LTD Management
Logistics & Supply Chain Management Consulting Global Solutions That Work

Supply Chain Strategy


World Wide Shipping September 2003
President LTD Management

Supply chains are dynamic and complex, reaching into many customers and back into many suppliers throughout the world. A supply chain strategy also needs to be dynamic. Suppliers change; customers have new destinations and new shipping rules. Responsiveness increases; time compresses. Agile and lean are not options; they are mandatory. Collaboration and integration are ways to accomplish the needed result in a joint effort. Supply chain visibility is necessary; exception management and event management let you focus limited resources.

Against this background, you need to assess your supply chain capabilities and performance. You need to understand what works and does not, and why.

Strategy. In assessing your supply chain, start with your supply chain strategy. The strategy is the foundation to your supply chain tactical efforts. It sets out the what, why and how of your supply chain. It is the blueprint. Do you have a supply chain strategy? Or is there a collection of parts built on reactions to customer complaints, to costs or to other demands that masquerade as a strategy? Or, are you rehashing an out-of-date supply chain strategy and trying to breathe life into an approach that is no longer valid?

The supply chain strategy should complement and be aligned with the company's direction. Supply chain management (SCM) should be an integral part of the company's drive and direction. SCM represents the way to customer retention and growth, competitive advantage and profitability. Successful supply chains have top management approval and support.

Supply chain strategy, with its objectives and plans, should integrate the corporate strategic program and provide means to its accomplishment. This design needs to include the tools to make it work-process, technology and people. The supply chain strategy should be current to reflect industry and business changes and to reflect where the company is going, not where it has been. The strategy will also define your resource needs to support the corporate direction.

A good supply chain strategy should not be an across-the-board approach. One size does not fit all. Instead it should reflect the company's position and its products' positions in its markets, distribution channels and industry. It should differentiate by placing the varying emphasis on costs and service. Today's distribution network may not meet tomorrow's customer needs as they grow, expand and add stores and warehouses. Do not be caught unprepared.

Mapping. Map your supply chain operation, the total process, from suppliers, internal and to customers. Visually see and understand the interfaces and exchanges with others inside and outside the company. Look at flow across various functions, at gaps and redundancies in the integrated process; look at time required. Map the actual process, not what each function says occurs. Watch the organization silos; they can be process dead-ends where doing the work takes priority over what and why the work is being done-for your customers. Analyze for bottlenecks and any operations that are non-value added. Identify critical activities, improvement opportunities (including outsourcing) and redesign areas.

Performance Measures. An important part of assessment is measurement. You should measure your supply chain performance. These must be credible measures that top management believes in and have corporate impact. Measures for the sake of measure do little to raise executive support for supply chain management. Likewise having no measures, because of time consumed in fighting fires or other tasks, hurts also.

Accounting measures such as freight as a percent of sales have little value because they include an item that is beyond the control of logistics. Sales can change as to product mix, order size, customers and where they are located. Distance is a big factor on transport costs. Customers at further distances distort the measure, as do smaller orders (shipments) and changes by customers in mode or carriers to be used. Warehouse throughput measures are similarly not appropriate since logistics does not control sales volume. These are not supply chain measures as much as they are, if anything, sales measures.

For valid metrics, look at critical issues. For example, your customers expect you to deliver their orders as complete, accurate, on time and in good condition. Analyze how well you are meeting that goal, both in total and for key customers. While you are doing this, talk to some of your key customers; talk to your supply chain counterparts. See how they view you. Find out how they perceive your supply chain performance. What a great way to understand how well you are doing, and just maybe you are exceeding customer expectations.

Consider an inventory measure. Inventory is critical to customer satisfaction, whether you are a wholesaler, manufacturer or retailer. Inventory velocity is key to profitability. And inventory management is a cross-functional process, when done properly. Look at how your inventory categories-A, B, C, D(dog) and Seasonal-and the dollars tied up in each. Analyze turns overall and by category. Look at SKU rationalization.

Drill down for out of stock occurrences on orders or available for stores; determine why these happened. Out of stock is a business killer situation. Look at the quantity and timing of arrivals of in-transit/inbound products in regards to both inventory availability and total inventory carried. Transit time, especially for imports, create gaps and spikes in inventory availability. Minimizing the gaps and spikes is important to inventory management and supply chain performance.

If you have multiple warehouses, determine if you have inventory positioned in the right location. Where inventory is placed affects ability to ship orders complete and on time. Analyze how much of warehouse space is taken up by C, D and Seasonal (after the season is over) items-and any obsolete inventory you may still have in stock--and the impact on layout and order picking and the impact this has on warehouse productivity and cost.

Measure supplier performance. Supplier performance is very important to strategic sourcing and to inventory availability and, as a result, customer satisfaction. Analyze quality; analyze reliability. Review the purchase order (inbound) replenishment cycle time. The better suppliers do, the better the entire supply chain functions. Analyze open purchase orders at suppliers. You should have visibility to your inbound supply chain, including purchase orders at vendors. Inbound transportation costs, in-transit inventory out-of-stocks and customer service are derivatives of and hidden costs of supplier performance.

Conclusion. Assessing supply chain performance leads to identification of problems and opportunities. Having a supply chain strategy and measuring key parts are necessary to understand and take control of your supply chain. Put the process, people and technology in place to create competitive advantage, both for today and tomorrow. If you do not, a competitor will.