The 5 Key – Strategy

Supply Chain Strategy and Supply Chain Cost Reduction

So in Part 1 we looked at balancing the customer and stakeholder needs.
In Part 3 we look at flow.
In Part 4, we look at Key Drivers
In Part 5, we look at Performance Measurement

 

Strategy on the Back of an Envelope

Let me give you a ‘fast track’ process that will enable you to draft a Supply Chain Strategy on the back of an envelope.

One that is focussed, and effective

 

Supply Chain Strategy Does Not Need to be Hard

Of the hundreds of Businesses I’ve worked with over the years, the biggest problem I’ve seen regarding Supply Chain Strategy, is that they don’t have one! And that includes businesses from the ‘top end of town’ turning over $10+ Billion a year, right down to smaller businesses of $100 million turnover.

In fact 61% of businesses that we’ve dealt with at Logistics Bureau, don’t have a documented Supply Chain Strategy that is well communicated across the business.

Someone asked me at a seminar last week, “If so many businesses don’t have one, is it really that important“? Well Yes it is quite important, because without a clear strategy:

  • How can you be sure you are supporting the overall business strategy?
  • How can you be sure your Supply Chain is providing what the business needs?
  • How do you know if your Supply Chain is providing what customer’s expect?
  • You won’t know if you are meeting the organisation’s financial targets
  • You won’t know what’s ‘important’ and what is not, in terms of priorities
  • You are probably burning up money, time and energy on things that are not a high priority.

And to be effective, a Supply Chain Strategy need not be the size of the New York phone book. Even a one page guide can bring the required sense of focus and direction.

‘Nailing’ Supply Chain Strategy in 6 Key Steps

There are 6 steps I use when helping businesses come up with a Supply Chain Strategy.

  1. Review the Supply Chain Structure and Performance
  2. Understand the Business Strategy
  3. Look for Obvious Gaps and Opportunities
  4. Develop Strategic Imperatives for the Supply Chain
  5. Workshop a Draft Strategy
  6. Plan and Implement Changes

We talked about these for an hour at our last free seminar series and we’ll get into it in even more detail at Supply Chain School, but for now, let me summarise them for you so you get the idea.

(1) Review the Supply Chain Structure and Performance
Before making any changes, we need to review what is already in place. The most important thing here, is to establish what our customers want, what we actually offer them, and what we actually give them. Don’t fall into the trap of providing a one size fits all service that only meets the needs of some customers.

And also ‘get real’ about measuring customer service performance. Below, is one of the best ways I have seen to do this. It’s called the ‘probability of a perfect order’. The effectiveness of the measure comes from the fact that it’s cross functional, and that the measure relies on a range of Metrics all multiplied together! So to rate well, you have to get ALL the functions pulling together.

Perfect Order KPI

Also at this stage, make sure you understand how product ‘flows’ through your Supply Chain. The different paths through the network and how many times product is ‘touched’. There were 11 areas that we highlighted as a good ‘start point’ for reviewing current performance:

  1. Customer Service (expectation, offer and performance)
  2. Channels to Market
  3. Product Physical Flow
  4. Asset Utilisation
  5. Sourcing
  6. and Replenishment
  7. Forecasting, inventory accuracy and ‘Sell Through’
  8. Complexity (of processes)
  9. Trade Offs (Cost v Speed v Risk)
  10. Communication and Systems
  11. Reporting, KPIs, Performance

 

(2) Understand the Business Strategy
This can be easier said than done! We just started a project with a new client (a household name) and the CEO was very unclear (unsure) about what the business strategy really was. Makes it kind of hard to get the Supply Chain Strategy right, doesn’t it!
But at least try to get a handle on what the key business objectives are, and hence how the Supply Chain needs to support those. Is it about growing market share, offering low prices or differentiating on outstanding service? The best way to understand this, is a) To review any existing business strategy documents and b) to go and ask the Directors! Which ones do you think you would need to talk to? Most I would suggest.

 

(3) Look for Obvious Gaps and Opportunities
I call this stage looking for ‘dumb stuff’ that we do. What are the obvious things that you can target for improvement? Maybe make a list of the top 5, that have a direct impact on the Business Objectives that you have already just established.

 

(4) Develop Strategic Imperatives for the Supply Chain
Now this is the critical stage. Taking a ‘high level’ view of what the Business or Organisation is trying to achieve, see if you can brain storm the key things that the Supply Chain needs to ‘deliver’ to support those business objectives. And think high level … strategic …

Common business objectives might be to increase sales/profit and to reduce costs. So think about what the Supply Chain needs to focus on, to help achieve those goals. And the really neat thing here, is to try to articulate those Supply Chain Strategic Imperatives, as truly meaningful for your organisation. Come up with three or maybe four as a maximum. Here are some examples:

Strategic Imperatives

And if possible, try to wordsmith the Strategic Imperatives, rather like an advertising ‘jingle’ so that they are easily understood at all levels of the organisation.
Once you have nailed those, it’s then relatively easy to drop down a level and establish what key ‘enablers’ are required to help your Supply Chain achieve its objectives. Rather like root cause analysis, but in reverse, if that makes sense? This top down approach will ensure you don’t get lost in the weeds and end up chasing too many initiatives that are not a top priority.
We might look at this in more detail in a later Bulletin.

 

(5) Workshop a Draft Strategy
Getting a bunch of senior executives to agree on anything can at times be like ‘herding cats’. So make it easy for them.
I always draft a ‘straw man’ Supply Chain Strategy first, and then gather the Exec team together to critique it. Of course it normally comes out of that process looking totally different, which is the whole purpose. But at least the Straw Man or the ‘one I prepared earlier’ provides a focus for debate that is close to the requirement.

 

(6) Plan and Implement Changes
Change management is never easy, and the key needs I would stress here are these:

  1. Make sure you establish the expected benefit of each new initiative and set clear targets and accountabilities.
  2. Implement a simple but highly focussed set of KPIs that support each of your Strategic Imperatives directly.
  3. Ensure that where necessary you support your own staff with training in change management, problem solving and the like.
  4. Communicate early. Internally and externally.
  5. And the most important. You MUST have buy in and support from the top. Visible support. That is why we start our journey on developing a Supply Chain Strategy… at the top.

In Part 3 of this series of ‘5 Levers’ we’ll look at ‘Flow’. The physical flow of product through the Supply Chain. What impacts the Flow, and how Flow impacts service and cost.

 

Rob O'Byrne - Logistics BureauBest regards,

Rob O’Byrne

Email or +61 417 417 307

 

 

I hope you find this information of value. Feel free to let me know what tips you would like to hear about in our future Bulletins. Just send your requests to my EA Nova.