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In Part II of this two-part series, the authors of The New Supply Chain Agenda take an in-depth look at the five pillars of excellence introduced in Part I (see WT100’s November issue).
The five pillars of excellence that form the foundation of the new supply chain agenda include: Talent, Technology, Internal Collaboration, External Collaboration, and Managing Supply Chain Change.
Ten years ago, the supply chain leader in most companies held a title such as “vice president of logistics.” It was a largely functional role that relied on technical proficiency in discrete areas: knowledge of shipping routes, familiarity with warehousing equipment and distribution center locations and footprints, and a solid grasp of freight rates and fuel costs. He or she reported to the chief operating officer or chief financial officer, had few prospects of advancing further, and had no exposure to the executive committee. The way companies need to think of the modern supply chain executive has changed dramatically.
Supply chain executives still need to be experts at managing supply chain functions such as transportation, warehousing, inventory management and production planning. But the supply chain process extends end-to-end and even outside the firm, including the relationships with suppliers and customers on a global basis. Leading firms now see the supply chain functional leader as the necessary executive to coordinate the end-to-end supply chain process, even though he or she does not control it all. Because of that added dimension of cross-function, cross-company coordination, senior supply chain executives must possess a number of unique characteristics.
The best talent can only be acquired after it has been identified. To select the right people to oversee the increasingly pivotal supply chain responsibility, CEOs must know the blueprint for the “dream” supply chain leader. These characteristics can be grouped into five key qualities:
• Global orientation
• Systems thinking
• Inspiring and influential leadership
• Technical savvy
• Superior business skills
Supply chain executives don’t have a monopoly on these characteristics. Any senior executive must possess the same skills. But, there are unique needs in the supply chain area that arguably make them even more essential. Finding the right talent forms the necessary foundation on which to base the remaining pillars of supply chain excellence.
Successful internal collaboration occurs when sales, marketing, and operations find a way to align and focus on serving the customer in a way that maximizes product availability while minimizing cost and asset investment. Each function in the firm plays a critical role in a successful supply chain and need to work together closely to achieve supply chain excellence.
Functional silos exist in every firm. They are not necessarily all bad, in that they serve as a foundation to build deep process expertise, as well as a vehicle to establish firm accountability. The problem occurs when they become barriers to supply chain excellence. In fact, the important point for building a supply chain excellence strategy is to understand how impermeable the functional silos can be to a smooth operating supply chain
A World Class Supply Chain Begins With the Design of the Product
A world class supply chain begins with the design of the product, and a world class design starts with the customer. A well-known axiom in product design holds that once design engineering completes the product design, at least 80 percent of the product quality and cost are set. In our experience, most manufacturing companies acknowledge this; and therefore most involve manufacturing in the product design process. However, a few companies have taken the next step. They understand that the same principle also applies to the involvement of the total supply chain in the product design process. They know that supply chain excellence starts with the design of the product.
Cross Functional Problems That Cripple the Supply Chain
Once new products are designed and introduced, four chronic cross-functional problems often emerge that can cripple a supply chain. They are: too much obsolete inventory, excessive product complexity, poor forecasts, and ineffective demand management. Misaligned functional silos often cripple the ability of firms to deal with these four problems.
To take just one of these problems, few factors cripple the supply chain more than excessive product complexity. It is almost impossible to find a firm without an SKU problem. Virtually all admit that they carry too many SKUs and further concede that they lack a good process to eliminate underperforming products. As one executive noted, “Controlling SKUs is like eating liver. At some point you have to stop moving it around on your plate and just dive in.” The problem exists at the beginning and at the end of life. Once new products are introduced, and excessive complexity unleashed, it takes on a life of its own. Like a snowball gathering mass as it barrels downhill, the problem grows rapidly worse, unnecessarily crippling the supply chain.
Matching Supply with Demand is the Mother of All Cross-Functional Problems
Many cross-functional problems exist that prevent supply chain excellence, but the greatest of them all is the inability to match supply with demand. S&OP (Sales and Operations Planning) is the most common term that firms use to describe a wide range of activities employed to match supply with demand. Many argue that the holy grail of cross-functional alignment is the ability to match supply with demand. Manufacturers naturally accept this challenge, and many have advanced S&OP processes. For some reason, good S&OP processes in retailers are relatively rare, and are just now beginning to emerge.
Collaborating internally across the functional silos, and externally with suppliers and customers, represents a huge challenge. But, leading firms have shown that the benefits are well worth the difficult journey. In fact, the degree of difficulty virtually guarantees that firms that successfully navigate through the many collaboration barriers find themselves in a very exclusive club of world class companies.
The next pillar of supply chain excellence, external collaboration, consists of a supplier and a customer working together to achieve mutual improvement. That’s easy to say, but very difficult to do. For the minority of firms that do collaborate successfully, we see in our research data three stages in their evolving relationships:
Stage One: This stage starts with recognition by both parties of the potential power of collaboration, which requires some supply chain sophistication on both sides. Senior executive support and encouragement also is a common factor in early collaborative relationships. And finally, success in getting started depends on the acknowledgement by both parties that it will involve a lot of time and effort.
Stage Two: The companies in this stage now have a supply chain strategy with collaboration being one of the core elements of that strategy. The partners have worked together enough to develop the trust to openly share data and strategies with their partner. And, they have a mutual plan to sustain the effort as people inevitably change jobs over time.
Stage Three: In this stage, the parties mutually develop key performance indicators, and they jointly measure success as a common group. In the final level of maturity, they agree to equitably share the savings from their joint improvement efforts. In our experience, companies who reach stage three drive better fill rates, lower inventories, and lower cost, and thus higher economic profit.
Getting it done: Managing change in the supply chain
The fifth and last pillar of supply chain excellence involves manages change. Transforming the supply chain to achieve excellence and drive shareholder value requires careful attention to project and change management. Supply chain professionals often find themselves ill equipped to accomplish the task. Partly, this stems from a lack of disciplined application of project and change management principles; and in part results from simply being too busy to have the time to do the right things.
Many supply chain executives we talk with concede that they don’t have time to do “it” right the first time, and therefore spend their days in a vicious cycle trying to fix problems that could have been avoided. In addition, people don’t stay in their jobs long in the dynamic business environment today. All of the constant turnover and turmoil raise tremendous barriers to getting things done. This means that successful execution of a supply chain excellence strategy requires more than just a competent supply chain executive-it requires the involvement and support of the entire senior management team.
With supply chain projects especially, it is important to make sure the root cause issues are being addressed; that project size (scope) is being contained properly; and that risk is addressed more rigorously than many senior executives may assume necessary. Supply chain excellence plans must recognize the broad scope of the 21st century supply chain and embrace the organizational and change management issues that will make or break change efforts.
The five principles of supply chain excellence are not new concepts. However, the new supply chain agenda elevates their importance squarely into the executive suite and the boardrooms as more firms realize that the pathway to shareholder value runs through supply chain excellence. wt
J. Paul Dittmann, Ph.D. is Director, Corporate Partnerships at the University of Tennessee, and author (along with Reuben Slone, EVP of Supply Chain at OfficeMax, and John T. (Tom) Mentzer) of The New Supply Chain Agenda (www.TheNewSupplyChainAgenda.com).