GETTING SCM TO REALLY CONTRIBUTE TO THE BOTTOM LINE
Supply chain management people typically lament that they are underappreciated for what they contribute to their businesses. They are taken for granted, they feel, and we think it is typically true.
Frankly, this reflects the fact that SCM people are not confident enough to do self-promotion, and also that they may focus so much on the routine that they miss out on big hits to the bottom line. With this mind, via our old friends at Kinaxis, we wish to share some key points from “Time to Get Supply Chain Management to the Board”, posted on Supply Chain 24/7.com:
There are examples of successful firms that have deeply embedded SCM into their DNA and include SCM topics in board-level discussions. They understand that SCM — if positioned appropriately and executed correctly — can make the difference between mediocre and outstanding business performance.
The supply chain team needs to create and evaluate the relevant scenarios related to investments and flexibility, while the board makes the final decision. On a more operational level, the board needs to be aware of potential conflicts between sales and operations that demand answers if they have not been solved at the lower levels.
At far too many firms, however, senior management still asks the SCM team to simply reduce costs or blames it for missed shipments, late deliveries and unhappy customers. To raise its profile, supply chain leaders need to focus on three key action areas:
First, ensure that SCM is accepted as a trusted business partner in the company by delivering exceptional value. The function should go beyond cost reductions and enable revenue growth by introducing innovations.
Second, quantify the value that SCM provides in a relevant and coherent manner. Selecting proper performance indicators that are understood by the board and commercial counterparts is essential, just as tracking all the benefits for the department’s own annual report is now recognised as a best practice.
Third, speak the language of business. Communicate the team’s value using terms and concepts that are accessible to everybody. Using the right level of detail and explaining concepts and tradeoffs to non-SCM experts will ultimately enhance understanding of the topic. Common SCM misperceptions: Frequently, SCM is still confused with classic logistics operations that focus on storing and moving goods. The fact that many firms have outsourced many logistics operations to third parties often leaves a blank spot. Other companies have relabelled logistics functions and professionals as SCM without expanding their operational responsibilities — it’s still warehousing and transport under another name.
An additional challenge is the high complexity of many supply chain decisions; in particular, the operational and tactical decisions supply chain managers make to optimise production volumes, capacity allocations and inventory levels are often incomprehensible to outsiders. Hence, SCM is frequently perceived as a black box that nobody can really follow.
The same is true within companies; in a world of zero defects and Six Sigma, customer fulfilment rates of 95% don’t sound very impressive to commercial partners, even if the SCM team is leading a heroic effort to hit that number. Instead, the 5% that was not delivered on time and in full is neither understood nor accepted, and SCM takes the blame for alienated customers and lost revenues.
Delivering exceptional value: To advance to the next level, supply chain teams need to become trusted business partners who deliver exceptional value. One way to address this is to develop supply chain talent that is cross-functional by nature and understands the needs of other departments.
Top companies foster this through jobrotation programmes that shuffle people between sales, finance, and operations. The insights they gather and networks they develop ultimately foster better involvement of the SCM team. These talents often act as first points of contact within the organisation regarding all supply-chain-related inquiries.
Once it has a better grasp of customer requirements, the supply chain team needs to align its strategy and capabilities with the corporate strategy. While managers on all levels are typically familiar with corporate strategy, familiarity with supply chain strategy is a different story, often because it is not well formulated or not aligned with the overall strategy.
Cost leaders such as Ikea, for instance, design their products for supply chain efficiency. Service leaders such as Amazon implement technologies that enable a long tail and fast deliveries. Innovators such as P&G execute excellent phase-in/out product life-cycle processes. And integrators such as Li & Fung carefully orchestrate a broad network of supplier and contract manufacturers.
We will continue on this topic in our next article by covering how SCM people can contribute to revenue growth.
(Reminder to readers: The E-Commerce Logistics Forum on Sept 23 in Bangkok is the first conference in Thailand to focus on key trends and developments in e-commerce logistics, distribution and fulfilment, both domestic and cross-border. For more details, visit http://th.elog.asia)