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2-1-The Top Ten Supply Chain Mistakes PDF
2-1-The Top Ten Supply Chain Mistakes PDF
Why do so many companies fail to extract the full value out of their supply chain transformation
efforts? Most failures occur at the intersection points between employees, process, and
technology. From the perspective of one veteran practitioner and consultant, here are the ten most
common mistakes that companies make when trying to enact meaningful change in their supply
chains.
No one disputes the economic impact of supply chain management. Study after study has linked supply chain
performance to shareholder value and shown that total supply chain costs account for more than half of the
finished cost of a typical product. But for the most part, initiatives to improve supply chain processes to date
have fallen short of expectations. How else can you explain why inventory has continued to grow at a 3-
percent compound annual growth rate over the last decade? And why 30-percent of new consumer goods
products fail to meet basic financial returns?
Mistake 1: Always viewing the supply chain as a "chain" The Top Ten Mistakes
Dictionary definitions aren't always helpful. Merriam-Webster, for
example, defines a chain as a "series of things linked, connected, or
associated together or a group of the same kind or function usually under 1. Believing that supply
a single ownership, management, or control." This definition, however, chain management is
implies that a supply chain is a series of interrelated functions that have about managing a chain.
some coupling governance and are connected by a single process flow. 2. Trying to achieve major
changes while doing
business as usual.
That view has worked reasonably well up to now. Traditionally, the supply 3. Having unshakeable
chain has been partitioned into the "silos" of planning, procurement, faith in the value of
logistics, and service, and many managers focused on extracting value vertical integration.
from their own silos. For companies pursuing the early stages of change 4. Failing to synchronize
management—in effect, getting their own houses in order—this approach demand chains and
has delivered tremendous results directly to the bottom line. supply chains.
5. Talking about
But as further gains become progressively harder to obtain, companies transformation in terms
need to rethink their supply chain perspective. Instead of viewing the of the enabling
supply chain as a series of functional activities, they need to see it as a technology.
process that spans across functions and organizations. On the surface, it 6. Pursuing "real time"
may seem like a small change to ask for, but for many businesses, it has visibility at all costs.
meant an overwhelming struggle. It's particularly difficult because it 7. Practicing supply chain
requires an outward focus. In addition to the traditional internal activities "monotheism."
and relationships, supply chain practitioners now need to focus externally 8. Misreading employees'
skills and aptitudes.
9. Confusing globalization
with global brands and
cross-border trade.
10. Thinking that supply
chain transformation is
a simple task.
In the future, supply chain success will be determined largely by the degree of partnership between the
businesses that make up the extended value chain.
To some extent, technology advances make it less crucial to constantly synchronize demand and supply
signals. Leading-edge companies already excel at tracking point-of-consumption data as well as inventory at
the last point of consumption, and they use sophisticated tracking technology to transmit the data effectively.
As a consequence, their marketing functions can focus on building the brand and enabling effective
promotions; sales can proactively influence customers' ordering pattern; and production, procurement, and
distribution functions have one signal that is driven by customer data.
The optimal scenario is the confluence of the right people with a robust technology platform, which enforce
and adapt a business process that supports the corporate strategy. The least effective scenario for a business
transformation? An obsessive focus on and fine-tuning of the technology platform alone.
Every supply chain has inherent latency; it can only operate as fast as the slowest machine or process. A
benchmark that we use at Scotts is to keep the latency to about a week so that component providers can
react to surges in orders.
We have found that enterprise resource planning (ERP) systems offer a de facto degree of visibility in the
transaction, or order, side of the business; after all, ERP is an "enterprise recorder" of data. But many
companies make the mistake of not going to the next step. And as a result, they end up data-rich and
knowledge-poor. The principle I've often used is that all order transaction data, as well as production and
logistical schedules, need to be available with almost zero latency. When piped into supply chain planning
tools, the data can then be analyzed and interpreted as useful knowledge. Too many companies (including
Scotts, I might add) have fallen into the costly trap of assuming that the right ERP package from the right
vendor would take care of things.
