Improving Supply Chain Performance

Stephen DeAngelis

September 26, 2011

Last December, Max Jeffrey, an integration consultant at Kinaxis, asked an important question, “Do you know the impact of the supply chain on your business?” [The 21st Century Supply Chain, 8 December 2010] You might think that question is a bit flippant. Of course you know the impact of your supply chain to your business. Or do you? Before simply dismissing the question, remember that Jeffrey is a serious analyst asking a serious question. What prompted Jeffrey to pose the question was a survey he read “in which respondents reported a drop in the amount of overall cost savings as well as lower increases to revenues as a result of supply chain management initiatives.” He writes:

“There’s no dispute about the benefits obtainable through use of supply chain management. There’s also no question that during the economic downturn, companies relied on supply chain management to weather the storm. I must admit, however, that I am somewhat surprised by the results of a recent survey. … The survey, 2010 Global Survey of Supply Chain Progress, was jointly conducted by CSC, Supply Chain Management Review (SCMR), and Michigan State University, with assistance by the Council of Supply Chain Management Professionals (CSCMP) and Supply Chain Europe magazine. Twenty industries were represented in this year’s survey, and respondents included representatives from both large and mid-sized companies, with sales ranging from $250 million to over $1 billion. One of the surprising—at least to me, anyway—findings was that when asked about the overall impact of supply chain initiatives on cost reduction over the past three years, the number of respondents answering ‘none’ or ‘don’t know/not sure’ grew from 13 percent in 2009 to 20 percent this year. And as a follow-up, when asked about the overall impact of supply chain initiatives on increasing revenue over the past three years, the percentage of respondents indicating ‘none’ or ‘don’t know/not sure’ rose from 30 percent in 2009 to 47 percent in 2010. How should that be interpreted? Is it actually a lack of impact, or a lack of direct measurement to understand the impact?”

I have to agree with Jeffrey that it is surprising that so many respondents didn’t believe (or didn’t know) whether their supply chain initiatives had resulted in a significant impact on business. A supply chain analyst once stated, “Companies don’t compete — only supply chains do.” If that is true, then any supply chain initiative is going to have impact on the company (for good or ill). Before supply chain professionals feel underappreciated as a result of the survey’s findings, however, Jeffrey continues with some good news. He reports:

“I am encouraged by other results (which, to a degree, are counter-intuitive to the stats above). For instance, supply chain management is largely held to be of considerable importance. In fact, 82 percent of the respondents replied that supply chain management is considered to be a core importance for their organization, and when asked how much influence supply chain management has on running the business, 52 percent replied ‘to a great degree’—while another 35 percent indicated a ‘moderate degree.’ … Indeed, 78 percent of the participants indicated that their firms increased emphasis on supply chain management [in 2010]. Additionally, given the growing emphasis on supply chain management, it only stands to reason that S&OP is increasingly valued as well. For instance, 66 percent of the respondents reported a moderate to high degree of impact using S&OP to improve the company’s agility so it can better respond to changes in customer demand.”

In other words, don’t stop trying to improve your supply chain just because the exact impact of specific initiatives is underappreciated. Continuous improvement, according to John Williford, President of Global Supply Chain Solutions for Ryder System, Inc., is one of the four critical elements in supply chain execution. [“Four Critical Elements for Excellence in Supply Chain Execution,” Logistics Viewpoints, 19 May 2011] The other critical elements are having: a proven template, deep expertise, and lean principles. He writes:

“Faced with serious pressures to cut costs and boost profits, many companies have re-examined how they source, store and deliver their products. Flexibility, innovation and the ability to operate with virtually no margin of error have become requirements when it comes to logistics outsourcing. A company’s ability to respond to change, to be nimble and innovative, depends on its ability to execute at the highest levels.”

As noted above, Williford believes there are critical “elements of good supply chain management that must come together to achieve exceptional execution.” For him, they begin with a proven template. He writes:

Proven template: Firms that are undertaking a significant change to their logistics network are most often successful if they have a model to follow. This model becomes a pattern for a standard, replicable solution set that can be applied across different areas of the supply chain. This is not to say that all supply chains should be approached with a ‘cookie cutter’ model. Rather, a standard solution set comprised of best practices becomes foundational and can then be customized to meet each specific logistics engagement undertaken. In the absence of a proven model, it can be difficult to know what best practices or methods will breed success.”

