Achieving Supply Chain Excellence by Balancing the Economics of Production with the Economics of Cooperation

It is the view of NISCI's charter members that a supply chain is similar to rowing a scull on turbulent water, with the consumer waiting at the finish line. The firms of each supply chain are in the same boat, and they'd better be stroking together better than the competing boats. The winner will need to stroke (cooperate) better than any of the competing chains (boats) because the consumer will award only one prize to only one boat ­ the one which arrives first with the best offering and the lowest total accumulation of cost. By stroking together, we mean making consensus decisions across those portions of the chain they wish to integrate in areas that will improve the boat's performance (see Figure 1).

Figure 1.	Areas for Consensus Decisions Across the Supply Chain

This poses a unique problem as chains are quite amorphous. You've never seen one. You don't know anybody who works for one. And you certainly don't have a phone number or e-mail address for one. Yet many business leaders tell us that it is becoming more important to be a valued member of a successful supply chain than to be individually the most competent in the world at what you do. So what is the solution to this seeming conundrum?

NISCI's solution is to provide supply chains with a URL on the web ­ literally a "place" for the supply chain to "be" and "be seen". Within its secure web domain, a chain at last has the opportunity to establish a chain strategy and chain goals that are not just the aggregation of its links. It can at last become something greater than just the sum of its parts.

Why should this setting of chain strategies and goals be exciting and worthy of senior management attention? In January '98, while President of Chrysler (he is now in charge of Passenger Cars and Trucks for DaimlerChrysler), Tom Stallkamp told Business Week that "Of the final cost from start to finish of delivering a vehicle and selling it, probably a third of that is waste right now". About two-thirds of each Chrysler vehicle is produced by its supply chains.

Figure 2.	The NISCI Process

It is NISCI's view that much of that waste in the supply chain is caused by decisions that make sense locally, but have unintended negative consequences elsewhere in the chain. And so far, even though we measure individual links of a chain almost to death, no one has found a way to cause the chain to function as an integrated system, and to measure the economic performance of that system as a whole. Our Charter members have identified what they believe to be the obstacles to such systemic performance measurement. These are laid out in The NISCI Process in search of ways to help the chain function more in unison, especially on the most important matters, as Dr. Deming urged for so many years (see Figure 2).

NISCI was launched in September '97 as a 501(c)(6) non-profit trade association. It has been said that The NISCI Process will require cooperation between links greater than many firms enjoy between functions. So that's where we started.

Chains of three links or more that come to us are asked first what they want to accomplish in an integrated manner that they couldn't accomplish through their present way of working. It is not enough that they already happen to be buying and selling from and to each other. This deeper level of thinking about the chain begins the development of an overall chain strategy, such as "being the quickest to market with new technologies" or "producing the most reliable product in our field". These strategies should be very much in harmony with the vision of the end-product producer who takes the chain's collective product to market.

Figure 3.	Mandate Teams

Only when these Mandate Teams are identified and engaged does it make good sense to begin setting specific, measurable goals in pursuit of the agreed strategy(s). It is no surprise that these goals need to provide benefit to all links if they are to be pursued vigorously. It is interesting that these mandate team members are easily able to list things that others in the chain do that make it difficult for them to make their full contribution to the chain's now-recognized goals. Such a list actually offers a rich menu of improvements that benefit everyone.

Figure 4.	Measurable Goals for Mandate Teams

At this point, it makes sense to begin setting measurable goals for the chain, and comparing them with the experience of others.

Mandate team members can now begin to make specific requests of each other for actions which will allow each and all to contribute more easily to those collective goals (see Figure 4). This is the stage at which web-based knowledge transfer becomes essential, and the reason this article rightly belongs in a book on supply chain excellence through technology. Every team member needs the ability to check into a real-time picture of all expectations held by all parties. This encourages optimum use of the chain's collective competencies ­ that is, stroking together.

Figure 5.	Taguchi Loss Function

At about this point, another hazard becomes apparent and must be dealt with. Chain members make good-faith commitments to each other, then too often find that they can't get the funds, or equipment, or support back home to perform as promised. This strikes at the very essence of trust, which is, at its base, a measurement of how likely the other party is to do what they have promised to do. Here, Dr. Deming's student Geniichi Taguchi helps us (see Figure 5).

