@ Supply Chain Management


Stop Wasting Time with Supply Chain Collaboration that Just Won’t Work

In the continuing series of taking at look at “Living Supply Chains” (Part 1 of Living Supply Chains can be found here), I review the latest post about the topic – Living Supply Chains, by Dan Gilmore of SC Digest.
Dan summarizes the central point of Part 1 of Living Supply Chains as follows:

Gattorna says the creating of “Living Supply Chains” can create enormous competitive advantage, and that there are two keys: getting the people/culture side of the equation right, which in nearly all companies is a huge barrier to strategy execution, and “dynamic alignment,” in which a company’s supply chain organization, capabilities, and services are specifically – but flexibly – linked to customer buying behaviors (with a similar concept for supplier relationships).

In this part, the focus is on a concept called dynamic alignment

Gattorna, relying on years of personal experience and research (he’s a former Accenture supply chain leader) and much other supply chain and behavior research, says you can (and ultimately must) sergment customers (and suppliers) into four types, based on what they truly value in the relationship (customers) and your own supply chain requirements (suppliers) and their capabilities:

  • Continuous Replenishment: Characterized by predictable demand from known customers, these are generally the ones that both want to and benefit from tight collaboration. High levels of loyalty.
  • Lean: Mostly consistent demand, main focus is on efficiency and cost.
  • Agile: Unpredictable demand, opportunistic, need for quick response to new needs
  • Fully Flexible: Very unpredictable demand, customer looking for lots of customization in product design, programs and services. Values innovation.

In my current and ongoing experience of supply chain management solutions, I have made the following two observations:
1. Approaches to solving supply chain issues are cognnizant of the fact that supply chains are complex beasts
2. Solution approaches are analytical and segmented. What I mean by that is that the solution is not in the whole but in its parts i.e. breaking the problem down into smaller patterns of common processes and procedures is the right way to a practical solution
While I am entirely convinced of the former, I’m not as convinced about the latter even though I recognize that as practical solutions go, reductionism and pattern identification are time tested and proven methods of solving problems. However, because of my optimization background, I also know the difference between local and global optimas and I think a case can be made here about the same.
Nevertheless, Gattorna makes the following crucial point which I find also being made by the supply chain experts from Wharton and BCG:

So what dynamic alignment?
By first segmenting customers based on these buying behaviors, rather than traditional screens (channel, size, etc..) companies can tailor their relationships, supply chain services and price much more precisely to the total needs of those companies.
Second, needs change over time, based on market changes, different products sold by the company, etc.

And putting the above into practice requires,

So, Gattorna advocates setting up separate supply chain teams, and separate logical and often physical supply chains geared towards meeting each of these types. Each focused on the differentiated approaches, relationships and services the segment requires. When a customer’s needs changes, either for the short term or the long term, it should move into this different supply chain group. Indeed, different products sold to the same customers may need to be handle differently.

And the final implication for supply chain strategy creation,

he believes (citing several examples of companies that have done it) that this supply chain segmentation approach needs to the basis for network planning and optimization, rather than the “one size fits all” approach that is often used. Companies often simply optimize inventory, transportation and service trade-offs against basically a universal customer, and as a result develop a single supply chain strategy.

I think that the key takeaway here is that a firm’s supply chain is really three of four supply chains working together and it might be time to reveal them as unique supply chains in need of different strategies and different resourcing. And further, the recognition of the different supply chains goes a long way into getting people to work effectively and collaborate as the need arises.

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Category: Strategy, Supply Chain Management


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November 2006