|
CSC Author Details 12 Biggest Supply Chain Mistakes
Charles Poirier pioneered the concepts behind the supply chain in 1993 with his first book on the subject. Nine years later, he’s taken up supply chains again because businesses still don’t have it right.
Poirier, a partner in CSC’s supply chain practice, wrote The Supply Chain Manager’s Problem Solver to address the shortcomings that can hinder supply chain implementations. It’s his seventh supply chain title, following books like 1999’s Advanced Supply Chain Management: How to Build a Sustained Competitive Advantage and then 2000’s E-Supply Chain: Using the Internet to Revolutionize Your Business.
Many supply chain implementations that started out with high potential have reached a plateau and halted there. "Having been at it for a decade, most companies are reaching diminishing returns," Poirier says. "It’s time to step back and say what went right, and what went wrong."
Few companies have moved through the five levels of supply chain maturity that Poirier outlined first in his previous books [See sidebar, below]. The ultimate supply chain goal should be full network connectivity with suppliers and customers, but Poirier says just one percent of all businesses have even approached that model.
Some companies, Poirier writes, "seem unconcerned about their lack of progress as they labor under the misguided perception that focusing only on internal excellence is the key to business prosperity." Others have implemented supply chains and have seen efficiency improvements but haven’t been able to move to a true collaboration model. Still others have adopted Internet supply chain technology but have had mixed results, dampening enthusiasm for future efforts.
The Supply Chain Manager’s Problem-Solver singles out 12 mistakes businesses make that keep them from seeing the full potential of their supply chains. Poirier’s book comes up with solutions for those problems based on his study of examples from the real world. The 12 mistakes are:
Lack of leadership vision. Poirier interviewed people at the senior level, and asked them how they got into their supply chain effort. "They answered, ’Because a big customer said I had to,’" Poirier says. That will only take a supply chain so far. Once the company has met that customer’s objectives, it sees no further need to pursue supply chain improvements. Companies also get into supply chains because they want to match competitors, or because one business unit decided it was a priority. Poirier says that a company’s senior management has to decide the supply chain is a priority for the entire company.
Using the wrong metrics. Most supply chain measurements are aimed at removing cost instead of looking for ways to improve profit or increase customer satisfaction. That makes it difficult for businesses to tune their chains to improve customer relationships.
Aversion to external advice. Poirier calls this the single biggest supply chain mistake. Companies tend to keep their supply chain plans to themselves, when they should be sharing and soliciting information with trading partners and consultants. Companies "can’t make the journey by themselves," Poirier writes. Supply chains are intrinsically based on information sharing, and one that doesn’t take into account the needs of trading partners is liable to fail. Poirier points to Boeing as a positive example of this concept; it developed its Boeing 777 jet electronically with input from suppliers, maintenance people, and customers.
Focusing only on the bottom line. Businesses will continue to look at the bottom line, but a company that focuses only on internal improvement puts itself in a position where no one is willing to partner with it. Successful supply chains require companies to focus more on the top line, profitable new business that can benefit every member of the chain.
Poor customer relationship management. CRM applies not only to the consumer but also to corporate customers and partners, making it a valuable part of the supply chain. CRM often fails, however, because organizations too often see it only as a way to cut costs in the call center or to automate back-office processes.
Not focusing on the consumer. "Everyone focuses on the business customer," Poirier says. "Hardly anyone carries the supply chain through to the consumer." Businesses need to start their supply chain with a knowledge of who is buying the product; those that focus only on their trading partners will lack a critical focus when they set supply chain priorities.
Misunderstanding the Internet. In the wake of the dot-com crash that took down highly touted supply chain exchanges such as Chemdex, businesses are skeptical about the role the Internet can play in the supply chain. It still has a vital role, Poirier says, especially as infrastructure for business-to-business applications. He points to companies such as Intel, which has used the Internet to facilitate collaboration among employees and partners, reducing its paper-based transactions by 85 percent.
Lack of collaboration across enterprises. "You’re only part of a network, I don’t care how you big you are," Poirier says. The original concept of a linear supply chain has given way to a nucleus model, where a large company may sit at the center of a number of trading partners but is part of a much larger trading community. That should encourage information sharing because one partner’s actions influence many others’ - if a retailer shares point-of-sale information with its suppliers, for instance, they can keep less inventory on hand, and that results in lower costs for the retailer.
Weak global concepts. Businesses often set up supply chains with a narrow focus on just a few countries. They ignore opportunities for both customers and suppliers in global markets such as China, India, and Indonesia. They also lack the understanding to navigate global trade.
Absence of advanced sourcing applications. Businesses have rightly focused on sourcing in their supply chain efforts - after all, Poirier says, purchases can be 25 percent to 75 percent of a group’s sales costs. But too often they deal with sourcing costs by simply dictating that suppliers hold costs down. That may stifle innovation and participation. A better long-term approach is to give suppliers incentive to come up with innovative new processes that generate savings that can be shared.
Dealing incorrectly with culture. "Your culture may be holding you back," Poirier says. Most organizations have cultures that favor only incremental change and that resist sharing information across business units. Both are tendencies that hinder supply chain efforts.
Not trusting the people you need to trust. Supply chains often include promising partnerships between organizations and their trading partners. Unfortunately, those partnerships often fail. What kills them is a lack of trust: one or more of the partners never wanted the partnership in the first place and disrupts the communication and sharing that are critical for a supply chain to work. All parties need to know that trusting each other is vital to collaboration - and then they need to make the leap.
There are reasons why companies should take these measures. Poirier says that an effective supply chain can have an impact on both the top and bottom lines. As much as seven percent additional profit can be gained from better sourcing, better prices, lower inventory, new revenue sources and better selling costs. It’s also worth toughing out supply chain efforts in the long run, he says: "You’ll get a percentage point each year that you stick with supply chain and really work it."
Sidebar: Supply Chain Evolution
Supply chains aren't born — they evolve. Their evolution can be traced through five levels of maturity that range from simple sourcing and logistics to advanced collaboration and networking.
Charles Poirier developed the five levels based on his experience as the head of manufacturing for a packaging company and his work as a partner in CSC's supply chain practice. He outlined the first four levels in his 1999 book Advanced Supply Chain Management: How to Build a Sustained Competitive Advantage and then added a fifth level in 2000 in E-Supply Chain: Using the Internet to Revolutionize Your Business. His concepts are used to guide the supply chain practice's implementations.
Each company has to go through these levels as the supply chain progresses:
- Level 1 is focused on internal improvement, including taking costs out of sourcing and logistics. The efforts tend to be confined within a particular business unit.
- Level 2 starts to break down internal walls, and works on corporate integration. The various parts of the company start to cooperate to align purchases, processing and shipping.
- Level 3 businesses start to take an external view that includes a closer focus on the customer. Customer satisfaction becomes one of the metrics that measure the supply chain's success.
- Level 4 brings trading partners and suppliers into the discussions about how to reach customers. Whereas previous relationships between the trading partners were about buying and selling, the partners now start collaborating and sharing information to reach a common customer.
- Level 5 is a move toward truly automated connections between businesses. Partners share information electronically, which lowers production cycle times. Inventory can be viewed on a real-time basis so forecasting errors can be diminished.
Related Information:
Contact Us and Let Our Experience Help You Produce Results.
Learn about CSC’s supply chain offerings.
|
