In Defining Supply Chain – Part 1 we talked about how each department was becoming more and more specialized which in turn created a need for a group that specialized in communications and connectivity between all these specialists. We identified this group as Supply chain or “the grout group”. In order to communicate and coordinate effectively the supply chain people needed to have at least a general knowledge of what each group of specialist did as they will be interacting to some degree with every other specialist group in the organization. They do not need to understand all the details to the depth of knowledge that the specialist do but they do need to understand what success looks like and what the options are. In essence they need to be “specialists in generalization”. So what did we mean by specializing in communications and connectivity? Every group of “specialists” naturally tends to concentrate on their specialty and the measures that are used to ensure compliance with their objectives. This creates a sort of myopia with regards any other groups’ objectives. The problems occur when the objectives between groups conflict. For example, the main measure of most production groups is efficiency which is supported and increased by such tactics as longer production runs, scheduling to minimize product changeovers, and loosening quality specifications. If we look at the measures used by inventory control we see things like low overall inventory value, fast turnover, and product delivered to the customer (internal or external) On Time In Full (OTIF). In these examples, the measures used by the two groups conflict in a number of ways. Production’s measures tend to create long runs which in turn creates excess inventory and long lead times for products that are made later in the schedule which negatively affects when and whether product is ready to ship (the basis for the inventory control measures) . Without proper communications and coordination one of these two groups is not going to satisfactorily meet their objectives. Management has to decide which combination of the two sets of objectives is most important to the organization and adjust the measures accordingly. Please note that this is a Strategic decision and must be made at a high enough level to be enforced on both groups.
This does not mean that Supply Chain is the only group looking at the big picture. If no one else, at least the C level objectives are also looking at the big picture. The difference between the C level and Supply Chain is that the C level is concentrating on the strategic picture while Supply Chain is concentrating on the conversion of Strategy to Tactics. Another important point is that none of the above means there are no specialist groups in Supply Chain. In fact there are many such groups such as procurement, scheduling, warehousing and logistics just to name a few. The important point is that none of these groups can do their jobs properly if they allow any myopic behaviour. They all work hand in glove with other groups to ensure the right material is available at the right time and in the right place so that all internal and external customers are satisfied.
We have been talking about how what you measure directly affects how people do their jobs. When you get right down to it, the main measure of how effective an organization is, is how happy is the customer. This also must include the organization making an acceptable profit (however that is measured). Profit is one of the direct drivers of customer satisfaction. If your profit is too high, customers will assume you are gouging them but if profit is too low you will either go bankrupt or start failing deliveries due to internal issues. Either way, customers will become dissatisfied and eventually go looking for a new supplier. That is not good for the organization no matter how you measure it.
So, in summary, when you are defining Supply Chain it is not all about the various tools available nor is it about the specific tasks that they perform. The key to the modern concept of Supply Chain is that, as a group, they are facilitator’s tasked with ensuring all the various specialists in the organization “play nice together”, that everyone is pulling together in the same direction to meet customer requirements at the lowest possible cost without negatively impacting the Customer Value Perception.