7
Managing the Supply Chain
Purpose
To build and manage an adaptable Supply Chain and organizational capability that plans, integrates, and shapes the Supply Planning and Execution processes. The Supply Chain will deliver customer value, optimal performance aligned to the Strategic Plan, and sustainable competitive advantage.
Positioning
Process maturity improves over time through education, committed leadership, expert guidance, and a focused effort to attain key business milestones.
After embarking on the path to improvement, Internal and External Supply capabilities, including logistics and distribution, are routinely at a minimum of 95 percent performance. A Class A Planning and Control Milestone has been secured, positioning the business at the top of Phase 1 of Business Maturity (see Foundation, Figure I.1). Advanced Planning Systems are being deployed to provide selected Network Planning in the Supply Chain.
From this Class A Milestone vantage point, we introduce this next level of maturity in the seventh edition of The Oliver Wight Class A Standard for Business Excellence.
The scope for Supply Chain Management is two Nodes forward, for example, customer and consumer, and two Nodes back, supplier and supplier's supplier, including all internal processing and physical activities. Planning and Execution are integrated and optimized across adjacent Nodes of the Supply Chain, so plans and performance are optimized not just within each Node. Please note a Node is also referred to as a Supply Point.
Supply Chain Management will require formally agreed collaborative planning and execution between partners, with benefits shared equitably. This collaboration enables a Value Chain response. The Supply Chain will be segmented based on logic that defines and enables the operating and delivery mechanisms for service expectations, cost requirements, and cash commitment.
Chapter Content
- Driven by Strategy
- Integration
- Supply Chain Model
- Supply Chain Planning and Synchronization
- Collaboration
- Data Sharing and Analytics
- Network Management
- Organization Design
- Behavior and Competencies
- Performance Measurement
Driven by Strategy
1. The Supply Chain Roadmap Supports the Market and Product Roadmaps, Delivering Business and Customer Value.
a. Market Roadmap and Product and Portfolio Roadmap
The roadmaps define the required Supply Chain capability, service, and cost requirements, including where differentiated service and supply are required.
b. Scope
The scope of activity for the Supply Chain has been defined and clearly understood. At a minimum, this includes planning processes, physical footprint, information flow, and organization design.
c. Supply Chain Roadmap
This roadmap directs the Internal Supply, Network, and External Sourcing Roadmaps. They define the required capability and performance and ensure integration.
d. Network Roadmap
The Network Roadmap directs footprint for distribution, warehousing, operations, and routes to market in response to service levels and defines the required capability and performance.
2. The Supply Chain Model is Designed to Optimize Service, Inventory, and Costs While Meeting Critical Success Factors.
a. Supply Chain Framework
The Supply Chain Framework is defined, is understood, and includes Supply Chain characteristics: legislative, regulatory, infrastructure related, environmental, fiscal, ethical, socially responsible, geographic, political, and economic considerations. It is periodically reviewed to ensure alignment to the strategic landscape.
b. Segmentation Considerations
Differentiated levels of service, cost, working capital, and response determine segmentation requirements aligned to Market and Product Roadmaps.
c. Monitor for Success
There is a dynamic and systemized process in place to respond to changing conditions. Performance measures are reviewed regularly, and this drives control, root-cause analysis, and continuously improved performance.
Integration
3. Supply Chain Capability and Flexibility are Measured and Managed Through a Monthly Supply Chain Review. Reconciled Product, Demand, and Financial Views are Managed Through Integrated Business Planning.
a. Process Mechanism
The linkage between Supply Chain Management and other elements of Integrated Business Planning is defined and made explicit.
b. Supply Chain Integration and Linkage
Plans are received as “requirements” to the monthly Supply Planning process. Integrated Supply Plans are created, recognizing capability and flexibility within the Supply Chain. There is a collaborative approach to planning, and execution is controlled in accordance with the agreed plans.
c. Reconciliation Management
Supply Chain Management is proactive in seeking business solutions where the proposed plan implies constraint on Product Management or Demand Plans or gaps to business commitments or where risks are deemed unacceptable. The Supply Chain Review incorporates input and involves Supply Chain partners.
