Five Supply Chain Definitions Every Industry Professional Should Know (Part 1)

Here at Kinaxis we love our lists … Top 10 this, Top 5 that… so when Lora agreed to do a Q&A post with us, it was natural for it to take the form of a list.  Since starting Supply Chain Insights Lora has educated and promoted with great heart and vigor some key concepts that will bring supply chain practices (and corporate practices in general) forward.  Here are 5 distinguishing themes we’ve asked her to define.  (It’s no easy task to distill these sophisticated concepts down to a few lines. Thankfully, Lora was up for the challenge!)

1. The Supply Chain Effective Frontier – I have to admit, I keep hearing the Star Trek intro every time I come across this term ;)  I see this as the overall basis of Supply Chain Insights’ work, born out of your book, Bricks Matter.  Much of what you talk about is inherent to the goal of conquering the supply chain effective frontier.  Is that accurate?  Ultimately, what is that frontier?

Thanks Lori. I appreciate the opportunity to share with Kinaxis readers.  The concept of the Supply Chain Effective Frontier is based on two years of research. It is founded in three belief statements:

1. Each Supply Chain has a Different Potential. I feel that it is the role of the supply chain leader to help the organization maximize its potential. The supply chain is a complex system and these changes require careful design and system thinking. 
2. Supply Chain Leaders need to help Organizations make the Right Trade-offs against the Business Strategy.  This requires balance between growth, profitability, cycles (cash-to-cash and inventory) and complexity. The trade-offs need to be conscious against the business strategy. Over the last decade, supply chains have increased in complexity without increasing the potential of the supply chain to absorb this complexity to drive balance in the other metrics.  As a result, I believe that most organizations are unconsciously operating on the Effective Frontier of supply chain performance.
3. Supply Chain is not a Function. It is an End-to-End Process. Leadership is Needed to Drive Improvements. I define supply chain excellence as making year-over-year performance against business goals from the customer’s customer to the supplier’s supplier. Over the last year, at Supply Chain Insights, we have been mapping company performance and capabilities to make these trade-offs. What I find is that only 1-3% of companies have made consistent year-over-year improvements in both operating margin and inventory cycles. I also see ‘wild swings’ in the performance and backward movement in more companies than I ever expected. I feel that many companies have not held themselves accountable to balance sheet performance. Instead, they have viewed company performance or improvements on projects.

2. Outside-in Supply Chain Processes – To steal a line you’ve used, you have to “blow up” current supply chain architectures in order to establish new practices in support of the effective frontier.  Much of that lies in orienting organizations with an outside-in mentality.  What exactly does that mean?

Today’s software systems are designed inside out. The center of the supply chain is stronger than the ends. The traditional applications of CRM and SRM are inadequate. The systems need to be redesigned to enable the building of the end-to-end supply chain.The traditional technologies catch orders and shipments and then translate the demand to the functions. There are three fallacies in this design.

1. Order Latency: Orders carry latency of weeks and months. The longer the tail of the product portfolio or the more complex the channel, the greater the latency with the order and the more issues companies will have with meeting customer service requirements. The goal is to turn the supply chain outside in to respond to channel demand or usage with minimal latency.
2. No Place for New Data Types. Demand and supply sensing that enables a better response is very dependent on unstructured data, maps and sensor data. There is no place to put this data in traditional architectures.
3. Business Models. The original architectures were designed to predict what companies should make, not what they will sell.  As a result, the architectures are very “push-based” with no place for unique solutions like yours to fit into the architectures. You have been fighting these issues for the ten years that I have been covering your applications.

3. Supply Chain Trade-Offs - So the effective frontier is about making the right trade-offs for the end to end network – ultimately, it’s about being able to make profitable decisions for the enterprise.  Can you define for us further the concept of trade-offs: the elements, considerations and capabilities?

The trade-offs are costs, growth, cycles (inventory and cash-to-cash) and complexity. The concept is that each supply chain has a unique potential. And that the goal is manage the supply chain as a complex system to improve the company’s ability to improve the response.(Conversation continued tomorrow)