Will this be the year we traverse the supply chain plateau? Part I

Five years ago today we commented on a piece by the Supply Chain Shaman who believed we had reached the supply chain plateau. While SI always believed there is innovation to come, the Shaman presented some pretty damning evidence. Analyzing the balance sheets of process companies over the course of a decade, she found that the average process manufacturing company has reached a plateau in supply chain performance. As she stated:

Growth has stalled. To compensate and stimulate revenue, the companies increased SG&A margin by 1%. However, the conditions were more complex; the average company, over the last ten years, experienced a decline of 1% in operating margin, and an increase in the days of inventory of 5%. While cycle times have improved, the majority of the progress has come from lengthening of days of payables and squeezing suppliers.

And it’s certainly the case that delaying payments and squeezing suppliers is NOT progress!

And while SI believed, at the time, that we had not reached the plateau, SI certainly believed that growth had stalled. But why?

The Shaman conjectured 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 had to agree.

And while SI also had to agree with the Shaman that there is a discontinuity and we need to declare the APS and ERP systems of the 1990s obsolete and start again, SI did not believe it was the core problem. SI believed the core problem was 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.

SI conjectured the manpower capability issue was a lack of education, and hasn’t changed it’s belief. But even though little has changed on this front, there is a light in the sky now … we can see the day when we cross the plateau and see the peak ahead. How?

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