3. Processes Utilize Real-Time Information for Management of the Collaborative Supply Chain and Enable High Performance to Achieve Strategic Business Objectives.
a. Demand Signal
There is clear and timely visibility of events that will change demand timing, mix, or volumes. Demand-sensing techniques are used to communicate and realign the Supply Chain partners.
b. Supply Chain Orchestration
Visibility of Supply Chain activity is shared throughout the Supply Chain. A Supply Chain Control Tower ensures execution of plans and optimized response to change. The Control Tower is run by the Master Supply Chain Planner and is supported by integrated, real-time system information.
c. Management of Collaborative Realignment
Trading partners have collaboratively determined exception alerts, which generate optimized realignment suggestions. These alerts and suggested changes are managed by the Control Towers to reset the Supply Chain Execution.
d. Balanced Supply Chain Performance
Integration checkpoints have been determined through collaborative planning. These are documented in collaborative arrangements to validate that new or changed plans are on track from the Supply Chain perspective.
Supply Chain Model
4. The Supply Chain Operating Model is Developed to Align with the Strategically Agreed Framework and Signed off by the Trading Partners.
a. Model Created
The Model is created and tested based on the shared goals of the collaborative Supply Chain partners. The model uses segmentation to achieve the required levels of service, cost, and response.
b. Model Validation
The Model has been tested against actual conditions to ensure that it best reflects the optimization rules the partners set and is reviewed frequently.
c. Ownership and Accountability
The ownership of the Supply Chain Model is shared among key partners while the ultimate responsibility rests with the primary owner. The accountability for running and validating the Model is with the primary partner.
d. Maintaining through Change
The Supply Chain Team has agreed to the frequency of review of the Model, and key rules are maintained to ensure ongoing validity.
5. The Supply Chain Operating Model is the Mechanism to Run Scenarios as the Basis to Optimize Supply Chain Segments.
a. Footprint
The Model considers the future footprint requirements based on the changing routes to market.
b. Customer Value
Customer value is measured and understood. The segmentation approach behind future scenarios considers the required customer value.
c. Optimization Criteria Defined
Optimization criteria have been agreed and are used in driving segmentation outcomes and future scenarios or decisions, including channel considerations.
d. Time Fences
Time fences are modeled to drive effective approaches to meeting the customers' needs while driving the required levels of Supply Chain and Operations efficiency.
6. Non-Value-Adding Steps in the Supply Chain Drive Collaborative Activities to Improvement.
a. Supply Chain Agility
The requirement for Agility is understood and established in line with the Supply Chain Strategy and segments. Improvements in Agility can be demonstrated.
b. Supply Chain Costs
Requirements for cost reduction along the Supply Chain are understood and established in line with Supply Chain Strategy. Improvements in costs along the Supply Chain can be demonstrated.
c. Value Stream Mapping
Value Stream Mapping is regularly used to establish improvement opportunities for the Model. There is an agreed definition of value among Supply Chain partners.
d. Financial Drivers
Cost drivers in the Supply Chain are understood and agreed. There is a process for identifying value-adding and non-value-adding activity and removing waste. These drivers are managed and are an integral part of business decision making in the Supply Chain.
Supply Chain Planning and Synchronization
7. The Master Supply Chain Plan Synchronizes and Aligns the Integrated Supply Chain.
a. Master Supply Chain Planning
The Master Supply Chain Plan is created in accordance with agreed segment parameters and optimized at the cumulative Supply Chain lead time. It is aligned to the demonstrated performance of the Supply Chain and time-phased improvement plans.
b. Integrated Plans
The concepts of Requirements Planning (using Dependent Demand) are used to manage an integrated planning process throughout the Supply Chain.
c. Resource Management
Key resources have been identified and are managed in the planning process. The planning process plans the use of capacity and capability against these resources for the entire planning horizon based on demonstrated performance concepts.
d. Integrated Planning Processes
Supply Chain Planning processes are integrated, monitored, and managed so that all aspects of inventory levels, lead times, and responsiveness meet the modeled expectations for each segment.
e. Product Management
Resource and Technology requirements to support Product Management activities have been incorporated into the Supply Chain Plan.
f. Planning Rules and Parameters
Valid planning rules maintain Supply Chain Model integrity and parameters: for example, preferred ship-from supply point, safety stock levels, lead times, etc. Ownership, change management, and integrity audits follow governance policies at a level to enable an Agile response.
