While supply chain leaders will stand up at conference after conference and brag about how they saved money, improved inventory and driven improvements in customer service, we find that nine out of ten supply chains are stuck—not making progress—at the intersection of inventory turns and operating margin. So, did these supply chain leaders deliberately lie in their presentations? No, we don’t think so. Why the gap? I think that three things have happened:
- Project Focus within Vertical Silos. Most of the stories told at the conferences are vertically-focused projects within an organization. These projects are approved based on a defined threshold of Return on Investment (ROI), but unfortunately, project 1 plus project 2 plus project 3 plus project 4 … to project n, does not guarantee success. The reason? The projects are not orchestrated to an end-to-end operations strategy. Many are focused on delivering supply chain excellence through vertical silo excellence. However, strong vertical excellence does not make the best supply chains. It is the sum of the parts that matter, and the parts need to be clearly defined to fit together to deliver on a strategy. This is a point that many supply chain leaders do not understand.
- Belief in Best Practices. The goal has been to improve the potential of a company to improve the operating margins, reduce inventory levels and drive improvements in customer service. There is a belief that there are best practices—processes that come out of a software box or through focused work with a group of consultants. I don’t think it is that easy. The real world requires the design of processes based on the business strategy. It is a process of designing systems—design/planning processes/supply chain execution—to work together seamlessly. This requires leadership, patience and evolution. It is not as easy as opening a box of software or implementing an end-to-end big-bang project. Instead, it is a year-over-year process of defining, redefining, and tweaking flows, buffers, and plans against an operating strategy.
- Rise in Complexity. As the number of products and services have multiplied, demand error has increased. In parallel, with the shifts in global markets, commodity markets are more volatile with many operating challenges. The organization is being squeezed from both ends—market-to-market. There is a need to redesign the processes outside-in, but most companies are still marching to the drumbeat of implementing inside-out processes. As long as we wait to catch orders and shipments and translate them into conventional processes, like Distribution Requirements Planning (DRP) and Material Requirements Planning (MRP) that delay and distort the signal, we will continue to be stuck. The impact becomes more pronounced as complexity continues to rise. To redesign the processes outside-in, the focus needs to be on demand sensing and demand translation. There is a need to use channel data and redefine manufacturing processes.
This week, 110 supply chain leaders will gather at the Supply Chain Insights Global Summit, to talk about how to redefine the supply chain to address the issue. Most people in the audience are tired of being stuck. They want new answers.
I strongly believe that we have some of the most forward-looking supply chain leaders coming to the conference; but as you can see in Figure 1, the group plans to invest in three software projects this year, with a focus on inventory reduction, Sales and Operations Planning, and improving forecasting.
These are traditional investments. It has me perplexed. During the conference, I will challenge the group on the concepts of outside-in processes. Join us on ustream as I prod and push the group to think differently. Will they be implementing inventory to look at inventory levels, or will it be an outside-in focus based on rhythms and flows? When it comes to the investment in S&OP, will this be a focus on enterprise S&OP with a narrow focus on Integrated Business Planning (IBP), or will this be outside-in to translate channel data into buying strategies and orchestrating go-to-market strategies from buy-side to sell-side markets? And, will the investments in forecasting help? Over and over again I see companies improve forecasting, but not knowing how to integrate the improved signal into planning. At the conference, we will discuss that we have made more progress on improving demand than supply; and that we cannot improve outcomes unless we focus on the use of demand data. Many times this is marked redefinition of traditional processes.
If you are reading this and coming to the conference, let’s explore these concepts together. I believe that there is no place better in the world to network than the relaxed atmosphere of the Phoenician. If you are not attending the event, mark your calendar for the same time same place next year, and join us through the ustream feed. Together, let’s unstick the supply chain.