Executive Briefings

How Healthy Is Your Supply Chain? Four Critical Lenses to Improve System-Wide Performance

It's no secret who the top supply-chain performers are: The Gartner Supply Chain Top 25 is an excellent roundup of companies that are routinely recognized for applying demand-driven principals and achieving great performance results. While this list includes many organizations we particularly admire, the big secret is that it's only part of the conversation.

Gartner measures ROA, revenue growth and inventory turns, as well as feedback from the Gartner AMR survey and a peer opinion panel, which provide an interesting 'end' of the story. What's missing from this dialog is the notion of the interconnected system, of thinking of the supply chain as part of a larger performance chain. Missing are the beginning and middle stories. The supply chain, the way most of us commonly think about it, is only one thread of a bigger tapestry. Today's supply chains are a complex tangle of data and relationships, which are all part of the enterprise-wide performance chain - all the tangible and intangible elements that have to move from the split second you trigger demand to the time you have cash in the bank.

Whether you're thinking specifically about manufacturing, suppliers, invoice processing, shipping or forecasting, financial metrics are helpful and clearly objective and unarguable, but they're lagging indicators. They're the scoreboard. So where is the system view? How can an organization see how healthy its performance chain is without waiting until the end?

Similar to taking a patient's vitals, looking through four lenses - speed, predictability, flexibility and leverage - provides a way to measure the current health of a system-wide performance chain, as well as help you diagnose where improvements may be necessary. Let's take a closer look at each lens:

Speed: When we refer to measuring speed in your performance chain, we're talking about the velocity of processes such as turnaround time, closed lot cycle time, time to market and days cash outstanding. When evaluating speed in a performance chain, look for ways to pull time out of the production cycle, reduce turnaround time and drive product through the system faster. Start by mapping your value stream, and focus in on those areas that are slowing down the speed of the system in turning inputs into value for which your customers will pay. Then take corrective actions to break through those constraint areas and reduce your process times.

Flexibility: What creates flexibility in your business? You may need strategic inventory buffers - or just-in-time fulfillment options so that you can respond quickly to varying demand. Staffing on key pieces of equipment may need to vary from the norm. Using Lean and Six Sigma tools, you can diagnose and focus on creating flexibility where you need it most. In a factory or warehouse, cross-training may be far more valuable than one more piece of equipment that adds capacity but no extra flexibility. In a service-driven business, staff flexibility across wage grades may be more valuable than preserving the capacity of higher-wage employees while limiting the ability to respond to dynamic customer needs.

Predictability: In a plant, warehouse or processing center, predictability comes from consistent flow across the supply chain - more routine and quality repeatability, less variability of external and internal processes. Examples include variation in time or quality, records accuracy, process yield and customer satisfaction. If you are seeing cycle times with wide deltas in your operations, or you have significant gaps between engineered or designed process time and reality, predictability is out of reach. Wide swings in your day-to-day output suggest the standards for performance have not been passed through the chain successfully. To increase predictability, measure the difference or gap between designed process time versus what is actually happening along each section of the performance chain. Then work the issues until predictable routines are planted in institutional memories.

Leverage: Leverage is about making more with existing resources, people and working capital assets. But too often in business the tendency is to run to the capital store to buy more equipment rather than letting existing investments do the heavy lifting. As the rocky economy has taken its toll, opportunities to add capital have become limited and the need for leverage is more important than ever. Instead of adding (and spending) more, when looking for more leverage from existing assets and operations, turn to Overall Equipment Effectiveness. OEE is one great method for diagnosing areas for improvement in existing equipment performance and to ensure, particularly in bottleneck areas, that the most essential equipment is fully utilized.

These lenses help to simplify something extremely complex. They allow us to look at the entire system that creates value and then zero in on specific areas of challenge. We work with organizations that start with pieces and parts of a complex performance chain. They dig in by saying, "we need to increase manufacturing and fulfillment," or "we need to streamline our invoice processing." They're trying to react to and solve a local pain point. This is completely understandable and yet, may not at all solve the real, root issue limiting performance of the supply chain - or the larger performance chain.

We feel strongly that these four lenses can help companies get up out of local optimum, see the bigger picture and answer the critical big question: How do you make that all add up to improved system-wide performance?

Nobody can work on the whole system at the same time. We all have to pick places that are tangible, most important and impactful at any given time. Using these four lenses is a way you can work on something specific to a part of the performance chain AND make sure you are staying connected to and driving the overall health of the performance chain - and working within the context of the system.

Speed, predictability, flexibility and leverage are not hard calculations to assign to an industrial engineer. They're lenses that allow you to ask basic questions and use example metrics as indicators of the health of the performance chain.

Every organization has its own profile of speed, predictability, flexibility and leverage. All four are always present in every organization to some greater or lesser degree.  Common value themes can make one dominant in an organization.  For example if your core value proposition is based on:

• Immediate supply - never out:  Speed is at the center of everything you do.
• Quality and consistency: Predictability of materials, operations, fulfillment, etc., is essential.
• Customization - customers designing specific attributes into products or services: Flexibility must be the driving characteristic.
• Low cost or stretching resources: Leverage is the critical focus.

You're not looking for infinite speed, predictability, flexibility and leverage; more is not always better. Once you can see the health of your performance chain through these four lenses, match your goals to what your customers value most within these metrics for maximum results.

