John R. Dougherty , Senior Partner Partners for Excellence
Top 10 lists make us laugh and sometimes make us think. Ten-step programs help us change and stick to a particular initiative or effort. This presentation will define the 10 critical factors that will determine the level of benefits a company can achieve from Supply Chain Management. These must be the focus of senior management’s attention.
The art of management is often described as one of resource allocation, delegation, and empowerment. But too often, when a project or initiative is complete, the business results and benefits fall short of expectations. Why? Blame is often placed on the tools, the software, the approach, the methodology, the people who implemented it, or possibly the people who are operating the new technology.
And secretly, behind their backs, people often blame top management for not properly supporting, leading, and demanding results from the effort.
Listed below are the Top 10 Excuses why Supply Chain Management doesn’t work:
10. “With our suppliers this will never work.”
“With our customers this will never work.”
9. “What do they want from us–we’re just a make-to-stock company.”
8. “When does YOUR month end?”
7. “The salesmen don’t know anything about our forecasts.”
6. “What do you expect, the forecast was wrong again!”
5. “We used to make more, and faster!”
4. “We stopped updating this chart last December.”
3. “My hammer broke.”
2. “It ain’t my job, man.”
1. “I didn’t have time to check the system.”
These excuses can shed some light on the 10 key areas that senior management must understand, monitor, and manage to ensure optimal business success with Supply Chain Management. They are described below:
10. Excuse: “With our suppliers this will never work.” (“With our customers this will never work.”)
Key to Success: Linkage Up and Down the Chain (Scope) (See Figures 1 and 2)
All of the tools, techniques and approaches shown in Figures 1 and 3 should be applied, not only in each internal function within the business, but at each plant, warehouse, subsidiary and sister division. In addition, they should actively be applied, where appropriate, with key suppliers, their suppliers, and their suppliers, as well as to key customers, their customers, and their customers. “Total system” optimization and solutions should be sought in a way that treats every supplier and every customer as another resource or link in the chain. Problems should not be solved by attempting to increase lead times or inventories held by suppliers or customers. Rather, appropriate, cost effective approaches looking at multiple links in the chain at the same time should be used.
9. Excuse: “What do they want from us–we’re just a make-to-stock company.”
Key to Success: Resources and Processes are Matched to Customers and Markets (See Figure 2)
There is a clear definition of how you plan to “meet the customer” for each product. Everyone affected understands the approaches and what can change them. Configure-to-customer-order vs. make-to-order vs. finish-to-order vs. make-to-stock vs. multiple finished goods distribution centers are options that are reviewed and specifically chosen, product by product, over time. Approaches such as high volume repetitive manufacturing, assembly lines, work cells, flexible manufacturing centers, cycle time reduction programs, and other Total Quality Management (TQM) and Just-in-Time (JIT) approaches and tools have been undertaken in the appropriate areas. There is clear understanding among all functions of the business regarding the supply side constraints and the demand side expectations. Active plans are in place to better match supply approaches to future demand expectations. But in the short term, realistic levels of flexibility and techniques for dealing with customer demands are documented and followed.
Activities, transactions, analyses, communications, meetings, updates, etc. should each have their defined time cycle. This should be documented in policies and procedures as to what gets done real time, hourly, daily, weekly, monthly, etc. Whenever anyone looks at information in the system, they should feel confident that the data they’re looking at was updated as specified by these timing cycles. For example, inventory transactions are processed within minutes of the physical movement of goods; forecasts are updated monthly; MRP planning exception messages are reviewed at least weekly, etc.
7. Excuse: “The salesmen don’t know anything about our forecasts.”
Key to Success: Top to Bottom Planning Integration (See Figure 3)
This means, for example, that detailed district, regional, customer, and weekly product forecasts are aggregated and compared to overall S&OP family sales plans. And detailed manufacturing and purchasing schedules are reconciled back to the master schedules they support and then the master schedules are compared to the family production plans at the S&OP level. As voluntary or involuntary changes happen at any level, their effect on all other levels is communicated and used as an input to adjust plans when appropriate. This is supported by the use of the key “tools” such as Sales &Operations Planning, Distribution Resource Planning, Master Production Scheduling, Forecasting, Material Requirements Planning, etc. It is also dependent on careful compliance to the personal responsibilities and defined activity cycles mentioned in #8 above and #2 below.
