The Mysteries of Supply Chains

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The Mysteries of Supply Chains

by Vivek Sood

July 18, 2017

I have been asked this question a lot on Quora, as well in my board and other speeches. A lot of supply chain commentary is becoming too technical and mysterious. Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough.

The purpose of one of my books – Unchain Your Corporation – was precisely this – to demystify the supply chains. This books is written for layperson, can be read in 2–3 hours, and had more than 200 stories and anecdotes to help the readers use complex concepts.

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Supply Chain Software sellers have a vested interest in creating the mystique – similar to what McKinsey used to do about 20 years ago. But Supply Chain Management (SCM) need not be mysterious. Remember, if someone cannot explain it easily enough – they do not understand it well enough.

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At its core, SCM is just about two things – integration, and optimisation.

Integration of various functions (purchasing, production, logistics, inventory management, finance, sales) within a company. And, Integration of of various companies that form a supply chain together to serve an end consumer.

Optimisation – is the art of getting the best results from the same inputs. You will be surprised to know that most GPS software do not even give you the optimum route even if they have real-time traffic information. The key to testing optimisation is by doing the same exercise manually and comparing against the results of the software. There are clearly degrees of Integration and Optimisation. Higher levels of Integration and/or Optimisation will lead to higher level of efficacy in supply chains.

See the figure below – that comes from one of my board speeches:

supply chain managment

If you supply chain consultants are not telling you these two simple truths, then all the talk of automation, big data software and driverless vehicles is a pipedream without a purpose.

And, if your Supply Chain MBA is not teaching you these two basics then you might have wasted 2 years and thousands of dollars.

Here is why… …Everything else in supply chain stands on those two foundations. Your supply chain relationships are part of integration effort, and automation is part of optimisation effort.


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Notes:

  1. These ideas and concepts will be usually expressed by our thought leaders in multiple forums - conferences, speeches, books, reports, workshops, videos and training. The date shown above the article refers to the day when this website was last reformatted. This blog post or article may have been written anytime prior to that date. 
  2. All anecdotes are based on true stories to highlight the key points of the article - some details are changed to protect identification of the parties involved. 
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Vivek Sood

MORE INTERESTING READING
  • I found this blog and decide to discuss more supply chain Mystery:
    Let’s start conversations by here- It is a topic that intends to solve Invoice Mystery.
    “The Supply Chain Detective: The Case of the Unpaid Invoices!
    The CEO called.
    I need you to go down to Mexico right away. They aren’t paying their invoices and suppliers are stopping shipments. Our manufacturing lines are going to stop. I need it fixed right away. Get those bills paid now.”

    What on earth was going on? Why didn’t the site just pay their bills? This shouldn’t be a big deal. And this was their problem, and responsibility, not mine. But as with any crisis situation, it’s all hands on deck to get the problem fixed.

    Little did I realize that while on the surface this seemed like a simple problem, and solution (ie. just pay the darn bills), the reality would prove to be much more complicated. This would be a case for a Supply Chain Detective!”
    (refer more details: https://bit.ly/2QhhWF4)

    I invite you to discuss over it.

  • Hey, Mr. Sood after reading your blog about supply chain mystery I recalled one my good memory that I would like to share it with you. I recently had a chance to interview a supply chain director from a mid-sized hospital in New York state, that was very insightful in helping me to think about the challenge around inventory management. The supply chain officer described the approach that was needed to think about standardization, but also about a concept called “UTILIZATION”, a term I had never encountered before in my 30 years in supply chain management. What I learned helped me to understand why healthcare supply chains are in such a pickle today. This gentleman told me the story of how they evolved to begin measuring utilization as a core component of flow in their system.

    “The concept of utilization involves measuring whether the items scheduled to be used in a patient procedure were actually used and whether those items were invoiced correctly to the patient in the revenue cycle. This is where a lot of errors occur – and the waste in such cases can easily be 30-40% of the stuff we buy that we never get paid for and which goes to waste!”

  • Glad to read about two important different points about supply chain which are described above. But I think it’s wast area to understand for SC in a right way. managers should try to understand the terminology of (purchasing, production, logistics, inventory management, finance, sales).

    • The ability to meet customer requirements, for everything from coffee beans to Crocs, is built upon the expectation that everything is done correctly in the supply chain. And that means doing it right the first time – no mulligans, no mistakes are allowed. In the quest to provide quality service and satisfy customers, world-class companies along the supply chain are guided by the Seven Rights of Fulfillment.

  • Supply chain management is one of the most important components of any business. It involves almost the entire business; deals with both suppliers and customers; and is responsible for creating the products and services that make up the core of the business. In other words, it’s kind of a big deal. In turn, this makes supply chain optimization a big deal, since it ensures that you get the most out of your supply chain. So when you optimize your supply chain, which parts actually see the most improvement? When it’s all nice and optimized, you can expect change and improvement.

  • Every supply chain needs three key components in order to be as effective as possible and to generate revenue: functioning logistics, supply chain and product innovation strategies are all required in order to create the most value within an organization’s operations, no matter the industry. It’s no longer enough to have a well-functioning logistics organization, supply chain, or product design process. To achieve real agility and enable innovation, you need all these things working together.

  • Supply Chain Integration is the extending of E-Business Information System solutions across not only the internal extended business enterprise both upstream and downstream but to external business partners such as suppliers/vendors and customers. Operating a non-system integrated supply chain is short sighted and brings with it many disadvantages. These disadvantages can be classified as lack of economic value, lack of market value and lack of relevancy value. Lack of economic value increases costs across the enterprise, does not take advantage of any economies of scale, is slow or has no visibility into product service or creation.

  • Accurate demand planning is one of the most important areas of the supply chain that can be improved. Supply chain optimization helps you achieve more accurate demand planning, which increases the likelihood that you’ll have enough goods to fulfill your demand. At the same time, you can avoid producing too many goods that would take up extra warehouse space.
    Additionally, accurate demand planning helps reduce costs. When you have a picture of how much demand you expect to see, you can create a production plan based on that demand and the length of your products’ various lead times. But when your demand planning is off, you have to make sacrifices, usually in the form of extra costs, to reduce lead times in order to fulfill that extra demand.

  • Absence of monetary esteem expands costs over the venture, does not exploit any economies of scale, is moderate or has zero ability to see into item administration or creation. Inventory network Integration is the stretching out of E-Business Information System arrangements crosswise over not just the inward expanded business endeavor both upstream and downstream yet to outside colleagues, for example, providers/merchants and clients.

  • Inventory network the board is a standout amongst the most significant parts of any business. Thus, this makes advancements production network a major ordeal, since it guarantees that you capitalize on your inventory network. It includes nearly the whole business; manages the two providers and clients; and is in charge of making the items and administrations that make up the center of the business.

  • Each supply chain network needs a number of fundamental parts so as to be as viable as could be expected under the circumstances and to create income and revenue. It requires working with coordination long with inventory network and item development systems are altogether to make the most incentive inside an association’s tasks, regardless of the business and type of business.

  • Network streamlining encourages you to accomplish increasingly precise interest arranging, which improves the probability that you’ll have enough products to satisfy your interest. In the meantime, you can abstain from creating an excessive number of products that would occupy additional stockroom room. In any case, when your interest arranging is off, you need to make penances to decrease lead times so as to satisfy that additional interest.

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