Supply Chain
Essay Preview: Supply Chain
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No one disputes the economic impact of supply chain management. But for the most part, initiatives to improve supply chain processes to date have fallen short of expectations. Part of the reason may be that the execution of these programs is flawed or is inadequately planned by people who dont possess the right training and skills. Some common supply chain mistakes and guidelines to prevent them are presented. They are: 1. always viewing the supply chain as a chain, 2. continuing to do business as usual, 3. having the wrong idea about control, 4. failing to synchronize demand and supply signals, 5. believing that technology is the real enabler, 6. failing to gain real visibility, 7. adopting a one-channel-fits-all approach, 8. misreading the people factor, 9. not leveraging global elements of supply chain operation, and 10. underestimating the size of the transformation task.
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Copyright Reed Business Information, a division of Reed Elsevier, Inc. Jul/Aug 2004[Headnote]
Why do so many companies fail to extract the full value out of their supply chain transformation efforts? Most failures occur at the intersection points between employees, process, and technology. From the perspective of one veteran practitioner and consultant, here are the ten most common mistakes that companies make when trying to enact meaningful change in their supply chains.
No one disputes the economic impact of supply chain management. Study after study has linked supply chain performance to shareholder value and shown that total supply chain costs account for more than half of the finished cost of a typical product. Rut for the most part, initiatives to improve supply chain processes to date have fallen short of expectations. How else can you explain why inventory has continued to grow at a 3-pcrccnt compound annual growth rate over the last decade? And why 30-percent of new consumer goods products lail to meet basic financial returns?
Part of the answer may be that the execution of these programs is flawed or is inadequately planned by people who don t possess the right training and skills. I would also argue that in many companies-certainly in those that 1 have worked for and with-there has been a tendency to treat supply chain initiatives simply as cost-containment or technology-implementation exercises. Finally, many ellorts lail to realize their potential because companies view the supply chain only as the internal elements within their lour walls. True supply chain management-what 1 call total supply chain management (TSCM)-goes beyond the four walls. It begins and ends with the wants and needs of customers and consumers.
I have observed many companies struggling with their initiatives ami have seen certain recurring mistakes-mistakes that il corrected could help companies realize total supply chain management. This article condenses my experiences and observations, both as a practitioner and as a management consultant, into some guidelines that T hope can help others as they implement their supply chain initiatives. The guidelines reflect many ol the discussions that weve had here nl Scotts, where most ol our revenues come from lawn and garden products thai are produced and distributed in bulk. These guidelines have proven instrumental in improving our annual inventory turns I mm 1.8 to 3.6, which freed up millions of dollars in working capital over the last three years. And they continue to inform our operations: Wc expect to significantly increase inventory turns again in the next two years.
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The guidelines are not meant to constitute an exhaustive list nor are they arranged in order of importance. Rather, they are simply a set of concepts, expressed as the mistakes that managers often make when attempting system-wide change in their supply chains. Ive focused on the ten most common mistakes Ive seen in hopes that others can identify and avoid repeating them.
Mistake 1:
Always viewing the supply chain as a “chain”
Dictionary definitions arent always helpful. Merriam-Websler, lor example, defines a chain as a “series ol things linked, connected, or associated together or a group ol the same kind or function usually under a single ownership, management, or control.” This definition, however, implies that a supply chain is a series of interrelated functions that have some coupling governance and are connected by a single process flow.
That view has worked reasonably well up to now. Traditionally, the supply chain has been partitioned into the “silos of planning, procurement, logistics, and service, and many managers focused on extracting value from their own silos. For companies pursuing the early stages of change management-in effect, getting their own houses in order-this approach has delivered tremendous results directly to the bottom line.
But as further gains become progressively harder to obtain, companies need to rethink their supply chain perspective. Instead of viewing the supply chain as a scries of functional activities, they need to sec it as a process that spans across functions and organizations. On the surface, it may seem like a small change to ask for, but for many businesses, it has meant an overwhelming struggle. Its particularly difficult because it requires an outward focus. In addition to the traditional internal activities and relationships, supply chain practitioners now need to focus externally on busincss-to-business and even business-to-consumer processes and interactions. This change in focus requires new skills and training for many supply chain professionals as they now must now add external partnering to their skill sets.
Companies in the early stages of this transformation may benefit from using a framework that takes a holistic view of the dcsign-to-delivery process as opposed to the order-to-delivery mindset more typical of conventional supply chains. (See Exhibit 1.) It calls for listening to the design and external collaborative “voice” of the customer and tying marketing and consumer research into the supply chain. Using this framework to design the supply chain strategy, we can not only get the most out of the internal supply chain but also create a collaborative structure that allows for value creation between functional silos while keeping in mind the “total cost of ownership (TCO) structure.”
We have found that potential