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Build Your Supply Chain IQ: From Good Intent to Great Execution

Amidst slowing GDP growth, rising transportation costs and persistent fears of a double-dip recession, corporate supply chains are reeling – causing organizations of all sizes to take an intensive look at their operations. The picture is troubling. Many companies are quickly discovering the supply chain progress that has been touted in recent years has been more hype than reality and they now lack the leadership necessary to manage complex supply chain operations in these difficult times. More worrisome, it has become clear that problems can no longer be addressed through one-size-fits-all technology improvements and that different, more sophisticated decision making is now required. The question is: How can management successfully approach these challenges in today’s uncertain environment?

Contrary to the clichè buzzwords of “people, process and technology,” supply chain excellence is primarily a function of leadership. Companies that have continually invested in supply chain competency are outperforming their industry peers. More than just negotiating favorable procurement contracts, superior supply chain performance requires a strategic, comprehensive approach, focused on actionable steps – particularly in this economy. Ethereal thoughts are no longer acceptable as management must be able to actually execute the “big idea.”

Measuring Supply Chain Performance

Measuring supply chain efficiency remains a mystery to many companies. Over the past decade, many large companies have demonstrated the highest “Supply Chain IQ.” Most have mastered harvesting the low-hanging fruit by implementing or re-implementing technologies like SAP, instituting extensive business analytics, establishing rigorous operating reviews and removing supply chain waste. This has resulted in enormous financial productivity and greater visibility into inventory, manufacturing operations and customer deliveries. The bad news is, because of their size, large companies are finding it extremely difficult to execute additional supply chain improvements that have a meaningful impact on financial results. This next wave of supply chain performance is infinitely more complex because the decision making is more controversial, the implementation is difficult and high levels of bureaucracy exist.

This reality leaves two choices for companies that face these tough supply chain decisions: a new leader who will execute a new operating model and new measurement systems without political bias or an outside influence. In cases where costs are escalating and investments lacking, bringing in a new leader with a different view can prove to be beneficial – as long as senior management is prepared to invest in and implement a new supply chain leadership plan. In other cases, companies are better served by hiring outside influences to jump-start performance. Such changes are often difficult for entrenched management, but typically present significant upside for investors. In short, complex supply chain transformation is more about leadership than it is about technology or processes.

While large public and private companies are generally more sophisticated in their approach to supply chain management, mid-size companies have significantly more improvement opportunities. For these organizations, much of the low-hanging fruit remains unpicked, as the lack of funding for training, investments in technology, leadership development or infrastructure investment has resulted in a much lower Supply Chain IQ.

Here, even modest improvements to supply chain operations can provide real movement in earnings and performance. These improvements can range from enhancing overall labor efficiencies in warehouses and manufacturing plants to better contract rates with key suppliers to better working capital performance. Major advances can be recognized quickly – without prohibitive cost investments. The key for these companies is improved management practices with clear and measureable performance indicators.

 

Supply Chain Technology / Value-Added Partners

Ten years ago, many companies equated supply chain transformation to implementing new supply chain technology. These “solutions” were all the rage. Those companies that successfully implemented these systems realized significant productivity gains, especially in the warehouse and transportation arenas. Yet, in many cases, organizations simply lacked the process discipline and IT infrastructure to integrate these complex systems, which ultimately led to well-publicized write-offs. Even with these success stories, the savings were typically recognized years ago as one-time events. Companies have found that generating year-over-year productivity through new and improved technology is not a sustainable strategy, as organizations only have so many warehouses and transportation departments to make more efficient.

This, in part, has led companies to outsource the entire supply chain function, leveraging the technology, scale, expertise and infrastructure of a value-added provider in a one-stop package. The strategy has worked well as companies of all sizes look to conserve capital, maintain variable supply chain investments and alleviate the need for risking the implementation of complex supply chain technologies. While leveraging a value-added provider in current economic times can be advantageous, the tactic is not universally the most cost effective as the trade-off in paying a third-party to manage supply chain operations must be weighed against a company’s current supply chain competency and past investments.

Growth-Based Supply Chain Support

Beyond supply chain leadership, supporting and influencing a company’s growth is today’s most pressing supply chain issue. It’s also the most complex. Dynamics such as faster innovation needs and developing market penetration are critical requirements to increasing a company’s enterprise value. In addition to efficient decision making, this requires companies to have a core competency in establishing and executing improvements across the entire enterprise – a daunting prospect given that such initiatives cut across just about every function in the organization. The payoff, however, can be well worth the effort. In addition to improving financial results, companies that execute growth-based supply chain strategies successfully far outpace their industry peers.

Conclusion

As companies take a more urgent approach to reexamining their supply chains, old terms, legacy thinking and big ideas of the past are quickly going by the wayside as leaders demand more execution-oriented thinking and realistic solutions. Cost management, supply chain leadership and speed to market are the new success factors to enabling a high Supply Chain IQ. New providers, new leadership and new methods are quickly finding their ways into the marketplace. Especially in these continuing uncertain economic times, managing to a high Supply Chain IQ is critical.