Supply Chain Tower of Babel
Definition of Cause of The Confusion in the Supply Chain, its major components, methodologies, and processes depended largely on who you ask. The various practitioners in game – from shipping/trucking companies, to third party logistics service providers, to their clients
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Recently, while participating in steering committee discussion at a client organisation that was going through a major Cause of The Confusion in the Supply Chain transformation, the thought struck me. Definition of stock chain, its major components, methodologies, and processes depended largely on who you ask. The various practitioners in game – from shipping/trucking companies, to third party logistics service providers, to their clients – each had their own interpretation of what was stock chain and how to make it better. It appeared as if the whole field was inflicted by a ‘Tower of Babel’ syndrome.
“Delivery in Full on Time” (DIFOT)?
Let me give a few examples. To start with, even definition of end-to-end supply chain causes confusion in many organisations. Does it include inbound shipments as well, or only outbound supply chain from factory gate? Is manufacturing part of end-to-end chain or not? How about quasi- manufacturing activities such as postponement, blending, repacking, labelling etc.? In fact confusion arises about any value-added warehousing service carried out while product is in storage. Do we include the freight component of CIF shipments in overall Cause of The Confusion in the Supply Chain costs, or not? How about our suppliers’ chain costs? What is correct definition of “Delivery in Full on Time” (DIFOT)? Does it relate to customer orders as placed, or as agreed, or as negotiated? What is the difference between logistics and stock chain? Many people use two terms interchangeably – so, is there a difference between two? What is the difference between planning and demand planning – are we not doing the same thing in both cases? even though academically accepted answers are available in many cases, these questions cause seemingly endless discussions in practical realms.
More than this confusion, however, is the case where various practitioners in field of supply chain have different agendas, focus and language. Consider the following quote from web-site of a chain systems company – “The XXX module handles all service requests between different functions including importing and exporting of data. The unique design of this engine services all our products from a single integrated platform using “plug n’ play” capabilities with each product instead of having separate modules that need to talk to each other ”. While lack of context somewhat obscures meaning here, it is abundantly clear that company is focused mainly on system functionality, rather than on concrete supply outcomes to business. This is equally true of many other supply players as shown in table:
These are actual quotations from their respective web-sites, press reports or assertions in senior level meetings. So – why is this important? And, what can be done about it?
Firstly, a common language is important to achieve alignment in objectives. By definition, concept of supply chain management embodies cutting across silos with-in and outside an organisation in order to achieve shared goals – outstanding service performance at an optimum cost. This means working together with customers and suppliers to cut inventories, waste and waiting time. It is ironic, then, that very people who are supposed to make it happen on an organisation’s behalf – i.e. its supply chain service providers – end up creating walls through lack of common understanding of purpose with the organisation. While mostly this is inadvertent, sometimes – particularly in case of shipping – it is a deliberate attempt to create perceived information/knowledge asymmetry through use of obscure language in order to drive super-economical rents. Ideally, in a well functioning supply chain each participant would co-ordinate its activities with all others in order to optimise the service performance and minimise costs.
KPIs and methodology
Pragmatically, even in win-lose world of contract negotiation, it is crucial that terminology, KPIs, and methodology are agreed upon well before the contracts are signed and put in place. Differences in objectives of various parties need to noted and understood, especially by naïve customers looking forward to outsource all their logistical troubles and concentrate on their core business in peace. That peace never comes due to continual discussion about terms, conditions, KPIs etc. which were vaguely defined and never properly set. On top of it cost would continue to mount because supply chain service providers would be quick to spot an information gap, and hence a profit opportunity. For a professional level of expectations management as part of on-going contract administration, it is crucial that parties understand each others’ language and key objectives.
Finally, if it true that competition of future will not be between one company and another but between one supply chain system and another, then it becomes crucial that all parties in a supply chain get used to working transparently, and seamlessly with each other. This applies equally to the materials providers as well as the logistics service providers in the supply chain system. At this moment, only few of supply chain leaders in some industries are anywhere close to this state. However, the first mover advantage in getting there is worth the effort involved.
Vivek Sood: Sydney based managing director of Global Supply Chain Group, a strategy consultancy specializing in supply chains. More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available www.globalscgroup.com
Vivek is the managing Director of Global Supply Chain Group, a boutique strategy consulting firm specialising in Supply Chain Strategies, and headquartered in Sydney, Australia . He has over 24 years of experience in strategic transformations and operational excellence within global supply chains. Prior to co-founding Global Supply Chain Group in January 2000, Vivek was a management consultant with top-tier strategy consulting firm Booz Allen & Hamilton.
Vivek provides strategic operations and supply chain advice to boards and senior management of global corporations, private equity groups and other stakeholders in a range of industries including FMCG, food, shipping, logistics, manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines and electricity utilities.
Vivek has served dozen of world-wide corporations in nearly 85 small and large projects on all continents with a variety of clients in many different industries. Most of projects have involved diagnostic, conceptualisation and transformation of supply chains – releasing significant amount of value for the business. His project work in supply chain management has added cumulative value in excess of $500M incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, supply chain systems, negotiations and all other aspects of global supply chains.
Vivek has written a number of path breaking articles and commentaries that are published in several respected journals and magazines. Vivek has spoken at several supply chain conference, forums and workshops in various parts of the world. He has also conducted several strategic workshops on various aspects of supply chain management. He received his MBA with Distinction from the Australian Graduate School of Management in 1996 and prior to these studies spent 11 years in the Merchant Navy, rising from a Cadet to Master Mariner.
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