It’s no secret that the supply chain of most companies remains an area of untapped value. So why are the majority of companies failing to see the key points that need to be addressed in order to maximise value in the supply chain?
Results of a survey undertaken recently by Celerant Consulting of supply chain professionals from some 120 European headquartered companies identifies six levers needed for supply chain success. The levers are not all of equal importance; however for a company to be successful it is imperative for all six levers to be in place.
The Right Strategic Fit
Strategic fit means total alignment between the supply chain strategy and a company’s overall business strategy. There must be consistency between the customer needs, the priorities that the business strategy is designed to satisfy and the capabilities that the supply chain strategy aims to create.
Part of the challenge is to define your supply chain positioning on, at least, the following dimensions: Cost – should you be a price fighter or differentiator? Quality – should your product be fit-for-purpose or built to last? Delivery – should you focus on speed or is your customer willing to wait? And, Service – should you respond to customers within acceptable or best-in-class lead times?
The answers to these questions depend on the industry you are in, the position you occupy within the value chain (supplier, manufacturer, distributor, and retailer), your competitors and their capabilities, and finally, your companyand its capabilities.
The Right People
The ability to foster skills and at the same time establish a culture of achievement is a management skill that is of paramount importance, especially in labour intensive businesses. Increasingly stakeholders realise that the best strategy is of no use, unless it can be effectively delivered. From a supply chain perspective, this means having the ability to build cross-functional teams that extend from customers to suppliers. It also means senior supply chain professionals having the skills and knowledge to steer processes, organisation and technology to achieve strategic fit.
This lever is the most intangible of the levers of supply chain success and consequently the most difficult one to implement. It is also the one most impacted by the shape of the organisation and the associated human resource processes. This lever often gets ignored.
The Right Closed Loop Performance Framework
It is clear that all functions that form part of a company’s value chain contribute towards its success. If this were not the case we would question the reason for their existence. Most businesses realise that these functions, or ‘links’, should not operate in isolation and that no individual link can ensure the entire value chain’s success. However, many businesses do not fully appreciate that the failure of any one link may result in the failure of the overall chain. When this happens, the root cause is often attributed to not having paid enough attention to the interdependencies. The process may be unclear, or the roles and responsibilities underpinning the process poorly defined.
Figure 1 provides an example of one such performance management system. It depicts the interaction between sales and operations, and how the output of one activity provides the input of another, and so forth. It shows the closed loop linking forecasting and planning to execution, the feedback through reporting, and the correction through periodic meetings. These meetings are enabled by performance data for predefined key performance indicators (KPIs), with actuals versus target data being presented for each KPI.
When a company’s supply chain works effectively, such a closed loop performance management system provides an extremely powerful mechanism for monitoring business performance and driving quick and factual decision making. It is also a powerful framework to ensure that the supply chain rhythm is effectively followed and any broken element of the chain is identified and rapidly repaired.
Figure 2 shows what the survey respondents believe creates an effective closed loop performance system. The results suggest that having the right performance metrics to drive the operating and functional units towards the same supply chain strategic objectives, and having cross-functional teams meeting on a regular basis are the two most important attributes.
The Right Strategic Alliances
In today’s increasingly competitive environment, success depends on collaborating with suppliers and customers to extend the supply chain and jointly address inefficiencies. As Warren Hausman from Stanford University stated, ‘The battleground of the next decade will be supply chain versus supply chain.’
It is important to differentiate between ‘passing the buck’ approaches and true collaboration. Passing the buck means trying to obtain an advantage without improving the underlying process, typically at the expense of another link in the supply chain, such as, reducing the purchase price without making changes to the nature of the demand.
True collaboration only works when you leverage the specific strengths of your supply chain partners. Examples of this include streamlining transactional or administrative processes, and sharing research and development capabilities leading to superior product design.
Strategic alliances can only succeed if they are based on transparency and fair dealing. Goals and expectations must be clearly stated and performance monitored. Smart businesses realise that outsourcing does not absolve them from responsibility because it is your customers and your business’ good name that will ultimately suffer.
Figure 3 below shows what the survey respondents believe creates effective strategic relationships. Having clearly stated goals and expectations, and being able to monitor performance against stated goals and expectations are the two most important attributes of effective strategic alliances, constituting 60 per cent of the vote.
