MID-SIZE MANFACTURERS, RETAILERS, CHALLENGE OF SPEED, SUPPLY CHAIN MANAGEMENT

NEW REALITY—SPEED IS THE COMPETITION—Challenge for Mid-Size Manufacturers and Retailers—

• Faster is part of the new reality.
• This speed requirement is across industries and markets.
• Velocity is driven by end-to-end supply chain management.
•  Change your pain point to your secret sauce

Problem. It started with e-commerce. Two days from placing an order till delivery. And that standard is moving to one day and same day. Retailers are struggling with customer service and customer expectation for both instore sales and online. And this service expectation is going beyond online and Direct-to-Consumer. Across industries and markets, business-as-usual is being replaced by customer demand for quicker order performance.

Manufacturers and retailers, especially mid-size, are dealing with new realities. Customers want faster, on-time, and complete deliveries of orders. At stores, they do not want product stock-outs. It is now about order delivery velocity—a derivative of inventory velocity which is driven by supply chain velocity. The challenge is how to gain that speed. The way to do it, the way to meet customer expectations, is with supply chain management (SCM).

Against this, mid-size and small firms are competing against corporations and large firms. And these big companies have deeper pockets than SMEs to deal with what is happening. Mid-size firms need to understand what is needed and how they can compete when speed is the requirement.

Supply chain management is now strategic. Amazon weaponized SCM. This change, this challenge, is compounded after years, for many firms, of underinvesting in supply chain management and its structure of process, technology, and organization.

E-commerce, with the Perfect Order and velocity requirements, exposed design flaws and operations shortcomings in Supply Chains of many retailers, grocers, CPG/FMCG manufacturers, and suppliers. Originally, supply chains were meant for start and stop, to hold inventory to feed stores, customers, or factories. Now they are about velocity, the antithesis of the prior. This sets part of the challenge of transitioning to what is happening.

For the current supply chain, indicators of supply chain problems, and obstacles to change may be seen:

• Not recognizing and understanding supply chain cycle time. Long times to move products from purchase orders/suppliers through to customers or stores are a hidden factor in this situation. It means noticing the time consumed in the upstream/inbound supply chain and in the downstream/outbound supply chain.
• Defining supply chain performance by its logistics costs. It should be measured by the Perfect Order—the most complete company metric of orders delivered complete, accurate, and on time. It is valid for customer orders, purchase orders, and internal restocking.
• Much expediting and firefighting. Too much is a sign of a lack of process which is an element of supply chain structure. It also means a lack of effective product flow.
• Recognizing another performance metric—inventory turns. Slow turns can mean excess working capital that is not generating a strong return on investment and which can be used elsewhere in the company, including upgrading the company supply chain.
• Expanding inventory performance by understanding being inventory rich and yet have stockouts and problems filling orders or making products. Or the company cuts prices to sell excess merchandise.
• Obsessing about Last Mile costs. This is a misdirection of attention and resources on the real issues and needs.

Inventory is both a key issue and a sleeper when it comes to speed. It is central to the Perfect Order and to Order Delivery Velocity. Yet, it is also a sign of problems while being defined as an asset by accounting/finance. As such, it can be overlooked when measuring performance.

There are many reasons for the inventory situation, such as:

1. The prior, standard design supply chains that are based on the concept of node-link, stop and go. This approach also creates lean defined waste with extra time and inventory. The bottom line is stop-and-go is a momentum killer, the antithesis of velocity.
2. Supply chains were built to connect pieces of the company, whether it was factories or stores. They were cobbled together. The company was not created as an end-to-end supply chain—which is what is required now. Instead, there are inherent delays which are compounded with global sourcing and other factors. The ideal is to redesign as an entire supply chain based on the speed of product flows.
3. Much of the excess inventory and working capital carried is in the upstream supply chain. That is where the longest time is in the complete supply chain for sourcing and logistics. Longer time means carrying more inventory and increased chances for stock-outs.
4. Factor in the time impact of container line service for bringing in products from around the world. The service can be slow and not reliable. That adds to the need to increase inventory to buffer against the service uncertainty.

The impact of this design and the time is much investment in inventory that could be used elsewhere and not being able to sell products at a high revenue point. Add to it the focus on logistics costs and not on the total supply chain and its speed.

It means inventory—raw materials, components, and finished goods. For manufacturers, this situation crosses both Build To Order (BTO) and Build To Stock (BTS) firms. It has been an increasing pressure with omnichannel and its e-commerce.

Solution
SMEs often lack the deep pockets that large companies have. Money is often a differentiator between mid-size firms and major companies as a way to adapt to the new reality. This spending often shows in technology as a silver bullet. Tech emphasis can miss deeper issues. Mid-size companies can compete by recognizing and addressing these bigger process-related topics, which is more important. This is important for both performance improvement and for process improvement. Remember, technology is a process enabler. If the process is flawed, then the ability of technology to improve it is constrained.

For mid-size firms with limited resources for technology, emphasize end-to-end supply chain process improvement to create increased inventory velocity.

