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
This month it’s exactly 20 years ago that I first traveled to the corporate headquarters in Houston to participate in a worldwide project to redefine the global planning process for Compaq Computer Corporation. At the time we did not call it S&OP, we called it supply chain planning. Our challenges then? We had 8 levels of judgment by sales, product managers, planners and procurement between the forecast in the sales offices and what we communicated to our suppliers as ‘the plan’. As you can imagine, with so many people making changes to the plan, the outcome was probably less reliable than rolling dice. When we started our journey towards a global S&OP process our suppliers awarded us the title of “least reliable in the industry”. Continue reading
In my years as Research Director at SCC it was pointed out many times to me that we (accidentally?) omitted “one of the most important metrics in supply chain: Forecast Accuracy”. Many people believe this “It’s all about forecast accuracy” to be true. In practice it is not however.
I agree that garbage-in, garbage-out does apply to S&OP just like every other process. Continue reading
Here’s the deal: You know your supply chain is special and using a one-size-fits-all approach like Sales & Operations Planning (“S&OP”) is not for you. Or you operate a process that is too complex. Or maybe it doesn’t require such a complex approach. And then when you tried it; the statistical forecast was inaccurate and executing the plan resulted in shortages and excess at the same time. You know you are right: S&OP is not for you. Or is it? 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
At a recent training I was asked the question whether the Supply Chain Cost metric applies to a return operations.
“We receive consumer goods from retailers and .com customers and inspect these goods and then determine disposition; some products we repack, some we repair, some we scrap and the rest we return to the OEM.”
It sounded to me like a typical return supply chain. You have costs to operate these facilities, staff and materials used, right? All these are part of Total Cost to Serve.
“Yes, but we never own the materials. They belong to our customer, we are just the service provider, why should we report the cost of goods? Similarly, as we never own the materials why would we care about inventory in asset management?”
Ah, the question behind the question. A service supply chain may manage goods but not own them.
To address the question about the Total Cost to Serve calculation first: Yes, the cost to acquire materials is part of Supply Chain Costs. And this is accurate even for the service supply chain above. The cost for packaging materials acquired (sourced) for the repacking for example should be included in the Supply Chain Costs calculation. (That is assuming you acquire them and not your customer). But the cost of the returned good is not yours, which matches financial transactions as you do not buy the returned goods from your customer.
By the way, there are costs in Supply Chain Costs that may be zero or near zero in a traditional* supply chain. Disposition costs would be low for such a supply chain, unless the (Make) process has significant waste for example. Total Cost to Serve has a place holder for all relevant costs, the way the supply chain operates determines how much each a level-2 or a level-3 metric contributes to the level-1 metric.
The real question here though is whether all metrics at all levels apply to every supply chain. In my experience: Yes for level-1 metrics, not always for level-2 and level-3 metrics.
Level-1 metrics capture multiple indicators over the complete supply chain. For example Cash Conversion Cycle (‘CCC’) – Even if you do not have inventory you still buy and sell services. You need to pay your suppliers and collect from your customers. CCC is still relevant as it tells you how many days of business you need to float (to float = borrow money to pay your suppliers until you receive from your customers).
At level-2 and level-3 some metrics may not be needed as I may not have inventory to report. One could argue though that if you report material costs associated with the repacking process there will likely also be inventory to report. But service supply chains can be without any traditional inventory, in which case those metrics can report zero.
And then there is of course the zero inventory supply chain..
..taking ownership of the sourced goods at the same moment ownership transfers to the customer.. Perfectly free of inventory, or is it? Think about it.
I recently had a great discussion with some healthcare research and provider groups in the US, relative to the development of Supply Chain Strategy – segmentation, setting strategy, benchmarking and so forth (see our online CBT on Strategy and benchmarking at http://supply-chain.org/resources/scormark/tutorial). The conversation followed the normal course for discussion – the high cost of healthcare in the US, what is appropriate segmentation, where are benchmarks for healthcare in the various areas?
I mentioned a great report I had seen sometime back from McKinsey which provided me with a clear view of segmentation, and comparative benchmarking with OECD countries in healthcare (see here: http://preview.tinyurl.com/kuk9fes – in general there are a lot of great reports on healthcare costs from McKinsey if you search via Google). What was interesting in the conversation, from the strategy perspective, was when I discussed the upcoming implementation of the US Affordable Care Act (ACA), and 100% coverage of insurance in the US. While cost is a significant driver in healthcare, if suddenly everyone is insured (relatively speaking), is cost the most significant driver? The discussion ensued, and I pointed out that in Europe and Canada, cost is not always the primary issue in people’s minds. It is response time, or system flexibility.
My personal feeling is that in all the clinics and diagnostic centers, everything but emergency care (and even there…) in the US, suddenly there’s going to be an influx in demand. Imagine that you are in a business where a major competitor goes out of business, and suddenly you have to absorb 10-20% more demand or more. In some cases, lead time is not the issue for materials and services. It’s sheer capacity of manufacturing facilities, freight channels, warehouses… This is what we learn about looking at SCOR agility and flexibility metrics. I felt that, in the context of healthcare, ACA was going to create a situation as though a competitor went out of business in healthcare (e.g. self-paid healthcare), and suddenly all those people were going to move to insured healthcare and place a dramatically higher demand into the system.
Cost is a strategic driver, but as we learn from correctly setting strategy, is it the most important driver after ACA, or will it be responsiveness? My feeling is that people are going to be happy to have affordable healthcare in general, but they will start to find that response times for slots in their healthcare provider system for checkups, diagnostics, and treatment in specific cases where there is poor planning, will be quite surprising. Research from the UK here: http://www.ncbi.nlm.nih.gov/pubmed/12543833/. Balancing cost versus responsiveness in ongoing healthcare strategy, which will shift as the market changes, will be crucial to views of success. Healthcare is fascinating and very apropos to view through the lens of supply chain management.