In my previous blog I looked at the role company culture plays in being able to develop and maintain a best-in-class supply chain. This blog will explore the role supply chain processes play.
Insight #2 – Your supply chain processes
Do your supply chain processes look like this?
There is still a mindset that drives a focus on functional excellence, which means processes end up siloed.
Referencing Gartner’s Five-Stage Demand-Driven Maturity Model, this would only place your company at Stage 2. Integrated supply chain decisions place you at Stage 3; integration across the extended supply chain to customers and suppliers places your company at Stage 4. Stage 5 incorporates technology that enables value network creation as well as risk management and scenario analysis for profitable trade-off analysis.
Companies that have reached Stage 5 have reaped the rewards of profitable growth.
The Whole is Greater Than the Sum of the Parts
This does not preclude the need for excellence in demand planning, supply planning, inventory planning, and S&OP processes. The distinction is to think of their value holistically. Companies will often conduct technology evaluations on individual processes rather than ensuring that all processes are interconnected through the technology. This requires a strategic vision of the value chain with business and IT.
Supply chain process insights:
- Consensus demand planning is being widely adopted. Companies are benefiting by collecting all of the forecast streams in one view (units and financial).
- Statistical forecasting remains important. There is more use of segmentation to determine which SKUs are forecastable.
- Forecast value add has become very important. The statistical forecast is only an input to the consensus forecast. Companies are able to calculate the value of the contribution of all forecasts. This will also confirm if your consensus forecasting process is adding value.
- There has been a trend toward global supply planners with companies I have met with. This has driven a need for greater visibility and increased collaboration with the plants. Large companies are struggling with efficiency and responsiveness and are re-evaluating their processes and tools as a result.
- Capacity planning continues to be a challenge for many companies. There are still many companies that are not able to fully utilize their shared capacity. A large beverage company that I worked with did not have visibility to plants that were under and over capacity and experienced lost revenue as a result.
- Best in class have a global view of shared capacity, maximizing customer service, inventory turns, revenue and utilization.
- Who owns the inventory? Accountability is often lacking. Decisions are made without considering inventory. This is especially true with companies that still have the mindset that they need to maximize capacity utilization rather than using a demand driven model. Best in class have assigned accountability and measurement.
- Multi-echelon inventory optimization adds value to distributed networks. The caution is the integrity of your data, for example, your leadtimes. Combining optimization and human judgment is now a more recognized approach. For example, take the computed numbers, assess a few scenarios, confirm when you can operationally introduce the inventory changes and then execute. This is very different than just relying on the black box answer.
- Unfortunately companies continue to struggle with inventory management. Lora Cecere shares seven misconceptions on managing inventory in this post.
- Great companies understand the value of S&OP. They are moving away from Excel worksheets to actual systems. In the past, companies were developing high level S&OP plans and often getting caught mid-cycle with supply issues that they did not consider in their plan and were not able to adjust mid-cycle.
- Aligned with Stage 4 and 5 in the Gartner model, understanding the business tradeoffs of decisions has provided proactive insight for more mature S&OP processes.
A wise man once told me ‘The supply chain is the bank of the company.’ Best in class processes are critical to your success.