6 Essential Components of a Good Supply Chain Design

In those precious few moments between rushing from one crisis to the next, we get time to sit back and view our world more objectively and holistically. In one of those rare moments, I would ask you to stop and think about your supply chain design.

Here is a checklist of what we have found to be the six essential elements of good supply chain design. Just consider how well you perform in these areas and how much value you could create if you addressed some of the gaps. We are sure this will both direct and inspire you to greater things but, unfortunately, also add to your long list of important things to get round to. And perhaps you might think that TGG will be able to help you deliver part of this.

1. Strategy and Alignment

Supply chain philosophy is still a relatively new and developing area. Successful strategies have changed significantly in the last few years as thinking has progressed but also as the tools and data analysis have developed to allow this.

What was a successful strategy just a few years ago may no longer be competitive. Operational excellence has always been the bedrock of supply chain and it always will be an important component. But now risk management, customer service, sustainability and many other business challenges are being demanded and always under strict cost control.

Supply chains usually grow along with the business, and so that heritage often defines the strategy. In many cases, new business challenges have appeared and business strategies have changed direction and the supply chain is struggling to evolve and keep pace.

Does your supply chain design align with your business strategy? Is it an integral part of this strategy? Is it properly represented in your board room? Do supply chain opportunities and capabilities feed into the development of your strategy?

You can find other supply chain strategy and risk management insights on our web pages.

2. Supply Chain Assets & Routing

Assuming you provide a physical product then the assets and routes through your supply chain will probably be second only to your manufacturing assets in the capital and contractual commitments that your company makes. Not only does it require investment and resource to build and establish them but the cost of mistakes or changes can be significant.

Thus it is essential to invest in the design and optimisation of these assets. Given a clear business strategy, a map of your existing assets and contracts will allow you to model your supply chain. Selecting the right model that reflects your supply chain constraints is essential. The model may, therefore, be physical flow, financial, communication & data or combinations of these and others.

The model should allow you to consider alternative scenarios and compare them. Investing in the right model will make developing and comparing alternatives much quicker and ultimately lower costs than a continuing evolutionary approach to developing your supply chain. The model has to be of sufficient detail to test your alternatives robustly without becoming cumbersome and overly complicated.

Have you got a complete picture of your supply chain at the right level of detail? Do you know where your supply chain constraints lie and how they impact upon your business? Do you consider alternative options and solutions objectively in your supply chain development?

To see more about supply chain design and optimisation check out our web pages.

3. Process, Procedures and Systems

The basis of any effective supply chain design is a strong core of process, procedures and systems. The most important part of establishing these components is to start with the process and not with the system.
All too often companies invest in an extensive ERP system which has configurable elements for many of the supply chain processes. Many companies then end up with supply chain processes that are compromised, which is driven by the limitations of the ERP configuration. These compromises are rarely quantified and priced, and so the lost value is unknown. In large organisations, the uniformity driven by the ERP system does bring benefits but with a potential cost of lost local adaptation.

As supply chain processes span across the entire business, boundaries will exist between different components. Whatever your supply chain organisation (centralised, decentralised, matrix or hybrid), identifying and managing these boundaries is essential to avoid a “silo mentality”. There is an excellent article, “Three silos in your supply chain and what to do about them” by Ceylan Thomson, addressing this.

There is no ideal solution. But in developing the right solution for your business consider four elements that will help you define where activities should be combined and where the boundaries will have the least negative effect:

• Common technology used interactively
• Information flow
• Error identification and correction
• Parallel or consecutive processes

Do your processes reflect your business needs or your IT systems’ functionality? Does each different activity understand its responsibility for dependant activities? Do your organisational boundaries reflect the best transition in your processes and procedures?

4. Planning and Communication

It is so often said that visibility is essential to good supply chain management. This is true but, in itself, nowhere near enough. There are three components of planning and communication that need to define how that visibility is applied:

• One plan
• Decision-making authority
• Deploying and reporting

There can be only one correct plan. All others are wrong. Although, it is possible to have different perspectives of the same plan with different levels of detail and appearance, relevant to the user. The plan must contain only one verified source for each element of data. There should be a hierarchy in the plan to allow a strategic view that breaks down into a tactical and then operational view. Historically this would have been very difficult to achieve due to limitations in technology. But the internet and more powerful computing technology now makes this simple and often without the need to invest in a specialised software system.

The authority to change the plan has to be very carefully defined. A centralised and hierarchical structure will allow more optimal decisions. However, a large and complex supply chain design may require a more decentralised decision authority to be responsive. This is essential if operating in a volatile market or across time zones. Limits can be applied to local decisions to ensure the integrity of the whole plan and a process of decision escalation when they exceed these limits.

The effectiveness of the plan requires that changes are highlighted and communicated quickly to those impacted. It is equally important for those executing the plan to measure and report compliance to the plan to ensure any deviations can be monitored and taken into account. At all levels, it is essential also to report any external changes that may affect the capabilities and constraints of the system. Plans usually fail because they are either based on erroneous data or a failure to accommodate a change in the system.

Do you have multiple, disconnected plans? Is it clear who has the authority to make which decisions and how to escalate issues? Do you report compliance with the plan, capabilities and constraints effectively?

To learn more about how TGG can help you create visibility on your planning and communication, visit our web pages.

5. Outsourcing

There are very few organisations with the range of skills and resources to be able to own and operate their entire supply chain. The decision of which to retain in-house and which to outsource is a critical and strategic issue. A few critical questions are important when deciding upon which elements to outsource:

• How significant is the process for your operational performance?
• How strategically important is the process for your business?
• How specialised are the skills and resources required?

Once the outsourcing decision has been made, it is then essential to find the right partner to provide that service. All too often this becomes a question of cost once a few essential criteria are met and the responsibility falls to procurement. However, in my experience this often leads to the lowest common denominator, increasing risk and destroying value. Outsource partners should be chosen for their ability to add value to the business over time. This requires selecting a partner whose values and behaviours complement yours. Benefits and rewards should be aligned so that common goals and approaches are taken.

Have you the right balance of outsourced and in-house activities within your supply chain? Do your partners have common interests and culture? Do you share and collaborate on supply chain improvement?

Outsourcing is a significant exercise, and many aspects need addressing to ensure success. Our website gives more information and advice.

6. People and Culture

All too often, we focus so much on process, procedures and systems to improve our supply chains that we forget that they only function because of the people we employ to operate them. We assume everyone is the same and constant, that they act predictably and repeatedly in the same way, and that their personal objectives and rewards are aligned with the business. In reality, every one of these assumptions is wrong in part at some time.
Large organisations have the advantage that they tend to have a dominant and constant culture, in which employees are trained and developed consistently and that compliance is understood and incentivised. They also have a greater capability to influence their surroundings rather than be driven by them. Smaller companies will have less control with more limited capability and resource. However, they can be more flexible and adaptable to accommodate the differences.

However cultural differences run deep and local environmental factors differ significantly. This is even more apparent the greater the complexity and geographical reach of a supply chain. It’s no surprise, therefore, to find that, with no malice intended, people act and react in very different ways. Supply chain uniformity, although theoretically ideal, may be less effective than local adaptations to reflect local circumstances.

Is your supply chain culturally aware? How dependent is your supply chain performance on uniformity? Do you recognise and adapt processes and systems to accommodate local differences?