A recent survey by Hitachi Consulting showed that about 8 out of 10 Supply Chain managers do not see their supply chain as an “enabler of business strategies” within their organization. While the number may seem surprisingly high given all the press about Supply Chain Management, there are some underlying organizational inhibitors at play that contribute to this. Let us examine these:
Broadly speaking, in any organization there are Commercial teams consisting of Sales and Marketing, and Operational teams consisting of Logistics and Production. Supply Chain, instead of being viewed as a cross-functional, is still being viewed as an Operational function within a large majority of Corporations. Commercial teams view Supply Chain as a supporting function at best, or as a process overhead at worst. While the middle managers in Supply Chain Management are getting increasingly sophisticated with their level of understanding of how supply chain processes can positively impact the business, the commercial teams are not equally educated about the impact Supply Chain can have on the business.
Misaligned incentives and lack of accountability:
Commercial teams are mainly measured by the volume and revenue driven metrics whereas Operations teams are mainly measured on cost oriented metrics such as inventory turns and production and distribution efficiencies. While each of these metrics and objectives are important by themselves, if there is no shared responsibility of metrics, Commercial teams have every incentive to order “Just in case” inventories taking a fairly optimistic view on what they can sell. If the product does not get sold, resulting in scrap or returns, Commercial team is not held adequately accountable for the returns. Given the cost focus on the Operational side, the operations teams are constantly second guessing the orders placed by commercial teams and adjusting these orders to match up to what Operations “thinks” that the Commercial team can sell in the market place.
Lack of holistic Inventory strategies:
Many a times, we see organizations where there is no single executive with responsibility for the entire inventory in the supply chain. For example, there may be a hand off of inventory from the Operational function to the Sales function at the Regional DC level. Likewise, there may be a similar handoff between Production and Logistics functions. This results in disjointed inventory policies at various nodes with no holistic system wide inventory strategies. The “owners” of the inventory at each node may push the inventory downstream to make their metrics look good and this could result in channel stuffing.
Lack of visibility to consumer trends:
Traditionally supply chain focus has been from receiving raw materials from suppliers to shipping product out of their Distribution Centers. Tracking and responding to consumption trends at Point of Sale (POS) is viewed more as a Commercial function. However, this results in heavy reliance on what has been shipped out of DC’s historically and hoping and praying that history will repeat itself. However, this approach could significantly miss the mark on what is happening at the Point of Sale and aligning supply to true consumption. This is becoming increasingly critical in an environment where SKU complexity is growing, product lifecycles are shrinking, and the balance of power is shifting to the consumer from the brand owners and the retailers.
Lack of supply chain agility:
Business strategies need to be explicitly reflected in the Supply Chain Planning and Execution processes, and all three need to be constantly synchronized. Lack of agility in Supply Chain Processes results in disjoints between strategies, planning, and execution. This in turn results in lack of faith in the Supply Chain plans with users constantly overriding systemic recommendations. Agility to detect and respond to events as they occur is crucial to maintaining the synchronization between Planning and Execution. In the world where change is rapid, Supply Chain processes and supporting systems that adapt to changes are crucial for success.
Addressing the above causes should significantly enhance the leverage you get from your supply chains. Good news is that all of the above are addressable by your organization. How to address the above causes will be the topic of a subsequent post.