In our last list of notorious failures, we generally covered the mistakes made when business leaders have outdated notions about supply chains (SC) and their newer functions.
This list, however, will feature more misconceptions born about when leaders think of ‘modernizing’ their SC. Unless these are addressed, you cannot expect to drive improvements beginning with systemizing your operations!
Mishap #1: SCs that have not been systemized!
Is your SC still functionally driven, with no understanding of cross functional processes? Do you realize that a SC is really just one end-to-end cross functional process?
If you haven’t, then you don’t really understand what systemized actually means.
It means mapped, end-to-end for physical product flow, information flow and financial flow.
It means everyone in the SC knows their role and how it contributes to satisfied customers.
It means we have a blueprint for SC success!
Why is this important? It is because it establishes a baseline for your current state operations. Once understood, it provides the opportunity for the team to improve the process. If it is your goal to continuously improve or step change, then you need an end-to-end view of how the SC works!
A view like that can have the entire team focused on customer-related metrics (in conjunction with functional deliverables as opposed to solely functional deliverables). This results in the delivery of a quality product or service on time, in full, and accurately invoiced via perfect order.
It also removes the age-old silo mentality when it’s always someone else’s fault in the SC (usually the function immediately before or the function immediately after).
It’s high time we removed the blame mentality away from individuals and placed it directly on to the process. In short, when something goes wrong, the question should be about what change are we going to make to the process to stop this issue happening again.
This ensures that the SC works all the time, even when key SC operatives are absent. (Does your SC break every time Jim from distribution or Jan from freight forwarding is absent?)
In addition to that, proper systemization will give us one way of doing everything in our SC, even when we acquire new companies.
I thought this was just obvious for many business leaders, but it wasn’t. In 2018 we have companies that are growing rapidly and still retain all of the old and differing processes that their acquired companies brought with them.
Why dont we want to work like this? It only adds unnecessary cost and complexity! Carelessness like this only invites disharmony and chaos in our SC and therefore, disrupts our ability to buy, plan, make, distribute, store and sell in a consistent, reliable, efficient and effective manner.
And another thing, whilst we are so focused on getting the internal operations right, we have taken our eye off the market and the competition. (I’ll leave it to you work out what happens then!)
When you provide the blueprint for how the SC works, you can then provide the basis for the next level of installation of newer, more advanced processes, tools and technologies that take your SC to the next level.
Because depending on your current state, it may mean you make your first foray into predictive analytics. Alternatively, the more advanced SC managers may start thinking about creating a truly agile system using machine-learning, pattern recognition, artificial intelligence and even robotics! – But you need to have this ‘systemisation’ in place before anything else can actually happen!
The benefits of systemizing your SCs manifest in the operation rapidly approaching it’s ideal state. (But more about this later.)
As a result, you will see a reduction in issues, less waste and rework, leading to reduced cost. Your organization starts improving revenue, operating margins and lead times, whilst reducing cash flow cycle time.
Mishap #2: SCs that are measuring too many metrics, the wrong metrics, the wrong way!
So you thought it was straightforward measuring your supply chain? Well it’s not. Let’s start by making the point that metrics are all about inspiring organisations and people in them to greatness! Is this your experience?
Let’s go further, listing the basic metrics you must cover for your supply chain.
A systemized SC must measure:
- Shareholder value
- Customer satisfaction
- Delivered cost
- Cash-flow cycle time (cash tied up in your SC over a time period)
And why is this so? It’s because these measures connect your SC to the P&L and income statement and allow greater visibility of your contribution.
Further though, your SC must measure itself vs something! You simply must understand your current state versus your ideal state! This ‘ideal state’ must be based on unique industry benchmarks coupled with the output from an end-to-end SC optimization package.(At the gross level.)
