Daily Archives: September 6, 2011

The Advantages of Multi-Tier Supply Chains Come at a Price

A recent article over on Supply Chain Digest on The Next Big Thing: Multi-Tier Supply Chain Management did a great job of summarizing some of the major benefits of multi-tier supply chains. In brief, these are:

  • More Seamless Product Launches
    as coordination across multiple tiers helps to ensure that rapid production ramp-up is smooth and controlled
  • Ongoing Streamlined Operations
    as the ability to exchange information across multiple supplier tiers enables the rapid communication of demand (and changes) across the supply base which in turn reduces risks of shortages, lowers lead times, and improves forecast consensus
  • Reduced Planning Cycles
    as the accelerated velocity of information flow improves the quality of information used in planning processes
  • Improved Supplier Performance
    as the buyer can measure ongoing performance metrics and step in as soon as a hiccup is detected
  • Less Supply Chain Risk
    as the visibility into the extended value chain allows a buyer to see operational disruptions many tiers down as soon as they occur and take necessary mitigating actions before a minor hiccup becomes a major disruption

What it did not do a good job of was explaining the amount of effort to go from a single tier supply chain to a multi-tier supply chain. It requires more than executive commitment and a significant amount of resources. It requires time and considerable technical and educational prowess. Chances are that the further down you go, the less technically capable the suppliers will be. If a raw materials supplier still does business by fax and telephone, it doesn’t matter how good your new real-time portal is as there will be no real time system to link into at the supplier’s head office. A considerable effort will need to be made to train the suppliers on the benefits of a multi-tier system. Then a considerable effort will need to be made to help them implement modern supply management systems that can be integrated into a multi-tier visibility application. Then the integration will have to take place. Typically, the exercise will be worth the effort for a Global 3000, but the effort will be longer, harder, and more costly than the organization will expect.

Feces!! Dookie!! Scheisse!! How do you define Value?

Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group (TMG) and a contributor to the News U Can use TMG blog.

Let me answer the question first. It doesn’t matter how you define value. That definition is actually worth a bucket of crap (I missed that one). But I digress and will come back to that question later. Let me address the other part of my title first by asking you a hypothetical question. Regardless of whether you believe in climate change or not, if I were to tell you that there was a way to provide you with water that you could bathe in and drink with a 100% certainty that it was cleaner than any other water source, would you use it? Now, if I were to tell you that it was actually recycled water but was still able to prove to you scientifically that it was absolutely clean, would you still use it? Would your answer still be the same if I were to tell you that it was waste (sewage) water from where you live?

It turns out that people strongly resist the 3rd option of using local waste water, even if they are facing a drought. Water prices are going up and scientists have categorically proven that it is cleaner than almost ALL other water sources (including natural springs). In addition, it has a significant positive impact on the environment, preserves water sources, eliminates the need to dispose of waste water, etc. etc. etc!

According to Alix Spiegel, from NPR, “No matter what the scientists or environmental organizations said, the public saw it differently: They thought that directly reusing former sewage water was just plain gross.” It turns out that you can take the physical excrement out of the water but you cannot take the cognitive crap out of it! The technical term for this is psychological contagion. The fact that ALL water has someone’s feces in it (upstream sewage) and the fact that birds and fish are contributing their feces is irrelevant. It just cannot be my scheisse. And it turns out that the only way you can get rid of my psychological dookie is to process the water through a natural aquifer, even though that will take 10 years AND it actually makes the treated water less pure!

The NPR article goes onto say that those working on the project didn’t feel that the public was looking at the scientific facts and simply rejected the water, infuriating water engineers who felt that the public was being irrational. If you replace public with stakeholders (customers) in that statement, it might represent what a large number of Sourcing/Supply Chain professionals might say. The reason is that we continue to define value as we see it, whereas our customers define value totally differently. Continuing to throw more spend analysis, decision optimizers, and Total Cost of Ownership (TCO) models at them is not going to alter the fact that our definition of Value Drivers is fundamentally at odds with each other. Unless we change our definition of value to match the definition of value by our customers, we will continue to knock at the proverbial C level door as a profession. By the way, redefining the Value Drivers is only half the battle. Actually adopting and implementing them is the real challenge.

Thanks, Dalip.