Category Archives: Supply Chain

Successful Supply Chain Solution Implementations Require Planning

A recent Industry Week article on “Implementing Supply Chain Management Solutions” made a good point — the biggest factor in the collapse of supply chain management (SCM) implementations is … change — the type of change inflicted on an organization with little regard for how greatly it will impact the people and processes that serve as the engine of the business.

Statistics say that somewhere between 70% and 85% of software implementations, including those in SCM, are at least partial failures. And I believe those statistics – even though it should be the case that between 70% and 85% should be smashing successes because we’re not in the software dark ages anymore. However, as the article points out, the use of [SCM] systems brings [about] a new way of doing business, and with that, monumental change in how people do their jobs and, unfortunately, even though most project implementation teams do a great job of communicating the benefits that will be accompanied by the new system, they often do a poor job of communicating the impacts of the new system on the daily life of the impacted users.

It’s one thing to talk about new processes, it’s another thing to convey that understanding, and another thing still to convince people that they want to change the way they go about their daily routine — and have them do it successfully. In other words, you need to do good change management.

Good change management requires proper planning, which includes not only what needs to be done, but how it needs to get done, who needs to do it, and what they need to know to do it — and do it right. Then, as the article points out, you need to develop good training plans that will lessen the impact of change and ensure that your colleagues are ready to enter the brave new world you’re leading them into. After all, that’s where the savings are, and where you all need to be.

Supply Chain Inefficiencies Exacerbated by Lack of Visibility

As stated in a recent Supply & Demand Chain Executive Article, effective supply chain management is based on the ability to know the “what, where, when, and how” of your operations in real-time. However, it’s more than this. It’s the ability to understand the ripple effects and consequences from changes made to the processing of payables, receivables, shipments, and inventory. A “solution” could actually cause more problems than it solves if the full effects of its implementation are not considered.

To this end, the article “Seven Studies in Supply Chain Visibility” attempted to provide some examples of how a lack of visibility can cause importers and exporters challenges and headaches. Some of these examples illustrated the dangers of a lack of visibility from a trade and finance perspective, and need to be highlighted.

  • Transitioning to an Open Account from Letters of Credit can Cripple Suppliers
    Sometimes suppliers require letters of credit to finance their operations from the time they get an order to the time they get paid – even if they are located in the US – as a US supplier might source components and sub-components from foreign suppliers whose banks don’t recognize open-accounts as a basis for financing. The answer is to only use open accounts with suppliers where there is enough history to satisfy their lenders (or where a common bank that knows the financial status of each party) is used .
  • Rapid Growth can lead to Compliance Risk
    Rapid growth in international markets can create significant export compliance risk as every country has it’s own documentation, safety, and product composition requirements for each good you are exporting. Failure to satisfy even one requirement can have a shipment held-up, confiscated, or even destroyed. The answer is to bring in expert help from the outside to make sure everything gets done – and gets done right – during a rapid growth period.
  • Substantial Changes in Manufacturing, Distribution, and Process Execution can Pose Major Risks and Inflate Costs
    Done right – process improvement can increase efficiency and cut costs. Done wrong – attempted process improvement can slow everything down, produce waste, and increase cost. The key to success is to bring in some experienced change management consultants to guide you through the process.
  • Invalid Product Classifications Can Delay Shipments and Cause Taxation Nightmares
    HTS classification can be a nightmare. The answer is to use appropriate decision support software systems to guide you through the classification process, tax rate selection, and document preparation.

Integrating Demand and Supply

It was nice to stumble upon an article in Industry Week that was published near the end of 2007 that tackled the subject of “Demand and Supply Integration”. It noted that companies are trapped in a pattern of reacting to the whims of the marketplace without developing a proactively designed supply capacity and that companies are often the victims of their own success — marketing programs that are not integrated with supply plans end up creating more demand than the company can fulfill. Thus, to create a more efficient and effective business model, companies must acknowledge that they need to integrate demand and supply systems.

The article notes that through close relationships that facilitate information sharing at the system level, demand and supply integration allows companies to serve end users better. What’s interesting is that it also goes so far as to note that managers cannot just focus on their own goals, but must focus on the goals of the larger organization as a whole. Furthermore, these goals should be derived within an integrated sales and operations planning (S&OP) process to facilitate systemic information sharing.

It also notes that companies with demand and supply integration are better prepared to respond to unforeseen supply chain events and gives the example of how Dell was able to quickly adapt to the 2003 California dock workers’ strike as an example. Since Dell operates lean, it only had a few days of product on hand. Airlifting goods is expensive, but it was their only option. In order to reduce transportation costs, it offered customers the opportunity to upgrade to flat screen monitors for “free” when they ordered a system with a standard CRT monitor. The individual sales weren’t as profitable for Dell as they were before (with the lost profit and added shipping cost), but they changed the market overnight – a move that their competitors weren’t prepared for, and they ended up taking some of their competitors’ business away.

