Delegation of supply chain responsibilities? Sure. Employee empowerment for better supply chain performance? Absolutely. But to set your enterprise and its workforce up for successful supply chain operations, the starting point has to be what is really important for sustainable achievement and profitability. While you may have the smartest supply chain director that your company’s money can buy, and people champing at the bit to get on with supplying your company’s goods and services, you as a CEO will continue to have a critical role in making the supply chain work properly. For this reason, you need to know about the basics that underpin positive results, and without which your enterprise could lose supply chain profit, customers, and even its reputation in the market.
3 Cs? Coming Right Up!
While these 3Cs for supply chains are simple and easy to remember, it’s how you apply them that makes all the difference. We’ll discuss each one in turn afterwards, but here are some initial pointers.
- Clarity. To start with, you have to know what your enterprise business goals are and what your business strategy is to achieve that. Too many organisations are unclear, even on these fundamental aspects. However, if you don’t know what they are, it is unlikely that you will be able to define or identify a suitable supply chain strategy.
- Convergence. When you know what you want, the different components of your supply chain have to be oriented towards those goals. In particular, people want to know what the benefit will be, personally and organisationally, in applying the supply chain strategy for specific results.
- Cooperation. Not only do the different parts of your supply chain have to work towards your business goals, but they also have to work together. Conflict or efforts that cancel out each other’s efforts must be avoided. Instead, the supply chain whole has to be greater than the sum of its parts, and cooperation is the way to achieve this.
To be useful, each of these “3 Cs” must be linked with the goals of customer satisfaction and overall profitability that apply to most supply chains, as well as to objectives specific to your market or sector.
Clarity on Current Status and Goals
Let’s assume that as a CEO, you know your overall business strategy. Will your supply chain strategy help or hinder the execution of your business strategy? What follows may shock you, but after years of experience working with hundreds of businesses with turnover anywhere from $100 million to $10 billion, the biggest supply chain strategy problem we’ve seen is that companies simply don’t have one! Our statistics at Logistics Bureau show that 61% of businesses do not have a documented supply chain strategy or do not have one that is properly communicated across the business.
Without a clear supply chain strategy, it is impossible to be sure that the supply chain is providing what the enterprise needs, what customers need, and what business priorities dictate. In this case, it is more than likely that your enterprise is burning up money, time and energy on activities and objectives that are not a high priority. Yet even though a supply chain itself can be complex, a supply chain strategy can be simple. It doesn’t have to be encyclopaedic, either: a one-page guide to bring the necessary focus and direction can often be just as effective.
Reviewing Current Supply Chain Structure and Performance
If your enterprise does not yet have a supply chain strategy, now is the time to create one. The first step is to review the supply chain structure and performance as it is today, to answer the following questions. How capable is your supply chain of meeting customer needs? Does the offer of your enterprise, based on its supply chain, correspond to what customers are asking for? Does what your enterprise actually delivers satisfy them? Keep in mind that it is unlikely that a “one size fits all” approach will allow you to meet all the needs of your customers.
For a clearer picture of the state of your supply chain, it often helps to follow the different paths of products through your supply network and see how many times each product is “touched”. Less “touching” encourages greater efficiency and higher performance. In parallel, the following areas are also good starting points for reviewing current performance.
- Customer service (expectation, offer and performance)
- Channels to market
- Product physical flow
- Asset utilisation
- Forecasting, inventory accuracy and “sell-through”
- Complexity (of processes)
- Trade-offs (cost vs. speed vs. risk)
- Communication and systems
- Reporting and key performance indicators (KPIs)
Profitability can be better understood and evaluated through a cost to serve analysis. This shows the real cost of serving different customers and may hold a few surprises. It is not uncommon to discover that only a small percentage of supply relationships are in fact profitable, and that many others, hidden in the mass of overall profitability, are making losses that could be avoided.
Aligning the Supply Chain with Enterprise Objectives
The next step is to map what your supply chain does onto what your business needs. Your enterprise could be targeting growth in market share, taking a low cost leader position, or competing through outstanding service, to mention just a few possibilities. Your supply chain must support your business strategy however you have defined it.
This allows you to develop “strategic imperatives” for your supply chain. These are the handful of crucial things the supply chain needs to deliver to support overall business objectives. If you have not yet involved other directors or functional heads, other than your supply chain director, this is a good moment to do so. Joint input and discussion will help articulate the supply chain deliverables in a way that is clear and meaningful across your enterprise. For example, if you supply healthcare products, your supply chain deliverables might be “service assurance, strict compliance, complete product range”. Or if your business is in heavy industrial machine parts, your supply chain deliverables might be “high material availability, lowest HSE impact, minimum total cost to the customer”, and so on.
With continuing input from all major stakeholders, the supply chain strategy can then be drafted to enable the deliverables to be supplied. The result of these review and alignment steps is a supply chain strategy that:
- Supports business strategy
- Is focused on the required outcomes
- Is understood and supported by major stakeholders
- Can be tracked and adjusted.