In short, you need to find out what your supply chain is actually built to deliver – model manufacturing (sunk cost) and demand so that the system optimizes the entire end-to-end supply chain for you. After that, everything you do is guided by this ideal state. (If you don’t have manufacturing locally, I recommend you include offshore manufacturing in your model for maximum global value added.)
Lora Cecere and her SC insights team go even further. They recognize that a SC is a complex non-linear system. That means supply chain excellence is a balancing act of competing priorities including growth (year on year), cost (operating margin), inventory (turns) and asset strategies (ROIC).
Furthermore, they have worked out that, by combining these measures, they can create indicators of balance, strength and resiliency which they then use to identify their annual ‘supply chains to admire’. Could your SC be a future “SC to admire’?
Mishap #3: Assuming that end-to-end SC means blindly cutting costs.
It’s like bubbles under plastic – the costs that you take out, crop up somewhere else!
This is why you must have an overall idea of what your supply chain’s ideal position looks like (as described in the previous mishap).
When you take cost out (or even undertake any initiative), it must be compared to the ideal state supply chain. Don’t just have this dream of buying your own island with the cost savings you make with inventory reduction.
You have to make sure that haven’t gone too far with the inventory reduction initiative simply because that was the quickest and easiest way to generate cash.
When you do that (overdo the inventory reduction) and yet not go far enough with just about everything else (somehow because it was ‘too hard’ or ‘time consuming), then you are left with a SC in an unsustainable unbalanced position
To make matters worse, it becomes a cycle where the SC will correct itself, by, guess what? Pumping only more cash and cost back into the supply chain! (especially if you have not ‘systemised your SC’ per Mishap #1.)
Think of the numerous public companies crowing from the rooftops about their inventory reduction initiatives, year after year. Does anyone ask are these actually sustainable? What have you done specifically to the way you operate to lock these in? How does this actually compare with our agreed ideal state and what else are we working on to drive to this ideal state? Or even a more basic question – how many times are we going to bank savings in inventory reduction but make no progress anywhere else?
Mishap #4: SCs that think they are optimised are really sub-optimising.
Remember, a SC is an end-to-end ecosystem. When you work on one part you affect the whole ecosystem. If you ‘optimise’ only one part of a supply chain, you will always risk sub-optimising the rest.
So, if you are optimising your end-to-end SC but not bothering with anyone else, then it stands to reason that you are sub-optimising the entire industry supply chain!
Is this what you really want to do?
How will sub-optimising the entire industry supply chain benefit you? Don’t you really need to be optimizing the entire industry supply chain and creating, a win-win industry solution rather than a win-lose scenario?
If your company is essentially the entire industry, then you can effectively implement the right end-to-end optimisation that leads to optimising the industry supply chain.
And even if your company is not the entire industry (and most companies are in a supply chain made up of more than themselves), you still need to consider carefully the impact you are having on the rest of your supply chain and working out exactly who and how you will collaborate! (It’s funny how a word from the 90’s still seems to be lost in today’s SCs!)
Mishap #5: SCs that are still cost centres and are happy to remain that way
What good is being ‘data rich’ but poor in every other way?
You have ‘data, data everywhere’ and no one knows what to do with it nor makes any effort to do anything with it – at a minimum, you could find someone to actually analyse it.
Just consider for a moment doing some analysis. I wonder what we would learn?
Once upon a time before our target markets became completely fragmented and our customers required customisation at the finest level of detail, this could all be ‘worked out’ with the human mind. But in today’s world,. That’s no longer possible.
What about cleaning your data up, censoring it and selling it? Who might value (and potentially pay for) your censored and optimised data? You might be surprised to learn which of your competitors are already doing this? Why not you too?
Mishap#6: SCs that don’t use any serious demand modelling.
Oh sure, you have gone beyond simple mean, median, standard deviation and standard error. That doesn’t necessarily mean that you have succeeded in advanced modelling of demand.
If you cannot work out what your demand will be tomorrow, next week, next month or next year, then you need someone with advanced modelling and statistical capability (plus the right tools).
