Category Archives: Supply Chain

Does Scenario Planning Trump Location in Supply Chain Friendly Network Formation

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A recent Industry Week article on “how to develop a supply chain-friendly network” stated that scenario planning considerations can be just as important as location. The rationale is that, in response to the 2008 fuel spikes and recession, many companies are repositioning their logistics locations closer to end users and increasing inventory levels to insure full truckload shipments in a knee-jerk reaction. As a result, inventory overhead costs are climbing to unacceptable levels and product obsolescence is becoming an even greater risk than before. And the article makes a valid point.

But is real estate scenario planning, that addresses the likely results of adding to or changing your network sites, the answer, or is it full fledged network optimization backed by decision optimization technologies? While, as the article suggests, you need to look at and collect labor availability and rate, government incentive, required inventory level, transportation mode and rate, and warehouse operating cost data for each location under consideration, the only way you’re going to truly be able to understand the total cost of each potential decision and select the best, lowest-cost, network design that meets your service level requirements is with a network optimization tool as there’s just no way your spreadsheet calculations are going to capture all the costs, constraints, and business rules you’re going to identify in your scenario analysis. So while scenario planning is important, ultimately, the answer is selecting the best locations, and I would submit that can only be done with the aid of good network optimization tools.

Metrics for the Restaurant Industry

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A recent article in CIO Insight on “Ruby Tuesday: Feasting on IT Metrics” outlined some metrics that could be very useful to the restaurant industry at large. In brief, they were:

  • Capital Expenditure as a Percentage of ROI
    Is it worth even starting the project?
  • Voided Orders
    This is a good loss performance metric.
  • Number of credit card transactions
    This is simultaneously a performance metric and a loss prevention metric, since credit card payments not only constitute a percentage of business, but potential chargebacks.
  • Tip Percentages
    As well as an indicator of customer service, this can be a leading indicator of customer financial health. (Customers who feel financially secure are more likely to leave a healthy tip.)
  • Coupon Redemption Rates
    An indicator of profitability, it’s also a leading indicator of customer financial health.

While a short article, it is an interesting one.

The Hierarchy of Supply Chain Metrics

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A classic article in the Supply Chain Management Review discusses “the hierarchy of supply chain metrics” because measurement is the cornerstone of operational success. According to the article, which builds on AMR Research, the best approach to measurement uses a three-tiered hierarchy that allows managers to quickly assess overall supply chain health at the top level, diagnose problems at the mid-tier, and identify corrective actions at the ground level.

At the top level, there are three core metrics that allow a manager to quickly gauge the overall health of the supply chain:

  • Demand Forecast Accuracy
  • Perfect Order
  • SCM Cost

At the next level, a composite cash-flow metric provides a diagnostic tool that allows a manager to zero in on the components that are likely the cause of any inefficiencies. The metric allows managers to determine whether there’s a balance between the time it takes suppliers and the time it takes customers to pay, whether the inventory metric (which can contribute to high costs) needs further analysis, and whether cash flow is being appropriately managed. The metric consists of:

  • Accounts Payable Turnaround Time
  • Inventory Totals
  • Accounts Receivable Turnaround Time

At the bottom level are the day-to-day metrics that measure performance across the different supply chain management activities and allow root-cause analyses when one of the higher-level metrics indicates a potential problem with efficiency or cost management. These metrics measure supplier effectiveness, operational effectiveness, and cost management effectiveness and include:

  • Supplier Quality
  • On-Time Delivery
  • Remaining Inventory
  • Purchasing Costs
  • Direct Material Costs
  • Production Schedule Variance
  • Plant Utilization
  • Work-in-Process Inventory
  • Order Cycle Time

Utilized properly, the hierarchy can lead to great success. However, companies can face significant challenges when designing and implementing measurement programs. The article offers seven recommendations for tackling the challenges that will arise:

  • Follow these four universal principles
    1. Keep it Balanced
    2. Work from the Outside In
    3. Focus on the Outcome
    4. Use the 80/20 rule and don’t choose too many metrics.
  • Proactively address organizational resistance
  • Beware of tunnel vision and ensure the metrics you choose address interactions and interdependencies
  • Analyze root causes when issues arise
  • Use a top-down approach to analysis
  • Measure enablers
  • Measure in the context of a performance-management program

Characteristics of a Well Organized Supply Chain

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A recent article on the Supply Chain Brain site by Enporion did a great job of outlining the necessary requirements for organizational success in your supply chain. Even though a center-led model is usually optimal, as it lets you take advantage of the best aspects of the centralized and decentralized organizational models, it’s only truly optimal if:

  • The Organizational Model Fits the Corporate Strategy
    Successful supply chain organizations are designed to specifically address where strategic decision are made and the knowledge that is needed to make those decisions.
  • The Organizational Model Fits the Corporate Culture
    Successful supply chain organizations match the actual corporate culture, not an imagined one, and feel natural to the people who bring the model to life.
  • The Organization Model Accounts for Staff Skills and Expertise
    The model is designed to make sure that the right people are in the right job in the right numbers at the right place at the right time.
  • The Governance Structure Elevates the Supply Chain Function
    Leaders of successful supply chain organizations sit at the table with the rest of the C-level executives.
  • There are Mechanisms that Enable Collaboration and Communication
    Supply chain staff are close to the operations and business units and communicate regularly with cross-functional teams, category teams, supply councils, executive committees, and other stakeholders.
  • The Information Systems Support the Function
    The technology meets the need of the organization.

Share Ideas Through a Center of Supply Chain Excellence and Put Your Own Best Practices to Work

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Knowledge drain is simply not acceptable in today’s economy. I couldn’t agree more. The ability to identify, analyze, and quickly adapt to market changes — before your competitors do — can mean the difference between a profitable quarter and Chapter 11. Undoubtedly! Companies fighting for survival need to deploy every asset they have, including a highly valuable but invisible asset — best practices developed by employees. Assuredly. But these best practices are typically not documented, and even when they are, not effectively distributed or consistently implemented. Unfortunately. This means that companies can lose their best ideas. Disaster waiting to happen.

Mergers and acquisitions, cost cutting, and senior employee retirements or resignations (because a bright competitor recognized their talent and offered them a significantly higher compensation package) all result in your hard-won knowledge, ideas, and insights walking out the door if you don’t have good knowledge management processes and systems that capture and share your best practices and knowledge.

That’s why I liked the recent article in the Supply Chain Management Review on how to “put your own best practices to work”, even though it did mention social networks when all you really need is the useful Web 2.0 tools they are built on (and not all the useless time-wasting add-ons found in the unproductive social networks of today). If you start with wikis and moderated discussion forums, you can build a useful knowledge network that will actually be used in an iterative and evolutionary way without a lot of hassle or up-front investment.

So where do you start? You can:

  • Design Across Internal Boundaries
    Make sure your forums and wikis are silo-free.
  • Recruit the Right People
    Recruiting Supply Chain Subject Matter Experts as content moderators is key to ensuring quality, validity, and program adoption.
  • Think About the Thought Process
    Manage information in a way that reflects a company’s culture and process patterns.
  • Design an Implementation Approach
    Tradeoffs between resource requirements, enterprise constraints, and implementation time are a few of the factors to consider. Make sure the initiative is owned by the business, and not IT. You don’t want the system that is technologically “the coolest”. You want the system that works for the people who need to use it.
  • Set Up for a Successful Launch
    Get buy in from a wide range of business users to use the center of excellence as part of their daily business routine.