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Supply Chain Strategy – Proactive or Reactive?

By Ed Elsbury March 6, 2019 by Ed Elsbury
Benjamin Franklin

In the 18th century, Benjamin Franklin, a printer by trade and a scientist by fame, said: “An ounce of prevention is worth a pound of cure.”  

Recently, I received a call from a supply chain professional who has 30+ years of operations and supply chain experience, is Lean and APICs certified, and needed some help. He shared that he was with his company just under a year and had been charged with “fixing their supply chain” issues. His call was to discuss how to become an SAP Super User in pursuit of his quest to “fix the supply chain”. Despite no previous SAP experience, the strategy was to get SAP module training that would prepare him for this hero’s journey. After discussing some details about the path they were pursuing, we agreed at best this would be a reactive, break/fix strategy.  It was likely he was going to be addressing supply chain breakdowns in isolation, training users when he could, and trying to improve efficiencies when time allowed. He was looking for personal training which we provide as part of our optimization programs but not as a stand-alone offering. I wished him well and we agreed to stay in touch.

After the call, I thought about the strategies supply chain leaders deploy to “fix their supply chain.” Similar to asset management, you can take a reactive, break/fix approach like the caller’s organization was pursuing, requiring little planning, or take a proactive, preventive/predictive approach reliant on planning and reliable data. A review of both approaches to investing in supply chain operations:

Reactive Approach

Also known as break/fix or run-to-failure, a reactive approach to running your operation or equipment is pretty simple: fix things when they break. Since repairs are not planned, it’s a good method to employ for equipment that is not essential for operations or has a low cost. A common light bulb is a good example: you replace it once it burns out. When applying this approach to a Supply Chain, a Super User model is often deployed. Like mechanics for plant equipment, Super Users have a solid understanding of SAP, knowledge of the business processes, and a great deal of patience. Patience, because unlike equipment, their assets are people, and people don’t change easily or quickly. The Super User is deployed against breakdowns affecting the supply chain.

In most instances, a Super User’s time is usually split up between their day-to-day job, helping users fix issues where data or system utilization comes into question, and training users to utilize more capabilities from their investment in SAP. The time allocation varies in each organization, but the first two buckets of time often consume 90%, leaving little time to improve user and system effectiveness.

In the short term, and for certain parts of the supply chain, this approach can be used, especially if the work stream or equipment can easily be replaced. The risk, however, can be the cost of work stream breakdowns. For example, what is the cost of having a work station sitting idle waiting for production stock?   What is the cost of expedited orders because supply is not meeting customer demand need? What is the cost of excess inventory to cover supply chain inefficiencies? What is the cost of manual interventions versus automating non-value add activities?

Proactive Approach

This approach favors preventive/predictive activities and values educated users, leveraging data to balance supply and demand, acting on signals before a breakdown occurs, and rewarding process over heroes (Super Users). Users have accountability for managing their materials via master data settings and good housekeeping habits. Users are planning, scheduling, procuring and reporting inside of SAP, providing real-time information that can be trusted for making and keeping a customer promise. When potential supply and demand breakdown signals do appear in the way of Exception Messages, users take immediate action to address the issue, reducing the chances of a severe outcome. In addition, with cross-functional teams in place, the root cause of these breakdowns can be reviewed and corrected to reduce future instances.

The goal of this approach is to leverage knowledge, data, and critical thinking to get ahead of breakdowns and leverage SAP’s integrated capability to drive ongoing transformation and meet evolving business goals. It is a longer-term approach, requiring an investment that encompasses people, processes, and the smart use of technology. Instead of fixing parts and pieces of the supply chain, a proactive approach comes down to managing the integration points within the business, breaking down the organizational silos, and managing the rules (master data) to manage the business. It reduces break downs and increases supply chain agility when market demand changes.

When the supply chain is in a position to be proactive, data becomes the asset to manage. Users are competently working in the system, there is a greater ability to reduce lead times, inventory performance improves, operational costs are reduced, and the organization can scale without adding headcount.

What is the cost of Proactive (Preventive/Predictable) vs. Reactive (Break/Fix)?

It is estimated that the true cost of a machine breakdown is between 4 to 15 times the maintenance costs. What we find in supply chain assessments are opportunities to reduce inventories by more than 25%, increase operational efficiencies by 50%, and increase work center throughput by 5%. In addition, when organizations are reactionary, the urgent, rather than important, receive attention.  Finally, because supply chains are integrated, breakdowns in one area of the supply chain can impact the rest of the supply chain and increase the risk of losing customers.

Supply chains are key assets for companies and require a proactive approach to optimize value and performance.  Invest in making sure users are educated, managing by exceptions to reduce supply and demand breakdowns, working cross functionality to address breakdowns, and pursuing continuous improvement targets. It’s essential that the data and rules align with supply chain strategies. It will require more initial investment and executive commitment, but ultimately the benefit will be a lower total cost of operations and more contribution to profitability. As Ben Franklin said, “An ounce of prevention is worth a pound of cure”.

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