Good, Better, Best: How to Assess Your Supply Chain Performance
Supply chain performance has never been as important as it is today. In an economy where supply chains, and not companies, battle one another, how a supply chain performs determines who will win the battle. To achieve maximum benefit from a supply chain, creating competitive advantage in the supply chain vs. supply chain wars, a supply chain must be performing at its best or anything it has gained will be short-lived. Yet, many companies are not aware of how their supply chains are performing or even what supply chain they’re in. This is not a disaster for these chains, however. Specific assessment criteria based on the Six Levels of Supply Chain Excellence and a strategic assessment methodology can help them determine how their supply chain is performing and thus plot a course for improvement.
The Assessment Criteria: The Six Levels of Supply Chain Excellence
Before you can examine your supply chain and determine how it’s performing, you must understand Supply Chain Excellence. Supply Chain Excellence is a process with six levels that must be attained step by step. These levels are:
Level 1: Business as Usual. At this level, a company works hard to maximize its individual functions. The goal of individual departments is to be the best department in the company. Organizational effectiveness is not the focus. Instead, each organizational element attempts to function well on its own. Each division/department applies its own strategy for applications used.
Level 2: Link Excellence. If an organization hopes to pursue Supply Chain Excellence, it must look within itself, eliminate and blur any boundaries between departments and facilities, and begin a never-ending journey of continuous improvement. Its individual link must be evolved to make it the most efficient, effective, responsive and holistic that it can possibly be. Supply chain undertakings work better when the links in them are performing their best. The more effective you are internally, the more effective your supply chain will be.
Level 3: Visibility. Supply Chain Excellence requires that all links work together. Links work better when they share information. Visibility establishes the groundwork for information sharing. It minimizes supply chain surprises because it provides the information links need to understand ongoing supply chain processes.
Level 4: Collaboration. Collaboration is achieved through the proper application of technology and true partnerships. Through collaboration, the supply chain can determine how best to meet the demands of the marketplace. The supply chain works as a whole to maximize customer satisfaction while minimizing inventories.
Level 5: Synthesis. Synthesis is a continuous improvement process that integrates and unifies a supply chain. Synthesis harnesses the energy of change to address a turbulent marketplace and ensure customer satisfaction. It is from synthesis that true Supply Chain Excellence is achieved because it enables a supply chain to reach unparalleled levels of performance.
Level 6: Velocity. After synthesis, the goal becomes accelerating the organization or supply chain to a higher velocity. This is the ongoing acceleration of Supply Chain Excellence.
The Six Levels of Supply Chain Excellence are used to measure the components of supply chain assessment criteria: enabling technologies, supply chain synthesis, warehousing, logistics, manufacturing, organizational excellence, maintenance, and quality. These components have specific characteristics that can help you identify your supply chain’s level or levels. For example, the characteristics of enabling technologies at each level are:
Level 1—The technology at this level consists of legacy and homegrown systems. These are islands of technology acquired and installed as a reaction to specific situations. Duplicate entry and databases are rampant.
Level 2—At this level, a link’s transportation management system (TMS), warehouse management system (WMS), and order management system (OMS)
have been recently upgraded to industry standards and information visibility is internal.
Level 3—Systems are integrated within and across the organization. The TMS, WMS and OMS link to key partners to share information. Duplicate entry is limited.
Level 4—Information concerning events and plans is freely shared among first tier partners. Information has been integrated into each organization’s execution and planning systems. Basic Executive Information Systems (EIS) are present.
Level 5—At this level, first tier partners network with first tier partners to collaborate. A robust EIS is automating key performance indicators (KPIs).
Level 6—This is synthesis with a forum for continuously improving timing, quality, and quantity shared among multiple tiers of channel partners.
Another example is supply and its characteristics:
Level 1—Sourcing decisions are based almost exclusively on low price.
Level 2—Cost of acquisition replaces price to include transportation, quality and flexibility.
Level 3—Partnerships are formed with key suppliers, and the partners are sharing current and historical demand information.
Level 4—Major suppliers participate in product design and planning activities. Information is visible to all, and transactions are electronic and Web-enabled.
Level 5—There is interactive design and/or replenishment over multiple levels of the supply chain. A Supply Chain Council facilitates continuous improvement.
Level 6—The Supply Chain Council moves online.
Similar lists can be compiled for the other components and make excellent guidelines when it’s time to apply the Strategic Supply Chain Assessment Methodology.
Supply Chain Strategic Assessment Methodology
The Supply Chain Strategic Assessment Methodology is comprised of seven steps. These are:
Level 1—Map current business processes at a high level. Document information flows, business rules and so on. Determine if they meet business and mission-critical goals, if they are automated, and if they can be outsourced. Check how well these processes are measured and determine key matrices. The result should be an understanding and documentation of strategy, objectives and priorities.
Level 2—Drill down in the business processes to see how they are linked and what information is flowing or needed by these processes. Develop a detailed process flow. This step includes understanding and documenting your supply chain’s KPIs, conducting 360-degree feedback with executives and business process owners and conducting an assessment of information technology.
Level 3—-Develop a current supply chain map showing external supply chain relationships. Identify gaps and links. Then, develop a continuous improvement structure.
Level 4—Take the assessment data from Step 2, evaluate them and arrive at supply chain conclusions. It is possible that you will discover processes that do not have ownership, processes that are not well documented, processes that do not map well to your company’s goals and mission, and processes that are not automated. Identify supply chain alternatives and recommend the best alternative and business case.
Level 5—Develop supply chain process recommendations. Identify supply chain alternatives and, from them, recommend the best alternative and business case.
Level 6—-Use the recommended actions to develop implementations, create savings and determine ROI. Assess the availability of internal resources.
Develop a detailed and prioritized implementation. Take the income statement and balance sheet cost-drivers, one-time capital and expense drivers and experience and feed them into a strategic network optimization modeling tool that will determine risk, reward, return and reality and recommend the best strategic alternative and strategic direction.
This methodology will allow those performing a supply chain assessment to complete a high-level evaluation of the supply chain, compare current-state operating environment and levels of supply chain performance against best practices, identify improvement opportunities, anticipate business impact and construct a program that drives improved business performance. This must be done thoroughly and with cooperation from all links in the supply chain. Those who have never conducted a supply chain performance assessment should consider working with a third party with extensive supply chain and assessment experience. The benefits to this approach are unbiased documentation and recommendations performed by those who understand the supply chain performance assessment process and have made it one of their core competencies.
Obstacles to Collaboration
Collaboration is critical to completing a successful supply chain assessment. Before you embark on an assessment, you should look inward at your company and ask two key questions:
- How willing is your company to collaborate?
- How willing are the companies in your supply chain to collaborate?
If you poll your company and the other companies, the answers may surprise you. Many companies are resistant to collaboration for various reasons, including:
- Short-term financial focus
- Inability to agree on how to share the costs of implementation
- Inability to agree on how to share the savings
- Concerns over visibility and sharing sensitive information
- Fear of weakened negotiating stance
- Fear that collaboration creates commitments
- History and culture of adversarial relationships
- Links with competing supply chains.
How can you overcome these obstacles? By going beyond willingness and intention to commitment. Collaboration requires discarding the traditional relationships common between organizations today. This can be done by focusing on the opportunity for additional contribution to the growth and profitability of the supply chain. This applies to both a customer looking at its suppliers and a supplier looking at its customers. The focus should be on communicating clearly and adopting a continuous improvement process. What’s important is understanding that your objectives are really the same-you want the supply chain to succeed.