Supply chain excellence

Shepard, J., and Lapide, L. (1999), Supply Chain Planning Optimization Just the Facts, in Achieving Supply Chain Excellence through Technology, Montgomery Research, pp. 166-176 (copies posted at http //www.ascet.com/ascet/wp/wpShepherd.html). 

As processes in manufacturing matured, companies realized that the goal of supply chain excellence could not be met only by working manufacturing processes in isolation. Instead, they envisioned an end-to-end value chain that could stretch from the customer s customer to the supplier s supplier. They hit their heads on the walls that formed around organizational silos. 

The supply chain failures grab headlines. Success in the supply chain happens slowly over many years, but when a leader stumbles the impact on the balance sheet is pervasive. Much of the public understanding of supply chain management comes from reading about the failures. When companies with names like Apple, Boeing, Cisco Systems, Coca-Cola, CoirAgra, Hershey, Johnson Johnson, Ericsson, Mattel, Nestle, Nike, PepsiCo, Sainsbury s, and Western Digital make headline news due to supply chain failure, it is hard to not pay attention. Each time these premier brands stumbled, failed, and learned new lessons, the bar on supply chain excellence was raised. 

Companies stumbled in two areas process evolution and technology implementations. These failures drove improvements in supply chain excellence. The pace of change from failure was much faster than from success. 

The stories of success make fewer headlines. There is no easy correlation between supply chain excellence and financial balance sheet returns. As a result, success is hard to measure. Instead, it becomes the organizational muscle providing year-over-year work resilience. 

In the beginning, supply chain excellence was defined as the lowest manufactured cost. The belief was that supply chain excellence could be achieved by sweating the assets. This set of beliefs formed the foundation for the efficient supply chain. Through the evolution of supply chain processes, costs were reduced, inventory levels lowered, and waste eliminated however, each company reached a point where they could no longer just cut costs without trading off service to customers. They had reached their effective frontier. 

Early pioneers fought hard battles with finance teams that did not understand the concepts. IT projects were implemented with overinflated commitments that were not grounded in reality. In the early days, the principles of supply chain trade-offs and the effective frontier were difficult to conceive. The singular focus on costs resulted in failures in customer service. These failures drove organizations to define supply chain excellence as a reliable supply chain to focus on closing multiple gaps ... 

Supply chain excellence is defined by the ability to use the supply chain to deliver the business strategy. The maturity of process allows companies to improve the potential of the supply chain to maximize opportunity and mitigate risks while raising the effective frontier. 

To understand supply chain excellence, these 10 cycles need to be viewed together with the measurements from studying the supply chain effective frontier (Figure 1.1) (to determine supply chain tradeoffs) for each supply chain. They need to be viewed by a peer group. 

So, who does supply chain best There are many attempts in the market to crown a supply chain leader and while there are many methodologies attempting to define who does supply chain the best, they are inadequate. One methodology throws all companies into a spreadsheet and compares them on growth, inventory, and asset utilization and asks peers to rate the companies. This methodology has a number of problems. Supply chain excellence cannot be determined this simplistically. Instead, it needs to be evaluated in a stepwise holistic manner based on three criteria ... 

Year-over-year performance. This is a year-over-year comparison of how a company performed against its peer group on the supply chain financial measurements of growth, revenue/ employee, asset utilization, days of inventory, and cost of sales as a percent of revenue. To determine supply chain excellence, companies need to compare year-over-year performance of a similar company to its peer group for at least three to five years. 

In interviews, supply chain pioneers were asked, "When you think of supply chain excellence, which company comes to mind " The first response by the supply chain leaders is that no one company stands above the rest. The collective opinion is that while individual companies do pieces of the supply chain well, there is no one company that does everything well. 

The company s progress in supply chain excellence is multidimensional. It is a business process innovator. As the reader will see in subsequent chapters, the company pioneered techniques in open innovation, global talent development, demand-driven manufacturing, and corporate social responsibility. 

In the balance sheet trends against peer groups, Dell and Apple both built a competitive advantage through process innovation. Today, supply chain excellence is no longer about operational excellence and costs instead, when done right, it defines new business models and drives new forms of value. 

Evaluate how the organization has defined supply chain excellence. 

Leaders are still seeking a clear definition of supply chain excellence. Despite 30 years of investment in supply chain management, the definition is not clear, ft remains a holy grail. In interviews, we asked, "What company defines supply chain excellence "... 

Evaluate how value networks can improve supply chain excellence. 

Traditional view of supply chain excellence. For demand-driven initiatives to be successful, they must extend from the customers customer to the supplier s supplier. The concepts of demand latency, demand sensing, demand shaping, demand translation, and demand orchestration are not widely understood. As a result, they require education and a business champion. Organizations not familiar with the concepts will not understand why the demand management processes need to change. 

As described earlier in the chapter, the more sensitive and responsive channel sales are to trends and seasonality, the more important demand sensing is to driving supply chain excellence. The ability to rapidly detect changes in demand gives companies greater flexibility to accommodate those changes, or influence overall demand. 

The path for supply chain excellence starts with supply. You cannot achieve supply chain excellence without a soiid foundation of operational reliability. 

When the journey for supply chain excellence started 30 years ago, each industry had a different starting point. They also had a different vision and path for their journey. The discrete and make-to-order manufacturers (aerospace and defense, automotive, and industrial manufacturing) supply chain processes originated in procurement. In contrast, the foundation of process companies supply chain organizations (chemical, consumer products, and pharmaceutical) was in manufacturing. 

When 1 think of supply chain excellence, I think of my recent purchase of a Mini Cooper. I went on the Internet and I had more than 200 different options for the car. I designed it in two to three hours and in less than three weeks I had the car that was built in England delivered to my house in Newark, NJ. It was perfect. So that to me is supply chain excellence. Imagine. They had less than a week to produce a car to my design standards and then ship it. 

Marketing programs can introdnce demand volatility and transform a snpply chain that is nsnally in quadrant II to a quadrant I response. Inventory pre-bnilds are necessary, cross-fnnctional coordination is an imperative, and supply chain excellence is defined by qnick cycles and excellence in demand sensing. 

As inventory levels climbed during the first part of 2009, tension grew in supply chain discussions, and horizontal processes (discussed in Chapter 5) grew in importance. This was the most problematic— even desperate—for some companies that defined high-asset utilization as supply chain excellence. Those companies that rewarded high-asset utilization took five times longer to sense the downturn and align their supply chains. 

Define. Define the right set of horizontal processes and build a three-year road map based on the company s definition of supply chain excellence. 

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