Our supply chains are going increasingly more global forcing us to work around the clock. To make matters more complex, our customers are asking us for even better responsiveness and expect us to react immediately to their continuously changing needs. Variability has gotten into the system in a major way.
But at the same time, our CFO is breathing down our neck asking us to reduce costs to stay competitive. And we, as supply chain professionals, should keep delivering day after day after day.
Well, that sounds like a nice challenge. We can no longer use buffer stocks to cut our supply chain in chunks as stock is bad for the balance sheet and the bottom line. So, what can we do?
What we cannot change
The laws of physics have not changed. It takes two to three months to manufacture the electronic components going into most of our products. Reaching Europe or the U.S. from Asia takes six weeks by boat and one day by plane. But a plane ride costs about 10 times as much as a boat trip. Sure, in Europe we can use the trans-Siberian express, but does that really make the difference? Customs will take time too.
So, the fundamental question is, knowing those facts, how can I manage a responsive supply chain? In my mind, three key elements are playing:
- How much flexibility can I give myself by using the same components in multiple products, allowing me to decide to consume the available component for the product with highest margins?
- How can I adapt my supply chain network to instill responsiveness throughout the whole network, having for example entities manufacturing the minimal quantities required at the lowest cost, while more versatile ones build for peak demand?
- How can I anticipate demand by gaining a better understanding of my customer base?
Collaboration and technology are key components to achieve such approaches. So, let me focus on those and explain to you why they matter.
Increase the understanding of your supply chain
First, we really need to increase the understanding of our supply chain, how it operates, where the bottlenecks are and what we can do to improve its functionality. To achieve that we need common information, common metrics and a common vocabulary. I would propose to use the SCOR (Supply Chain Operations Reference) model to achieve this. It is available from the Supply Chain Council and has been used by a large number of enterprises over the years, so it’s proven.
But obviously to measure we need information. And that is where we, as supply chain professionals, have work to do. Building trust with our suppliers, sharing information and in return getting from them like the critical data required to understand what happens at their end, will give us the basis to start that detailed analysis of the supply chain. Let’s take a look at stock levels, available capacity, throughput time, variability, responsiveness of each of the partners in the supply chain. Be it manufacturing or logistics steps, how long does it take to perform the task at hand?
This will give us a good view of how the supply chain behaves today and probably highlight bottlenecks and problem spaces. The question is then whether these are due to the supplier, to the product design or to the way the supply chain is wired. We need to take an honest view here. Using supply chain simulation tools, we may be able to simulate the supply chain and then look at how it can be improved.
There are two planning approaches we absolutely need to abandon. These are well known in the industry and are called SOW (Same Old Way) and WSL (Who Screams Loudest). [Lm1] To build the supply chain of tomorrow, you need to have an open mind and look at what really happens and what it teaches us.
How can I do that?
For years, companies have worked with suppliers and used technology to do so. You remember the hubs of the late 90’s? Most of them have come and gone. The fundamental reason is that they did not manage to embrace a successful business model. This does not however mean that the need was wrong.
Today, cloud computing may provide a new way of approaching supply chain visibility. Suppliers need to build trust with their customer prior to exchange information they see as extremely proprietary. They do not want such data available to all, so a secure environment is needed. They are often also afraid the customer purchasing department will use that data to negotiate cost cutting during the next round. Having a neutral platform, only accessible to the supply chain teams, is a way to ensure proper collaboration. A community cloud, potentially managed by a neutral service provider, is a nice way to do this. Sharing information allows us to perform three different tasks:
- Manage the day to day supply chain, understanding what happens and act accordingly — Think about using lean principles along the supply chain. As you cannot walk along your supply chain in the same way you do along your production line, you need different tools to visualize what happens. The community cloud may be a way to do that.
- Continuous improvement — Use the time dimension to see how the different sections of your supply chain behave, how predictable things are. Unpredictability is what you want to avoid. By understanding where they are, by tracing what causes them, you can improve the predictability of your supply chain, get things running better at lower cost.
- Redesign and transform — Using the information gathered, you may want to start modeling your supply chain. Doing so gives you an ideal tool to test new approaches, to review existing and potential designs to understand the dynamics of the ecosystem. This in turn will give you the opportunity to make key changes to your supply chain, making it more predictable and responsive at the same time.
6 steps to get there
It will take you six steps to get there. In the beginning you will have to invest as your eco-system will take time to adapt to this new way of working. If you want valuable information they have to buy into what you do. This implies they will need to see the benefits. I recognize six steps to achieve what I described above. There are:
- Build trust amongst your partners. I already hinted to that earlier. It’s by reassuring them the information will not be used against them in the next contractual negotiation, but will help the whole supply chain improve operations, which will provide them return (more business and less costs).
- In parallel with step one, find and/or develop a platform. Some platforms exist today, but they are typically focused on one section of the supply chain (eg. logistics). What you need is a platform that allows you to support all steps in the supply chain, not just logistics for example.
- Define a common language. This is very much like a master data management exercise, but what you want to ensure is that all partners in the ecosystem have the same understanding of the information shared. Again, using standards such as SCOR may help here.
- Start onboarding partners. You will not get all of them at the same time. The first thing you may want to do is start sharing some of your information, such as your forecasts for example. They will see the benefits of understanding your forecast quickly. A couple partners will understand this and start sharing themselves. That is when you get things really started. Make the benefits visible to attract the others.
- Gather the information. You will first manage the day-to-day operations. And you’ll get benefits there, understanding early what is happening, improving customer satisfaction, etc.
- Once you have been going for a while, set-up a separate team to analyze the data and do continuous improvement. Do not ask that from the operational people, they are focused on making things work on a day to day basis. Once continuous improvement is well down the road, you can start thinking about redesign and transformation.
The first steps are critical to ensure success. Unfortunately, they are also the ones giving you least benefits. One of your critical tasks will be to demonstrate to your management and your partners you are making progress in these first steps, so you buy time to build things out and harvest the big returns.
Having a neutral environment where the members of a supply chain can share their information. Ensuring data is shared on an as-needed basis, ensuring companies that compete in other markets do not have access to confidential information, is critical for building trust and ensuring the success of the program. Cloud computing is a way this can be achieved. Companies really need to look into this in more details. Are you?
A first version of this blog entry was published as an article here.