Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  
  - Dec. 11, 2012 -  

Supply Chain Transformation by the Book

New Book from Rich Sherman Offers Guideline for Transforming Supply Chains, Creating Organizations and Cultures that are Built to Last

  by SCDigest Editorial Staff  

Supply chain transformation - attend any supply chain industry conference these days, or scan the quarterly earnings releases from public enterprises, and you are likely to hear a good number of references to some type of transformation process underway or recently complete at various companies.

Examples in the last few years include Hershey's, ConAgra, Kimberly-Clark, Home Depot, Dell and many more (though there has seemed to be a especially prominent rash of it in the consumer packaged goods supply chain of late).

SCDigest Says:
Smart supply chain managers start by promising a business result the CEO or CFO wants to achieve - say a 10% reduction in inventory - and then explaining how to get there.

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That's all well and good, but if a company or supply chain leader senses it's time for some transformation, where do you start? What does supply chain transformation really mean? And what are the guidelines and best practices for doing it right?

A new book from Rich Sherman, titled appropriately enough "Supply Chain Transformation: Practical Roadmap to Best Practice Results," at lasts provides that guideline and more on this subject, offering some thoughtful insight on the transformation process.

Sherman, a long time figure in the supply chain as an analyst, marketer, and more (including playing a leading role in the development of the SCOR model), is currently director of strategic development for the Council of Supply Chain Management (CSCMP), among other activities.

He makes it clear, it is important to note, that supply chain transformation in his view isn't just about a sort of one time process to shake up a laggard supply chain, which is often how the concept is thought of today. Rather, he says, supply chain transformation is really about building a high performance supply chain for the long haul that can continuously adapt, delivering at a leading level year after year. "Continuous transformation," if you will.

As a starting point, Sherman notes there really is a large performance gap between supply chain leaders and laggards, citing data from APQC, for example, showing significant differences in supply chain costs per dollar of revenue even within specific industry sectors.

"Why is it," Sherman writes, "that despite advances in performance improvement methodologies, tools, technologies, and education, lagging and even median performers haven't been able to close the gap on supply chain costs?"

Sherman in part spends the rest of the book trying to answer that question, showing the many different ways that supply chain value and results can be subject to leakage in a company.

Correctly, Sherman early on points out the critical role of culture, contrasting those that really have been built to support continuous transformation and those that are more content with the status quo. A key message here is that these less aggressive companies usually don't think they are more comfortable with the status quo, and in fact see themselves as continuously moving forward. But they are simply not doing it as fast as their competitors.

This is especially common when a company's supply chain had achieved a high level of success in the past. The operational paradigms established then can often be difficult to adapt over time, even as the external environment has started to make many of them dated.

"The major learning is that we cannot afford to wait for old paradigms to die," Sherman writes. "We have to constantly be monitoring and moving our company's culture forward towards market goals, not personal paradigms."

Collaboration is Key to a Permanent Transformation

Off and on throughout the book, the theme of collaboration as an essential component of supply chain excellence is emphasized. That includes a quote Sherman uses from the late and great Dr. Don Bowersox of Michigan State, who observed that "Why do so many people waste so much time and money trying to forecast something that somebody already knows?"

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The sad truth is that this is often as true internal to a company as it is across external trading partners, though of late Sales and Operations Planning (S&OP) and its more advanced cousin Integrated Business Planning (IBP - which involves more integrated financial planning and often more intersection with product development) have started to take some bites out of these sorts of opportunities.

The book notes effectively that it takes a lot more to collaborate on sales forecasts than asking customers for some number each month. Sherman says it is essential to understand a major customer's demand management structures and processes - the "business systems" that dictate how the order really gets created. These systems are "the matches that light the fires you fight every day," Sherman says, and understanding those systems will almost always improve the forecasting process. Unfortunately, not many companies really want to take it that far - or the customer won't allow the supplier in to get that business understanding.

In fact, the need to deeply understand a company's own "business systems" for demand creation and demand fulfillment is another key theme of the book. Especially powerful is discussion around how what appear to be functional silos in the business can easily be broken when the focus from the top is on the entire business system that delivers some result, and almost always involve processes that span those functional boundaries.

Another commonsense recommendation comes in approach to asking for funding to support process improvements or especially new supply chain technology. Smart supply chain managers start by promising a business result the CEO or CFO wants to achieve - say a 10% reduction in inventory - and then explaining how to get there. In that context, the investment is usually small in comparison to the attractive result. (This is in fact the exact approach used by Andrew Lewis of large electronics distributor RS Components to sell a new supply chain planning system. See Bold Move to Deploy "Next Generation" Planning Systems at Start of Recession Pays off for Major Distributor RS Components.)

Too many supply chain managers engage executives not from the business results side, but rather from the amount of capital that is needed - and the CEO and CFO are generally against spending the shareholders' money if they don't have to. And requests coming from this orientation can also look self-serving, even if the driver really is better results for the company.

"Every day, you need to wake up and say Business as Usual has been Cancelled," Sherman concludes in the last chapter of the book, adding that in a sense supply chain is like playing a video game. "As you navigate your way to and through the House of Excellence to Leader City, you pick up more weapons and ammunition along the way," he writes.

Which is why the leaders seem to keep getting better and better. Hence the imperatives for the rest to transform their supply chains now.

Any reaction to this summary of Sherman's new book. What do you think supply chain transformation is all about? Let us know your thoughts at the Feedback section (email) or button below.

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Recent Feedback

I have worked in multinational Manufacturing Companies for more than 30 years managing Supply Chain Management and I fully agree with Rich Sherman. 

Francis Seow
Vice President
Reclaimtek Malaysia
Dec, 19 2012