WINNING in business, like football, is not about playing “hunches” or going by “gut feel”. You cannot even look at metrics such as on-time delivery or defect rates or fill rates and hope to have a good understanding of your supply chain, much less to achieve the “perfect” order.
You may know that you have a problem, but you’ll have precious few insights as to how to improve the situation.
What is far more helpful – and what leading companies have discovered is that you must understand the context and content of your business activities in order to make sense of the various outcome metrics, such as on-time performance, that the vast majority of manufacturers already use.
In our experience, this comes down to developing three primary capabilities: having real-time visibility of each supply-chain process from end to end; detecting and automating exception handling in real-time; and learning from the past and creating an “intelligent” supply chain.
Poor supply-chain visibility is a top concern for senior executives managing global supply-chain operations. As a result, improving the visibility of order, inventory, and shipment status by adopting new supply-chain visibility technologies will be a major priority for these corporate managers moving forward, according to a new research report from the Aberdeen Group.
The report found that supply-chain visibility technology users are: 2.4 times as likely to have reduced their inventory levels since 2004; three times as likely to have faster order-to-delivery times; and twice as likely to have an on-time delivery rate of 95% or higher.
Why is this so? Very simply, visibility is the sine qua non of supply-chain performance. If you don’t know you have a problem, or you don’t find out about it until well after the fact, then you have already incurred all of the negative costs, delays, and disruptions that accompany the problem.
It is important at this point to explain what we mean by “visibility.” At a minimum it means that users at all levels of the organisation can have immediate access to the status of orders, invoices, and inventory regardless of what system or systems the data resides in at any given point and regardless of business boundaries, for example, knowing the production status of an order with a contract manufacturer, or the delivery status of an order placed with a 3PL provider.
Many organisations may say they have this level of visibility – although a sizable percentage cannot even claim to have this level of capability.
Here’s the deal: if all that is meant by this affirmation is that a user can inquire on the status of a given order, then it begs the question, “Why that order?”
However, if you are simply using visibility to respond to requests from customers to tell them where their orders are – what I would term reactive visibility – then you are not using visibility to its full advantage.
Of far greater value is proactive and even predictive visibility, whereby users are automatically alerted to the inevitable exceptions that arise during the normal course of business.
These exceptions can include errors in incoming orders, credit holds, delays in manufacturing, delays in customs or port processing, invoicing errors, and disputes.
For any large, multinational manufacturer, these exceptions run into the thousands each and every day – and they are a major drain on productivity, margins, and customer satisfaction.
After achieving visibility, the next step in this three-pronged cycle of understanding the context and content of supply-chain activity is to be able to collect and analyse all of the in-depth data associated with your company’s supply-chain activity.
Companies that have done so have been amazed at what they find: patterns of ordering activity from a few “repeat offender” customers that drag overall margins down; line items on orders that consistently lose money; and certain paths in the fulfillment process that routinely lead to delays.
The last step is to develop an understanding of the underlying patterns that shape how business actually occurs at your company and with your trading partners.
Armed with this information, you are in a much better position to assess the true cause and effect relationships within your supply chain.
Why there aren’t more goals?
If this is all so straightforward, then why haven’t more companies created these capabilities within their supply chain organisation?
One answer is simple inertia: A body – or an organisation – in motion will tend to continue in motion, heading in the same direction, even if it is not headed where you would like.
The converse is true, too: A body or organisation at rest tends to stay at rest. From an organisational standpoint, the implication is that change is hard.
Manufacturers have to optimise their supply chains by taking into account a whole host of factors.
Even if each element performs at a 98% level, due to the compounding effect of having a multitude of activities in the supply chain, the overall performance level can drop off quite precipitously (e.g., with just 10 steps in a supply chain performing at this level, the overall effectiveness is just more than 80%).
Large corporations are more like organisms than they are like automatons. Elements of the business grow, evolve, wear out, die out, reincarnate.
They have an element of unpredictability and randomness that increases as the company grows and extends its trading-partner relationships, acquires or casts off new businesses, or introduces new products or new channels through which those products are sold. And, despite their best efforts, companies always have a plethora of disparate systems, adding to the complexity.
What companies need are both a management approach and a technology foundation that explicitly recognises and helps manage this complexity.
Those who master and understand their “supply-chain physics” – those things that explain the context and content of what happens in the normal course of business – will be in a competitively superior position to those who continue to rely upon best-guess approaches to business success.
* Josh Brammer, supply chain consultant, Sterling Commerce.