What makes a great supply chain?
I actually get asked that question quite a lot, which forces me to ponder the answer I offer every time. As with most things, my thinking on the subject has evolved over the years. I have addressed the topic one way or another a couple of times before, but am going to present a more complete framework here in 2011.
"It seems hard to argue against the idea that how well a company manages and develops its internal talent is a key component of how good the company's supply chain is."
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AMR Research, now part of Gartner, started a supply chain "top 25" sometime in the past decade, and can be commended for trying to bring a somewhat objective approach to those rankings, with a large part of scoring being based on metrics around inventory turns, revenue growth and other available financial data for public companies. There are, however, some subjective components to the scoring too.
But as fun as that Gartner top 25 can be to stir some debate, the reality is of course that there is no real way to determine which companies have the best supply chains. That said, I think one can develop some pretty reasonable frameworks for at least doing some internal and cross-company evaluations relative to supply chain excellence.
So below I offer for consideration the 10 primary determinants of supply chain excellence. There may be other models, but don't think I have seen one quite like this. Importantly, there is some level of logic in the progression, related to both the dimension's importance and how it connects to the next one on the list.
1. Alignment: It is clear to me that the "best" supply chains are characterized by having the tightest alignment between the overall business strategies and supply chain strategy and execution. Of course, achieving this alignment is the objective of Sales & Operations planning, but it can go much further, such as the service-level agreements Nick LaHowchic used to use when he ran the Limited Brands logistics services group with each of the company's different business units. It is clear: the supply chain supports the business. Those supply chains that best synchronize that support with the strategies and objectives of the business are at the top of the performance heap - recognizing that the business itself may not execute well, or have the wrong strategy.
2. Strategic Depth: Great supply chains are characterized by detailed and "living" strategies that are directly connected to the support of the business(es). What is a supply chain strategy? More on that soon, but at its core, a strategy is a multi-year plan that details the what, why, how of the supply chain and more. Many companies have no real supply chain strategy. The strength of the strategy, and how well that strategy turns into what the supply chain actually does, are critical elements of supply chain excellence. This also includes such core decisions around what to do internally and what to outsource.
3. Customer Satisfaction with Supply Chain Performance: I could argue this should be number one, but think in the end it has to follow alignment and the resulting supply chain strategy. But where the rubber hits the road, the supply chain has to deliver in the eyes of the customer - this is the real lens through which supply chain performance should first be measured. The nice aspect of this dimension is that it takes into account the company's overall value proposition or unique value props to different markets - the supply chain expectations from customers should be different depending on that (e.g., efficiency versus service).
4. Supply Chain Network Design: Hardly anyone mentions this as a core aspect of supply chain excellence, but it is at the heart of it. Network design is tied at the hip with supply chain strategy. It is the crucible in which the trade-offs between cost, service, flexibility and more must be managed, either explicitly or implicitly. Additionally, experts say network design determines some 80% of total supply chain costs. Supply chain excellence is clearly driven in large part by the quality of the network it operates in.
5. Macro Agility: One of the few true sources of overall corporate competitive advantage is the ability to respond consistently faster to opportunities and changing strategies than the other guys do. There are two components to this agility, as I have written about before - a more strategic, longer term view, and a more real-time, right now view. This is the strategic component. CEO after CEO says they want their companies to respond more quickly to market changes and opportunities. For product companies, this largely means how fast the supply chain can respond. I will admit this dimension is not easy to measure, however. But you know it when you see it.
6. Micro Agility: The other side of the flexibility dimension is the ability to react more quickly and intelligently to near-term changes in the supply-demand equation and other issues related to execution. Many current supply chain "buzz" concepts relate to this micro flexibility: demand sensing, real-time planning, response management and more. This area is a bit easier to measure than macro flexibility. Impacts both cost and revenue.
7. Talent Management: It seems hard to argue against the idea that how well a company manages and develops its internal talent is a key component of how good the company's supply chain is. Clearly, many companies thought of as supply chain leaders (e.g., Procter & Gamble, PepsiCo, The Limited Brands) focus on this dimension continuously, even if that leads them to play the role of farm system for others that will not invest in that talent development. Talent management has a lot to do with how "sustainable" a company's supply chain really is, and is seeing growing recognition throughout the industry.
8. Technology Management: This is another area that is often overlooked, but clearly there is a wide, wide range of approaches and results between companies, often in the same industry. This has to do not only how much is invested in technology (in general, should be more steady in nature rather than big peaks and valleys), but even more important than spend levels are such areas as how well new technologies are implemented, how often the returns are at or above what was projected, how well the full relevant capabilities are utilized, and more. Huge deltas between companies in all these areas.
9. Collaboration Intensity: Finally (more soon) companies are realizing that the next natural path to improve supply chain performance versus the competition is in improving integration and collaboration with trading partners. This is a major topic that we can just touch on here, but it is clear to me (with some adjustments for differences across industries and perhaps overall business models) that companies that are better at collaboration have better supply chains. But for many, the focus is still not really there.
10. Supply Chain Culture: This is probably the fuzziest of the 10 attributes, but one for which differences between companies are often large and easily identified. Again, there is much more to discuss in this area than room here allows, but it is simply amazing the differences that can be seen (and "felt") in supply chain cultures across companies. Of course, that culture is set from the top, so leadership is the most important factor. But other elements include the approach to risk taking, the extent to which there is a "learning culture" in the supply chain, how well supply chain staff is truly valued, how well innovation is fostered, and more.
That's my list. A noticeable absence, some might note, is anything specifically related to supply chain costs. I will simply say that while always important, the relative importance of cost is tied to business strategy and alignment, and that in the end, cost performance will be a derivative of these other 10 attributes.
I would welcome your thoughts on where I am right or wrong. More importantly, I am interested in building this out as something of a maturity model, with different levels for each dimensions so that companies can rate themselves, and would love to discuss with SCDigest readers what those levels might be for different categories.
What do you think of Gilmore's supply chain excellence framework? What would you add or subtract? Let us know your thoughts at the Feedback button below.