3 Ways to Accelerate Supply Chain Excellence

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Build an Aligned End-to-End Supply Chain MindsetStrategy 1:

Supply chain management has never had more of an impact on business.

One of the biggest underlying causes for supply chain inefficiency is a lack of end-to-end communication, problem-solving, and trust.

There are numerous examples of decision-making at one link causing significant problems for the chain as a whole. However, exhaustive, granular oversight from one office is often not efficient or even possible in today’s highly changeable, complex global environment. One answer is to improve the ability of your leaders to reach beyond their individual silos and seek answers that strengthen the entire chain.

Encourage your leaders to reach beyond their individual silos and seek answers that strengthen the entire chain.

Developing Strategic Supply Chain Leaders. Webinar. Smarter Growth. CorpU TV, 2015.

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Production managers are rewarded for lowest cost per unit manufactured. So they produce more than what is needed.

Sales managers are rewarded for sales volume in relation to having products available to customers. So they request more than needed.

Purchasing managers are rewarded for lowest cost per unit purchased. So they buy in bulk.

Transportation managers are rewarded for lowest cost per unit shipped. So they ship in bulk.

The Result: Inventories build up across the supply chain and accumulate, primarily as a result of channel partners not trusting each other and carrying more buffer inventory than dictated by customer demand.

An obstacle to this type of shared leadership is misaligned incentives. Most companies do not set up their incentive structure to reward end-to-end thinking and problem solving. Chris Norek, a senior supply chain faculty member at Penn State Smeal College of Business, highlighted this challenge in a recent webinar.

Fix Misalignment of Incentives

Strategy 1: Build an Aligned End-to-End Supply Chain Mindset

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Developing Strategic Supply Chain Leaders

Activating strategy through a leadership shift

Smarter Growth Webinar

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Strategy 1: Build an Aligned End-to-End Supply Chain Mindset

Financial Measures

Customer Service Measures

•Speeding inventory turns

•Reducing inventory investment •Increasing cash-to-cash cycle time

•Tracking “Perfect Order”

•Aligning for Service As Measured By the Customer (SAMBC)

The remedy to misaligned incentives? Changing metrics to span supply chain boundaries, incentivizing leaders to communicate regularly across silos to meet goals. The seminal supply chain article “The 7 Principles of Supply Chain Management” states, “excellent supply chain managers take a broader view, adopting measures that apply to every link in the supply chain and include both service and financial metrics.”

Operational metrics to monitor and analyze to highlight operations for significant performance improvement include:

Changing the incentive structure allows leaders to see the whole supply chain picture and be responsible for supporting it. Companies are creating the trust needed to make decisions based on overall efficiency by holding all links to the same cross-boundary metric—as defined by customers—rather than individual silo efficiency.

Create Boundary-Spanning Metrics for Managers

Anderson, David L, Frank F Britt, and Donavon J Favre. “The 7 Principles of Supply Chain Management.” Supply Chain Management Review 11, no. 3 (2007).

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Build Supply Chain EcosystemsStrategy 2:

Supply chain managers are now being encouraged to emulate “business ecosystems,” which independent organizations “living” in a common terrain collaborate symbiotically.

The term “business ecosystem” indicates a balance of competition and cooperation, similar to that seen in natural systems. For example, cacti compete for water, with each other, with other species, and with the climate. Each cactus has different adaptations to deal with the scarcity of water, but they both compete and cooperate, for example, blooming at different times. Additionally, they would all be threatened if the desert climate collapsed so cooperation is a necessity.

An example of a supply ecosystem could be collaboration in a water-constrained environment. A carbonated beverage manufacturer requires a significant amount of water, so a sourcing leader would traditionally enter the negotiation looking solely for the lowest price. That

would normally be accomplished by buying the largest quantity possible. However, suppose clean water is a challenge for the region with the natural ecosystem affecting the business ecosystem. Buying up significant amounts of clean water affects raw sugar production, affects demand for potable fluids, and affects other food manufacturers in the region. It is then in the best interest of the manufacturer to engage local stakeholders – even if they are competitors – to create a sustainable solution. Everyone faces the same constraints and could benefit from a more stable, sustainable supply.

