Category Archives: Supply Chain Concepts

DEFINING SUPPLY CHAIN – PART 2

tilesIn 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.

Defining Supply Chain – Part 1

tilesAll areas of a business break down into one of two groups – Strategic or Tactical.  Most people understand the difference between the two.  To use a very broad brush, Strategic is why we do things and Tactical is how we do things.  An organization will start with an overriding strategy which then breaks down to departmental strategies (marketing, production, financial, etc).  These departmental strategies then start breaking down to tactical decisions on how we will achieve the strategies chosen.  As an example, if an organization chooses a “make to stock” strategy to supply their customers, this will inevitably lead to tactical decisions on how much stock, where it is stored, etc.  Those areas of an organization that deals with strategic decisions tend to pay more attention to the bigger picture and the longer time frames.  As we move into the tactical areas the vision starts to get more detailed, more short term and definitely, more myopic.  This “myopia” is one of the major problems organizations run into.  As each department concentrates on their issues, tactics and processes they risk losing sight of the larger strategies and, more importantly, they risk developing conflicting goals with other departments within the organization.  Once different pieces of any organization starts working toward different goals, communications between groups break down and it becomes impossible for the organization to be as effective as possible.  This lack of communications and the risk of conflicting goals is creating a need in modern organizations for someone to stand back & look at the big picture.  To ensure everyone is aligned together with the overarching strategies and to work with those groups that are drifting away from solidarity within the larger organization.  That need is what has given rise to the modern concept of “Supply Chain”.

Now before you start throwing things at me, let’s segue off to the side for a moment.   One of the overriding characteristics of modern times is the shift to specialization.  If we look back 100 years or more, everyone admired what was known as a “Renaissance Man” (also known as a Polymath).  That is, someone that had a background and knowledge in many different areas such as arts, math, science, etc.  Historically, it was perceived as desirable to have a wide-ranging background and look for the linkages between each of these disparate bodies of knowledge.  Over time though, as our knowledge, and more specifically, as the amount of detail in each area has increased, it has become difficult for one person to learn many unrelated areas of information.  People needed to specialize in order to understand and move forward in their area of expertise.  Due to this trend we have become a culture of specialists that are enamoured with details and rarely look up to see the bigger picture.  This, in turn, has led to a need for groups of people that specialize in the big picture.  One of the best analogies I have ever heard for what Supply Chain does was told to me by Dr Jack Bacon.  He is a Futurist (talk about a specialist in the big picture) that I met at a conference a couple of years ago.  His analogy was… a tiled wall.  Each tile represents a specific specialty but they do not interact directly with each other.  Surrounding them is the grout that separates and connects them all together.  That grout represents the communications links between each specialty that ensure that they all achieve the stated goal.  To put it another way the grouts specialty is connectivity.  Supply Chain serves the same role – if each of the tiles is a specialty such at finance, production, HR, procurement, logistics, etc. then Supply Chain is the grout, connecting all the groups together and ensuring that each group gets, and delivers, what they need to make the larger organization successful.  To tie these two concepts together, in a culture of specialization, the Supply Chain group specializes in the big picture thereby insuring proper communications and cooperation between each of the other specialized groups, include both vendors and customers.

So what does that mean in terms of what functions and tasks that the Supply Chain people do?  For that you will need to wait for Defining Supply Chain – Part 2.  In the meantime, take a moment and think about what a culture of specialization means for you and your organization.  Do you have the proper tools available to deal with both big picture and little picture issues?  If not, what should you be doing about it?  Jade Trillium Consulting has expertise in both sides of the question and would be more than happy to talk to you about how to ensure a balanced approach.