Fine-tuning your supply chain

David Margulius writes about the recent McKinsey Quarterly (registration required) article about the data capture for supply chain in his column titled Fine-tuning your supply chain. Just reading the headline made me think about i2's ABPP system post wherein I was thinking about whether it was really "fine tuning" or "fine tinkering" that managers are upto in the supply chain.

McKinsey research offers:

The problem, according to the McKinsey research, is that companies today not only buy more from far-flung third parties in an effort to cut costs, but they also rely more on third-party contractors to move these goods around the globe. That means critical supply chain data (such as quality, inventory, and capacity) is “locked up in the IT systems or spreadsheets of a dozen or more companies.”

I think this was always a problem (I blame Microsoft for the Excel program) especially with technically clueless managers who have just gotten trained on some spreadsheet or powerpoint tool and know only how to deploy such tools. Another source of the problem is as David himself outlines:

Although the McKinsey report makes sense, it misses the boat in one key area: human nature. Companies, as do people, sometimes don’t want to pass information on to partners for competitive reasons, control reasons, or just for no reason at all.

If you've worked in the business world, you just know that this is true - its just human behavior.
McKinsey outlines its view of best practices for reuniting supply chain data:

1. Fit information flows to supply chain types. For fashion-oriented products such as iPods, for example, focus on IT connections that help you “chase demand rapidly by providing repaid coordination between designers and suppliers.” But for commodities such as TV tubes, focus on cost and inventory data.

In other words, customize your supply chain operating model (that should ideally integrate a supply chain information and data exchange mode) with your business strategy.

2. Develop deep monitoring capabilities, or systems that allow you to pull key data from both your suppliers’ systems and their suppliers’ systems (you’ll probably have to give suppliers incentives to invest in this, McKinsey warns).

How about "bull-whipping" your suppliers as an incentive to developing deep monitoring capabilities. This should really be the only incentive for suppliers to cooperate with you and anything above and beyond that is a premium that you're paying out for reducing the uncertainty for suppliers for free.

3. Think cross-functionally and use detailed scorecards. Your purchasing people may be rewarded for selecting the lowest-cost supplier, but the manufacturing group may be rewarded for keeping inventory low and fill-rates high. They must get in a room and agree on performance metrics to make sure you get all the data you need from your suppliers.

Basic supply chain execution meaning that the supply chain is here and not here. By definition a chain is not one link though the strength of the chain is limited by the strength of its weakest link. If two functional departments are operating together, it makes sense not to incentivize or measure them in contradictory or incoherent ways. There is a thing to be mentioned here about truth - it needs to be repeated or else it is forgottten.

posted by AJ @ 9:34 AM