GLOBAL SUPPLY CHAIN - COMPLEXITY, RISK, AND PERFORMANCE |
By THOMAS CRAIG
President LTD Management
Supply chain complexity gets much attention. Some of it is real; more is perceived. Risks, especially with the foreign parts, are discussed. Cost vagaries are a topic. Few explore the drivers and root causes of suspect supply chain performance, namely why it exists, how to identify it and what can be improved and what is a fact of doing business in the global market.
Sourcing and selling are global. Yet companies use organization techniques and accounting practices that date back over 100 years--when business was domestic, not international. Firms that dwell on the difficulties of supply chain complexity often do not have an understanding of activities and the process and flow involved. Such businesses organize and define their logistics and supply chains in functional terms of freight, warehouse and other costs.
They fail to understand the impact of supply chain management on their customers and, especially, on their businesses. As a result, these firms struggle with costs, performance and service - often while carrying excess inventories. They do not change and adapt to the realities of global activity and effectively managing them. Their supply chains are not designed; they have evolved in an unsystematic manner.
Supply chain complexity and risk have external drivers that can cause disruption. The drivers may be known, even if accurately predicting them and the timing are not. They can include geopolitical, natural disasters, supplier viability and responsiveness, and the rapidly changing vagaries of customers.
There are also internal drivers - often controllable and avoidable--that contribute to a company's global supply chain complexity, risks, costs and performance. Examples of these are:
- Ongoing pressure for lower prices from supply chain management / procurement
- Reactionary approach toward supply chain operational problems
- Turnover and/or proliferation of suppliers and logistics service providers
- Flaw in the company strategy plan and execution to properly recognize supply chain process and performance on goals
- Disregard for suppliers and providers as "enemies", not as interdependent collaborators
- Have a single, monolithic-like supply chain approach
- Lack of competitive advantage or value proposition
- Turnover of employees
- Lack of supply chain risk assessment and mitigation program
Bottom line, companies have the supply chains-and performances - that they designed purposely or through neglect. Supply chain leaders control and manage complexity; they do not let complexity control them.
Increased manufacturing and onshore sourcing have potential. But reestablishment those capabilities will take time, as did dismantling them. In the meantime, for those companies that want to improve their supply chains, there are actions they can take. One is to implement and to utilize supply chain best practices -
- Increase inventory velocity
- Implement lean logistics / supply chain management
- Improve supplier performance
- Compress cycle time
- Maximize inventory yield
- Utilize meaningful metrics
- Segment the supply chain
- Employ supply chain execution technology
Two is to assess what role outsourcing can play to fix supply chain process design and to improve operations results. Three is to streamline the supply chain as to the process, number of participants and their roles and locations.
Firms with products sourced and sold on a global basis, with fast moving products, with products having short life cycles, with seasonal products, with high SKU (stock keeping unit) proliferation or with a mix of these product types must especially utilize best supply chain practices. It is a requirement, not a choice.
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