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Steve Banker

Supply Chain

My Supply Chain Resolutions

Four tips for smooth sailing

Published: Thursday, January 8, 2015 - 09:28

What resolutions are you making in the New Year to improve your supply chain? Here are a few of mine.

To remember that supply chains should be built backward from the customer

One way to do this is to use a perfect order metric as a key way of measuring the supply chain organization. The question remains, though— if my organization improves from 88 percent to 92 percent, is that good enough? Ultimately, value is determined by customers, and they do this by comparing one organization’s delivery capabilities with other organizations’ capabilities. New customer-centric supply chain metrics have emerged that can help answer this question. It is also worth remembering that large customers serve different types of customers, in different channels.

To delight customers, while remaining profitable, it's very likely a company will need to segment their supply chain. For customers buying high-profit-margin products, higher service levels are justified. For cost-sensitive customers, lower service levels can be justified.

Building a supply chain backwards from the customer also involves becoming demand driven. The more demand signals that can be generated from the actual end customer, even if that final customer is a few tiers down the supply chain, rather than from historical shipment data, the better a supply chain organization will be able to serve the customer.

To build a lean supply chain organization

At many large companies, lean continuous improvement programs are well entrenched for manufacturing, but I’ve toured few shipping warehouses where it was obvious that lean programs were part of their culture, too. Although it's necessary for lean to be supported by top-down management, the best lean programs are truly bottom up.

To remember that unlocking value will more often involve breaking down silos than attaining operational excellence within a silo

This has long been a central tenant of supply chain management. For example, having a manufacturing organization achieve high throughput based on long production runs makes no sense if a company ends up with excess inventory. However, manufacturing and logistics folks both see themselves as part of an end-to-end supply chain. Functions like invoicing, human resources, and IT may not. It's not just breaking down boundaries between manufacturing, distribution, and transportation that is important. If you truly build a supply chain backwards from the customer, you may find that new forms of integration and process improvement require working with parts of the organization not seen as contained within the supply chain organization, or even within the company itself.

This process has been going on for a while. Sales and operations planning (S&OP) have brought sales and marketing into collaboration with the supply chain. Now, as S&OP is morphing into integrated business planning, the touch points with finance are becoming much tighter.

But even this is not enough. At a large global company, if you were to staple yourself to an order as it moved through the organization— for example, manufacturing in Europe, inventory in a distribution center in Brazil, and delivery to a client in Peru—you would likely be shocked by the excess inventory required and the service cycle time. The constraints would take you to parts of the organization you would never have previously considered.

To remember the importance of brand protection

In recent years, we've been talking more and more about risk management. This is all to the good. A poorly handled recall, or not being able to ship product for weeks because of a natural catastrophe, can kill a business. Although companies need to do detailed contingency planning, we have learned that supply chains can be too lean. Leading companies are striving to understand how their products are assembled, which components are single-sourced or dual-sourced in dangerous regions of the world, and what portion of revenues can be put at risk if that component becomes unavailable.

Outsourcing is becoming ever more common. When we outsource, for example outsourcing warehousing to a third-party logistics provider (3PL), we also need to delve into the 3PLs disaster-recovery capabilities.

In conclusion, a supply chain executive can’t possibly keep these resolutions without a good staff as well as cross-functional and partner collaboration. In many cases that means a supply chain leader can’t keep these resolutions without the support of the CEO. Many people resolve to go on a diet and keep the weight off, but few succeed. Keeping supply chain resolutions is even harder when your own resolve may not be enough if key partners are unwilling to play ball.

First published Jan. 5, 2015, on the Logistics Viewpoints blog.

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About The Author

Steve Banker’s picture

Steve Banker

Steve Banker heads the supply chain and logistics consulting team at ARC Advisory Group, a technology research and advisory firm for industry and infrastructure. Banker is one of the best known industry analysts covering supply chain. He has authored many market research and strategy reports and has managed consulting projects for manufacturers, retailers, software providers, and venture capital firms. Banker writes about logistics and supply chain management for Forbes.com and Logistics Viewpoints. Prior to joining ARC, Banker was a professor at Stonehill College and Pennsylvania State University. Banker holds an MBA from Babson College and a Ph.D from Indiana University.