You will find this guidance helpful if you are looking to understand what is required in a modern, fully functioning supply chain, determine your current level of supply chain performance and the journey needed to improve and achieve supply chain excellence.
Few companies have achieved supply chain excellence. Those that have must keep learning, changing and investing or they quickly slip backwards. In today’s ever changing and challenging world it is easy to take the pressure off and revert to more comfortable practices. However, this inevitably affects supply chain cost and service and hampers your Route to Market initiatives. If your product does not reach the shelves; it does not sell, simple. A fully functioning, extended supply chain offers you a valuable competitive advantage.
What Your Supply Chain Needs
There are broadly two things that any organisation needs:
- A reference model that identifies all of the components that are required in a fully functioning supply chain.
- A clear understanding on the current supply chain performance. How well is your supply chain performing when compared to local, regional or international proven best practice? Secondly, what is the absolute level of supply chain performance as measured by a set of appropriate Key Performance Indicators (KPIs) such as service levels and cost?
The Enchange Supply Chain House
The Enchange Supply Chain House is a simple and easy to understand reference model which provides you with a clearly defined and proven understanding of your supply chain status and its potential.
- The Supply Chain House has been designed by a team of supply chain experts with considerable experience working with local, regional and international organisations and with supply chains of variable organisation and maturity.
- The Supply Chain House is based on the well-established SCOR model and has been enhanced by over 25 years of experience.
- The Enchange Supply Chain House shows you the components of your supply chain in the form of rooms and elements of a house. Your company may need a complete re-build or a new extension while other companies may only require basic redecoration.
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Supply Chain House Components
You should understand that planning applies to every room in the house and is one of the most important elements of the extended supply chain. Identifying your planning challenges should be a high priority for your organisation, and this includes:
- Demand Planning and Review. Misinterpreting demand can be very costly. How do you measure market demand? Is that demand signal unconstrained?
- Supply Planning and Review Now, can that demand be supplied on time and in full? What are the constraints and trade-offs?
- Financial Planning. What does the demand and supply information mean for the current month bottom line and versus the annual plan? How is working capital managed?
- Sales & Operational Planning. The structure that supports and coordinates all activities focussed on making a sale. Do you operate S&OP? Do you have senior management buy-in? Read more on our approach to S&OP.
- Weekly Control Cycles. You cannot take your eye off the ball as market dynamics will constantly change. Do you monitor progress and adjust as required?
- Demand Execution including Distribution Requirements Planning (DRP).What quantities are required and at what location? Do your clients use distribution centres or logistics platforms?
- Supply Execution including Replenishment Planning. How do you manage the physical movement of products to multiple locations? Are volumes moved cost effectively?
You should ensure you have the processes and procedures necessary to adjust your approach from a simple call-off behaviour, through one-way buying relationships and on to proactive collaboration with reliable and trusted suppliers.
- Global, Regional, National Sourcing. Each presents a different challenge depending on your manufacturing footprint. Do you rely on a single supplier for critical materials? Do you have back-up options?
- Supplier Assessment and Development. Trust is always good but check is better. Do you measure supplier performance and discuss the results for mutual benefit? Do you know your supplier’s internal development objectives?
- Supplier Management. Do you periodically meet with your suppliers at the right level in the business? Do they see feedback as criticism or an opportunity to improve?
- Service Level Agreements. Simply, invaluable. Do you know what is expected from your suppliers and vice versa? Understand the importance of Service Level Agreements.
- Make versus Buy Decisions. Not everything has to be made in your own factories. Is it cheaper to buy from 3rd parties? Do they have better technology and know-how?
- Procurement Processes. Are your processes documented, transparent and with robust audit trails?
If you have invested in manufacturing facilities you must continually strive to maximise the efficiency and reliability of the assets in support of your objectives. Under-utilising capacity simply wastes money so your assets must “sweat”. Considerations include:
- Manufacturing Footprint. Where are your factories located? Is this sensible considering your geographic demand profile?
- Asset Utilisation. Do you measure your asset utilisation? Is the equipment operating at least to name-plate capacity?
- Maintenance Planning. Is your approach reactive or proactive? Are key assets assessed, adjusted and maintained before break-downs occur?
- Factory Scheduling. Are factory managers asked to bend over backwards to supply product irrespective of volume, cost penalty or waste? Make your factory capabilities crystal clear and avoid wasteful debate with Sales & Marketing.
- Materials Management. The last few meters to the production lines are critical in any manufacturing unit. Is this given adequate management attention? Are delays and losses identified and measured?
