If ever the critical nature of the supply chain process was exposed in an obvious way, it was last year. Grocery store shelves were emptied of meat, produce, canned goods, and, yes, toilet paper and paper towels. The general public learned what supply chain professionals have long known: a supply chain break disrupts the ability of those at the receiving end of goods and materials, whether a household or a business, to function normally – or at all.
In succeeding months, supplies have returned to near-previous levels, albeit with some continuing variations. While many factors aided in that recovery, no doubt thousands of individuals made a significant contribution to diagnosing and treating problems. We call their collective wisdom supply chain IQ. It’s an important element of supply chain operations, and one that’s often overlooked by organizations, to their peril.
First, the supply chain itself
In this case, we’re discussing the part of the supply chain that an organization owns and controls. It begins the moment a company receives materials and ends when products reach customers. The supply chain is the ability of the organization to move goods around with the right level of visibility and efficiency.
The five strategic pillars of the supply chain are:
1. Network footprint – assets that make up the supply chain and their location.
2. Information systems and how they’re integrated.
3. Processes and delivery models.
4. Organization – the structure of the company’s supply chain management system.
5. Customers – interaction with them and how the organization uses that information to optimize the first four pillars.
If an organization’s supply chain is failing, it needs to examine the five pillars and find the gaps that are causing problems. It’s often not what an organization initially thinks or assumes. For example, dairy producers had to dump quantities of milk this spring. They were challenged with understanding whether this was due to overproduction, a market issue or a delivery issue.
Determining the real problem helps an organization figure out how to fix it. And this is where supply chain IQ comes into play.
Supply chain IQ defined
Supply chain IQ is the sum of all the capabilities of the stakeholders in the supply chain process and the value created from those capabilities. It’s a subset of organizational intelligence, or the overall capacity of an organization to create and use knowledge strategically. It’s not the supply chain itself, but rather the ability to use it, analyze it, correct its failings and improve it.
The more additive and complementary capabilities you have, the higher your supply chain IQ. And like an individual’s IQ, which evidence shows can be changed somewhat with different interventions, supply chain IQ can always be increased, either through learning or by hiring people who bring new capabilities and knowledge with them.
Understanding an organization’s supply chain IQ is important because it determines whether the supply chain team and resources can handle the challenges that the business faces, or is likely to face, in the near future. No individual can make a supply chain operate smoothly; many people using their knowledge and capabilities together can.
Evaluating your organization’s supply chain IQ
The more “yes” answers to the following questions, the higher your organization’s supply chain IQ:
Supply chain visibility. Does one function know what the next one needs, and vice versa? Do you have the necessary data to make decisions and adjustments as needed?
For good supply chain visibility, an organization needs to eliminate functional silos so all those involved are sharing information and communicating regularly. To make sure you understand the external factors that might impact your supply chain, you need tools or systems to visualize information that’s coming in from either end of the chain – suppliers at the beginning and customers at the end. Regular review of data and information from suppliers, including awareness of circumstances that could substantially change your supply chain processes, is also important.
Sales and operations processes. Are sales and operations aligned? Are operations consulted early in the product development/sales process to assess supply chain impacts that come with new products or sales?
Successful alignment between these two groups includes establishing a sales and operations planning process and resource and capacity planning that consistently matches your sales dynamics. And eliminating silos applies to these two entities in particular; for good communication and decision making, they should develop simple and effective interaction points between functions to help close the sales and operations planning loop.
Performance to strategic targets. Does everyone know what the targets are? Are you meeting them?
Establishing a regular routine to set targets and cascading them in a way that ties the whole organization to them is key. Regular assessment of supply chain capabilities and systems against strategy is also crucial; it means you’ll be able to take corrective action in a timely manner. As a matter of fact, forecasting and reforecasting needs to become part of company culture to make sure the organization is responsive to change. And when it comes to results, you need to take the long view – 3 to 5 years of consistently meeting strategic targets means your supply chain is performing successfully.
Integration of new business and operations. Can you successfully integrate new business, which can be a major disruptor, into your supply chain?
This means establishing dedicated teams for supply chain and systems integrations to ensure that acquisitions are folded into the organization within the first year of purchase. Effective integration also includes implementing capabilities that have been acquired over the past 3 to 5 years into key supply chain areas to ensure success.
Seniority. Do employees have the necessary experience? Are your supply chain practices firmly entrenched in your organization?
You need to have the right resources with adequate experience to enable your supply chain strategy. Capabilities that you see as critical to meet challenges should be in-house. Those capabilities should include strong cross-functional experience among critical team members. Finally, managers need to work with HR to establish processes for ensuring the continued presence of required skill sets.
There is no doubt that the technology used in supply chain management is critical to efficient, effective operations. But even with enterprise resource planning, Internet of Things (IoT) data and automated processes, it’s the people within each organization that are key to making a supply chain successful. They are the source of supply chain IQ and the final, crucial piece of the supply chain puzzle.
Melvin Bosso is a principal with Myrtle Consulting Group, now a part of Accenture. Myrtle is a firm that drives operational transformation within global manufacturing, processing and distribution organizations. Accomplished and versatile, he has a proven track record in cost management discipline, network optimization, root cause analysis methodology and excellence programs. He is also an expert in developing processes and management systems that favor cooperation and focus on strategic company objectives. Melvin studied Engineering Geology at the University of Technology of Delft in the Netherlands. He joined Myrtle after leading plant operations at CHEP Canada for three years. While at CHEP, he led the company in a complete transformation of the network. Costs went down by 10 percent, production output grew 60 percent, and safety incidents went down by 80 percent while he was in this role. Prior to leading CHEP’s operations, Melvin spent nearly eight years with Labatt in diverse leadership roles. He played a key part in the transformation of Labatt to ABI’s new operating model and contributed his expertise to many corporate and representative initiatives. Melvin has been highly successful in unlocking the potential of individuals and organizations through coaching and support.
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