Are your company’s supply chains leading or lagging?
Don’t have the cost or asset efficiency answers to this question? Then you are probably not truly in control of your company’s supply chain performance. At the highest level managing supply chains starts with understanding how well you perform and developing strategic initiatives to improve or maintain supply chain performance.
Many executives ask us how to start the process of making strategic investments in supply chain. One answer is to show how you perform in comparison to your competitors and peers, and your trends versus industry trends. Benchmarking your financials is not difficult and PCG Benchmarks can provide you you with the first insights. Continue reading
When I recently had to explain to my aunt (she is in her 70s) what I do she struggled with the word(s) supply chain – ‘during her work life supply chains did not exist’. I tried to explain how supply chain looks at the total flow of goods in a company – from suppliers to customers and everything in-between. After we parted I thought about how many of the companies I work with or have worked with have the same problem.
Occurrence of supply chain terms in literature 1800-2000
Today, 2015, there are still companies that have no concept or limited understanding of supply chain – even though the majority of the money they spend is directly controlled by supply chain processes. Over the last 20 years I learned that the difference is whether a company considers their supply chains as a strategic asset. Many companies that struggle or are merely median do not. They tend to focus on their manufacturing capabilities.
A company that considers its production capabilities strategic will be focused on optimizing factory operations. The emphasis will be on key drivers such as Cost of Goods Sold (COGS) for cost, Capacity utilization for asset efficiency and forecast accuracy for pretty much anything. Customer centric metrics are often translated to metrics like: Schedule adherence or manufacturing cycle time. This was common practice in the early nineties and resulted in the formation of supply chain special interest organizations back then. Continue reading
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
On a recent customer engagement the project team experienced issues getting acceptance from manufacturing teams for the proposed new planning processes. The reason: “The plan should be done in the factory”; “we have full visibility of current inventories, orders, production output” and so on. This however was primarily a language issue: Are we talking planning or scheduling? Once we explained the difference both teams calmed and agreement was reached. So, what’s the difference, you ask?
One way to differentiate is looking at an example. The daughter of a friend in Europe and her friend graduated from high school and were planning a multi-month USA road trip. She did her planning extensively: Continue reading