- IWS, TQM, Kaizen, Lean and TPM Performance Improvement Systems. There are many tools available to help you improve. Do you follow a continuous improvement process however rudimentary?
- Capex Planning and Execution. Do you know what equipment requires purchase over the next 24 months to meet demand? Is commissioning organised and planned sufficiently in advance to avoid disruption?
Deliver solutions can be in-house or outsourced to 3/4PLPs. You need to define and understand the different options open to you and thecosts, risks and benefits associated with each route, for example, outsourcing to a 3rd party versus in-house operation. You should consider the following:
- Inventory. Holding stock costs money and when poorly managed, this can lead to expensive write-offs. Are you overstocked compared to forecasts? Do you have an inventory reduction plan?
- Warehousing. One supply chain rule of thumb is that no matter how many warehouses you have, you will fill them! How many warehouses do you operate? How many do you really need?
- Transportation. What is your transport space/weight utilisation? Is route planning logic followed? How many inefficient miles/km are you running?
- 3PL/4PL Tendering & Operations. Increasingly, companies are outsourcing this element of the supply chain. Learn why managing the various and often competing expectations will be an important task for your team.
- Customer SLAs. As with suppliers, both parties must be explicit in what they expect from each other. Do you suffer rejections at delivery points? Are all parties measuring the same delivery KPI?
- Reverse Logistics. Far harder than it may seem as you cannot simply press a button and select reverse on your supply chain to collect bottles, crates and trays etc. How efficient is your recovery? Is this really cost effective?
- Order to Cash. After all that hard work, you must collect cash efficiently. How may errors do you see on invoices? Have you established EDI? Are payment terms fair and rigorously applied?
- Customer Service & Care. Collection of cash should not be the end of your interaction with clients and customers. What do they also need in order to be successful? Is there a first point of contact to help customers with questions, concerns and opportunities?
- Route to Market Integration. You may have the slickest supply chain in the galaxy but if it does not dovetail with your RtM then it is wasted. Is the transition from Deliver to RtM seamless? Do supply chain and sales colleagues meet regularly and share KPIs?
As a critical first step you should carefully define your supply chain strategy so you know where you are, where you wish to be and how you will bring this aspiration to reality. The key elements of strategy development include:
- Market Definition. Where do you intend to operate? Which countries or regions are your target markets? In which sectors will you compete?
- Portfolio & SKU Segmentation. Excess SKUs and a lengthy tail portfolio slow down growth and waste cash. How many SKUs do you actually have on the price list? How many deliver decent margin?Read our practical guide to FMCG complexity reduction.
- KPIs, Balanced Scorecard, Benchmarking. If you do not measure, you will not improve. Do you measure cross-functional KPIs? Are KPIs published and discussed by the top team?See examples of supply chain KPIs and Balanced Scorecard development.
- Supply Chain Innovation. Innovation is not only reserved for R&D, but it is also equally important in supply chain. Do you have a process to continually challenge assumptions on cost, waste and efficiency? Do you contribute innovations to the company Innovation Funnel?
- Cost to Serve. You cannot be “all things to all men” and may need to make tough decisions about who to and how your supply goods. Is it cost effective to deliver the full price list of SKUs to the most remote village? Read more on our Total Cost to Serve approach.
- Post M&A Supply Chain Integration. This should be a time of cost optimisation and growth generation, yet many fail. How prepared are you for your next M&A venture? Will factories close? Will staff reduce in number? Do you have an integration team in place well BEFORE the ink is dry on the contract?
People are still the most important asset in any company, albeit sometimes under-appreciated. A major source of competitive advantage when people are managed and developed correctly, we consider:
- Performance Management & Reward. You must motivate your supply chain people and reward them fairly and consistently compared with other departments. People need to know how well or otherwise, they are working. How often do you provide a formal appraisal to each employee?
- SC Training & Development. Provision of training should not be ad hoc and reactive but planned and focussed based on business objectives. Do you have a training plan built into your annual plan? Do you look outside for training opportunities?
- Succession Planning. People leave, retire, are promoted so no organisation chart stays the same for long. Do you know who can step into your key roles in the event of an unplanned departure? How far into the future do you plan succession?
Digital / IT
Whilst Information Technology (IT) has always been important in supply chains, ‘Digital’ is quickly becoming a key driver of innovation in extended supply chain management. Whatever you are investing in Digital today may be insufficient to support and secure your future business.
- Supply Chain Analytics You can collect as much data as you wish but does it lead to concise information and decisions? Do you know what is really happening in your supply chain and why? Learn more about our supply chain analytics solutions.
- End-to-end Supply Chain Visibility. From raw material to the consumer, you need to know how each department operates and how each contributes to the bigger picture.
