@ Supply Chain Management

In my previous post, PRTM study highlights five key supply chain challenges, I highlighted a recent study by the supply chain management consulting firm. In this post, I want to delve a little deeper into those key challenges. Again, the highlighted challenges were:

1. Supply chain volatility and uncertainty have permanently increased
2. Securing growth requires truly global customer and supplier networks
3. Market dynamics demand regional, cost-optimized supply chain configurations
4. Risk management involves the end-to-end supply chain
5. Existing supply chain organization are not truly integrated and empowered

Supply chain volatility and uncertainty have permanently increased

So what is the situation with supply chain volatility and uncertainty?

Survey results clearly show that concerns about continued demand volatility hamper companies’ ability to effectively manage supply chains in an upturn. In fact, three-fourths of respondents consider demand and supply volatility and poor forecast accuracy to be the biggest roadblocks they currently face. Volatility concerns were not assuaged during the recession, nor have most companies successfully implemented strategies for managing volatility in the years ahead. Recent shortages, such as those in electronic components and selected raw materials, indicate that many companies do not have the flexibility to meet an increasingly volatile demand. The rapid ramp up or ramp down of capacities seems to be a big challenge for many study participants.

The biggest roadblocks faced by respondents are demand and supply volatility and poor forecast accuracy. But surely, one is the cause of the other and this can only be exacerbated in a global supply chain with long manufacturing and transportation lead times. Does not poor forecasting of demand beget supply volatility whereas demand volatility is a function of the economic cycle? Now, when both situations occur simultaneously, then it is quite believable that firms are in for a rough time.

The actions that respondents plan to take doesn’t make much sense to me – they don’t hurt but more importantly, they don’t help. The action items can be broken down as follows:

The best-performing companies have already taken steps to improve supply chain response time and visibility across all supply chain partners.

I believe this is the key to cutting down volatility – reducing the supply chain response time and if no reduction is possible, then at least making certain of it. Both the magnitude and variation of supply chain response time create uncertainty (and consequently volatility).

Others plan to implement new strategies within the next two years. Companies are focusing primarily on deepening collaboration with key customers to reduce unanticipated changes in demand.

I believe that this is a no-go. Key customers themselves face volatility and therefore partnering with customers to reduce one’s own volatility is unlikely to bear fruit unless the key customer’s customers are not creating volatility. The first point above i.e. reducing supply chain response time is the more important factor.

Half of participants plan to implement joint “real-time” planning with their key customers by 2012, and nearly half plan to develop processes for improved demand sensing—that is, understanding the market rate of demand in real time, rather than having to wait for after-the-fact reporting.

Again, real-time planning is quite useless when you cannot obtain real-time response. You can create a plan as soon as a trend/micro trend is recognized but if you cannot create a response to it, then you’re just printing numbers.

Who are this year’s Rainmakers? is a recent article about thought leaders identified by DC Velocity for 2010.

This year’s selections represent many different segments of the supply chain discipline: practitioners, academics, consultants, and vendors. But they’re also united by some common threads, including an emphasis on education, training, and people. Through word and deed, our 2010 honorees more than live up to the Rainmakers’ legacy of making a lasting contribution to the profession.

There is also a short Q&A with these professional’s, a sampling of comments that I found interesting are below:

Catherine Cooper [Ozburn-Hessey Logistics]:

Q: What do you consider to be the greatest obstacles to supply chain optimization?
A: One of the great challenges facing our industry is managing a supply chain with the new credit market constraints. With a restriction on working capital, we are seeing lower inventory levels than ever before, resulting in reduced supply chain cycle times and the need for networkwide item visibility. OHL’s customers are making radical changes in SKU [stock-keeping unit] assortments and sourcing methods. The old model of abundance has been replaced with one of scarcity, impacting every part of our industry.

Summary: Volatility is here. Is network visibility the answer? A very small “Yes” but what matters more is the network configuration. Some networks are more susceptible to volatility while others are not – I’ll leave that as an open question for my readers.

Mike Duffy [Cardinal Health]:

Q: What have you found to be the key differences between managing a consumer goods supply chain and a health-care supply chain?
A: For me, a supply chain is a supply chain. The vernacular is very similar, the principles are similar. The biggest difference is where an industry is when it comes to recognizing the role the supply chain can play in driving business performance. In consumer goods and other industries, we’ve identified the supply chain as a key enabler to driving business results. Health care is at a different place on the continuum. Most health-care providers came into existence to take care of patients first and were thrown into the business side of health care second. As a result, the industry as a whole is working to adopt best practices from the consumer products and other industries in order to leverage the supply chain to drive efficiencies and performance.

Summary: A supply chain is a supply chain. Except there is one significant difference arising this past year. The big government is about to slap its paw print over the healthcare supply chain. Anyone thinking about that?

Charlie Guardiola [Burlington Coat Factory]

Q: If you could offer one piece of advice to someone looking to jump-start their career in distribution or supply chain management, what would it be?
A: My advice would be to be a great businessperson first and then apply that business knowledge to the supply chain discipline. I believe that the best supply chain people are those who are great business people. Back when it was called "logistics" and not "supply chain," we were seen as warehouse guys who moved boxes from point A to point B. But things have really changed over the years, and now supply chain is seen as an integral contributor far beyond the four walls of the DC.

Summary: That is some really sound advice. Some of the others identified here talk about greater visibility, confronting volatility etc – that’s something that businesspersons don’t seem to understand all that well. I mean, they get the list of it but they don’t get the gist of it.

Peter D. Gibbons [Starbucks Corp.]

Q: What do you consider to be the greatest obstacles to supply chain optimization?
A: Two things come to mind: talent and coordination across the supply chain. The logistics field needs more well-educated logistics professionals with early hands-on experience who can understand quickly what needs to change and can implement change without negatively impacting customer service and cost.

On top of that, the ability to manage "total cost to serve" from product development all the way through to delivery onto a customer’s shelf is essential. The major change in the Starbucks food offerings over the last two years is a great example of balancing improvements to product quality with a supply chain solution that improved total costs and margin but allowed cost trade-offs, including better ingredients and quality.

Summary: I don’t think that he can say it but I can – Over the last two years, Starbucks learnt the lesson that practically every growth company learns sooner than later: Growth doesn’t last forever. But Starbucks has survived, somewhat, despite the threats from competitors because they’ve taken the value route. And the above is a précis of what initial steps of value discovery looks like.

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