Getting to a World-class Supply Chain

By Sean Elliffe November 23, 2015 by Kelly Kuhlman

by Sean Elliffe

How do we know we have got a world-class supply chain? There are as many arguments as to what constitutes “world-class” as there are detractors who would question if such a thing even exists. In this modern era, there are significant complexity challenges that require us to consider multiple business dynamics, not least of which are the realities of:

• A global footprint of the supply chain
• Contract manufacturing that is increasing
• 3rd party logistics vendors that are increasing
• Product life-cycles that are becoming more dynamic
• Distribution movements through multi-channels
• Batch size / quantity limitations impacting capacity
• Lead time uncertainty impacting on-time delivery
• Frozen forecast windows with inaccurate information
• Multiple / seasonal supply sources and so on

Within this environment of complexity, there are also many indicators of success that provide insight as to whether or not we are on the right track. These include:

• Reduced inventory through improved planning and control
• Minimized shortages and interruptions to improve production efficiency
• Reduced materials cost through improved procurement and payment protocols
• Reduced labor cost through better allocation of staff and reduced overtime
• Increased sales revenue, driven by better managed customer relationships
• Increased gross margin percentage
• Reduced administrative costs
• Reduced regulatory compliance costs

Getting to this end state requires not only that we measure ourselves but also that we build strong interdependent relationships across the extended supply chain. The net result is a competitive edge needed to drive successful and sustainable businesses.

BUILDING COMPETITIVE EDGE THROUGH INTERDEPENDENT RELATIONSHIPS

Competitive edge is something all companies strive for as part of building their so-called “world-class supply chain.” From a high-level definition, this means having effective interdependent relationships between people, process and technology; and from our suppliers to our customers such that we are enabled to increase market value and drive down end-to-end supply chain costs. Core elements of effort in getting to that end state include:

1. Collaborative long-term relationships built on respect and trust
2. Effective demand signals that drive sourcing and manufacturing and enable volume adjustments as needed
3. Operations and logistics alignment with capacity managed and leveled production schedules
4. Ability to manage mixed loads with on-time / in-full delivery coming into and going out of the organization
5. Ongoing collaborative operations and product delivery improvement with cost reductions across the end-to-end chain

But around each corner, many enemies that undermine our abilities to realize this interdependent focus are lurking. Three specific areas that have an unwanted negative impact are:

Delaying decisions

• Delayed decisions need to be covered by inventory.
• Second-guessing safety stock decisions means it is a false signal.
• Time delays increase the size of the process deviations.

Uncertainty and lack of reliable data

• Broken and unreliable processes result in poor delivery.
• Lack of reliability results is uncertainty — any uncertainty gets covered by inventory.

Decision points / functional hand-offs

• Each hand-off / pass to another function increases the danger of “dropping the baton.”
• We must minimize manual activity and automate within a controlled environment.

The underlying hypothesis from the above is that “bad data / information gets covered by inventory.” From a world-class perspective, our interest lies in optimizing opportunities that impact the bottom line. This means understanding the supply chain effort required to support improvements in sales, while also driving down costs. Figure 1 below provides some context as to focal points that make this a reality, including alignment with improved interdependent relationships that drive supply chain integration:

Figure 1: Opportunity to Impact the Bottom Line.

Becoming world-class requires that we focus on operational excellence and use all means at our disposal to ensure:

• Increased visibility across the supply chain
• Improved control and decision-making
• Improved product availability
• Improved alignment between organization and targets
• Increased data accuracy and user confidence
• Increased system performance
• Standardizing and harmonizing people, processes and technology
• Making effective use of the system functionality we already have

Put all this together, and the value opportunities to business become real:

• Reduce inventory between 15% and 30%
• Increase inventory turns by as much as > 17.5%
• Improve supply chain service levels by > 20%
• Increase process efficiency by > 20%
• Total cost of ownership (TCO) reduction

Good luck, all — let’s get to world-class.

Tags: inventory optimizaiton, Supply chain, supply chain integration