The Right Organisational Structure – This lever of supply chain success is a key enabler to the first two levers: Having the right strategic fit and having the right people.
The right strategic fit lever dictates to an extent the shape of the organisation and more specifically the supply chain ‘ownership’ and inter-functional supply chain responsibilities at board level. The right people lever relies on the organisational structure, and the human resources function, to enable individuals to perform in their roles and be rewarded for demonstrating behaviours that lead to the successful completion of business objectives.
In essence, the organisation structure and the supporting infrastructure is important in creating the right human capital to achieve the company’s goals. Envisage the supply chain as a large orchestra, with the process owner conducting the music.
Figure 4 overleaf shows what the survey respondents believe are the most important attributes of an organisation that effectively supports supply chain success.
According to the survey respondents, having a coherent business strategy that aligns all business units and functions towards the same goal and having clear roles and responsibilities across the organisation, with no conflicting objectives, are by far the two most important attributes. This emphasizes the importance of the strategic fit lever in providing the relevant guidance to structure the organisation.
The Right Technology
Developing the right technology refers to both information and material management systems. An information system is as a ‘passive’ IT system which creates transparency and visibility; it is used, for example, to track the status of orders. A material management system is an ‘active’ IT system which is used to control and optimise material flows, typically through better planning and scheduling. The two types have different levels of complexity but both play an important role in meeting customer needs and reducing cycle time through the supply chain.
On the one hand, technology is only an enabler, designed to support the other levers of supply chain success as it does not, on its own, drive any benefits. On the other hand, the supply chain is data hungry and craves quick, collaborative and accurate decision making to support the ever increasing celerity of the market place. One may argue that IT in particular is no longer a source of competitive advantage but rather a commodity input that is a necessary cost of doing business. The fact is that no companies will truly be successful without a clear perspective on the role of technology in supporting their supply chain and will never gain a competitive advantage unless they do.
Early adoption of a new technology can, at least for a period of time, provide a temporary competitive advantage. eBay and Amazon are examples of companies who have not only benefited from the emergence of web-based trading tools but whose very existence is attributed to them. For established companies, it is a matter of judgement, attitude to risk and strategic fit as to whether a company will be an innovator, an early adopter or a laggard.
We surveyed companies on the most important attributes of technology to support supply chain success. Figure 5 shows the results and we see from this that a clear majority agree that having data available in a standard format to effectively support decision making is the most important attribute. They also identified fully integrated decision making tools and systems that support collaboration with external parties as being important. One surprising figure is the low percentage assigned to products designed to optimise supply chain flow. This would imply that senior management see information systems as the most important supply chain technology.
In summary, supply chain success is not about luck. It is about achieving strategic fit between the supply chain and the rest of the business, building the necessary capabilities through cross-functional teams with the right combination of technical and interpersonal skills, and finally controlling the rhythm and the success of the supply chain using a closed loop performance framework.
Businesses seek to fulfil the needs of the customer and supply chains have a key role to play in this. In some companies operating within the most competitive industry sectors, supply chain innovation has been the basis of their success because it enabled them to provide the customer with added value at a competitive cost. For this reason alone supply chains are worthy of senior management time and consideration.
Businesses would be wise to consider the contribution supply chains make in meeting customer needs and to use their supply chain as a potential source of competitive advantage as opposed to viewing them as an overhead.
The six levers of supply chain success provides a framework and some principles around which all truly world class supply chains are built. The dilemma is that this is not a piecemeal exercise. The interdependencies are such that failure to address one area can lead to failure in all the others. This can mean that the route causes of failure are difficult to pinpoint. Clearly a document such as this cannot hope to address any of the levers in sufficient depth but we hope that it will set you on the right path.
Laurence Dupras is Head of Supply Chain at Celerant Consulting. For full copies of the survey contact julian.ferguson@celerant.cc
The six levers of supply chain success
- Having the right strategic fit – a supply chain strategy truly aligned to the overall business goals
- Having the right people, working in a rhythmic and communicative environment
- Driving the business, using the right closed loop performance framework
- Choosing and building the right strategic alliances
- Having the right organisational structure supported by an appropriate HR infrastructure
- Using and developing the right technology