Mistake 7: Adopting a "one-channel-fits-all" approach. For most companies today, there is no such
thing as the supply chain—as in the one and only supply chain. In practice, there are multiple supply chain
designs to suit the characteristics of the products and the channels they are sold through. The distribution
channel isn't usually top of mind for supply chain managers. But if supply chain management is to be done
right, it must extend all the way through the front office to the customer.
Many companies continue to struggle with integrating the supply chain's many functional silos under a
common organizational and reporting structure. They also have difficulty identifying metrics that tie all the
functions into a loosely coupled entity. It's common to apply the same supply chain techniques—planning,
procurement, logistics, and so on—to all products and channels. But it's a mistake to do so. I often refer back
to a seminal article in the field of supply chain management by Marshall Fisher titled "Which Supply Chain Is
Right for Your Product."1 Fisher's article provides an excellent framework that uses product and channel
characteristics to help determine the mode of operation for a supply chain. It's even more important to get
that right these days as companies mix product portfolios that often have quite different characteristics. For
example, they mix products with short lifecycles, such as fashion clothing or consumer electronics equipment,
together with replenishment-based products that have long shelf lives or stock products with build-to-order
products.
The traditional change-management approaches involve plenty of training and attempt to teach individuals
new skills so they can carry out their new responsibilities properly. Those efforts are necessary, but they're
not enough. The traditional approach must be modified to suit the reality that not every individual will imbibe
the new training and acquire the skill sets that management wants them to have.
In my experience, the biggest challenges for employees center around rigorous analytical thinking and
technology understanding. Some people are just not temperamentally inclined to such thinking; many others
lack the technical education to operate in the new mode. The results are discomfort for employees and
disappointment and irritation for managers. Unless dealt with swiftly, the situation can cause widespread
damage to a transformation effort.
For the most part, however, companies conclude that shared supply chain services won't work. But that's not
necessarily true. In many situations such services make economic sense—particularly when it is possible to
leverage expertise and volume across borders and to standardize the mechanisms that govern the ability to
get product successfully to the customer. For example, companies can leverage global procurement even in
the absence of global brands and global production. Globalization of supply chain functions and processes and
shared leverage with partners appear to deliver productivity benefits of between 8 and 10 percent.
Two best practices that we use effectively at Scotts are the following: a long-term success horizon (three to
five years) and dedicated project teams. We believe that an effective transformation typically takes more than
two years, with many intermediate checkpoints and a range of metrics that must be closely monitored. We
also believe that change cannot easily happen when people are only focused on and rewarded for their day-to-
day roles. So we assign dedicated teams whose core job is to manage large transformations. Together, those
initiatives have worked extremely well for us in the last six years as we have transformed from being a sleepy
manufacturing company to being the world leader in the lawn and garden category. In fact, we've advanced to
the point where we've won "supplier of the year" awards from five of the world's largest retailers.
The lessons here can be boiled down to two simple ideas. First, there is no "one size that fits all" approach to
supply chain transformations— particularly given the growing complexity of the supply chain and of the
customer. Second, there really are common threads around the pacing of change: applying sound human
resource management, thinking outside the four walls of your internal supply chain, and managing your
operations to a single signal—that is being driven by meaningful data from the end user.
To emphasize: Supply chain transformation is indisputably difficult. But when all of the right concepts and
actions come together, it is like listening to a beautifully composed and coordinated orchestra.
Author's note: Transformational journeys always involve teamwork with a like-minded group. My thanks go
to the following Scotts executives: Michael Kelty, vice chairman; Barry Sanders, senior vice president of sales;
Mike Lukemire, senior vice president of supply chain; and Dan Paradiso, vice president of operations.
Together, we have spent countless hours shaping the next set of initiatives to enable an optimal cost and
service structure for the company.
Footnotes
1
Fisher, Marshall L. "What Is the Right Supply Chain for Your Product," Harvard Business Review. March-April
1997.
Sumantra Sengupta is senior vice president, Global Services at The Scotts Company. Previously, he was a vice
president in the Supply Chain Service line of the consulting firm Capgemini.