Technology is a wonderful thing when it comes to operating supply chains. Indeed, the convergence of the internet and the simultaneous development of a myriad of software packages in the early-mid 1990s was the breakthrough we had been waiting for. This broke the stalemate we had been caught in for the entire previous decade, as companies struggled to improve internal cross-functional integration to better service customers. Up to that point, eTorts to improve integration had largely been stymied by internal cultural forces bent on resisting change, and problems with the compatibility of various technologies. All that changed in the late 1990s, and if anything the balance swung too far the other way as companies raced to meet the dreaded Y2K on 01/01/2000 deadline.
That said, there is still too much emphasis on technology as the 'Silver Bullet' which is going to solve all the problems of under-performing corporate supply chains, and that is simply not the case. Nevertheless, too many enterprises are throwing every type of system at their supply chains, with little thought as to what designs do and don't work. Too often, large systems implementations are justified on the basis of false premises, e.g., inventory reduction; increased stock-turns, when they should be seen as a strategic investment and foundation for other systems. My work in the field with many companies over the years reveals that the specific configuration of the technology we should apply inside a particular business depends largely on the structure of the market being served and the corresponding behavioral segmentation. This in turn informs what processes are most appropriate for each major segment and the technology that underpins these processes simply follows.
Those readers who are familiar with my recent book, Living Supply Chains (FT Prentice Hall, London, 2006) will know that I have concluded, from many observations made in the field, that there are up to four main types of customer buying behavior evident across many product/service categories, and this immediately equates to four corresponding generic types of supply chain. If this is true, and we believe it is, then each of those supply chains inside the company will require different treatment along several dimensions, i.e., organization design; the way people are fit into this design; processes; IT; KPIs and Incentives; methods of internal communication; training & development; recruitment; and leadership style directing each supply chain. And all four of these general supply chains are likely to co-exist if indeed our marketplace is structured in a similar way. Indeed, the way we organize ourselves internally is simply a mirror image of the way our marketplace is structured in terms of customer buying behavior. It stands to reason therefore that each type of supply chain will require a different technology combination to achieve close alignment with the corresponding segment, and such is the case.
Like so many other things in life, there are patterns that work and don't work, and the same is true of the application of technology. So while an enterprise will surely benefit from discarding all its old legacy systems and replacing them with a single Enterprise Resource Planning (ERP) system that is only part of the solution. What goes on top of this ERP is what matters.
This argument is best amplified by the analogy of renovating an old house or a bathroom or kitchen at home. You can spend a lot of money on the new wiring and plumbing that goes in behind the walls, unseen. But you don't get the value from all this investment until you apply all the fittings, e.g., taps, basins, toilets, electrical switches, light fittings etc. The same is true in the case of technology.
Each supply chain type has a different technology emphasis. So back to our original theme which requires us to mix and match the applications that sit on top of the ERP like 'pimples on a pumpkin'.
1. Continuous Replenishment supply chains: This is the genuine 'collaborative' zone, and here the primary, indeed only emphasis is on keeping the relationship going with our most loyal set of customers. There may only be 20+ of them, but they could easily represent 60% of our revenue and 80% of our profitability. My suggestion is to organize a 'Relationship' cluster inside the business made up of all the functions, but with personnel who have the 'relationship' mindset. The most important process will be the Customer Account Management process, and this should be underpinned by a suite of applications such as:
Customer Relationship Management(CRM)
Vendor Managed Inventory(VMI)
Collaborative, Planning, Forecasting, & Replenishment(CPFR) and likewise on the supply side where relationships with strategic suppliers are critical, i.e.
Supplier Relationship Management(SRM)
2. Lean supply chains: In this situation the emphasis moves away from loyalty and retention of loyal customers, to a simple focus on eUciency and lowest cost-to-serve. Again, the organization design should be a cluster of multi-disciplinary personnel drawn from all the functions, but this time we want an unashamedly cost-driven mindset. All the processes will be standard, and the approach is to build clusters of personnel around specific processes, so that they become absolutely routine and low-cost. The primary technology is the ERP system, supplemented by a Network Optimization Modeling tool, which is interfaced directly to the ERP. Other execution systems such as a Labor Management System ( LMS) for scheduling the workforce will help drive costs down, and a Radio Frequency Identification (RFID) system will be invaluable in keeping track of stock and triggering replenishment protocols.
3. Agile supply chains: Here the emphasis changes to absolute speed of response, even if that costs more! The name of the game when serving highly demanding customers in an unpredictable environment is to have the capacity already available-it's too late to scramble for capacity when demanding customers come calling, and of course they never give you a forecast in advance! The trick is to reduce the number of processes to a minimum, and use your technology to quickly run possible scenarios to fulfill the demands. Likewise with suppliers where you are pushing them for an emergency order that was not in the forecast. Most companies that develop agile capabilities use a range of tools and techniques.
Postponement; build inventory of raw materials and/or components; or build standard modules that can be quickly assembled into unique configurations
Use Supply Chain Planning(SCP)
Use Advanced Planning & Scheduling(APS)
Customer Account Profitability(CAP) and above all use a Network Optimization Modeling tool to assist your decision-making.
4. Fully Flexible supply chains: This is a 'catch-all' supply chain configuration that uses a high degree of human intervention, and any relevant systems, to produce an innovative solution in quick time for the customer, who at this stage doesn't care about the price/cost. The situation is hurting them so much that they just want a solution, and very often it is only the supplier who has a chance of finding a solution in such a short timeframe. This type of supply chain uses whatever it takes to get a satisfactory result for the customer, and the technology can be sophisticated or basic.
In the end, typical situations involving a string of supply chain partners, will require participants to mix and match different combinations of supply-side and demand-side technology point applications as described above. So a company such as Zara in the fashion industry, might use Lean techniques on the supply side, build a raw materials bank close to its markets, and use postponement protocols to respond quickly to the fickle consumer fashion market, which it is serving. The key of course on the demand side is to have the capacity to respond to surges in demand, in production, and downstream through to the store. Ultimately, knowing where to deploy what technologies is one of the vital keys to success in any marketplace.
Dr. John Gattorna is acknowledged as a 'thought leader' in the supply chain space, and author of the recently published book, Living Supply Chains (FT Prentice Hall, London, 2006), which has been acclaimed for its originality and insight.
Enjoy curated articles directly to your inbox.