20 April 2012

Understanding the “chain” in supply chain management

After 30 years of growth and development, I am not at all certain that I would rename “supply chain management” to anything else. What I might try to do is to get people to recognize the real implications of the name it already has.

Let's look at that key middle word in the name: "chain."

Very few organization "manage" the supply chain as a "chain."

A great many managers and executives are content to manage only their "link" in the chain. If things don't go well, they may try to substitute one connected link for another (e.g., change vendors or find new customers, for example). But they do not recognize or manage the chain as a chain. They still manage pretty much within the four walls of their own "link" (i.e., company).

The important thing to understand about a "chain" is the interdependence of the links and that the strength of the entire chain is governed entirely by the strength of the weakest link in the chain.


The interdependence of a chain should drive organizations inexorably toward supply chain collaboration and, even further, toward a genuine mutuality. In many cases, the fastest, best and most secure way for organizations to improve their own profitability is to work together with other supply chain participants to strengthen the weakest link in the chain—not seeking to replace that link. That means that all the participants in the supply chain—or at least the strategic links—must be (or become) open to collaboration and even invite new ideas from other participants in the chain.

Collaboration and end-to-end data sharing can help end the damaging effects of "the bullwhip," help firms in the supply chain break their frequently misguided addiction to large batch sizes, and help redefine purchasing and pricing metrics that can lead to more frequent replenishment while holding both truly variable costs and operating expenses low for all the participants.

High-level meetings should be sought between executives and managers for all the critical players in the supply chain. The healthiest supply chains are those where all the participants are making satisfactory profits and a few strong players in the supply chain are not using their leverage to increase profits through policies that weaken other important links in the chain.

How can you tell when your "supply chain management" team is beginning to act like they are part of a "chain" and not just content to manage their own "link"? Look for the following signs:

  1. Metrics and actions taken for improvement reach outside "our link" and efforts are made to optimize the "whole chain" by identifying and seeking to strengthen the weakest link.
  2. Management up and down the supply chain have learned to not ignore the industry's larger ecosystem. They monitor the ecosystem for signs of impending change, manage proactively, and share information freely.
  3. Supply chain managers recognize that there will always be a "weakest link" and, while seeking to strengthen the present "weakest link," learn to pace the flow of products by the "drum" of the present "weakest link." They also recognize that any loss of productivity at the present "weakest link" is productivity lost to the whole supply chain. (As a corollary, supply chain managers should recognize that time, energy and money spent strengthening links other than the present "weakest link" will not improve the performance of the "chain.")
  4. Managers and executives involved in the supply chain have ceased using metrics stuck in "cost-world" thinking and have seen that it is synchronizing product flow and increasing throughput that lead to ongoing improvement and higher profits.
  5. Supply chain managers have recognized that profits depend upon meeting customers' needs and demands, and that understanding these needs and demands is essential from product design forward through all the processes and links in the supply chain.
  6. Collaboration across the supply chain begins with product design so that maximum external variety (end-products) can be achieved with minimal internal variety (raw materials, components and subassemblies).
  7. Supply chain collaboration is leading to strategic flexibility in both products and the processes of maintaining supply chain flows.
  8. Wherever possible, all along the supply chain, the flow of product is buffered with capacity rather than inventory. (Supply chain partners may make strategic capital investments in other parts of the supply chain to build needed capacities as part of the collaboration.)
  9. Managers and executives involved in the supply chain have made it a priority to develop strategic alliances and partnerships all along the supply chain in order to recognize and strengthen the present "weakest link."
  10. All across the supply chain, metrics focus on increasing throughput (not cutting costs).
  11. Forecasts are still used for planning, but "pull" is used to drive all execution in the supply chain.
  12. The focus is now on synchronizing the flow of product across the supply chain, not on balancing supply chain capacities.


On the contrary side, some "big dogs" (or "big dog" wannabees) in the supply chain think they are managing "the chain," but they treat it more like a "leash." They yank their smaller suppliers around until their suppliers are either driven out of business or simply won't do business with the "big dogs" at all any more.

This kind of attitude is bad for business and bad for the economy in general. The best suppliers are profitable suppliers. If any organization is destroying the supply chain's profitability one link at a time, it is destroying its supply chain by weakening one link after another. These weak links will not have reserve capacities to respond to changes in demand or make up for supply chain losses when "Murphy" strikes.

P.S. - I was going to write on the other words (i.e., "supply" and "management"), but this is probably enough for now. Thanks.

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