John Van Veen, CSCP | January/February 2011 | 21 | 1
Get your supply chain players moving in the same direction
Today’s global marketplace is more fiercely competitive and volatile than ever before. Globalization, compressed product cycles, recessions, rapid technological changes, ever more demanding customers, and continuous innovation and improvement force companies to be flexible, get lean, and use the strengths of their supply chains. Companies no longer battle other companies. More and more, it’s supply chains competing against other supply chains in the race to market supremacy.
The possibilities of supply chain management are enormous, and practice shows the path to supply chain excellence is equally formidable. Current literature focuses on five types of barriers to effective supply chain integration: technological, relationship, structural, human resource, and alignment. The following focuses on alignment, as an aligned supply chain offers significant opportunity to gain greater competitive advantage.
Inconsistent goals challenge successful internal and external supply chain integration. Divergent objectives lead managers to make self-interested, suboptimal decisions that frequently are in opposition to those of other business managers and supply chain members. For example, procurement departments often formulate cost-reduction goals, whereas business goals are set toward innovation or risk reduction.
Only when the various members of a supply chain and internal stakeholders are pulling in the same direction can competitive products and services be developed for both short- and long-term success. Mismatched goals must be avoided. All internal managers and all members of the supply chain must view the other members as fully committed to the chain of alignment. In cases where there are different value structures, collaboration becomes difficult as each department and chain struggles with unique strategic directions.
Therefore, alignment—or how well business goals and strategies are in parallel with division strategy and the demand and supply chain—is essential to realizing competitive advantage for the supply chain as a whole. In addition, alignment may be the most critical element to supply chain excellence. Also note that, although sales and operations planning is an important alignment mechanism, there are more themes to consider.
It is remarkable how often business owners do not act according to their often-public strategies and objectives. Even vice presidents of logistics are not always fully aware of corporate objectives and themes. As a result, the company and the entire supply chain run after their own, sometimes misaligned, objectives. The risk is obvious. Companies must stop rewarding suboptimization as certain stakeholders achieve success with no connection to the “alignment chain.”
The chain of alignment
Supply chains must operate as an extended enterprise. (See Figure 1 for an example of this.) It is crucial to align all segments of the value chain with regard to objectives, themes, and the like. At the heart of boardroom, supply chain, and business alignment is the premise that true parallel operations require knowing about and understanding each other’s priorities. Therefore, any effort to foster alignment entails getting to know stakeholders’ agendas—and, more importantly, being part of those plans. Figure 2 illustrates a chain of alignment representing the overall aligned supply chain agenda.
Topics and themes
How should supply chain professionals go about identifying the relevant topics and themes with which they should align? The following are carefully selected, industry-independent topics that can be used to determine the level of alignment between the various functions in the value chain. They include
cost reduction agility enhancement innovation service orientation risk reduction core competences corporate social responsibility expansion internationalization.
These nine topics and themes were revealed through extensive analysis of annual reports from various companies in the Netherlands. They are broken down further into 60 areas of focus. For example, if cost reduction is the main value driver in the supply chain, business goals can be directed at on-time delivery, lean supply chain management, reduction of cash-to-cash cycle time, and the like.
The red line reflects the board of directors’ focus on the nine topics. The black line depicts the focus on the relevant themes of the major business within the company. The white line illustrates the current position of procurement professionals regarding those topics. Finally, the gray line reflects the suppliers’ vision of the nine topics.
The scores, rated 0 to 5, are determined by means of assessment and reflect ratings in terms of “not applicable” to “applicable.” The distance between the lines reflects the degree of misalignment. This particular example shows that procurement, business, and suppliers are not in parallel with the principal strategic topics of risk reduction and service orientation.
The benefits of effective supply chain management can be huge and can help a company achieve much higher levels of customer satisfaction at a lower total cost. However, these advantages are far from automatic. They derive from heightened collaboration, which is inherently difficult to achieve and maintain.
Obtaining cross-functional buy-in and a balanced supply chain management approach that takes disparate functional views into account is essential. The previously stated method facilitates these goals. To establish common vision and objectives (and perception of differences) among the various chains must be measured and mapped out clearly. This can be achieved with research and by means of discussions with representatives of the various chains. The degree of (mis)alignment among all the stakeholders then can be identified and visualized in clear presentations. The insights obtained are the starting point for a structured dialogue among the board, the business, procurement (internally), and the main suppliers (externally).
Executing supply chain alignment often is an eye-opener for everybody involved. It will deliver and inspire. Supply chain alignment initiatives can be viewed as supply chain management enablers because they will help the various chains avoid inconsistent operating goals and stimulate a shared vision, common strategic objectives, and consistent policies and procedures.
John van Veen, CSCP, is managing consultant at Benefit Value by Procurement, a consultancy firm in the Netherlands. He may be contacted at firstname.lastname@example.org.