Article--UNDERSTANDING SUPPLY CHAIN COMPLEXITY
--For Lower Costs, Increased Velocity, & Improved Performance--
Supply chains for retailers and manufacturers are under pressure to reduce costs AND improve performance. The low-hanging fruit has been picked. It requires new ways. It starts with recognizing and addressing supply chain complexity.
End-to-end supply chain management, especially ones with international segments--nothing in business is more complex. This is not hyperbole. It is fact. And it must be understood to manage the supply chain because complexity can be a barrier to achieving needed supply chain velocity that is so important in the expanding omnichannel.
Manufacturers and retailers are in a period of disruption. Velocity is required. Supply chain velocity. Inventory velocity. Order-delivery velocity. A problem with achieving these is that companies, regardless of their age, are using a supply chain template that is 20+-years old with emphasis on logistics costs and not on velocity.
There are obvious ways to see the end-to-end intricacy. These are length and time. Supply chains with international souring and/or export sales are long. That length means the time to move products through the supply chain.
Time is a multi-occurring issue. There are times to deliver perfect orders; to meet production schedules; time for this and time for that. It is a common supply chain topic. But there is more.
Inventory is impacted by the time from a product is needed to be replenished from the supplier until it is restocked in warehouses. Longer time adds uncertainty and requires more inventory to be carried as a buffer and more working capital to cushion sales or incur stockouts and lost sales. Companies can become inventory rich. The excess working capital is funds not available in other areas of the business, including transforming the supply chain to compete in the new selling reality of omnichannel and e-commerce for both B2C and B2B.
Additional recognition must be given as to:
· Participants. No group in an organization has more participants and players than supply chain management. This includes both inside and outside the company. Supply chain management crosses the company and interacts with almost every department in a company. As for external, the supply chain extends both directions—toward suppliers and customers. For example, an international supply chain could have 15 or more players with each order and shipment.
· Upstream. Much attention is paid to the downstream supply chain with distribution centers, stores, and factories. The weakness here is that the supply of supply chains begins upstream. Upstream has been often overlooked except for the emphasis with sourcing and with purchasing and inbound freight costs.
· Non-linearity/Supply chains within supply chains. The straight-line supply chain is an illusion. It ties to the "agile", one-size fits all view. Every firm has a supply chain—and more. Think of the Mississippi River in the US. IT is very long, runs from Minnesota down through Louisiana and into the Gulf of Mexico. But the river is not a single entity. It is fed by 7,000 streams, water basins, and smaller rivers. These smaller bodies of water flow through 31 states and 2 Canadian provinces. The great river is not a single entity. Neither is the supply chain. That is how supply chains are—many branches of inventories and activities—and how they evolved.
· Horizontal process. It flows across a vertical organization. The directional conflict between supply chain management and the company structure is more than a silo matter. It creates delays and impacts the process both inside the particular company and with suppliers and customers as it extends upstream and downstream. Plus, those suppliers and customers have a similar flow challenge.
There is a multiplier effect with multivariant elements. Namely, the more the components, the more the complexity—and the challenge to achieving critical supply chain performance success. That is an underlying factor with supply chain management.
The greater the end-to-end supply chain complexity, the:
1) Increased supply chain risk.
2) More inherent lean waste.
3) Challenge to control.
4) Greater likelihood that supply chains processes are under-designed and under-managed.
Understanding complexity is the first step. Addressing it is important for achieving supply chain velocity and its inventory and order delivery velocities. This is especially so with manufacturers and retailers achieving needed supply chain speed that are still using essentially monolithic supply chains. These are not agile and lack supply chain duality in the new omnichannel reality.
The new way to lower costs, increase velocity, and improve performance is to:
1) Attack the complexity. This can create significant improvements.
2) Move upstream. Go to where supply chains begin. Think of it. Many downstream problems start upstream. By the time they get downstream, the problems are compounded as to affect. A caution, the upstream has much of the supply chains within supply chains and nonlinear parts.
3) Assess. Identify. Segment. Prioritize. Focus where the needs and financial returns are greater. Remove bottlenecks and flow delimiters.
4) Evaluate the players and participants--both external and internal, their roles, and value. Reduce where possible. Integrate to reduce process gaps and blind spots in technology.
5) Compress time. With time and its lean international waste impact, this is important. Value stream mapping is a viable tool to use here.
The demands for greater velocity will increase. Think Velocity2—velocity squared. The longer it takes to start, the further behind firms fall in catching up.
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