The Real Problem With Most of Today’s Supply Chains?

They’re too fast and too slow.

And no, this is not an oxymoron.

As highlighted in this recent post on Supply Chain Digital, the product life cycle is in decline now that 50% of annual company revenues across a range of industries are derived from new products launched within the past three years at the same time that there are 250 supply chain disruptions to public company supply chains every month (Supply Chain Brain) that result in shareholder value dropping by 10.28% on average (SAS) and that takes the company an average of 50 trading days to recover from.

They’re too fast. There are too many products being introduced too fast. For example, how often do you need a new phone anyway? It’s a damn phone. And a dress shirt is a dress shirt. Now, it’s true that you need to constantly improve computing technology (to keep up with the bloatware), but do you need to change the form factor every year? Sure you need to increase the memory, the processing power, and the storage, but there’s no reason the form factors can’t stay the same — especially since density keeps increasing.

They’re too slow. The average company can’t respond to supply chain disruptions or market shifts fast enough to prevent significant stock-outs, significant drops in revenue, or reputational damages that take it, on average, two months to recover from.

Companies need to balance the competing agendas of innovation, renovation, and reverberation. While constant product innovation is needed, the innovation needs to enhance the product lines and not destroy them. Since research is expensive, the gains from each effort need to be maximized. That means reusing designs, components, and innovations to the extent possible for more than just a year or two.

Furthermore, some things just can’t be reinvented. A toaster is a toaster is a toaster. A new design every year isn’t going to drastically increase revenues and is, to be blunt, a waste of time.

Unnecessary efforts need to be eliminated and redirect to risk management. There’s not enough focus on risk or the mitigation thereof. For example, the benefits of an innovation efforts can be eliminated by the failure of a strategic supplier and the expected profits from a new a product launch can disappear if a supply disruption translates into stock-outs across the board in peak seasons.

In other words, your supply chain needs to slow down and speed up.

I’m Not Sure That I Buy That This Increases Sustainability

According to this recent blog post over on Core 77, Walmart (Canada)’s New Supercube Increases Sustainability by Designing Bigger Trucks. Working with an Ontario-based Company called Innovative Trailer Design, they have commissioned the Walmart Supercube that can hold 30% more cargo in the same footprint. By designing a truck with a squashed cab, they can increase the trailer length from 53 feet to 60 feet without increasing the overall vehicle length. Plus, they are lowering the floor of the trailer and installing a built-in scissor lift to help load the cargo into the far reaches. And they’ve even added a dromedory box that holds an additional 10% of cargo behind the cab that can be independently loaded and unloaded.

Now, technically, if there is no significant difference in fuel usage, then the trucks will be a more sustainable way to move cargo since you will now only require 3 trucks to move what used to take 4 trucks, but if the total number of trucks on the roads do not decrease, then there is no significant advantage.

Plus, more cargo = more consumption, and that’s never an argument for sustainability.

It’s a great concept, and a cool design, but I’m not sure I buy that it’s going to improve sustainability.

Some Good Advice from Hackett on Building a Better Procurement Scorecard

Supply Management is about more than cost. Much more. But it’s hard to make the point if all that you’re measured on are (soon to be very elusive) cost savings. So you need to be measured on a scorecard, preferably one that’s balanced. But what should it contain? A recent Supply Chain Brain article indicated it should focus on service. CPO Rising indicates that you should focus on categories. And SourceOne authors Bill & Joe say to focus on the balanced scorecard.

Hackett indicates that the following considerations are important

  • innovation
  • supply assurance / supply risk
  • regulatory compliance
  • working capital
  • P2P process efficiency
  • supplier diversity

and I would agree that they are all relevant to Supply Management, but what I really like is their 10 key considerations to keep in mind when developing your next scorecard that should help ensure a more holistic level of success that starts off:

  1. Align with the Business
    While most organizations have still failed to realize this fact, Supply Management is the business. Now that companies no longer make what they sell, supply management now serves the most critical function – as there is no product without it. So its critical that supply management closely align with the business and provide the business what it needs.
  2. KISS (Keep It Simple Stupid)
    When creating a scorecard, its critical to consolidate to a manageable set of metrics. Otherwise, the complexity becomes overwhelming and the utility of the tool becomes increasingly diminished . While it’s important to include all of the key contributions that supply management makes, the scorecard should only measure the key contributions that provide the organization the most value. Your organization might do 101 things, but probably only needs to report on the top 11 or 21.
  3. Compare Externally
    While not all measures need to be externally benchmarked, the organization does need to understand what the measures mean.

Check out this article on My Purchasing Center (on building a better procurement scorecard) for their other seven key considerations for developing a scorecard that will help your Supply Management organization achieve a holistic level of success.

It’s About Time You Get a Grip on Risk!

Risk management is about more than just the disclosures the auditors make your accountants put in the fine print when you release your financial statements and annual reports. And it’s more than the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. For example, from a supply management point of view, risk management is modus operandi for supply assurity when there is an average of 250 supply chain disruptions for public companies every month. (Source) And from a profit point of view, it’s value. Less money dealing with the financial and brand fallout from a disruption is more money spent on innovation to meet customer demand.

And, as per this recent Ernst & Young post over on the Harvard Business Review blogs, it’s money in the bank. Their recent research fund that companies in the top 20% of risk (management) maturity generated three times the level of EBITDA as those in the bottom 20%. Wow!

So why is this? I think it’s due to the fact that less than 40% of companies are actively managing (supply) risk to the level they should be. In 2008, a Marsh survey found that only 35% of organizations self-reported that supply chain risk management was moderately effective at their companies. In other words, 65% of companies did not have a risk management program that was at least moderately effective. In 2011, researchers at Vlerick Leuven Gent Management School and Ghent University did a supply chain risk management study and found that 64% of the companies have no one responsible for managing supply chain risks! That’s essentially 0 improvement in the last three years! And while the initial introduction of a risk management program will require a significant investment of talent, it’s not that difficult, relatively speaking. As the post says, the critical factors are communication, openness, leadership, framework identification, formal methods, coordinated planning, standardized monitoring, and occasional (stress) testing of the different facets. With the right leadership and training, everyone will be able to do their part. And in the end, just like the Global 50 consumer products company highlighted, in the post, the organization will have

developed a governance structure that allows it think about risk proactively, and has aligned its risk profile and exposures more closely with its strategy. Its governance leadership group and supporting management clarified the company’s risk appetite, defined its risk universe, determined how to measure risk, and identified which technologies could best help the company manage its risks. Aligning risk to strategy, by identifying strategic risks and embedding risk management principles into business unit planning cycles, enabled the company to identify and document 80% of the risks that have an impact on performance. This alignment of risk awareness and management practices, from strategy to business operations, enabled the company to monitor risk developments more effectively. Managers could keep the organization within acceptable tolerance ranges, driving performance to plan.

So just do it. You’ll double your EBITDA in the process!