As the old says, “If you don’t know where you’re going, any road will take you there.” Having a template (or road map) of what you hope to achieve and how you are going to do it is important. If you’re on the cutting edge of technology and trying something for the first time (i.e., no template exists), then I suggest using pilot or prototype programs. They can help establish that template. Williford next turns to the subject of deep expertise. He writes:

Deep Expertise: Today’s complex supply chains require applied knowledge not only in their inner workings, but also with big-picture insight of the impact that changes made in one area of the supply chain will have across the network. Great execution requires functional expertise in distribution management, transportation management, cross-docking and network design; it also requires industry expertise in the unique aspects of customer requirements, drivers of profitability, challenges and trends for a particular industry segment. Functional and industry-specific knowledge allow companies to better synchronize supply and demand to achieve the optimal flow of goods across the network.”

When Williford talks about “the network,” he is talking about the end-to-end supply chain network. I would take that idea one step further. Top supply chain executives need to have deep expertise across the entire business, not just across the entire supply chain. That is, they need deep expertise both vertically in the supply chain and horizontally across the business. Gartner refers to this kind of model as a Demand-Driven Value Network (DDVN). Others believe that Sales & Operations Planning should be referred to as Integrated Business Planning. The point is a more holistic approach to deep expertise is required. On that point, I agree completely with Williford. His final topic involves lean principles. He writes:

Lean principles: Applying lean processes is key to delivering long-term value and consistent performance. In a lean culture, logistics teams are empowered to identify and eliminate waste in every process that occurs as an order is fulfilled. Lean tools, such as visual cues, problem solving jackets, and root cause analysis, result in shortened lead times, built-in quality and continuous improvement – ultimately increasing speed to market.”

I believe there is a caveat here. As I’ve noted in the past, a supply chain can get too lean. Lean systems can be brittle and inflexible. When people write things like companies must have “the ability to operate with virtually no margin of error,” they are all but admitting that processes aren’t very resilient. That can’t be a good thing. Yet earlier Williford also discussed the importance of supply chain flexibility. Finding the operational sweet spot for your particular company can be tricky; but it can be done. Williford concludes with the topic of continuous improvement. He writes:

Continuous improvement: We’ve found that ongoing, incremental improvements – both small and large in scope – add up to a significant edge. An important tool for continuous improvement is Value Stream Mapping. Value Stream Maps are created for many aspects of the supply chain such as detailed workflow management, warehouse productivity, route optimization and, on a larger scale, total landed costs. They combine engineering talent with practical operational knowledge to find the best opportunities for change and continuous improvement.”

Steve Hensley, president of Blue Sky Technologies, agrees with Williford and notes, “Identifying the loss of five minutes here and 10 minutes there can quickly add up to big savings when applied across thousands of employees. … [When] you start putting $38 per hour to it. All of a sudden, you are talking big money.” [“Using Visibility to Target Supply Chain Inefficiencies,” SupplyChainBrain,15 August 2011] Williford concludes that “by achieving the right combination of proven templates, deep expertise, lean principles, and continuous improvement, your supply chain will ultimately get products to market faster, improve efficiencies, reduce costs, open new markets and enhance customer satisfaction. That’s why when it comes to logistics, execution is everything.”

 

Supply chain analyst Dustin Mattison believes that companies need to start thinking differently about supply chains. He believes that supply chains are a “truly strategic resource that most companies today are dramatically underutilizing.” [“How can we make America’s supply chains more dynamic and innovative? Dustin Mattison’s Blog, 25 May 2011] In that regard, Mattison agrees with Jeffrey and would probably ask the same question that Jeffrey did, “Do you know the impact of the supply chain on your business?” As new technologies permit supply chain data to become an integral part of company-wide information systems, supply chain professionals will increasingly find themselves the focus of business activity. The new attention should be welcomed; but, supply chain professionals must be ready to prove that supply chain management can and does make a difference.