At the minimum, there are two ways to look at the end-to-end supply chain. One is upstream and downstream. Two is inside the four walls and outside the four walls. Many define it as in by the downstream part and inside the four walls. Often companies, regardless of size, look for quick fixes. There are none to make the transformation. So avoiding them lets firms focus on what the problems and needs are. This is especially when the easy answer is more challenging when it comes to velocity.

First, there are supply chain essentials that should be acknowledged. These are central to the new supply chain.

1. Inventory velocity. Much inventory sits in storage. No value is added. Products are supposed to flow. From a lean view, this is waste. Move inventory more quickly through the supply chain is important to the new speed reality, to lean, and to good financial liquidity practice.
2. Time compression. Removing excess time is vital for inventory velocity. Unnecessary time exists throughout the supply chain. Compressing time means being able to react more quickly to changes.
3. Upstream supply chain. Supply chain management pulls inventory. Upstream is the origin for supply. Extending upstream is natural to doing it. This includes suppliers and their supply chains. It is fundamental to achieving needed speed.
4. Advanced process and technology integration. Supply chain process flows horizontally across the internal organization and externally to suppliers and customers or stores. The horizontal direction contrasts with organizational pyramids with their vertical emphasis and implied silos. Gaps to the process impact performance Technology can link the processes, both internal and external, for visibility and control.

The above elements are fundamental to the new supply chain to drive speed.

Defining the solution is a multi-step activity and includes these steps:

• Recognize and understand the complexity and length of supply chains. They are not linear and are more than the four walls. Supply chains cross the internal organizations and extend beyond the company boundaries--both upstream and downstream. Also, there are 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.
• Assess the end-to-end supply chain. Firms must know what the operations performance is and identify where problems are. Think of a macro to micro approach—company strategy, supply chain strategy, and operations. Use strong supply chain metrics to do this. Note, the supply chain strategy should be more than what is needed to support the firm's strategy. It should provide a strategic direction that is driving much of what is happening.
  The assessment should be done with strong supply chain management, not logistics, metrics. This effort is very different from an audit. The point is to know where the company is now as a first step to transforming.
• Map the supply chain. There are two approaches. One is to map what is done, why, and how. This starts with what people say. Then analyze it with real transactions. It can identify gaps and redundancies that impede speed.

The other is to use value stream mapping, a lean tool, to see activities and time across the current key, high priority, criticality/high-risk product movements, or high volume. This tool helps with identifying ways to reduce excess time in the supply chain. Map all actions, both within the firm and external. Then it can be analyzed for waste—excess time. Time compression is central to achieving velocity. From these efforts comes a new stream map with much time removed. The result is speed.

• Include suppliers and outside logistics providers. It is not just about the company activities—the four walls. It is also about the outside participants in the supply chain. Assessment and mapping should include the various logistics providers and outsourcing. It is important to understand how they perform and fit in the current supply chain and in the direction the company is going.
• Segment the supply chain. The days of the monolithic, one-size-fits-all supply chain are gone. Segment based on common supply chain activities which may, in turn, involve groups of customers, products, or other factors. This also enables seeing where velocity is needed.
• Prioritize and emphasize. With these steps, the purpose now is to prioritize where efforts should be placed. Focus on and change what is important. Everything cannot be done at once. Note, this is not the same as cherry-picking. Trying to do it all is a recipe for struggling to accomplish anything. All segments, all need are not equal. Especially if resources are an issue for technology, emphasize the end-to-end supply chain process.
• Design, test, and implement. Develop a plan for supply chain improvement. Test it to see where changes are needed. Then implement. Remember the logistics elements should be part of the solution. Warehouses, for example, should be aligned and differentiate between moving—not storing—pallet load/cases of products as compared to eaches.

Remember, with the design and segmentation, there may be different service requirements of channels. The solution may be a combination of approaches. One way may not answer all needs, both cost and service. That may require data analytics, such as regression analysis, to understand order size, number of SKUs per order, which products are likely to be ordered together, and other questions.

Assess where you are now. Map the supply chain. Segment it to gain insights.

With that, construct the network for what is the best way to meet customer demands—warehouses—how many, where located, size; or warehouses of different sizes depending on order volume; or a mix of warehouses and stores. Segment based on common supply chain or other significant issues. The monolithic purpose, a one-size-fits-all supply chain is counterproductive to creating velocity.

Also, the real issue is the total supply chain, not just one part, such as fulfillment. Think about it. How does forcing this at the end of the supply chain affect the total chain? What changes were required upstream? Or are there hidden problems if this is to be more than a seasonal time service?

Conclusion
This is about the end-to-end supply chain and its velocity. There are no shortcuts without sacrificing results. Segment the supply chain; it is not a one-size-fits-all. Do not treat the upstream segment as an afterthought. Remember, that is where the supply of supply chains begin. Also, with the emphasis on speed, then assess how logistics fits in. Till now, transport and other logistics areas have been treated as tangential to supply chain management. Technology is a process enabler, not a silver bullet. Focus on the process.

The supply chain transformation will be a continuing effort. The world is in the early stages of a global supply chain revolution. Internet of Things. Blockchain. Platform business. Integrating the three supply chains of products, information, and finance. And more.

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