Convergence on Supply Chain Objectives
With your supply chain imperative and strategy in place, all the participants and contributors to the supply chain must now move towards the same objectives, notably those of keeping customers satisfied and making a profit for the business. Whichever way you split tasks and responsibilities with your supply chain director, important tactics for convergence will include:
- Communicating. Convergence can only happen if people know and understand what is to be achieved. Good communication is essential, putting across the clarity of your business and supply chain strategies to all those concerned. Internal communication is the first challenge to be met, before turning your attention to external supplier and logistics partners.
- Managing change. Polish up your change management skills as well. If your business never had a formal supply chain strategy before (remember that 61% figure above!), you will need to show the expected benefit and set clear, achievable targets and accountabilities. Tell your people how important this is to you and the enterprise. Contribute regularly, actively and visibly to remind them of that importance. Use KPIs to track progress and head off problems. Also, ensure that change management and problem-solving training is given where it is needed. Sometimes, the competences of current staff and systems may not allow you to execute fully on your strategy. If in doubt, start with the basic steps for your strategy in its simplest version, and build from there.
- Seizing opportunities. Supply chain performance and business common sense go well together. In other words, as a CEO, you don’t have to be a supply chain expert to spot gaps or opportunities to succeed in supply chain objectives and business goals. Quick wins that are good for the business or a shortlist of the top items to be fixed can help build momentum and focus efforts on moving towards overall goals. For example, many organizations only record a customer’s order in terms of what the enterprise can actually supply. Yet a simple change to the process to capture the customer’s first request or “unconstrained order” can be highly advantageous, because it shows what real demand exists. The business can then make its plans accordingly, instead of taking a blinkered view that relies solely on what it has supplied so far. Customer satisfaction and supply chain profitability are both likely to increase as a result.
Cooperation to Amplify Positive Impact
Supply chains often have many moving parts. Compromises must be found to balance one component properly with another. For instance, stocking levels must be high enough for satisfactory availability for customers. Yet they must also be low enough to avoid expensive increases in working capital. Transport budgets should be managed properly, but a finance department too eager to slash transport costs may cause inventory costs to rise instead. After convergence by all on enterprise goals, cooperation between all is also needed to avoid actions in one area having negative effects on another.
Cooperation applies to systems, as well as people. Used without due care, the software applications that increasingly drive supply chain operations can create functional silos that are bad news for supply chain performance. Separate applications to manage warehousing, transportation, manufacturing and other functions may hinder overall cooperation.
Take the example of a customer order for multiple items with different lead times for picking or kitting in the warehouse. When such an order is received, it may be sent off to a warehouse management system (WMS) for preparation and a transport management system (TMS) for shipping. The WMS allocates time and effort to picking, which may be done immediately, and kitting, which may take a number of hours. Meanwhile, the TMS allocates space on the next available truck departure.
However, if kitting has not been finished before the truck is due to leave, the enterprise is faced with a dilemma: should the truck leave partially empty with the part of the order that has been finished, or should overall departure be delayed while the kitting is completed? Neither option is satisfactory. The situation could however be avoided if the WMS and TMS work together as systems to synchronize the processes involved. While your supply chain director should already be alert to such problems, it may also take your clout as a CEO to get the IT department to make the different systems cooperate.
How to Measure Supply Chain Cooperation Success
In a perfect world, all the functions of a supply chain cooperate fully to create the “perfect order”, maximising customer satisfaction and supply chain profitability. The “probability of a perfect order” is then a measure of how well all the functions involved are pulling together. It can be calculated by simply multiplying together the percentage levels of success for the stages of the supply chain:
- Order Entry Accuracy
- Inventory Availability
- Warehouse DIFOT (Delivery in Full on Time) Service Level
- Carrier DIFOT
- Customer Accepts Order
- Accurate Invoice Paid
Note that even if each stage scores 99% success, the overall success rate is significantly lower, because:
Probability of a perfect order = 99% x 99% x 99% x 99% x 99% x 99% = 94% (approximately).
For the “probability of a perfect order” to be 100%, each stage must score 100% success, because then:
Probability of a perfect order = 100% x 100% x 100% x 100% x 100% x 100% = 100%
There can be no doubt. Cooperation is a key attribute of a successful supply chain.
Although supply chains can be complex, especially when your enterprise is part of a global supply chain spanning several organisations, it’s crucial to be able to fall back on simple, relevant guidelines to pick your way through the maze. It’s at times like these that our handy 3 Cs for you, the CEO, can help to keep you and the business on course for success. Clarity on what your enterprise needs and what your supply chain must deliver, convergence of people and systems on those goals, and cooperation to keep each contribution constructive can provide you with an effective platform for supply chain and enterprise success.