Source: Aveus

 

It's no secret who the top supply-chain performers are: The Gartner Supply Chain Top 25 is an excellent roundup of companies that are routinely recognized for applying demand-driven principals and achieving great performance results. While this list includes many organizations we particularly admire, the big secret is that it's only part of the conversation.

Gartner measures ROA, revenue growth and inventory turns, as well as feedback from the Gartner AMR survey and a peer opinion panel, which provide an interesting 'end' of the story. What's missing from this dialog is the notion of the interconnected system, of thinking of the supply chain as part of a larger performance chain. Missing are the beginning and middle stories. The supply chain, the way most of us commonly think about it, is only one thread of a bigger tapestry. Today's supply chains are a complex tangle of data and relationships, which are all part of the enterprise-wide performance chain - all the tangible and intangible elements that have to move from the split second you trigger demand to the time you have cash in the bank.

Whether you're thinking specifically about manufacturing, suppliers, invoice processing, shipping or forecasting, financial metrics are helpful and clearly objective and unarguable, but they're lagging indicators. They're the scoreboard. So where is the system view? How can an organization see how healthy its performance chain is without waiting until the end?

Similar to taking a patient's vitals, looking through four lenses - speed, predictability, flexibility and leverage - provides a way to measure the current health of a system-wide performance chain, as well as help you diagnose where improvements may be necessary. Let's take a closer look at each lens:

Speed: When we refer to measuring speed in your performance chain, we're talking about the velocity of processes such as turnaround time, closed lot cycle time, time to market and days cash outstanding. When evaluating speed in a performance chain, look for ways to pull time out of the production cycle, reduce turnaround time and drive product through the system faster. Start by mapping your value stream, and focus in on those areas that are slowing down the speed of the system in turning inputs into value for which your customers will pay. Then take corrective actions to break through those constraint areas and reduce your process times.

Flexibility: What creates flexibility in your business? You may need strategic inventory buffers - or just-in-time fulfillment options so that you can respond quickly to varying demand. Staffing on key pieces of equipment may need to vary from the norm. Using Lean and Six Sigma tools, you can diagnose and focus on creating flexibility where you need it most. In a factory or warehouse, cross-training may be far more valuable than one more piece of equipment that adds capacity but no extra flexibility. In a service-driven business, staff flexibility across wage grades may be more valuable than preserving the capacity of higher-wage employees while limiting the ability to respond to dynamic customer needs.

Predictability: In a plant, warehouse or processing center, predictability comes from consistent flow across the supply chain - more routine and quality repeatability, less variability of external and internal processes. Examples include variation in time or quality, records accuracy, process yield and customer satisfaction. If you are seeing cycle times with wide deltas in your operations, or you have significant gaps between engineered or designed process time and reality, predictability is out of reach. Wide swings in your day-to-day output suggest the standards for performance have not been passed through the chain successfully. To increase predictability, measure the difference or gap between designed process time versus what is actually happening along each section of the performance chain. Then work the issues until predictable routines are planted in institutional memories.

Leverage: Leverage is about making more with existing resources, people and working capital assets. But too often in business the tendency is to run to the capital store to buy more equipment rather than letting existing investments do the heavy lifting. As the rocky economy has taken its toll, opportunities to add capital have become limited and the need for leverage is more important than ever. Instead of adding (and spending) more, when looking for more leverage from existing assets and operations, turn to Overall Equipment Effectiveness. OEE is one great method for diagnosing areas for improvement in existing equipment performance and to ensure, particularly in bottleneck areas, that the most essential equipment is fully utilized.

These lenses help to simplify something extremely complex. They allow us to look at the entire system that creates value and then zero in on specific areas of challenge. We work with organizations that start with pieces and parts of a complex performance chain. They dig in by saying, "we need to increase manufacturing and fulfillment," or "we need to streamline our invoice processing." They're trying to react to and solve a local pain point. This is completely understandable and yet, may not at all solve the real, root issue limiting performance of the supply chain - or the larger performance chain.

We feel strongly that these four lenses can help companies get up out of local optimum, see the bigger picture and answer the critical big question: How do you make that all add up to improved system-wide performance?

Nobody can work on the whole system at the same time. We all have to pick places that are tangible, most important and impactful at any given time. Using these four lenses is a way you can work on something specific to a part of the performance chain AND make sure you are staying connected to and driving the overall health of the performance chain - and working within the context of the system.

Speed, predictability, flexibility and leverage are not hard calculations to assign to an industrial engineer. They're lenses that allow you to ask basic questions and use example metrics as indicators of the health of the performance chain.

Every organization has its own profile of speed, predictability, flexibility and leverage. All four are always present in every organization to some greater or lesser degree.  Common value themes can make one dominant in an organization.  For example if your core value proposition is based on:

• Immediate supply - never out:  Speed is at the center of everything you do.
• Quality and consistency: Predictability of materials, operations, fulfillment, etc., is essential.
• Customization - customers designing specific attributes into products or services: Flexibility must be the driving characteristic.
• Low cost or stretching resources: Leverage is the critical focus.

You're not looking for infinite speed, predictability, flexibility and leverage; more is not always better. Once you can see the health of your performance chain through these four lenses, match your goals to what your customers value most within these metrics for maximum results.

Source: Aveus