- Automated Production Wheels. Do you have a relatively stable demand signal yet need to change production plans frequently? Read our case study on stabilising production plan with analytics.
- Supply Chain Partner Integration including Automated / Semi-automated Stock Replenishment. Can you integrate your supply chain with key suppliers to further streamline the journey to the consumer? Could someone else control your stocks better then you?
- Data & Information Management. You can drown in data and many do. Do you know the critical difference between data and information?
- Systems Optimisation. A common area where investment is wasted, repeatedly. Are your systems integrated or a set of stand-alone packages which have been bolted together?
- ERP, WMS, Planning and Order Capture Tools. You may have an all-encompassing ERP or you may be reliant on spreadsheets. How do you ensure nothing falls between the IT gaps?
Whatever the current status of your supply chain, the Enchange Supply Chain House provides the reference framework for you to develop the supply chain that secures your future. For the vast majority of organisations it will also enable you to make significant performance improvements, now.
Supply Chain Performance – What is your SCORe?
The first step in your journey to supply chain excellence should be to answer these questions:
- How well is your supply chain currently performing compared to your competitors and international best proven practice?
- Where are your weaknesses in your supply chain as it progresses from raw material to consumer?
You need a Supply Chain Diagnostic process that assesses supply chain performance in a collaborative process that also includes deployment of Proprietary Diagnostic Tools to quickly:
- Assess current supply chain performance
- Recommend specific improvements
- Develop an Action Plan to deliver the improvements, and
- Produce a Business Case to support the Plan
The Supply Chain Diagnostic assesses the components of your own Supply Chain House against the following performance and maturity categories:
At Operating Company level, there is likely to be a functional organisation in place that supports primary & secondary supply chain processes with a limited degree of effectiveness. Some supply chain processes, procedures, measures or controls may be rudimentary or absent.
Limitations: Because the organisation takes a functional silo view, functions may become independently efficient whilst not improving the overall efficiency of the supply chain.
At Operating Company level, a ‘Supply Chain Organisation’ is likely to be in place and generally effective in supporting efficient and measured primary and secondary supply chain processes.
Limitations: Because a supply network consists of multiple disciplines, maximising the performance of organisations in isolation will suffer similar problems as at level one, albeit at an overall higher level of performance.
The Operating Company will have an integrated supply chain with seamless and effective key processes and data/information flow amongst the majority of Source, Plan, Make and Deliver partners. Additionally, an Area or Regional supply chain organisation may be in place and effective in supporting efficient and measured supply chain processes across many end markets at overall identifiable lowest cost.
Limitations: At this level of maturity the positives outweigh the negatives but effort will be required to ensure the various functions remain integrated and with overall supply chain performance a priority.
In addition to the partnership model of Intermediate High, the Supply Chain ‘Raw Material to Consumer’ is considered as one seamless process, made up of various sub processes which may or may not be owned and under the control of the enterprise (Operating Company) but where all strategic partners in the process participate in collaborative long-term planning. Full disclosure of information allows for realisation of savings and efficiencies for the benefit of all the participants in the chain.
Limitations: At Leading Edge performance the only negative considerations are the cost and time to reach this standard plus the effort required to maintain excellence.
Deliverables of Supply Chain Diagnostics
- The assessment categories can be a standard set or a selection defined by the Supply Chain House approach.
- The categories for assessment should be broadly based across the supply chain or focussed on areas of potential weakness, e.g. Planning.
There is never a good time to assess the supply chain and start to make necessary adjustments. Nevertheless, the time to assess your supply chain is NOW as it is not going to improve without intervention. You need to understand the areas of weakness and schedule the improvements around ongoing operations. If you operate a seasonable business, change can be scheduled outside of peak periods. Change in more linear businesses presents a challenge but with the right guidance you can make lasting change under any conditions.
Once a Supply Chain Diagnostic is complete and priorities are understood, you can usually start making lasting change to your business within a number of weeks
Other tools and methodologies
We have at our disposal, a number of proven supply chain methodologies, solutions and pragmatic tools. A selection is presented as follows:
- Sales & Operational Planning (S&OP). Understand the characteristics, purpose and benefits of S&OP. Learn more about our approach to S&OP implementation.
- Strategy Map. Understand the use of this powerful management process and tool.
- Balanced Scorecard and KPIs. See examples of supply chain KPIs and Balanced Scorecard development.
What you should do now
- If you are looking for help with achieving sustainable supply chain improvement, claim you Free Supply Chain Session. During this free phone consultation one of our supply chain experts will discuss your supply chain challenges and suggest possible approaches to achieve your goals.