Going B2B (back to basics) can help align all the supply chain players.
After having discussed with a number of local companies and taught several programs in supply chain management to practicing supply chain professionals, I found that there is NO consistent understanding or definition of supply chains.
For most people, understanding the supply chain starts from their vantage point (or locus) and expands from there, much like a baby understanding its senses and using it to comprehend the world around it. We see this even within the “evolution” of the professional organizations as they recognize the larger context – the National Association of Purchasing Managers (NAPM) became the Institute of Supply Professionals; the Council of Logistics Managers (CLM) became the Council of Supply Chain Management Professionals (CSCMP). Part of the confusion also stems from the technology providers – pick up any brochure to get a sense of “marketing creativity”. We have “progressed” from supply chains to demand chains, service chains, value chains, and all varieties of chains depending, once again, on the locus of the solution provider. Same story with many of the published books on supply chain found on Amazon.com.
So, in order to effectively communicate the “basics”, it is necessary to dump some of the historical “baggage” and start with a clean sheet of paper. While there is much to absorb, my objective is to ensure that students fundamentally understand the vital few concepts in supply chain management, that they collaborate effectively, and enable the alignment of all the players in the supply chains.
It all begins with the customer
It sounds rather obvious, but this point is often lost across the departmental silos within an enterprise – and likely to occur more often as the supply chain fragments across multiple enterprises.
So which customer are we talking about – the end-consumer or your immediate customer? It is always about the end-consumer, because everyone along the supply chain is directly or indirectly involved in fulfilling that request – which is the ultimate source of demand. Regardless of a company’s position along the supply chain, that customer needs to be at the center of it, because how that customer’s needs are segmented and serviced ultimately drives your supply chain strategy. For example, in the airline supply chain, while the typical business traveler is sensitive to time over cost, a leisure traveler is flexible on time, but sensitive to cost. Developing product and services to suit the nature of the customer is a fundamental first step. Again, while all the talk these days about the “demand driven supply chain” seems to state the obvious, I believe it is well worth the effort to constantly remind people of this fact. A supply chain cannot exist without demand.
You can’t do it alone
As technology innovation and process efficiencies continue to progress at a blistering pace, companies are figuring out that it’s better to focus on their core competency, and partner for the rest. Companies win because they can bring more products to market faster and more efficiently. And the customers win because the number of available choices is unprecedented. Moreover, with increased competition and sinking customer loyalty, it is very important to focus on supply chain efficiencies, as opposed to enterprise efficiencies. With a long, lean, fragile and global supply chain, sure enough, you have to manage a greater number of moving parts and risks. BUT for those who have the capability to align their supply chain to the customer requests, the competitive advantage pays off handsomely. Just witness the growing gap between the supply chain leaders and the mainstream players every year. The concept of value chains was introduced to address this concept.
You need a framework that considers all the relevant parts
Whether it’s a one person hot-dog vendor or General Motors, everyone is part of a supply chain, and we intuitively understand that. The challenge is how do you formalize that into a construct or framework that everyone can relate to? With that goal in mind, we introduce the following two dimensions:
Dimension #1: Core Supply Chain Processes
In order to fulfill a customer request, a number of processes are involved. Here we identify seven unique processes that take place within the supply chain, and describes a specific activity from the concept initiation to retirement:
CREATE: In order to fulfill a customer request, a product (or service) must be created or designed;
SOURCE: Then, the raw materials to manufacture the product (or service) must be found and procured;
MAKE: These raw materials must be transformed or assembled into the finished state;
MOVE: Inventory needs to be moved between the points of consumption at each stage;
STORE: Inventory needs to be maintained at each stage (due to lead times);
MARKET/SELL: Customers for the product (or service) must be targeted and sold to;
SERVICE/RETURN: And finally, additional products and services may be provided throughout the product’s lifecycle, or the product may be returned for repair or to be recycled.
Each partner in the supply has to deal with the above activities throughout the supply chain, both forward and in reverse.
An example is shown below for the Consumer Electronics Supply Chain:
Dimension #2: Decision Phases
The term management means that there are decisions associated with the above processes, and these decisions are grouped along three phases. Each Decision Phase is characterized by the scope of the decision and the timeframe over which the decisions are made.
Let’s start with Execution, since this is the foundation that sums up the operational transactions between the customer and the supply chain participants who are fulfilling that customer’s request. It represents the physical movement of goods and finances that occur in real-time. If the supply chain can be held in a steady-state, then ideally you would create a Plan once, then continuously execute that plan. But that is not today’s reality…
Customer needs change and businesses adapt accordingly, and therefore Planning is a means to anticipate these changes in order to maximize the business objectives. By nature, planning is a dynamic exercise, because every time there is a deviation from the plan, it requires a decision (to either act or ignore the event) to ensure that the business objectives continue to be met. We think of planning as a tactical set of activities where the time horizon is broader than Execution, but narrower than Design.
At the highest level, Design is meant to be a strategic activity that helps to decide the configuration (or architecture) of the various supply chain processes. It defines the operational boundaries or capabilities of the existing supply chain. Typically, design decisions are made with a long term perspective that often spans months or years.
These decision phases are hierarchical in nature, such that Strategic decisions define the constraints for Planning (tactical) decisions, and Planning decisions define the constraints for Execution (operational) decisions.
The SCM Business Functionality Map
By combining these two dimensions, we are now able to represent the scope of activities within Supply Chain Management as shown below:
Our experience to date has shown that this framework is simple, yet comprehensive enough to establish a foundation and get the players in the supply chain aligned so as to “speak the same language.” While some of the individual labels of each of these “process cells” could be different depending on the industry, the framework itself is reasonably robust. (We purposely set aside vendor-driven technology categories like PLM, SRM, SCM, or CRM, because they do not enable the uninterrupted flow of customer requests in the end-to-end supply chain, nor will you find a functional department named as such.)
Whether you are a one-person hot dog vendor or the CEO of a giant organization like GM with a multi-tiered network, the framework is both simple and comprehensive enough to help in understanding the end-to-end supply chain.
The end-to-end supply is the only valid perspective
Throughout the educational program, I constantly encourage my students to understand the bigger picture of the end-to-end supply chain because that IS the relevant context today. Let me close with the systems thinking note from Peter Senge’s book, The Fifth Discipline, which underscores the importance of this perspective:
From a very early age, we are taught to break apart problems, to fragment the world. This apparently makes complex tasks and subjects more manageable, but we pay a hidden, enormous price… When we then try to “see the big picture, the task is futile – similar to trying to reassemble the fragments of a broken mirror to see a true reflection. Thus, after a while we give up trying to see the whole altogether.
Success in supply chain comes from seeing the holistic view, and managing that to meet your objectives. And if thinking about managing a world beyond the four walls of your enterprise gets you excited, working with multiple cultures, learning new languages and working 48×7 (it is not a typo) does not scare you, then you’ve made the right career choice! The risks are high, but so are the rewards.