6. Excuse: “What do you expect, the forecast was wrong again!”
Key to Success: Change is Anticipated and Managed (See Figure 4)
Variability from plan is constantly monitored, measured, analyzed, and used to formulate response mechanisms. For instance, forecast accuracy is used as an input for defining safety stock levels, scheduling approaches, etc. Changes in demand that trigger potential near-term schedule changes are carefully managed. The bigger the impact, the shorter the response time, the more detailed the analysis, and the higher the level of management communication and approval that is required. These are managed using “Rescheduling Time Zones” which are formally defined by location, by product line, with appropriate managerial involvement and approval requirements. The number of changes is measured, monitored, and used as an input to update and improve the forecasting and planning processes and trigger adjustments to the coping mechanisms (inventories, flexible manufacturing approaches, etc.)
5. Excuse: “We used to make more, and faster!”
Key to Success: Supply Demand Balance (See Figure 5)
The demands (forecasts, customer orders, inter-company demands, etc.) are continually compared to all potential supply (inventories, manufacturing and purchasing plans, capacities, material availability, etc.). Such tools as Sales & Operations Planning, Distribution Resource Planning, Master Production Scheduling, Material Requirements Planning, Rough Cut Capacity Planning, and Detailed Capacity Planning are constantly monitored in an attempt to balance supply to demand. In some cases, short-term “imbalance” is established as a tactic and actual performance against it is monitored (for instance, adjusting safety stock inventory, customer order backlogs, or inventory in anticipation of seasonal, cyclical, or periodic demand surges, etc.) The results of these plans and tactics are summarized and available for management to review on at least a monthly basis as part of the Sales & Operations Planning process.
A set of “vital signs” has been defined. There is clear responsibility for producing these measurements or metrics on set cycles (some daily, weekly, monthly, etc.). They are published to the appropriate personnel (high level business operating measurements to management, more detailed functional measurements to interested or affected functional personnel, etc.). There is a name assigned to each measurement and target performance objectives have been set. Whenever actual performance falls below the target, there is an overt process whereby management reviews detailed root cause analysis to explain why the objective is not being met. NOTE: When measurements continually fall below target, and management never questions the cause or action plan to correct, there is an implied corporate acceptance of lowered objectives. These measurements include business performance, data accuracy, schedule reliability, schedule volatility, etc.
3. Excuse: “My hammer broke.”
Key to Success: Complete Tool Bag
This doesn’t mean an expensive, late model, “loaded,” client server, ERP software package. This means functionality in each process or business area that supports your company’s issues and problems specific to your approach to your customers and your industry “peculiarities.” The tools should be based on proven approaches and techniques and use standard terminology. They can be “improved,” but beware of “brand new” approaches. Most of what really works in Supply Chain Management has been around in one form or another for 25 to 35 years.
2. Excuse: “It ain’t my job, man.”
Key to Success: Clear-cut, Personal Responsibilities
There should be designated people in your organization who are responsible for using each tool. This should be clear to them and to every member of management as well as all interfacing functions. This should be documented in widely distributed policies and procedures. It should be obvious when someone is not using the tools properly or effectively.
1. EXCUSE: “I didn’t have time to check the system.”
KEY TO SUCCESS: The Formal, Integrated System is Used in All Cases
This doesn’t mean that everything needs to be done on one software package. Multiple packages, properly interfaced, have worked effectively for years and still can. Manual reports, verbal communications and / or downloaded spreadsheets are appropriate in some cases, and can be effective and part of the “formal, integrated system.” What’s important is that the aforementioned policies and procedures define when these techniques will be used and that someone is responsible for keeping any data, “off-line” output or sub-system totally reconciled and up to date with the data in the main software system. When people are looking to solve specific problems or answer specific questions, they should get data out of the integrated system and use functions in the system as much as possible to simulate answers. There should be just “one set of numbers” maintained in an integrated fashion.
It’s vital to understand the full scope of application and the real depth of integration required by a true Supply Chain Management process, as well as the issues and areas that require vigilance by and communication with top management. Top management must ensure that Supply Chain Management efforts will focus on the critical success factors, not just on the enablers, such as software and procedural documentation.
This will lead to company-wide understanding of Supply Chain Management as a top-to-bottom operating philosophy, not just as a narrow materials management initiative. The benefits will be a quicker, more focused, more effective Supply Chain Management implementation, leading to optimized Supply Chain Management business results, including lower costs, lower inventories, quicker response, and more market flexibility.