Bricks Matter

The Role of Supply Chains in Building Market-Driven Differentiation

Lora M. Cecere, Charles W. Chase

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781118282724
• Edition: 1
• Topic: Business
• Subtopic: Decision Making
• Index: Business

Get proven guidance to build a market-driven supply chain management system

Supply chain management processes have gradually shifted from a supply-driven focus to a demand-driven one in order to better synchronize demand and supply signals. Bricks Matter shows you how you can identify market risks and opportunities and translate these into winning tactics. Business cases highlight how business leaders are winning through market-driven approaches.

• Helps you understand how to apply the emerging world of predictive analytics for the better management of value networks
• Includes business cases illustrating the market-driven approach
• Reveals how businesses can identify market risks and translate these into supply-side tactics

As companies transition from demand-driven to market-driven approach, the focus in organizations shifts from one of vertical excellence to building strong market-to-market horizontal processes. Improve revenue by increasing market share, improve profit margins, and maintain high levels of customer service with the indispensable guidance found in Bricks Matter.

CHAPTER 1

Why Bricks Matter

We had to learn supply chain practices. We then had to unlearn them as technologies evolved, and then relearn them based on new capabilities.

—First-Generation Supply Chain Pioneer

The story is old. When generations come and go, at the end, the bricks remain. They last through the ages. They are a symbol of prosperity, solidity, and strength. Found in many forms, they give a culture countenance. This book is a variation on this old theme. In the end, bricks matter.

The foundation of business is built on bricks. Manufacturing plants, warehouses, and sales operations centers are built to deliver on a brand promise. Each is run by people. Collectively, their effectiveness can make or break a company’s ability to fulfill customer promises. To drive success, these processes need to be synchronized. They need to be carefully architected and adapted to meet strategy. The design has changed over time as business complexity increased.

In business, while there are fads, true value is built through continuous improvement of processes to deliver real products to real people along with market differentiating services to build brands. To make year-over-year progress, companies learn—although, sometimes the hard way—that the ability to successfully deliver on the brand promise requires proficiency in supply chain management.

I found Rome a city of bricks and left it a city of marble.

—Augustus

The term supply chain is not new. It is fundamental to military strategy. It was the difference between winning and losing in the Napoleonic wars and the Battle of the Bulge in World War II. The application of supply chain practices as a fundamental business process is newer. First coined in 1982 to be used as an overarching business concept, it is now 30 years old. Over the last three decades, it has morphed in definition.1

No two companies today define it the same, nor will they agree on what good looks like. The definitions are as varied as ice cream flavors in a local shop.

The goal of this book is to share the insights of what has been learned over the course of these 30 years. In this book, we do not debate the ideal supply chain or the flavor of the month. Instead, we give insights on the evolution of the processes, share the stories of success and failure, and prognosticate on the future of tomorrow’s supply chains.

To help the reader not familiar with supply chain vernacular, here we start with a definition. For the purposes of this book, we define the term supply chain as “the process of organizational alignment to effectively manage the flows of cash, product, and information from the customer’s customer to the supplier’s supplier.”

Success depends on both vertical processes (within a function) to drive operational excellence and horizontal processes (across functions) to ensure alignment within the organization. Excellence happens when there is orchestration of the trade-offs to the business strategy.

Supply chains make good companies great; however, ensuring this happens is easier said than done. As shown in Figure 1.1, each company has an effective frontier: a unique set of trade-offs to manage to improve business outcomes.

Figure 1.1 The Supply Chain Effective Frontier

Over the last 30 years, supply chains have become more complex with implications for cost, working capital, social responsibility, and product quality. These interactions involve thousands of trading partners in interconnected and ever-changing relationships that stretch around the globe. Excellence is defined through trade-offs on the effective frontier.

The challenges are many. Time and clock speed pressures are high. Cultural differences are a hindrance. Data latency is a problem. The impacts on economic growth are far-reaching. It is a complex system with complex processes with increasing business complexity. This management is intricate. There is not one supply chain. Companies find that they have five to seven unique supply chains to be managed simultaneously. These systems need to be knitted together into business process outcomes.

Although it is easy to understand the increasing business process complexity, the key to supply chain success is a true understanding of the supply chain as a system, and learning how to make the right choices on business complexity to drive true lasting value. Today, there are 3,500 companies greater than $1 billion in revenue working on improving the supply chain response. There is no company that feels that it has it nailed. There are no best practices. Instead, the processes are evolving.

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THE MISSION

Supply chain leaders manage complex systems with complex processes with increasing complexity. Leaders orchestrate the trade-offs vertically and horizontally to deliver the business strategy. Laggards let the supply chain whip them around.

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Core to the business strategy is agreement on how to make trade-offs. Strong decision-making capabilities delivered through a horizontal process characterize supply chain leaders. Governance and well-defined decision-making processes are essential. A good supply chain translates to good business.

