I often get asked, “What makes a supply chain great?”
That’s a tough question to answer, but I have come to some conclusions. Right now, what makes a supply chain great are two things:
- How well supply chain strategy and performance are aligned with the company and the brand’s overall business strategy.
- The speed at which the supply chain can respond to opportunities and requirements.
When we first published our popular list of the 10 Supply Chain Megatrends last year, I promised we would do some follow-up columns on each one, and finally we are. Naturally enough, we are starting with our first one, which is Supply Chain Alignment.
(As a quick aside, I hope you are following our Supply Chain Megatrends web page, where we have been posting video discussions and executive briefs on each Megatrend – it’s good stuff).
When supply chain thinking first really came on the scene in the early to mid-1990s, it wasn’t so much about “alignment.” Back then, it seems to me it was more about trying to “see the big picture,” not just individual functional silos. It was about looking holistically at processes and how they connected, and how better integration with trading partners could improve performance. This was all new thinking.
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"Retail chain Canadian Tire, for example, broadly shares a rolling 26-week forecast with thousands of trading partners, in the “units of measure” (units, cases, pounds, containers, etc.) that are most meaningful to each of them."
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The real focus on alignment came a bit later, and has really just picked up steam in just the past 3-4 years. I remember hearing current CSCMP president Rick Blasgen give an excellent keynote presentation when he was at ConAgra at a 2004 Manugistics User’s conference on this very topic – how ConAgra was learning how to have the supply chain be more attuned to and aligned with its brand strategies.
Back when I was marketing various supply chain solutions, I would often visit with customers/prospects. Whenever I could, I would read the company’s most recent annual report, and look for their public strategies and objectives that I could then link to what we were proposing. It was amazing back then how often even at the VP of Logistics level it was obvious I knew more about what the annual report had said than he or she did.
That would be much less common today, but most of us still have room to go. One of my favorite presentations in recent years – indeed, it was an SCDigest presentation of the year I think in 2005 – is the one Paul Mathews of The Limited Brands was eloquently delivering on “Aligning SCM and the Boardroom.” In it, he asked a simple question: Can you draw a line directly between your supply chain strategies and initiatives and those of the CEO and the board? What was most interesting in the presentation was how Mathews described his own personal journey here – it took him many years to get this alignment right, and part of that was realizing CEOs and boards don’t really care about the details of making and moving materials. You need to interact at the level of discussion they want to understand the supply chain.
Why is alignment perhaps the most critical element to supply chain excellence? The supply chain does not exist in a vacuum. Wal-Mart’s supply chain probably wouldn’t be quite right for Nordstrom, or vice versa, and either one might be great. We can see that principle in spades with the changes this year at Dell, where its once vaunted “make-to-order” supply chain and hugely productive factories turned out not to be so well aligned with where Dell the company wanted to go.
So, companies are pursuing alignment along three vectors:
- Between supply chain and company/brand strategies, as we said
- Between supply and demand (of course)
- Between the supply chain and trading partners (the hardest one and the next frontier where leaders are really working)
The tremendous focus on Sales and Operations Planning (S&OP) is of course centrally related to this alignment imperative. Clearly, a “consensus forecast” coming out of that process that drives supply chain planning and execution across the enterprise is where alignment has to start.
Some leaders are taking it even further. Retail chain Canadian Tire, for example, broadly shares a rolling 26-week forecast with thousands of trading partners, in the “units of measure” (units, cases, pounds, containers, etc.) that are most meaningful to each of them.
One challenge of S&OP is then to really connect downstream activities with those consensus goals. So, leaders are working on better integrating supply chain planning and execution processes, and developing “line-of-site” metrics that directly connect KPIs for everyone in the organization, down to the individual dispatcher if possible, to corporate goals and objectives. While no one can really get all the way there, some companies are making good progress.
I also love what Nick LaHowchic, recently retired supply chain leader at The Limited Brands and before that at medical devices maker Becton Dickenson, implemented at both companies: broad and detailed service level agreements between the supply chain organization and individual brands/business units.
What supply chain services and results does each division really need? How much are they willing to “pay” for it, in terms of costs that would be required to, say, move service levels from 95% to 98%? LaHowchic and his team would work with the businesses to define those and many more parameters to craft an annual agreement. The point, of course, wasn’t really the document itself; it was the dialog and process that much more clearly created alignment between the business and the supply chain. The SLA document was simply the catalyst that made that happen.
I’ll end it with a quote from our “Unplugged” interview earlier this year with LaHowchic: “Are people being rewarded properly for what it is you are asking them to do in the supply chain?” he asked.“If you are continuing to reward subsets of the process with no connection to the results in any other areas, then you are forever going to have people trying to do the best they can do at that one area and really screw up the rest of the supply chain.”
It’s all about alignment. It should be the explicit goal of every supply chain organization. (View Megatrends page for more details.)
What are your perspectives on Supply Chain alignment? Do you think it is actually the key measure of supply chain excellence? What is your company doing to improve alignment, especially with trading partner supply chains? Let us know your thoughts at the Feedback button below.
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