Is your Supply Chain Sick?
If only your Supply Chain could talk…
I recently shared some tips with you on a Supply Chain Health Check that would get you off to a great start for the Year.
It was prompted by my own ‘Health Check’! That post is here.
But it made me realise that a simple Health Check is one thing…
But what about some of the common ‘nasties’ that often lurk in a Supply Chain? Those things that can have a huge negative impact and yet be totally invisible to normal management and reporting regimes. What if you have some of those?
And what brought this thought about?
Yep. My own Health Check.
You see when I had my comprehensive Health Check I suspected that I might have a bit of a problem.
In fact, I was convinced that I knew exactly what it was. Because it ‘felt’ like something I had experienced before.
After all, we know our own bodies better than anyone else right? Just like we know our own businesses better. Maybe…
But in fact I was totally wrong.
The tests identified an ‘issue’ that came at me totally left field. It’s treatable thankfully and is now being treated. But if left untreated and ‘undiscovered’ it could have had dire consequences.
OK, so how does this relate to Health Checks of your Supply Chain?
Well your Supply Chain can be just the same. And like that sad looking puppy above, it can’t tell you what’s wrong.
There are things that can be lurking beneath the surface, that if left unresolved can have dire consequences on your organisation in terms of cost and service. And they’re often very hard to identify via normal KPIs and reports.
In my last post on this topic, I mentioned four essential metrics to check the Health of your Supply Chain. I called them the ‘vital signs’. These were:
- Total Supply Chain Cost as a % of Sales
- Finished Goods Stock Turns
- Supplier Performance (Supply In Full On Time – SIFOT)
- Delivery Performance (DIFOT by Line – Delivery In Full On Time)
Just these four essential metrics will give you a really good indication of the ‘health’ of your Supply Chain.
But what if you want to dig deeper?
Maybe you have some nagging worries or suspicions?
What if you need to check out those hidden ‘nasties’ that could wreak havoc if not diagnosed and appropriately treated?
Well; without subjecting your Supply Chain to the dozens of tests I recently underwent, let me highlight some common ‘nasties’ to look for. And you need to know where to look, or you’ll miss them.
These insights are based on my 40+ years in Supply Chain and particularly the last 20+ working with hundreds of consulting clients around the World. So these are not only the most common; often unseen issues; but often the ones that are frequently the easiest to fix and thereby improve performance. Ironic isn’t it?
So don’t let your Supply Chain spring a surprise sickness on you. Take a look at these.
Customer and Product Profitability.
This is a major killer of organisational performance!
I see it in some shape or form in 90% of the organisations I work with. And yet it’s not that hard to identify and resolve.
The simple problem seems to be, that most reporting systems don’t provide sufficient visibility to show you where profits and costs are leaking out of your Supply Chain. That’s because most reporting systems aggregate data such as sales, margins and key costs. That’s fine if you want to see an aggravated view!
It’s a bit like your kid coming home from School with her latest report, which states that onaverage the students at the school scored a B in chemistry and a C+ in English.
But how did ‘your’ child score? Who knows…
Maybe there was a group of kids who scored A+ that pulled up the average scores of all those who scored D and F? Who are the A’s?
What are they doing differently that can be shared with the D’s and Fs? Who are the F’s? We need to focus on them to get their grades higher before they flunk completely.
It’s exactly the same with the products and customers in your Supply Chain.
You can’t report on them in aggregate and expect to really understand their individual performance and contribution.
So have a long hard think about your products and customers. There will be some stand outs that you know are performing badly. Check them out. Take a simple cost to serve approach to see how bad the situation is, so that you can start to take some appropriate improvement actions.
And NO I don’t mean by that, merely sacking the customer or deleting the product. That is rarely if ever required.
If you haven’t come across cost to serve techniques before, it’s really quite simple if you have some advanced skills with databases and spreadsheets. We do it all the time with our consulting clients.
The key step is to go through an activity based costing approach to allocate realistic costs to each of your core Supply Chain processes. Then you allocate these costs to your customer orders, ideally based on the number, weight and/or cube of the individual products in the order.
That way you get a true analysis of where your Supply Chain is hemorrhaging internally!
This is a ‘Biggie’ OK? Master these techniques and you are well on your way to maintaining a really healthy and effective Supply Chain.
Here are some links to more information on cost to serve techniques if you need it:
This really clogs the arteries of your Supply Chain! What is it? SLow and OBsolete Stock.
I’ve seen warehouses and distribution centres clogged up solid with the stuff. So why is it a problem?
- It ties up working capital. ($)
- It ties up valuable storage space. ($)
- It creates additional work by shifting it, checking it, getting around it, maintaining it. ($)
- And it makes your stock turns look worst than they are!
OK, so why do so many organisations have so much of it?
These are the most common reasons that I’ve seen:
- Purchasing staff jumping on ‘bargains’ and not appreciating the total cost of ownership.
- Large purchases made for big projects that never came off.
- Poor sales forecasting processes with a lack of ‘ownership’ (probably #1)
- Senior management reluctant to discount or write off the stock.
Again, there are some simple techniques that you can use to check the level of SLOB stock in your organisation. Start by just running a report showing unit sales, by SKU for the last 12 months!
Focus on those with zero sales. Yes, sadly there will be some. Not too many I hope. 20% or more and you may have real problems though.
Be aware that there may be valid reasons for some of the SLOB stock. Or at least valid ‘excuses’. Did a new model supercede the old one for example?
And then…..I wish you luck in ‘shifting’ the old stock out…. But get rid of it one way or another, recovering as much of the cost as you can in the process.
This is very closely linked in with the SLOB stock above, but it’s far more fundamental. It gets to the very core of good Supply Chain management. Do we actually have in stock, the stuff that our customers are demanding from us?
This is a bit like the ‘blood pressure’ of your Supply Chain if we continue the Medical analogies. If this goes wrong, lots of other ‘bad stuff’ can happen. Or conversely, it can be an indicator of other ailments.
In my experience these are the things that lead to poor forecast accuracy:
- An under resourced process in terms of qualified and experienced people who know what they are doing!
- An under resourced process in terms of supporting systems. And these need not be complex or expensive systems.
- Lack of responsibility and accountability in sales forecasts.
- Lack of senior management focus and support for the process. This can be easily fixed by implementing a simple Sales & Operations Planning Process (S&OP)
- Poor engagement with customers to share and support the forecasting process.
I hope these tips were of some value to you and make sure you keep your Supply Chain out of Hospital!
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