It is possible to borrow the power of the Taguchi Loss Function directly from Statistical Process Control in order to assess whether and to what degree performance to these commitments is "in control". Mandate team members assess each other's performance (but only on the agreed expectations) using a scale of 1-10, with 1= "hasn't even started" and 10= "absolutely delighted with your performance". The idea is not to embarrass anyone, but to be "hard on the problem, soft on the people" as Ury and Fisher of Harvard showed us in Getting to Yes.

And because poor performance between two individuals is a drag on the whole boat, this assessment appears on the secure site in full view of all members of the pool of competence. If other members have resources or additional competencies to help improve performance to this commitment, such visibility of the problem gives them a chance to make that offer. This opportunity also provides a framework for utilizing chain competencies outside their own function or link, but for the good of the whole chain ­ a mutually productive expression of "integration" that deals with the unintended consequences mentioned earlier.

Figure 6.	The Chain is Ranked on a Scale of 1-10 Against Nine Axioms.

Once individual performance begins moving in the right direction from the above effort, it remains only to measure the overall health and progress of the chain itself. The chain's NISCI work-bench domain includes a facility to allow every mandate team member to rank the performance of the total chain against nine characteristics identified by the Consortium for Advanced Manufacturing-International (CAM-I) as axiomatic to the full optimization of chain performance ­ again on a scale of 1-10.

The results are compiled as averages on each Axiom for each member firm and one overall average for the chain on each Axiom. You can see how this will tend to bring to the surface any trouble some differences between perceptions held by member firms, thus encouraging the defining and prioritizing of corrective action in the natural cycle of plan/do/check/adjust.

CONCLUSION
So, in the end, technology is seen in its proper perspective, as an essential enabler of supply chain integration. But it is shared strategies and goals, shared competencies, trust and cooperation that combine to play the role of coxswain in winning the race that counts.

About The Authors
Mike Doyle,
Doyle Consulting Group, L.L.P.

Michael Doyle is a recognized authority in Procurement, Sourcing Strategy, and Supply Chain Optimization. Educated at Central Michigan University, he received a BS in Industrial Management, after which he went on to the University of Colorado to earn his MBA in Business Administration. Since that time, Michael served as the Executive in Residence at the University of San Diego (1989 and 1990), where he co-developed an MBA concentration in Strategic Supply Chain Management, and subsequently served as Professor of Procurement and Sourcing Strategy at the Eli Broad Graduate School of Management, at Michigan State (1996 and 1996). He is Chairman and CEO of the National Initiative for Supply Chain Integration (NISCI). His career has led him from purchasing, production planning, inventory control, and manufacturing management at Ford Motor Company, to his current position as owner and director of eight years of Doyle Consulting Group. Recent engagements in manufacturing and service industries include: oil & gas semiconductor, automotive, appliance, pulp & paper, computer, food, telecommunications, trade show, finance, and transportation. His work spans from North America to Europe and Asia. He is frequently featured in the published business press covering issues in procurement, sourcing strategy, and supply chain optimization.

Bob Parker, C.P.M., Executive Director,
National Initiative for Supply Chain Integration, Ltd. (1-888 AT NISCI)

Bob Parker spent twenty-five years managing purchasing, transportation, materials and facilities functions at Ford Motor Company and International Harvester. His experience includes several years at officer level and six years stationed in Europe and the Far East.

During 1996, Bob, Mike Doyle, and Jim Myers co-founded the National Initiative for Supply Chain Integration (NISCI), a trade association to whom supply chains can bring real-world problems as they work together to improve their collective performance.

Bob earned a B. Sci. from the Univ. of Nebraska, an MBA from the Univ. of Detroit, and diplomas from the M.I.T. Sloan School Senior Executive Program and from the Institute of Purchasing and Supply in Cambridge, England. He is a long-time member of the National Association of Purchasing Management whose Ethical Standards Committee he launched and chaired for six years. He is an active former trustee of a Chicago-area hospital, past President of the Chicago Regional Purchasing Council, and was a long-time board member and supporter of local and national Junior Achievement.