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Every process and every activity in the supply chain is triggered by customer demand. Often, all along the chain before delivering a product to the customer, you can find much that could be much better. So it only makes sense that businesses – whether they are large or small – focus on optimizing the supply chain. But where do you begin? And just what approach should you take?
You may have a very fine factory, and you may have well-oiled production processes and highly trained operators, but none of that is worth all that much if, for example, raw materials consistently arrive at your facility too late, or if – at the other end of the chain – you don’t have sufficient capacity to deliver to your customers. Optimizing the supply chain may sound simple, but it requires attention and action on all fronts. However, too often, management falls into a trap: opting right from the start to intervene with software solutions and other tools for forecasting, planning and the like. Such solutions in and of themselves can certainly be effective, but only when a foundation for structural improvement of the supply chain has been laid on all the other fronts.
I was recently witness to a shining practical example of this. The firm in question was frequently unable to deliver all the products the customer had ordered. Instead of evaluating the entire operation to determine what the underlying cause of the problem was, the company immediately purchased a planning software package. But in practice, the fulfillment performance hardly improved at all. Various departments still did their own forecasts and there was little agreement or coordination across departmental lines – and that was the real reason they couldn’t deliver. In the new situation, the only difference was that one of those forecasts was produced using a chic planning tool instead of Excel.
In my job, I often come across organizations where all of the various departments are operating superbly, manned by driven employees who are devoted to their company, but where the end result taken as a whole falls short of the potential. The customers aren’t receiving everything they’ve ordered, the bottom line is not what it should be, or the rollout of new products does not go smoothly. The underlying reason is often the result of the divergent interests of the various parties along the supply chain. In other words, while one department focuses on costs, another department aspires to the delivery of the highest quality service to the customer. Or, to cite a classic example, the sales department pursues the highest possible volume while purchasing aspires to minimize supplies and production tries to limit the number of SKUs (stock keeping units).
So it’s a good idea to first look at the primary objective and the strategy that the organization has chosen to pursue to achieve that objective. And then to ask how each department individually, and how together, the various departments in the chain can optimally pursue that higher, unambiguous objective. Data and thorough analyses carried out by the people who are involved will provide clarity and serve as a shared starting point when embarking on an improvement process.
I personally have good experience with starting small. Because, when you have two adjacent departments that are amenable to looking over each other’s shoulders to try to find out how they can work together better and better coordinate their activities, then you are setting in motion a genuine and far-reaching improvement process. That they gather and analyse the required data in a simple and straightforward Excel spreadsheet rather than using a sexy software tool is of no consequence. Far more important is the fact that by connecting people and departments and working together, they take the first steps toward putting in place better work processes.
These first results provide the motivation to push ahead and also inspire other departments along the chain. Opposing interests and conflicts disappear and make way for clarity and a focus on the shared objective and the collective esprit de corps. Teamwork takes precedence over the interests of the separate departments and leads to better results and a winning attitude. The foundation is laid to roll out improvement initiatives along the entire chain. And that is then the moment to consider the possible purchase of supporting software. Because when it comes to supply chain management, I’ve learned from experience: first the common objective, then the team spirit, and then finally, the tool.
Stephan Verboom
Partner @ARV Group