Rewiring The Supply Chain To Improve Results
Lora Cecere | Forbes
The war of political rhetoric rages in the debates in the United States. I am watching the resounding political sound bites on local television as I travel the world helping global supply chain teams in Brussels, London, Singapore, Shanghai and Spain. I am trying to help global manufacturing companies build effective supply chains. The political debate’s focus is on manufacturing. I think manufacturing is only a piece of the story. I firmly believe that effective supply chains build economies. In this jobless economy there is a shortage of supply chain talent in mid-management positions globally. My mission is to help companies and countries close this gap.
As the winds of economic recession whip, and growth slows, companies struggle to build effective supply chains. It is about much, much more than just manufacturing. Germany’s definition of Industry 4.0 is too limited. Industrial productivity from digital process innovation slowed in 2004. To embrace the global issues of waste, social responsibility, fair labor, economic productivity, and health/safety, we need to focus on improvements in supply chain excellence.
Where are we on this journey? In our research, we study financial balance sheet patterns. We find that nine out of 10 operational leaders, stuck at the intersection of operating margin and inventory turns, face difficult board-level discussions. Shareholder activism is rampant. Increasingly, shareholders are asking pointed questions on the effectiveness of operations. This dialogue drove the merger of Dow and DuPont.
Over the last decade, both of these global supply chain leaders struggled to drive improvement on these two important supply chain metrics. This was despite multiple supply chain improvement projects, technology implementations, and continuous improvement programs. Traditional processes focusing on functional excellence are not equal to the challenge. Redefining the supply chain to drive new outcomes requires rewiring our thinking.
Defining Supply Chain Excellence
No two supply chains are alike. While business is quickly changing, supply chain processes are evolving slowly. The gap is a problem. The average supply chain organization is 15 years old; and based on recent research, one out of three companies feel that there is significant room for improvement in their supply chain. Companies reporting organizational alignment as one of the top five areas of business pain are more likely to describe their supply chains as cautious and inside-out. A cautious and inside-out supply chain produces patterns like those of DuPont and Dow..
Alignment plagues the functional organization with large gaps between operations and commercial teams. Closing this gap is paramount to start the journey for supply chain excellence. As long as we hire consultants that advocate harvesting the “low-hanging fruit” in operations and driving growth in commercial teams, we perpetuate the gap. Instead, we must build operational competency cross-functionally with a focus on market sensing, shaping and customer satisfaction. The supply chain needs to be redefined outside-in with a focus on the customer. Pitting operations and commercial teams against each other is detrimental to driving business results.
Ironically, companies with greater demand and supply volatility have greater alignment. The reason? It is necessary to survive.
While companies desire a supply chain that is more aligned, fast, agile and proactive, today the supply chain focuses on control. Finance dictates an efficient supply chain, squeezing trading partners through the lengthening of payables. By definition, the efficient supply chain is not the most agile. Even a simple item like a white t-shirt requires the cooperation of trading partners in over 10 countries. Trade is an economic reality and agility is essential. Trading partner interaction is essential requiring collaborative and bidirectional synchronization. As a result, the tightly integrated IT infrastructure defined in the last two decades is an impediment to building an agile, proactive and aligned supply chain. Here we contrast the current state of the supply chain with the desired state of supply chain leaders while sharing insights on what defines a supply chain that is “working well.”
What Makes A Difference?
The gaps are clear, but most supply chain leaders and academic programs term current practices as “best practices.” As I speak to world leaders I ask the question, “How can we have best practices when nine out of ten companies are stuck in balance sheet performance?” Isn’t shareholder value our goal?
Rewiring the brain to embrace and learn from the past while embracing the future requires leadership. To drive change, we must challenge the status quo. Aligning teams and redefining supply chain finance is fundamental. A company that rates itself as “having a supply chain working well” is more likely to be in the process industry and have a supply chain organization where manufacturing reports to the overall supply chain leader. In addition, within the organization, there is a greater understanding of the supply chain by the executive leadership team, stronger alignment of metrics cross-functionally, better capabilities in supply chain visibility, and the organization is better at managing change. The companies that outperform are also better at accessing and using data. These issues abound in the global organization.
Driving supply chain excellence is easier said than done. The first step is a clear definition. The second is managing the supply chain as a complex system with nonlinear relationships between the metrics. Improvement in financial balance sheet performance requires an effort over multiple years. Leadership continuity is essential. It requires a slow and steady hand on the rudder.
Change the Debate? Rewire The Organization? Redefine The Global Debate?
I believe that supply chain builds economies and saves the world. Please join me in rewiring the organization to drive supply chain excellence and improve productivity in world economies.
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