Daily Archives: August 18, 2015

Best Practices: What Are They?

There’s a lot of talk about best practices these days, but not every site will tell you what a best practice is. Technically, a best practice is a process that consistently demonstrates superior results compared to other processes that accomplish the same task. Best practices are necessary because, without them, an organization will not advance up the hierarchy of supply (as discussed by the maverick and the doctor in their article on availability and delivery in a hierarchy of supply) and will always be worrying about simply insuring supply and never able to truly focus on cost reduction, demand control, or value generation.

To illustrate why best practices are needed, let’s consider one activity at each level of the hierarchy of supply: supply (chain) visibility, cost modelling, demand management, and value management.

Supply Chain visibility is not as simple as getting all of your contracts in the system, mapping the supply chain for critical products down to tier 3 (or tier 4) raw material suppliers, and then setting up automated monitoring of news sources for potential disruptions. To simply take a supply chain map, set it (in the system), and forget it until an alert comes in is a disaster waiting to happen. First of all, the supply chain is not static. New contracts with new suppliers will be cut. Disruptions will force emergency substitutions to different suppliers. And the map will quickly get out of date. Moreover, not all disruptive events will make the (English) news sources the semantic event monitoring software will be parsing. For example, maybe the mining company went bankrupt, didn’t file for bankruptcy, and didn’t tell anyone. They just stopped shipping. The first inclination won’t be until a tier 3 component supplier realizes a shipment is a couple of weeks late. They may or may not tell the tier 2 subassembly supplier, who won’t realize this until a few months later when the tier 3 supplier’s shipment doesn’t show up because the tier 3 finally ran out of inventory. But it might still be a few more months before the tier 1 supplier realizes the assembly, which was being shipped slow ocean freight, doesn’t show up.

In order to ensure that the organization actually has supply chain visibility and a realistic chance of detecting supply chain disruptions, the organization will have to create procedures and processes to make sure the supply chain map is kept up to date, that regular communication happens up and down the supply chain, and that multiple news and data sources are monitored to catch indicators of potentially disruptive events. And then it will have to implement best practices to see that this is done, and verified, on a regular basis.

Now consider should cost modelling. A should cost model is only accurate as long as each of the cost components are valid. Just because the should cost model that was done two months ago indicated the likelihood of a potential savings opportunity, this doesn’t mean that the opportunity is still there today. A spike in oil prices (due to a disaster that required the temporary, or permanent, closing/capping of a well) could have jacked energy, and, in turn, production overhead and transportation costs that negated the savings that came from a demand/supply imbalance. Alternatively, if the projected cost trend was an increase, mandating the quick lock in, shifts in the market could have flipped the cost trend, which is now downward, and the organization may want to just spot buy for the next few weeks, or months, until the optimal buy time comes around. In order to benefit from cost models, the organization needs to have processes in place to make sure cost models are verified before each sourcing event, that each data feed is verified, and that the time is still right for the sourcing event.

When it comes to demand management, it’s good to identify a demand management opportunity, such as reducing the paper required by Accounts Payable by providing them with a second monitor so they don’t have to print out scanned invoices to re-key them in the system, but that only happens if the second monitors get bought, setup, used, and the AP staff change their tree murdering ways. There needs to be a process in place to follow up on the strategy, monitor consumption, and plot usage trends on a regular basis to insure that the projections are being met and that the plan is coming together.

Finally, when it comes to value management, not a single strategy can work without good processes and even better practices. Just specifying a MDM strategy is not enough to insure that it is properly implemented and followed. Cross-Functional Collaboration is more than a C-Suite mandate. SRM is both a process and a set of practices implemented by your relationship managers. And so on.

As we can see, each level of the hierarchy requires best practices to make sure the right workflows are followed and the expected results achieved.
Best Practices are what supply management thrives on. Furthermore, there is no single definition of a best practice for any function because any function that does better than the other practices available to you is a best practice, and it is not necessarily the best practice used by your competition.