II - Self – Assessment in the supply chain

II -  Self – Assessment in the supply chain  Organization Structure The structures of supply chain organizations will be different... 3:15 AM

II -  Self – Assessment in the supply chain 

Organization Structure

The structures of supply chain organizations will be different from those in narrow functionally based firms. Procurement and supply chain executives will be part of top management. They will have responsibilities for ensuring that customer needs are met and will be matrixed with such key process centers as technology, design, and supply strategy. The structure will become increasingly focused on competing globally. In mature industries it will involve the integration of a number of potentially different supply chains in a firm.

Core Competencies versus Outsourcing

In order for organizations to achieve their objectives in supply chain management they need to continue to emphasize their core competencies versus outsourcing strategies. Looking across a supply chain there might be five or six organizations. The real challenge is which ones should be doing what and at what position in that chain. There are still far too many organizations doing work from which they are not getting any competitive advantage.

Work has to be channeled and shifted within the integrated supply chain to those locations that are most capable of doing it within the context of intermediate and longer term strategic plans. Many firms have a clear vision of where they think their strengths lie-and where they can compete versus those items anybody can do and can be outsourced. The key to integrated supply chain is to gain agreement about where work should be done in the supply chain by a members of the "critical path" through cross-functional and cross-organizational decision-making with customers and suppliers.

Better supply chain performance at can lead to:

• Decreased Costs
• Increased Customer Satisfaction
• Increased Customer Retention
• Increased Revenue
• Competitive Advantage
• Proactive vs. Reactive Management
  

  

Performance Measurement

A major key to success in supply chain management, involves development of common metrics related to effectiveness. Those measurements need to be aligned around keys to gaining customers--e.g. product development time, removal of cost, responsiveness, flexibility, quality, etc. Each of the firms in the chain must be operating with the same metrics and using similar definitions. People in the chain need to understand the priority that is being placed on which performance measures. In basic terms, measurements will need to be grouped around what it takes to make customers continue to use the products being sold. The problem is that collection and regular review of metrics within the chain is not an easy objective to obtain.

Starting point for improvement

Measure detailed customer satisfaction against critical logistics attributes

Begin with logistics attributes that comprise the “Perfect Order” concept:

• Product Delivery Accuracy Right Product
• Order Fill Rate/Damage Free Right Quantity
• Delivery on Requested Day/Time Right Time & Place
• Error Free Paperwork Error Free

Evaluating supplier performance and providing

feedback on that performance ensures getting

the best possible service. It also is a first step

in enabling consolidation of the supplier base

around vendors which offer more than just the

ability to meet product quality and cost

specifications.

Cost management

Managing cost is an extremely critical factor in supply chain management. Key organizations in the supply chain will need to know what the cost drivers are up and down the chain. They will need to develop strategies and practices that can be put in place to take cost out of the chain because there's no advantage just to shift cost within a chain.

Cost savings objectives for supply chain management:

Increase customer service levels.

Decrease transaction costs.

More efficient inventory investment.

Reduced expenses in manufacturing.

Increased responsiveness to customer demands.

Ability to fulfill customer requirements more profitable.

Ability to deliver high quality products in shortest time.

Ability to deliver products at the lowest cost.

Ability to penetrate smaller, fragmented markets cost effectively.

Greater linkages with key suppliers.

Sharing of information with key suppliers thus reducing supplier costs.

Pull inventory system lessening safety stocks.

At the end point the supply chain is competing for customers. When competing against another inefficient supply chain, it may not matter, but, if a chain wants to gain a competitive advantage by being able to use price, it must have solid footing under its cost management. This is considerably more than looking for a common commodity across business units in a firm and buying the product at a lower price. Identification of the cost drivers within each participating partner and within the supply chain is important.

Human Resources

As organizational structures change and as there's a paradigm shift to competing through the integrated supply chain, some of the knowledge and skill sets also will need to change. In most organizations, there is a whole level of people that will have to be brighter, able to deal with ambiguity, and able to deal with both business and technical relationships across functions and across companies. Where in the past you could react bureaucratically, now you have to operate in a much more creative, innovative kind of way to make these things work. Companies that are making changes, are going out and getting tried and true people. They are hiring new people to a great extent--people who have these characteristics.

Information Systems and Technologies

Perhaps the most significant enabler is information system technology. There is a great need for strategic information not normally associated with the traditional way data is collected, stored, and used. There also must better ways to transfer accurate information between organizations. This communication has to play across more than one or two organizations. Systems need to support internal processes and electronic commerce capability and enable sharing of information in real time. Firms that are not pushing ahead at a fast rate on information systems will tend to plateau. At a point they will not be able to make significant jumps in their integrated supply chains. Unfortunately many companies at this time are not compelled to develop information systems and technology. For the most part they are in industries where the competitive level is not all that great. The result is that they will be late in getting where they need to be.

Communication, Trust Building, and Management

As part of the integrated supply chain development process organizations will need to cut across company boundaries and act as integrated supply chains. They will need processes that are related to risk sharing, communication, and development of trust. They also will need to develop key executive contact points willing to communicate regularly about direction of the strategies, about the kinds of risks that companies will be taking. Because there has to be equity in terms of margins and return on investment throughout the supply chain, open book awareness will need to be developed and communications and risk sharing made more critical. Companies working to implement supply chain management will need to create a paradigm and working environment that allows them to deal with each other to build a new communications structure.

New Product Creation

The most critical factor around the process is how to more effectively use and leverage supplier capabilities into the process and also customer insight into the product/service creation process. It becomes extremely important to fully understand the needs of the customers. Rather than use specifications or functional definitions to create products or services, better understanding through the supply chain of what the ultimate customer's true need is, can, and will facilitate development of better products and services.

Pull System Capabilities

A pull based system involves the literal taking and smoothing out the demands from the external customer and making them totally visible through the organizations in the supply chains. It allows firms to operate in a pull environment with less emphasis on forecasting at different stages in the chain. It entails moving from the forecast environment to one of responding very quickly to actual demand and being able to add information to that transmitted information. Emphasis in the future is going to be on reducing cycle time at every stage of the order fulfillment and information process.

Logistics

A key competitive process in supply chain integration will involve logistics information-especially demand/pull information. Competition in this area will require companies to have a combination of logistics capabilities to enable them to position inventory, move items direct to point of  consumption at a faster rate than ever, and effectively use postponement strategies. That means logistics strategies will need to become increasingly flexible. In many cases they will need to rely greatly on third party providers for all kinds of logistics activities. Part of the key here is a logistics strategy development activity and process that puts in place the electronic means to move products, goods, and services around the world. Successful logistics processes will be those that globalize the function, minimize inventory on any kind of investment, maximize the flexibility to respond to changing demand patterns, and have the capability to put products or services at any point in the world where they are being used -- doing all of this at the lowest possible cost.