Recently Kinaxis released an insightful whitepaper entitled Overcoming Five Roadblocks to Supply Chain Success. In this paper, they list the five big roadblocks to supply chain success as:
- A Focus on Plan Optimization – The Myth of the Better Plan
- Siloed Functions – The Pain of the Domino Effect
- Distributed Operations – Too Much Time Wasted on Assembling Distributed Data
- Multi-System Environments – Integration and Harmonization is the Stumbling Point
- Supply Chain Visibility – Expand the Definition to Match the Goal
As the Kinaxis writing clearly articulates, each of the obstacles to success are worthy of serious consideration by every supply chain manager, and even strategic-thinking CFOs and CEOs. However, I want to spend some time discussing what they have to say in their introduction, along with the first and second points.
Traditional approaches have become obsolete
The Kinaxis opening salvo is a hard-hitting one. It has serious impact for two big reasons, in my opinion: first, because it is unequivocally true; and, second, because this point is being ignored by far too many CEOs, CFOs and supply chain managers who really should know better (at least, by now!).
Here is the first excerpt of which I am speaking:
Companies can no longer predict the future with acceptable levels of accuracy. As a consequence, the success or failure of supply chain performance depends on how quickly and effectively stakeholders can understand and respond to evolving situations. As businesses become more complex, because of globalization, product portfolio expansion and outsourcing, the traditional approaches to supply chain visibility, planning, and analysis have become obsolete.
So, let’s break this statement down a bit further.
Why is it true that companies can no longer predict the future with acceptable levels of accuracy?
Well, there are lots of contributing factors. Among them are these:
- Supply chains are longer, so end-to-end lead-times have grown. This means that forecasts must look further and further into the future; and the further into the future the forecasts look, the more nebulous they become.
- Products have much longer “tails.” Customers are now expecting a broad array of products, colors, styles, sizes and more kinds of diversity. This means supply chains are no longer just making “Colgate Toothpaste,” for example. They are making a dozen or more different varieties of Colgate Toothpaste” from which customers may choose.
- Customer tolerances have shrunk. Customers expect virtually immediate delivery of their selection. They simply won’t wait. They will buy elsewhere if your supply chain can’t supply it.
It is quite easy for a forecaster—or forecast algorithm—to tell you there’s a 30 percent chance of rain. But, ask the forecaster which 30 percent of his forecast area will actually get wet; or ask him the likelihood of his entire forecast area getting equal amounts of precipitation, and he’s likely to confess that there’s a 70 percent chance he’s 100 percent wrong.
Similarly, it is pretty easy for even relatively unsophisticated forecasting systems to tell you that you are likely to sell, say, 1,812 units of Colgate Toothpaste out of your distribution center next week. But, when you ask the forecasting system to pinpoint which flavors of Colgate will make up that 1,812 units; or which retail outlets need how much of each flavor to satisfy customer demand next week and the forecast become very, very muddy.
And, just what are traditional approaches to supply chain visibility, planning and analysis anyway?
A big one that still plays a major role in almost every extant ERP system in use today is traditional MRP (material requirements planning). It is so unreliable that the vast majority of companies that use it, also supplement it heavily with external “work-arounds” like spreadsheets, Microsoft Access databases, and even whiteboards, in order to sort out what they really want to do.
That’s because traditional MRP logic remains unchanged from the days of its inception and early development. That happened in the middle of the 20th century. That logic was encoded (enshrined?) in computer code in the 1970s and 80s, and has never caught up with our changing world of business.
No wonder “traditional approaches” have become obsolete.
The status quo is no longer sustainable – supply chain innovation has become an urgent necessity
Most existing supply chain processes and supporting tools were not designed for today’s reality of change…. With current market dynamics and economic pressures, we’ve reached a point where the status quo is no longer sustainable and supply chain innovation is an urgent necessity.
It is high time for supply chain innovation. But, until companies begin to realize that it’s all about flow, instead of it’s all about costs, their supply chains will remain mired in old-think. What companies need today is more new thoughtware before they open their wallets for new software.
Understanding the root cause is essential to achieving significant and sustainable improvements in financial performance
Only when you understand and address the root cause of the issue can you put in place the people, processes and technologies your supply chain needs to deliver significant and sustainable breakthroughs in… financial performance.
You know, despite all of the fancy metrics and KPIs being bandied about these days for supply chain performance, when it comes to the bottom-line—I mean, the real bottom-line—there are really only two metrics that speak to the system-wide performance of your supply chain. Those two metrics are these:
Regardless of the performance of your operational silos when measured in other ways, it really is all about flow. Flow is what drives on-time performance and flow is what really adds to your supply chain’s return on investment.
All the inventory that is sitting—not flowing—is really a liability (even though your accounting system views it as an asset).
But, if you don’t understand the root causes of those things that are inhibiting the flow of relevant information and relevant materials—there’s already way too much irrelevant information and materials in your supply chain (most likely)—you still don’t have a clue about how to achieve significant and sustainable improvement in these two crucial metrics on supply chain success.
The good news is: we can help.
Our focus is on, first, delivering new thoughtware, before deciding what technological changes might help you bring sustainable and significant improvements to your supply chain’s performance.