A lot of people toss around the phrase "supply chain." Sometimes quite loosely. While the supply chain is certainly a key aspect of many businesses, too often companies spend an inordinate amount of time and resources on that one piece of the puzzle. What too many leaders fail to capitalize on is that the supply chain is just one piece of a much larger chain: the performance chain.
Supply chain. Performance chain. What's the difference?
By definition, the supply chain is the sequence of processes from supplier to customer involved in the production, sourcing, planning, and distribution of a commodity (here's how Wikipedia defines it, for another perspective). Meanwhile, the performance chain is all the tangible and intangible elements that have to move from the moment you trigger demand until you have cash in the bank - all the ins and outs that have to work together to drive the outcome you want.
Why is it important to understand the difference? Because it's easy to get caught up in the day-to-day or local supply chain problems: The need to streamline invoices, reduce inventory, or increase manufacturing performance and on-time fulfillment, for example.
If you're an executive overseeing a business unit or larger enterprise, these may be the most important place to focus. Perhaps not.
You're in the position to oversee the big picture. You are one of the few people in your company who has the ability to see how processes are working together (or not working together) across the organization. As a system, that creates value customers will not merely accept, but pay you for. You are the one who can and should ask the tough questions, determine the overall health of the performance chain, identify the pain points that need attention and assign the right people to address them.
And, keep in mind, if you're in a service-based organization, such as healthcare, you may not have a supply chain at all. In an industry like that, how do you measure the success of your efforts and your patients' satisfaction? Examining your company through a number of performance-chain lenses can help you answer these types of questions.
Let's take a closer look at four ways supply chains differ from performance chains-and what those differences mean for you and your business:
1. Day-to-day vs. Big picture
Keep in mind, the supply chain is just one piece of the larger performance chain across your business. While you definitely want to pay attention to your supply chain(s), you most certainly want to step back regularly and take a look at what's going on from the moment you trigger a customer's need to the moment there's cash in your pocket.
2. Flow of products vs. Velocity of cash
Sure, it's important to make sure products and processes are flowing smoothly across the supply chain. However, at the end of the day, cash reigns supreme. Businesses live on the circulation of dollars from customers to the bank. So, make sure you're taking a closer look at how processes like turnaround time, closed lot cycle time, time to market and days cash outstanding are impacting your cash flow and what steps you can take to speed up that flow, without sacrificing customer experience and quality (because you don't have to).
3. Product-based vs. Industry agnostic
Supply chains are typically focused on companies that sell products. Manufacturing companies, for example. The product goes from point A to point B and on down the line until it's in the customers' hands. Performance chains are relevant in any product or service industry. They are industry-agnostic. Why? Because a performance chain contains all the tangible and intangible elements, or the people, decisions and processes that must move successfully to translate demand into a solved customer need and cash in your bank.
4. Heavy on IT/tracking systems vs. All kinds of business processes
Supply chains tend to rely heavily on IT and tracking systems. Think about FedEx. What an incredible supply chain-from the moment a customer sends a package to the moment the intended target receives it. But, that supply chain is dependent on complex and highly efficient IT and tracking systems that make that flow possible. The bigger performance chain involves all sorts of people and processes that paint a more complete picture of the FedEx customer experience-from the time the customer realizes a need to the time FedEx has money in the bank. Be sure to think about all the processes that go into delivering on a customer's need-not just the IT team and tracking enablers.
What do you think? How healthy is your performance chain? How does your supply chain contribute? How are the supply chain and performance chain different in your view? And, what do those differences mean for your business?
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