Daily Archives: January 23, 2013

Have We Reached the Supply Chain Plateau? Part II

Yesterday, we noted that Lora Cecere discovered, after reviewing balance sheets of process companies over the last decade, that the average process manufacturing company has reached a plateau in supply chain performance. And, moreover, that the majority of progress improvements over the last decade came from lengthening days of payables and squeezing suppliers. That’s Not Progress!

So have we reached the supply chain plateau? SI doesn’t think we have, but agrees that growth has stalled. But why has it stalled?

Lora conjectures that while complexity has increased, many well-intentioned executives lack the understanding of the supply chain’s potential or how to manage the supply chain as a system. So, while individual projects are getting great results, departments as a whole are not performing as well, and being managed even worse. SI has to agree.

Why? One hypothesis, as implied in Lora’s pot, is supply chain technology, and ERP (and forecasting) systems in particular. As Lora notes, the current state of supply chain technologies is such that, in an average company, the greatest gaps are in the areas of the greatest importance. Gaps in supply chain planning are high, and the ability to use the data from ERP and order management remains a gap.

This is true. And SI has to agree with Lora when she says that there is a discontinuity and we need to declare the APS and ERP systems of the 1990s obsolete and start again. But SI doesn’t think this is the core problem. The core problem is manpower capability. Not only do most executives not understand the supply chain from a holistic perspective, treating each step as its own function (and disassociating NPD/Design from Sourcing (a manufactured product) from Logistics and Distribution, when they all have to be examine and managed as part of an integrated supply chain, but neither do the function managers. Moreover, these function managers often do not even understand the best practices associated with their job.

Why is there a manpower capability issue? A lack of education. These people generally don’t leave college or university with a solid supply chain background, as few institutions offer such programs, and they haven’t been properly trained. Year after year training budgets are slashed and leaders are run ragged fighting fires and dealing with tactical issues instead of being given time to focus on long-term strategy, how the supply chain works, and how it should work for optimal performance and optimal corporate gain. Where supply chain is concerned, not only do we have the reality that you can’t manage what you don’t understand, but you can’t even manipulate what you don’t understand with any level of success. People have to be educated and trained at all levels of the function, and until that happens, up-to-date technology or not, there is not going to be any progress.