8. Supply Chain Analytics and Modeling Techniques are Used to Optimize the Supply Chain and Segments.
a. Multiple Scenario Modeling
What-if scenarios determine the ability to satisfy customer demand, achieving the optimum balance for total cost and segment investment.
b. Supply Chain Optimization
Advanced Planning System techniques are used to maintain, optimize, and balance across the Supply Chain, using the rules established by the Supply Chain design.
c. Segment Optimization
Optimization choices are behind the key drivers of segmentation; actual results are measured against modeled results to ensure successful execution.
Collaboration
9. There is a Process for Selection and Prioritization of Collaborative Partners.
a. Shared Benefits
A key criterion for partner selection is the willingness to work with shared benefits.
b. Capability
When assessing the capability of collaborative Supply Chain partners, factors including organizational maturity, market and product understanding and experience, financial stability, expertise and knowledge, and demonstrated performance are considered.
c. Sensitivity and Risk Exposure
Risks associated with degree of dependency on a collaborative partner and with sensitivity of intellectual property and trading data are evaluated during the selection process.
d. System Infrastructure
The compatibility and connectivity of partner planning and transactional execution systems, including capacity and transactional processing capability, are considered during the partner selection process.
10. Collaborative Agreements Exist Between All External Nodes in the Supply Chain. The Supply Chain is Managed to These Agreements.
a. Collaborative Agreements
Collaborative Agreements are jointly agreed by all collaborative partners in the Supply Chain. External Node linkages are formalized through joint Business Plans and properly structured Service Level Agreements. A Change Management process exists to enable Collaborative Agreement adaptation to changing business requirements.
b. Investment Commitment
Investment commitments, including working capital, capital expenditure, and location to change or improve capability or capacity, are formally agreed. Joint agreements exist on inventory stocking levels and locations. The monthly Supply Chain Review is the agreed mechanism for agreeing to changes to these commitments.
c. Levels of Authority
Levels of authority, along with escalation criteria, are clearly defined, agreed, and documented in the Collaborative Agreements.
d. Joint Improvement
Collaborative goals and processes are established for Continuous Improvement. Supply Chain Key Performance Indicators (KPIs) for each segment drive waste elimination and Agility in support of the Value Proposition, competitive advantage, and realization of shared benefits between Supply Chain partners.
e. Dispute Resolution
The mechanism for resolution of disputes between Supply Chain partners is clearly defined in the Collaborative Agreement.
f. Planning Policy and Rules
Time fence parameters have been defined for coordination and acceptable execution of change for all stages.
f. Supply Chain Performance Scorecards
The KPIs are visible through agreed scorecards and are shared with all Supply Chain partners at least monthly through a formal monthly review. Trend charts are visible and show Continuous Improvement through application of root-cause analysis and corrective actions.
Data Sharing and Analytics
11. A Formal Process for the Sharing and Setting of Data Parameters Supports Integrated and Collaborative Planning with all Supply Chain Partners.
a. Collaborative Agreements
Supply Chain Collaborative Agreements capture formal policy statements on definition, RACI (responsible, accountable, consulted, and informed), ownership, and measurement that define data-sharing models, sources of data, methods of data transmission, and confidentiality rules.
b. Data-Sharing Model and Nomenclature
Supply Chain partners jointly agree what, how, when, and with whom the data are shared. The shared data are co-owned and used to optimize plans.
c. Data Analysis
Analytics are used to enhance the performance of system alerts across the Supply Chain and support improved Supply Chain decision making. Functionality exists to enable data mining in support of optimization, exception management, scenario management, and Continuous Improvement.
d. Data Flow
Data process flows are maintained, and transmission/data format models conform to agreed definitions and industry guidelines. Real-time data flow, both dynamic and static, has been enabled.
12. Data (Including Rules) Used to Drive the Master Supply Chain Plan are Understood, Accurate, and Owned. They are Subject to Stringent Change Control and Security Governance Policies.
a. Understanding and Ownership
Users and owners of data have been educated and trained on the purpose of the data and its impact on the business.
b. Change Control Process
There is a change control process in place. Analytics identifies changes to the key Supply Chain data and evaluates the impact on the plan.
c. Data and Rules
An auditing process exists that verifies accuracy of data and rules used in the Supply Chain Model and the Master Supply Chain Plan.
d. Obsolete Data Removal
There is an Information Management procedure specifying criteria and the process for archiving obsolete master data.
