Supply chain mastery is a bit like hosting a Thanksgiving dinner: Success lies in attention to the overall result as well as the details. "You have to bring all of the elements together to make sure the executive team has the information it needs to make the decisions [it needs] to make," says Karin Bursa, vice president of marketing at Logility, Inc. (Atlanta, GA). The best decisions stem from a broad perspective -- one based on numerous analyses. Specifically, manufacturers need to understand whether a customer is profitable for them and how much profit that customer generates, Bursa says.
Supply chain mastery is "not so much technology, but process change," says John Clark, manager of marketing at Provia Software (Grand Rapids, MI). "It's important to step back and look at the process and ask, 'Is there a better way?'" He warns against the mentality that says, "This is the way it's always been done."
"A lot of companies don't look at change as a positive thing," Clark says. But if you look at it negatively, he says, you won't enjoy its benefits.
Identifying the Need
Management needs vision that goes beyond simple upgrades. "So often customers just want to automate existing practices," says Tom Kozenski, vice president of product marketing -- distribution solutions at RedPrairie (Waukesha, WI). "That sets the bar so low because there is so much more that can be improved." Generally, he says, "you need dramatic process change to achieve dramatic process improvements." This can be difficult, he admits, because it requires a "leap of faith to go from where you are today to where you need to go." The key, he believes, is to understand workflows and connect the supply chain to operations.
"Many companies don't know how to collaborate," Kozenski says. But sharing information is often a win/win situation. It also should be noted that it's not necessary to collaborate with every supplier. In a pool of 300, the biggest benefit may be realized in collaborating with the top five or 10 suppliers. It may not be worth the effort, time, and expense to establish interfaces with the rest.
Once pain points have been identified, the management team needs to set priorities.
Evaluating How to Change
In the quest for supply chain mastery, changes fall into three groups: supplier-focused, internal improvements, and customer-focused. Some solutions encompass all three areas.
Common tactics for improvement include implementing dynamic sales and operations planning, optimizing inventory levels and locations, monitoring supplier performance, and ensuring on-time delivery. "Supply chain technology helps at every stage," Bursa says.
Implementing dynamic sales and operations planning (S&OP) can produce greater forecast accuracy, which in turn offers a huge payback through reduced supply chain costs and improved perfect order performance.
S&OP helps provide the tools needed "to evaluate demand in the market at multiple levels," Bursa says. This includes understanding what top customers need and hitting targets for these customers, plus moving new products into the marketplace and being prepared for their impact on existing products. In addition, it helps optimize the forecast and profile for products being phased out. "If you can improve margins on end-of-life product, then that's going to generate more profit overall," Bursa says.
S&OP "allows us to analyze and balance our business both from a demand and supply perspective," says Mark Aslett, president and chief operating officer at Enterasys Networks Inc. (Andover, MA). The manufacturer of networking equipment installed the Enterprise Demand Management solution from Steelwedge (Pleasanton, CA) in 2004 to create new workflows to automate handoffs of information and actions as a result of changes in demand or supply. The solution, which includes a central data store, "ensures...we keep focus on the issues that, if not managed correctly and in a timely manner, will negatively impact our bottom line," Aslett says. An Excel interface provides a familiar feel for Enterasys personnel who had been using spreadsheets for planning. With the more automated process, Enterasys now reviews its business once a month rather than twice a quarter and has significantly reduced the time spent gathering data.
Another element of mastering the supply chain involves optimizing inventory levels. Most businesses have a seasonal selling cycle tied to weather or the calendar, but use static inventory policies that do not respond to demand. For example, a manufacturer may maintain high safety stock levels to ensure a 99% service fulfillment during the peak season. However, at off-peak times, safety stock levels often can be reduced without affecting service, and doing so during periods of lower demand can save millions of dollars.
In organizations with multiple warehouses, overall inventory levels often can be reduced by modeling on "ship from" rather than "ship to" information, so large orders are shipped from more than one location.
Visibility into supplier performance and incoming order movement allows potential problems to be identified and addressed before they can wreak havoc with delivery of product to your customers.
Finally, on-time delivery is imperative. "If you don't deliver on time, none of the rest matters," Bursa says.
Implementing Change
When re-engineering processes and selecting solutions, Clark recommends involving power users and influential people in the organization. "If they feel their opinion is valuable, they are likely to become champions for the solution," he explains. When Enterasys was automating its S&OP process, it enlisted representatives from each function to help identify old processes and map out new ones. With key managers on board, a series of conference room pilots gave employees a preview of how the monthly planning process would work.
Dry-run training is imperative, Clark insists. It not only provides an opportunity to identify potential problems, but also shortens the learning curve because the trial occurs in the natural work environment. If no dry run is done and a major problem arises, the go-live process may have to be aborted to return to the old system until kinks can be worked out.
It's important to remember that training needs are ongoing. A lot of companies plan for training at startup, but don't look at the training needs that will arise as personnel leave or change positions. Web-based training or training-the-trainer approaches both work well.
A prime example of training integration is the European operations of Castrol Ltd. (Swindon, England), where personnel are trained on a continual basis. Castrol has even established an academy of in-house experts to provide the knowledge base that will ensure success and continuity for its forecasting and replenishment process, which relies on DPM software from ToolsGroup (Amsterdam, The Netherlands).
As with any new technology, milestones are needed throughout the implementation process so it's easier to make go/no-go decisions. With progress thus defined, it's easy to determine whether everything has been done and the team can move on to the next step. "People will forgive a late go-live, but won't forgive a poorly functioning system," Clark notes.
Measuring Results
Supply chain masters measure results to confirm their progress and to identify areas that need attention. Traditional metrics include statistics on finished-goods inventory, raw materials inventory, fill rates, stockouts, logistics costs, and percentage of perfect orders. Some firms also look at special key performance indicators such as number of supply depots and frequency of production disruptions or emergency shipments.
In the end it comes down to, "What's the most profitable way to service customers and service them well?" Bursa concludes.