Don’t forget that in any set of demand data, there will be the following:
- Demand that is the same week in week out – you just run this through your model and it will be right most of the time. You don’t need labour to do this for you.
- Demand that will change based on promotions, phase ins, phase outs or other actions that are being taken by sales,marketing and product development. You will need people from that department to chime in with their human input or your model will be wrong.
- Demand that is just highly volatile and hard for any human being to predict – so we use advanced modelling. (This might be small in terms of demand, but will likely be highly time consuming, when it hasn’t been calculated/predicted properly and your resource focus will then go to resolving the issue.)
If your organization is still struggling with this, get a second opinion on your demand data immediately. The wrong demand signal can mean wrong finished products ordered, wrong raw materials ordered, wasted manufacturing time-plus-energy and inventory in warehouse that doesn’t move!
Mishap #7: SCs that haven’t worked out how to integrate non-compatible systems.
There are plenty of tools available now to do this and yet we still see these gaps in our supply chains.
Do you have a dashboard that tells you where your problem areas/gaps are in your end-to-end SC? Here are some examples:
- Your sales orders don’t match my purchase orders.
- Your manufactured volume doesn’t match demand.
- The route planning system volume doesn’t match your warehouse capacity
- Your picking isn’t optimal and doesn’t keep up with loading requirements
- Your loading isn’t keeping up with the delivery schedule
- Your deliveries are not optimally routed and you cannot deliver everything in the time.
- You cannot settle loads on time because deliveries are late, wrong, incorrect loads, and the list goes on and on.
Naturally, this all leads to disasters like wrong product pick-ups or an inability to sell direct from the truck. You also have the usual crimes of products being damaged in transit or the route had to be changed at late notice and couldn’t recover to plan.
All of this simply because we don’t work to integrate and automate our systems.
How does this even happen? Two main reasons.
Well once upon a time, the SC software developers created software that had inbuilt assumptions of ‘no constraints’. This was called ‘non-constraint based modelling’ which underlay their solutions. But I ask you, who and where in our supply chains do we not have constraints? That’s right No where!
Every decision we make is constrained by resources, cost and capital.Every single one. So clearly this ‘non-constraint based modelling isn’t going to work.(and yes, it’s still being sold.)
Secondly, the software suppliers typically have a functionally driven view of the supply chain so the grey spaces between functions are always going to be fraught with potential for disconnects.
So next time you are buying a software system just take some time to ensure that there are assumptions that are explicitly stating where they link to other ‘functions’ and what these assumptions are about key grey area functional linkages.
Mishap #8: SC contracts that don’t even have a basic, 2-page summary schedule.
We use contracts a lot in supply chain. Often this responsibility falls under procurement as a key function that like all of the others needs to be represented on the SC team.
In SC, we use contracts that relate to all external activities supporting our SC, These can include raw material purchasing,all transport and distribution, and manufacturing.
Every contract needs to include a 2 page max summary schedule as follows:
The objective of the contract. The SLA (service level agreement) in summary form.
What is this suppliers responsibility and how will it be measured? What is my responsibility and how will it be measured? What defines success? How do I know when this contract is successful. (Anything else is NOT successful.)
The length of the contract should be stipulated along with renewal dates and process. The same goes with the supplier’s methods of self-correcting, self-managing and self-reporting. What happens if they don’t do these things? How will we resolve conflict? Who in this organization is managing this contract? How frequently is this contract to be reviewed? What is the nature of this review? What happens if the supplier or the contract owner are found to be not performing per this contract?
You might add something relevant to your industry.. It is not that hard and it really saves a lot of time when you do have an issue (or three)!
And with that, we conclude the list of modern mishaps in today’s supposedly ‘modernized’ supply chains.
Then again, there’s probably more to come (and some are entirely unique to an individual industry).
If you need some advice on how to resolve those issues that you have in your supply chain, please book a meeting with me here.
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