Ecosystems are usually regional, versus global, and require a strategic approach, because participating means supporting the ecosystem at some expense to

individual stakeholders. Supply chain leaders need to safeguard essential requirement for their business and the strategic outcomes (i.e. increased agility) that many ecosystems offer to achieve strategic goals in the region.

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Strategy 2: Build Supply Chain Ecosystems

ELK GRAZE ACROSS ALL AREAS WOLVES DETER ELK FROM LOW VISIBILITY AREAS

FOLIAGE FLOURISHES, PROVIDING FOOD AND MATERIALS FOR BEAVERS

DUE TO WOLF DETERRENT, BEAVERS CAN CREATE DAMS THAT PROVIDE HOME FOR

WETLAND SPECIES

SELF-SERVING BEHAVIORS AND DECISIONS THAT NEGATIVELY AFFECT OTHER STAKEHOLDERS, RESULTING IN AN UNSUSTAINABLE IMBALANCE

SACRIFICIAL DECISIONS REQUIRED BY ECOSYSTEMS

SUSTAINABLE, DIVERSE, AND BALANCED ECOSYSTEM THAT EMERGES FROM COLLABORATING

COOPETITION

PARTNERS IN VALUE CREATION

POOLED KNOWLEDGE RESOURCES

AND

SUPPLY CHAIN ECOSYSTEMSCOORDINATION FOR COMPETITIVE ADVANTAGE

TRADITIONAL SUPPLY CHAIN INTERDEPENDENCIES

POOLED SEQUENTIAL RECIPROCAL

MULTIPLE RECIPROCAL

INTERDEPENDENCIES

TODAY’S SUPPLY CHAIN INTERDEPENDENCIES

A NATURAL EXAMPLE

( ); n.1. A SET OF INTERDEPENDENT AND COORDINATED ORGANIZATIONS THAT SHARE COMMON ADAPTIVE CHALLENGES AND COLLECTIVELY SHAPE THE CREATION AND NURTURING OF A SOURCING BASE THAT CONTRIBUTES TO COMPETITIVE ADVANTAGE AND SUPERIOR PERFORMANCE.

Ketchen, David J., T. Russell Crook, and Christopher W. Craighead. “From Supply Chains to Supply Ecosystems: Implications for Strategic Sourcing Research and Practice.” Journal of Business Logistics, July 2014, n/a – n/a. doi:10.1111/jbl.12057.

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Industry demand for new supply chain talent is not being met. Currently, the ratio of available positions to available workers is 6 to 1. There are just not enough graduates to fill current plans for growth trajectories.

Address the Supply Chain Talent CrisisStrategy 3:

The two previously-mentioned strategies place an increased importance on the strategic and tactical skills of supply chain professionals. However, the field is

headed for a historic expertise shortage.

There are four drivers of this shortage. They create what experts are calling a “Perfect Storm” for the profession.

“The Perfect Storm”

The talent gap of the future will be difficult to meet even if current gaps were being filled.

There is also a skills gap. Supply chains are changing dramatically, meaning current professionals will almost certainly need further development to succeed in tomorrow’s technology-driven, sustainable, customer-centric supply chains.

There is a shortage of supply chain professors, further shrinking the future pool of supply chain professionals.

Firms are already understaffed: Boomers are retiring: Current professionals need training, too:

Universities have a “talent gap”:

Kusumal Ruamsook, and Christopher Craighead. “A Supply Chain Talent ‘Perfect Storm’?.” Supply Chain Management Review, January 2014.

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So What’s Your Plan?

There are very few supply chains that are not impacted by shifting customer priorities, talent shortages and global instability. And those are just some of the trends experts are able to foresee.

For some, these challenges will represent insurmountable obstacles. But for others, they represent new opportunities to define the future of the field. Companies that invest in the development of supply chain leaders, employ strategic co-opetition, and implement strategies to better serve customers will succeed in mapping this future. Companies that simply tread water will lose out and may not even be aware of why.

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Develop Strategic Supply Chain LeadersCorpU and Penn State’s Smeal College of Business bring a world-class solution–ranked #1 by Gartner–that builds talent in end-to-end supply chain excellence.

Our solution will:

• Connect your supply chain professionals across functional areas. • Teach the key pillars of holistic supply chain leadership. • Build upon your organization’s supply chain expertise. Make integrated supply chain excellence a strategic asset for your business.

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