Improving Supply Chain Performance
It is time for companies to start investing in supply chain management to improve enterprisewide operational performance management; this will lead to improved competitiveness and create lasting value. Unlike the post-Y2K years and the tail end of the dot-com boom, the focus on supply chain management (SCM) shouldn't be all about automation. Companies should focus on getting information out of their supply chain that will help them improve performance.
While the near collapse of some SCM vendors and the assignment of SCM products by the larger enterprise resource planning vendors to the back burner reflects the lack of investment in recent years, companies should once again consider investing in their supply chain. They should not focus solely on automation. While efficiencies gained from automation lead to cost reductions, to achieve lasting value companies must improve their effectiveness. By getting more actionable information from the supply chain, companies can better set priorities and make more profitable actions.
As with every other facet of the company, a balance between the efficiency and the effectiveness of people and processes must be attained if the company wants to be successful in this decade. To reach this balance it is essential that the supply chain be visible so the current state of manufacturing and inventory can be assessed on a daily basis. With this insight, the marketing and sales organizations increase their agility to respond to customers without having systems analysts collect and aggregate data. Visibility into the supply chain is also important for organizations performing forward-looking business planning so they can dynamically assess the future manufacturing opportunities. With this insight, the demand chain can be more flexible to help the company maximize return on costs.
It is increasingly clear that product and service organizations lack the fundamentals for improving performance. Leveraging information from across the supply and demand chain (see Figure 1) provides the visibility to improve operational performance. The key fundamental, the lifeline of business, is information that drives effective decisions and actions. We've all experienced not being able to find the status of an order for a product or service. Companies must examine how well their customer-facing organizations can access information from the supply chain. It is amazing that after decades of information technology improvements most organizations still cannot quickly ascertain the performance in a supply chain and easily provide marketing, sales, and service organizations the information they need.
Meeting Challenges
Managing costs in the supply chain for both product and service organizations has been the priority for operations management over the last several years. This focus on minimizing new investments in people, processes and systems has helped many organizations survive the recent downturn. Unfortunately, as portions of the supply chain have been outsourced or relocated to minimize costs, the amount of efficiency improvement is beginning to become more difficult to attain. This is where the opportunity presents itself for forward-looking companies. Businesses that can leverage their supply chain assets effectively will be the leaders moving forward.
There are many disparate systems in production today which support the supply chain from planning to execution, including manufacturing execution systems (MES) and supply chain planning (SCP). These systems support the automation of individual activities to ensure optimal efficiency though they are inadequate to support supply chain processes across multiple organizational units. While this level of support may be satisfactory, some believe they should be upgraded to support the latest technology advancements.
As organizations embark upon initiatives that move beyond cost containment to find new revenue opportunities from their customers, they must first address some basic fundamentals in information architecture and systems. These bottlenecks will significantly impact the ability to improve operational performance including manufacturing agility, product lines, and distribution methods. The essence of improving operational performance requires that the supply chain be linked together in an information supply chain that integrates into the operational systems that are in production today.
Throughout the supply chain, the use of underlying systems that support the interchange of information for increasing efficiency in daily activities are critical to achieve operational excellence. Information is the asset that management requires to drive better performance at every level of every organizational area. The challenge for most organizations is the method by which they provide access and delivery of operational information that can be used within the supply chain processes. This information needs to be managed and leveraged in a vast array of tools and applications for supply and demand chain management purposes.
Most companies are becoming more adept at leveraging ERP systems to increase efficiencies in specific business activities that drive many of the back-office supply chain processes. The challenge is trying to connect individual employees with the interconnected set of business activities in a business process. The information needed between these business activities concerns suppliers, customers, employees, etc. Unfortunately, this was not a high priority for ERP implementations.
Since Y2K, many organizations have tried to fulfill this mission by upgrading and synchronizing their ERP and interconnected SCP and MES. Though this may seem a logical and yet conventional path, many of these transactional systems lack the information framework to address the essence of the problem. This is not always obvious as vendors present the entirety of one particular ERP approach or another, but upon examining the reality of the deployments in leading organizations it is apparent there have been no fundamental advancements for providing information to business for improving performance.
