real-time – for all metrics. Another team took a day. Continue reading