Friday, June 1, 2012

Is Your Supply Chain Effective?

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You may have spent a fortune in establishing good processes and implementing technology solutions to automate and enable them. So, now do you have an effective supply chain? How do you know when you do? What is an effective supply chain anyway? Is it the ability to quickly react to volatile demand? Is it the ability
to maintain the highest inventory turnover in the industry? Does it mean
having the lowest days of accounts receivable? What about accounts payable?
Shortest cash-to-cash cycle? Highest ROA? Agility? Lean manufacturing?
Optimal product mix? Highest resource utilization?
Ok, you get it, there are far too many metrics that you can track and measure. And each one of them might tell you how a specific part of your supply chain doing. But to get a sense of how well your supply chain is really designed to work, you need to take a step back and evaluate your supply chain along these three dimensions:
  • Cost: Is you supply chain cost effective? Being cost effective means taking a wholesome view of the costs across integrated processes to arrive at cost-levels that provide a cost-advantage for you. For example, consider if your designers and procurement departments work together so that the products are cost-effective right from design. How about manufacturing? How will your designed and sourced components affect manufacturing costs and efficiencies?
  • Agility: Is your supply chain capable of handling variability? When demand changes, how long does it take you to change the supply plans? Do you actively collaborate with your suppliers so that they can make you successful? Are you suppliers enabled or even empowered to react to address the demand changes in your supply chain?
  • Sustainability: Are your supply chain processes sustainable? We are not quite talking about the “green” here, but we are talking about the repeatability and consistency of your processes. Are your processes established through an ad-hoc reactive impulse or are they well thought-out and proactively designed to achieve the objectives of the business function? The cost and labor efficiencies achieved through ad-hoc processes are generally a one-time wonder, but a well designed process can create a sustainable competitive advantage.
While cost has been the primary focus and imperative to drive supply chain initiatives in the past, the pioneering companies have long since discovered that agility and sustainability is where their supply chains create true competitive advantages for them. The cost-based supply chains have become the table stakes, the cost you must pay to play. The operational efficiencies gained through traditional supply chain thinking have gained parity across many players in most industries. To win, you must move to create new supply chain capabilities that allow you to better manage the inherent variability in the supply chains and that is where agility and sustainability come in. Agility is your ability to react in response to changes in the environment and sustainability is your ability to react in a consistently effective fashion. These new supply chains are not stove-piped and siloed, but integrated and responsive. Where do you stand?
Related Articles: This article is based on a joint presentation by Vivek Sehgal and Chris Barnes in an APICS event held in Atlanta, GA on April 17, 2012.
Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon.
© Vivek Sehgal, 2012, All Rights Reserved.

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