It also notes that, for a company not on the path, moving to demand and supply integration can be a challenge. A company must shift its focus from product and supply to customer, market, and supply chain as this is required for strong customer integration.

the doctor has to admit, considering it was written by your ivory tower academics, that it was a rather good article. Plus, the doctor likes their acronym more than AMR’s. DSI has more prestige to it than DDSN. Maybe it’s because when the doctor thinks DDS, he thinks Data Dictionary System, but DSI also stands for Defense Security Intelligence. And what would you rather have – data, or intelligence? (Of course, you can have a lot of fun with DDSN, as the doctor did in this post.)

Do We Really Need a New Supply Chain?

A recent article in the Supply Chain Management Review outlined “A Plan for Building a New Supply Chain” because, according to the author, supply chains need to be redesigned from the ground up to remain competitive. Now, I wholeheartedly agree that the average supply chain lacks efficiency and needs to be improved – in some cases drastically – but I’m not sure that supply chains need to be redesigned from the ground up.

Most successful companies understand the basics of their supply chains – and have those basics in place. After all, the entire point of a supply chain is to move products from the manufacturing plants to the retail outlets where anxious consumers will buy the goods. And since your average reasonably successful company knows where the goods should come from, where the goods need to go to, and the means it has at its disposal to move those goods, it’s quite clear that not only are the fundamentals of a supply chain reasonably well understood – but that, at a high level, a more efficient supply chain will look similar to the current supply chain. And even though I’m all for supply chain streamlining, I don’t know if a new supply chain is necessary, at least not in the average case.

However, the article did have some strong points. First of all, the five S model appears to present a valid approach to reaching a good end-state as the five S’s appear to cover most of the key points. Once you’ve addressed Structure (physical and operating model), Scope (depth and breadth), Span (supply chain extent), Scale (degree of verticalization vs. virtualization), and Skills (both availability and impact), about the only thing missing is the sixth S: Shift – how innovative is the new supply chain?

The article also had a good short list of key people, process, technology, and global success factors that is worth repeating:

Process Success Factors

  1. Lean, but flexible, processes
    Don’t optimize to the point where it becomes tough to change and adapt to future demand, design, or technology shifts.
  2. 80-20 rule adherence
    Get the 80% right, and the process will adapt to the remaining 20% over time.
  3. “Adopt and Go” philosophy
    Don’t over-plan the implementation to the point where it takes forever to achieve the benefits.
  4. Design for Global Commonality
    Fewer distinct products means fewer distinct supply chains.

People Success Factors

  1. The right mix of strategic, tactical, and executional skills
    Successful supply chains require all three skill sets.
  2. Train and re-train regularly
    It’s all about sustainability – and that applies to people as well as processes. You can’t run a 21st century supply chain with 20th century skills.
  3. Focus on distributed process management and optimization
    The world is still round – but supply chains are flattening by the day.

Technology Success Factors

  1. Distributed Applications
    Monolithic applications are a thing of the past and must be avoided at all costs.
  2. Global Accessibility and Scalability
    The future calls for consolidation and global distribution across processes and functions.
  3. Repeatable, Limited Deployments
    Every iteration should reduce cost and cycle time.
  4. Discipline
    Minimize customization as to minimize total cost of ownership.

Global Success Factors

  • MEASURE, MEASURE, AND MEASURE
    You need visibility and accountability to remain at the forefront. This is the only way to ensure that it does.

Piracy Starts in the Supply Chain

Chief Executive recently ran a great article that asked a great question – “are you going gray”? It noted that CEOs have a tremendous amount of power to control the gray market – the piracy that robs firms of profits, brand integrity, channel viability, and customer satisfaction. However, the same reasoning applies to CPOs as well.

The article noted that (a large) part of the reason that gray market piracy exists is the complexity of today’s operating environment. Global supply chains have complex pricing, distribution, control, and cross-functional coordination challenges. When managed poorly, these open the door to a number of opportunities that pirates can leverage to their advantage. In addition, poor network management allows members in an extended partner network to circumvent policy and pricing guidelines.

If you don’t put contract terms in place to prevent a customer from reselling your product to an unauthorized distributor, or you don’t insure that security is in place to prevent product from ending up in the wrong hands, then your new handsets destined for Australia could end up in Asia, as Motorola found out in 2006. Similarly, if your software is valuable, and you export it to a third party reproduction house for duplication without appropriate controls and liability clauses in place, you could find your product contributing to the over $40 Billion in legitimate IT products that move through the gray market each year.

However, you can significantly reduce the possibility of leakage by extending discipline over your supply chain and attacking the major drivers of gray market leakage: network partners with poor or unstable financial health, substandard manufacturer operating practices, and sloppy business models. Make sure the network partners you choose are financially stable and that your partnership will help maintain that stability; insure that your distributors agree to appropriate levels of price protection and stock balancing; and make sure that the number of tiers and hand-offs in the supply chain is minimized.

Be sure to implement and police company-initiated measures and process controls to minimize the possibility of supply chain leaks. Self-fund and enforce investigative measures and pursue remedies against all infringers through the courts. Build a reputation as a good corporate citizen – but one that should not be messed with nonetheless.