Although the concept of supply chain management entered the public consciousness nearly 40 years ago, to date relatively few companies have fully embraced the idea. Even though many of the best-known manufacturing and retail companies in the world are as celebrated for their supply chains as they are for their brands, it's rare to hear of a company attempting full-scale supply chain projects, and of those that do, many are stymied by various roadblocks that make them question whether the end result will be worth the aggravation.
Consulting firm Accenture teamed up with Stanford University and global business school INSEAD to try to figure out why that should be. Of the companies they studied, it turns out that more than half encountered unexpected problems in the course of their supply chain transformations. Exacerbating the situation is the fact that these problems aren't easily solved:
Technology implementations didn't work as promised. The supply chain movement faced a moment of crisis when the Internet bubble burst, taking many supply chain technology vendors (and even more vaporware companies) with it. Companies that should have known better assumed that establishing a website was a ticket to instant riches, and they embraced the Internet with a giddy “gold rush” fervor. They spent millions on ill-advised “end-to-end” projects that had no timeline for deliverable payback, and they got badly burned in the process. To this day, despite the numerous (and often breathless) articles in mainstream publications about the Internet of Things, blockchain, machine learning, and other disruptive technologies, many companies remain extremely cautious about investing in any kind of envelope-pushing supply chain solution.
Projects cost too much and never came close to meeting service targets. This problem predates the supply chain. The list of unfinished and underimplemented enterprise resource planning (ERP) projects is a lengthy one, and unfortunately there are plenty of similarly out-of-control supply chain projects to add to that list. Many of these enterprise-wide initiatives end up being a bottomless money pit of costs with no end in sight and no discernible benefits.
Supply chain projects were inconsistent with a company's current business strategy. The unfortunate reality is that many companies don't have a well-defined business strategy. Trying to plug a supply chain initiative into an uncertain and continually shifting corporate plan can wear out even the most patient project managers.
It was too difficult to manage change internally and externally. For a supply chain project to succeed, employees first need to be convinced that sharing product and transactional data between their own divisions is a good thing. Too often, companies will fail in their attempts at collaborating with key supply chain partners because their own internal groups don't cooperate with each other. You have to be able to trust your own people before you can hope to collaborate with other companies.9
Breaking down these inter-departmental silos is still largely an unrealized goal, even after all these years. In a survey of 300 retail and consumer goods CEOs conducted by consulting firm PwC, only 18% said they have eliminated operational silos at their companies—this despite the fact that retailers today succeed or fail largely on their ability to connect consumers with the products they want, at any time, via any channel.10 (We'll examine this trend, known as omni-channel retailing, in greater detail in Chapter 8.)
In fact, as supply chain consultant Lora Cecere has observed, one big problem is that the supply chain itself has become a silo. With the growth of supply chain departments and organizations, it's become easier for the other areas of a company to throw anything vaguely related to supply chain management over the wall and expect the supply chain people to fix it. As Cecere explains it, “For some, in the process, [supply chain] can become a dirty word. In a functional organization, the definition of a supply chain as yet another function becomes a problem, not a part of the solution.”11
The Accenture study, incidentally, looked at companies that ultimately found a way to successfully launch and complete their supply chain initiatives. You can well imagine that at companies that have had far worse luck with their projects, many managers close and lock their doors behind them every time they see a supply chain project leader walking toward their offices.
Separating the Good from the Best
There's no getting around it—supply chain management is just plain difficult. No single company has all the answers, and what's more, most companies ask virtually the same questions. So why are some companies celebrated for their supply chain successes, while other companies seem to be stuck in a rut? What distinguishes a best-in-class supply chain from every other supply chain?
Daniel Stanton, author of Supply Chain Management for Dummies, says there are clear differences between good supply chains and bad ones: “A good supply chain will always give your customers what they want for a price that they're willing to pay, while leaving a sufficient profit margin for your company.” That definition, he admits, sounds a bit simplistic, as he hastens to add that “actually designing and managing a supply chain that can profitably meet your customers' expectations is tricky.”12 So what's the secret to supply chain success?
As this book will illustrate, every top-performing company—no matter what industry it competes in—has aggressively attacked its inventory problems, committed resources to improving its customer service levels, and partnered with its key suppliers to take control of its supply chain. Every single one of them.
Top-performing supply chains, quite frankly, do things a little differently from everyone else. According to Debra Hofman, an analyst with Gartner, best-in-class companies share these three traits:
1 They aim for balance. These companies may not be the very best in every category, but they are consistently good enough in all areas that they add up to be best-in-class.
2 They increase demand visibility. Having a high level of forecast accuracy is the key to reaching perfect order fulfillment, which is the holy grail of customer service.
3 They isolate high costs. The best companies know where they hold their costs and why, so that's where they focus their best practices and technology investments.13
Karen Butner, who leads the IBM Institute for Business Value, boils it all down to one common factor: “Top supply chains all have the ability to respond quickly to shifts in demand with innovative products and services.”14
When it comes to best practices, supply chain success requires commitment at the highest corporate levels. It should surely come as no surprise that Tim Cook, CEO of Apple, used to manage the company's end-to-end supply chain, or that prior to becoming chair and CEO of General Motors, Mary Barra ran her company's global product development, purchasing, and supply chain. Mike Duke, former CEO of Walmart, had previously run the retail giant's logistics department. These companies all live or die by their supply chain proficiency, so having a chief executive who understands the interplay between every corporate department, as well as the interrelationships with both customers and suppliers, just makes sense.
“Emerging supply chain leaders are those who can handle the day-to-day work of plan-source-make-deliver while simultaneously seeing further over the horizon,” observes Kevin O'Marah, chief content officer with supply chain research firm SCM World. “This means understanding where the business's strategy is likely to hit a wall or, better still, what confluence of trends might create a sustainable profit opportunity down the road.”15
Bruce Tompkins, president of supply chain consulting