Once I was asked to shut down a manufacturing facility. I had worked with the people in the factory for many years. As we rolled out the lay-off packages and talked about why we needed to relocate the factory, no one liked it; but everyone understood it. I was okay until we leveled the building, and I sat on the rubble of the bricks that once was a vibrant entity of people making real things day after day. It was then that I cried. I was all alone sitting on the bricks remembering what had been.

—Director of Supply Chain Management, Chemical Industry

Most companies understand that supply chains have complex processes. They also know all too well that the underlying processes are growing more complex. They live it every day. However, what most companies fail to realize is that supply chains are complex systems with finite trade-offs. These choices happen up and down the supply chain. Leaders make them consciously while laggards make them by default. They are both horizontal (cross-functional) and vertical (within a function). They are also intra-enterprise (within the company) and inter-enterprise (external to the company within a trading network).

Each supply chain has a unique potential. As shown in Figure 1.1, the business choices are intrinsically linked at multiple levels.

The approach needs to be holistic. Some typical trade-offs include:

• The proliferation of products and services will increase demand error, raise inventory levels, and decrease asset utilization.
• An extreme focus on cost will decrease customer service and increase inventory levels.
• New products will increase forecast error, inventory, and supply chain waste.
• A singular focus on asset utilization will increase inventory and decrease customer service.
• An increase in customer service will increase cost, decrease asset utilization, and increase inventory levels.
• Shortening working capital cycles will increase cost.
• Lengthening the manufacturing and delivery supply chain cycles will increase working capital and decrease customer service.
• Increasing manufacturing quality hold times will increase inventory levels, increase working capital, and decrease customer service.

For each supply chain, the impact is different. There are no hard-and-fast rules. The trade-offs of customer service, forecast accuracy, and inventory are the easiest to understand. Through continuous improvement programs, employee training, investments in technology, and alignment of metrics, the core of the supply chain can be improved.

In setting targets for the supply chain, leaders use advanced modeling tools to understand their specific supply chain potential. Modeling helps organizations see the impacts of business changes through what-if analysis. This analysis allows companies to set realistic and holistic metric targets. Leaders use the same metrics but different targets for each supply chain team. The determination of supply chain potential cannot be accomplished through spreadsheets. As a result, companies working on improving supply chain capabilities need to invest in business analytics for supply chain modeling. Without this modeling, the goals are unclear. They cannot be rolled up horizontally across the organization or vertically from region to global.

There is no magic wand or easy button. Companies cannot wish things to happen; instead, leadership happens through hard work. It is about building the organizational muscle to raise this effective frontier. It requires strength, balance, and flexibility. Results happen over many years. Progress is not linear. Supply chain leaders set targets consciously and align metrics systematically with a focus on balance. Supply chain laggards let their supply chain whip them around.

Time is money. If we could take one day of transit time out of the supply chain, we could free up $1 billion in cash. Unfortunately, we cannot.

—Chief Financial Officer, European Operations, High-tech and Electronics Manufacturer

IMPLICATIONS

Implications matter. The business impact of the evolution of supply chain practices is far-reaching. To support the evolution, an entire ecosystem of software, consulting, and hardware companies dedicated to improving supply chain processes evolved.

The use of these technologies enabled growth in global markets, accelerated new product introductions, and drove more-informed decision making within the company. As computing power grew and connectivity increased, process and technology innovation accelerated. Although progress has been made, this journey is far from over. Today, there is a plethora of solutions for cloud-based computing, big data supply chains, mobility, and advanced analytics for learning systems. The greatest concentrations of solution providers building technologies for supply chain management are in Germany, India, and the United States.

To improve the processes, and to conquer new opportunities, corporate spending has been significant. Over the past 20 years, manufacturing organizations have spent 1.7 percent of revenue on new forms of information technology (IT) to improve visibility, accelerate decision making, and drive insights. This spending has had a profound economic impact on the gross domestic product (GDP) of nations and on the business results of manufacturing companies.

I remember the early days of supply chain management, when we typed our own letters, mailed them in paper envelopes, and went to our office for a conference call. Today, we communicate globally in real-time anywhere. E-mail has replaced inter-office mail and our handheld devices define where we will have our next conference call. So much has changed.

—First-Generation Supply Chain Pioneer

Not all supply chains are created equally, and not all industries perform at the same level. High-tech, chemical, and consumer products supply chains are the most mature. The industries of automotive, pharmaceutical, and retail lag the rest.

There is an inverse relationship between margin and supply chain excellence. When margins were tight, supply chains got better. The combination of product life cycle changes, commodity margin pressures, and product proliferation put pressure on organizations to improve the processes quickly. Throughout this book, you will see that manufacturers with the tightest margins defined wave after wave of supply chain process excellence.

In today’s world, clicks are sexier than bricks. There is a fascination with online presen...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Foreword
• Preface
• Chapter 1: Why Bricks Matter
• Chapter 2: Building Value Networks
• Chapter 3: The New World of Demand Management: Demand Sensing, Shaping, and Translation
• Chapter 4: Supply Management Evolution
• Chapter 5: Building Horizontal Connectors
• Chapter 6: Supply Chain 2020
• About the Authors
• Index