Network Management
13. All Partner Distribution and Logistics Plans are Integrated with the Aggregate- and Detail-Level Supply Chain Plans.
a. Distribution and Logistics Optimization
Distribution and Logistics optimization considers the whole Supply Chain Network. Key Supply Chain costs, alternative transportation methods, and service and responsiveness requirements are incorporated into models to determine the optimal places to hold and consolidate inventory, points of export and import, and the optimal transportation mix.
b. Logistics Execution
A Logistics Operations and optimization process is perpetually managed to ensure a balance of stability and responsiveness. The resource deployment plan is reconciled with the monthly aggregate logistics supply plan from Integrated Business Planning. Transportation, routing schedules, and vehicle requirements are modeled at the detailed level to ensure execution optimization.
c. Integration of Network Plans
All logistics, warehousing, distribution, and transportation requirements are derived from the formal Supply Chain Plans. Inventory management decisions at the warehouse level are integrated into Demand and Supply Planning numbers.
d. Third-Party Logistics (3PL) and Procurement (3PP)
Use of outsourced logistics, manufacturing, or procurement providers has been evaluated based on the benefits associated with supporting the Supply Chain. The scope can be single or multiple Nodes.
e. Warehouse Management
The Warehouse Management system is integrated with the Master Supply Chain Plan and system over multiple time horizons. This enables changing infrastructure, resourcing, and inventory requirements to be identified, planned, and managed.
14. The Delivery Process is a Key Requirement in Achieving Perfect Order Fulfillment and Availability for Use.
a. Delivery from the Supply Chain
Delivery is organized and planned to meet the segment requirements for service, agility, and cost.
b. Distribution Networks
Where product is delivered via a Distribution Network, Distribution Resource Planning is used as the process for planning and control.
c. Transportation Optimization
Transportation optimization techniques are utilized for inbound and outbound material, including backhauls. Optimization rules reside within the Distribution Resource Planning system parameters.
d. Distribution Center Optimization
Distribution Center optimization techniques are utilized, including cross-docking and picking linearity.
e. Lean Distribution and Logistics Techniques
Lean distribution and logistics techniques are applied to warehousing, replenishment, and transportation to eliminate waste and to improve the performance of the Supply Chain in pursuit of strategy and shared benefits.
Organization Design
15. Collaborative Business Management Throughout the Supply Chain is Managed Through a Collaborative Organizational Structure.
a. Collaborative Team
The Collaborative Leadership Team includes key functions and representatives from each entity. The team defines the roles and responsibilities and sets the levels of authority.
b. Operating Team
The Operating Team manages and optimizes the model and manages the Master Supply Chain Plan. The key role of the team is to manage the Master Supply Chain Plan and model alternative options, seeking and recommending the optimized response for each segment.
Behavior and Competencies
16. Team-Based Supply Chain Activities are the Norm. The Team Includes Suppliers and Customers. The Behaviors That Define the Companies' Interactions have been Established from Become Values That Enable a Team-Based Culture and Natural Communication.
a. Rewards and Recognition
A team-based culture has been established, enabling both individual and team activities to be recognized and rewarded to communicate successes.
b. Ownership and Accountability
Employees have a clear understanding and ownership of the Strategic Plan, which enables them to establish teams when deviations from the plan are detected. The use of teams is encouraged by Leadership, who hold the teams accountable through the allocation of required resources.
c. Communication
The communication of information and data is technology enabled and has significantly reduced the need for meetings. Employees and teams naturally share their progress to accelerate learning.
d. Decisiveness
The environment enables sharing of information and data, in real time, which are then used by employees and teams to take action.
17. Supply Chain Partners and Nodes have an Established Collaborative Relationship that has Enabled a Team-Based Culture, with Shared Learning and Customer Focus.
a. Collaborative
Supply Chain partners operate as part of the Supply Chain Team. They work toward common goals and take ownership of the Supply Chain Model, Master Plans, and Supply Chain measures.
b. Customer Focus
For each segment, the Supply Chain Team focuses on delivering value to the end customers or consumers. There is a clear understanding of the role of each Supply Chain partner in achieving this.
c. Cultural Awareness
Supply Chain partners and team members understand and respect the values of their external partners. Alignment of organizations to a common set of values and operating principles is understood. Trust is demonstrated through joint Strategic and Business Plans, sharing and guarding confidential data and intellectual property.
d. Learning
Continuous learning is valued and managed explicitly by the Collaborative Team. Focus areas include collaboration, system integration analytics and modeling, and a combined approach to driving Continuous Improvement. The Supply Chain Team teaches the required skills to new employees or new Supply Chain Nodes.
18. Competencies are Unique Skills, Talents, and Proficiencies to Ensure Individual, Team, and Organizational Success. Competencies are Developed to Support Current and Future Needs, in Both Development and Delivery.
a. Leadership
The Leadership Team has the vision to integrate the capabilities of the Supply Chain to deliver the Strategic Business Objectives.
b. Design
This is the ability to analyze and configure the segmented Supply Chain Network and organization to support Market Segments and satisfy regulatory requirements.
c. Planning and Execution
This is the ability to apply appropriate technology to ensure information sharing and collaboration to optimize Supply Chain Planning and execution.
Performance Measurement
19. A Balanced Hierarchy of Measures Exists to Manage and Improve Processes and Performance in the Supply Chain. All Measures have Ownership and Accountability and are Integrated as Part of the Collaborative Suite to Drive Improvement.
a. Balanced Set
A balanced set of measures used in the Supply Chain supports the Model's optimized outcome. The collaboration partners understand that the overall Supply Chain delivery performance is the product of the performance of each step.
b. Benchmarking
Benchmarking of comparable Supply Chains is regarded as an excellent source for performance improvement opportunity. It is a routine activity.
c. Integrated Suite
Conflict between measures has been eliminated through the setting of collaborative strategic priorities. The Measurement Hierarchy demonstrating the linkage between Nodes is understood and aligned. Measures that promote Supply Chain thinking rather than functional behaviors are utlized.
d. Ownership and Accountability
All the partners in the Supply Chain have agreed on a common definition for service level measures. Overall Supply Chain service performance measures are visible at all supply points and are co-owned.
e. Goal Driven to Strategic Business Objectives
Individuals and teams in the Supply Chain have clear goals and targets linked to the Strategic Business Objectives of the business.
20. Process Measures have been Defined within the Hierarchy. These Monitor the Performance of Key Processes that Enable Supply Chain Performance. The Specifics of These Key Performance Indicators will vary based on the Strategic Plan and Collaborative Agreements. Targets have been Set, and Improvements are being Achieved.
a. Performance to Plan
Achievement of the Supply Chain Plans approved by the Integrated Business Planning process is measured. Gaps to established targets are subject to corrective action, and improvement plans are monitored.
b. Perfect Order
The concept of the Perfect Order is understood and defined. The Supply Chain measures Perfect Order performance to identify Supply Chain opportunities to improve the customer experience.
c. Lead-Time Performance
Lead time is the length of time allowed in the planning system from the start to finish of a process. Each Node, and the entire Supply Chain, reflects lead-time reality, and measures demonstrate that lead time is reducing.
d. Velocity Ratio
The added-value time as a ratio of total elapsed time, for each step and for the entire Supply Chain, is measured and improving.
e. Inventory Turns
Inventory turns are measured across the Supply Chain. Detail includes the Internal and the External Nodes involving collaborative partners. Inventory performance relative to established targets is measured, gaps are identified, and improvement programs are put into place.
21. Business Performance Measures are Defined in the Business Scorecard. The specifics of These Key Performance Indicators will vary Based on the Strategic Plan and Collaborative Agreements. Targets have been Set, and Improvements are being Achieved.
a. Cash to Cash
The Cash Conversion Cycle (CCC) considers all steps in the Supply Chain. Measurement of CCC is used to drive competitive priorities and the selection of sustainable partnerships.
b. Customer Service
On-time delivery to first request: Delivery In Full On Time (DIFOT) at every step is measured and is improving.
c. Cost Reduction to Plan
Cost reduction is recognized as necessary to the overall health of each step in the Supply Chain. Through cost reduction measurement, partners gain insights into the resources or investment needed for capability improvement.
d. Margin Improvement to Plan
Margin improvement is measured throughout the Supply Chain. Formal agreements support improvement through direct collaborative sharing of value creation and benefits.