Making Fundamental Improvements
"If it ain't broke don't fix it" seems to be thrown out the window in many companies these days. Companies are replacing transactional automation systems like ERP or SCM based on the belief that a single vendor or application instance will help resolve a problem. Organizations cannot afford the resources or the risk of attempting to find a single system provider to meet their entire supply chain requirements. We have seen many large- and medium-sized enterprises begin to question their past decisions. The big question going forward is: What must change to really meet the information requirements of your business and supply chain?
In most organizations what is broken is the ability for operational and business management to access information that can be leveraged to drive effective decisions and actions that can impact the business. Management must have quality, timely information to make existing resources more effective. Most of the existing efforts focused on efficiency improvements won't help companies reach the goals of achieving financial targets while maintaining valuable customer assets. This will require the support of underlying systems that can provide a wide range of capabilities to help individuals be effective in their existing roles and responsibilities.
Leveraging a business improvement process like the Ventana Research PerformanceCycle helps assess performance from a business and IT perspective (see Figure 2) . Embarking on such an assessment will better align IT to business and operational performance improvement initiatives. To achieve balance in efficiency and effectiveness, three major steps must be completed in a performance management systems audit:
- Assess existing IT portfolio capabilities and their alignment to business improvement initiatives;
- Analyze existing information access and delivery deployments to performance processes; and
- Develop gap analysis and recommendations that align IT to business for improving performance.
These steps will drive improvements to existing information architecture that manages information assets based on business priorities. Evaluating new information technology investments must be in line with the performance planning system assessment. This will help ensure that future investments are based on improving performance by providing relevant and timely information rather than just providing efficiency improvement through upgrades to ERP and customer relationship management systems.
Investments in supply chain management are one part of the information technology enhancements that organizations should focus on. The supply chain may not seem to be a critical area for IT improvements, but over the last two years we have seen advancements and approaches that can improve the process of managing performance. Leveraging information from the supply chain can directly improve operational performance across the strategic, tactical, and operational levels of the enterprise increasing the responsiveness from top down and bottom up in a concerted effort. The technology enhancements span across these following areas:
Supply Chain Scorecarding for Managing Operational Performance - The advancements in providing methods for benchmarking and scoring organizational and process performance has evolved from the fixed balanced scorecard initiatives to the linkage of management objectives to pay for performance-level qualitative goals and performance metrics. Through advancements in integrating multiple methodologies across levels of the organization, operational scorecarding is now a reality and available to align the strategic direction of the supply chain to the overall business performance targets.
On Demand Access to Operational Information - Providing access to information has continued to be a challenge for most supply chain organizations. Visibility into the supplier to distribution units in a consistent and timely manner has been hampered by the information architectures of the '90s. Through advancements in distributed query technology and information servers that can reconcile views across systems we have begun to move beyond the limitations of traditional business intelligence technologies and application servers. The latest information servers address these limitations and now provide a new class of applications and tools flexible enough for business needs.
Monitoring and Measuring Operational Processes - Managing business processes was challenging because the process management from ERP and SCM systems was based on system-level integration that did not provide business the ability to manage it from a people and process perspective. Though we have heard about business process management for over a decade, these systems required you to define your process and automate and control it as well. Many organizations that already have production systems were not interested in transforming their operations but instead wanted to assess how well they were performing. In the last year we have seen new techniques in business event management that integrate with rules and workflow technology to link into a business activity and process model for measuring and monitoring. This approach now provides more flexibility for managers to understand and optimize their efforts in a concerted way without IT involvement.
While sizable Y2K ERP investments have provided the basis for operating the supply chain, these systems are a long way from driving operational performance improvements. With a thorough assessment of existing investments into supply chain and ERP systems, and an analysis of places where operational performance needs to be improved, organizations can achieve on-demand access to information.
Once you determine you must make a change to meet the more demanding targets of your business, you will embark upon these types of improvements. You will find that a performance improvement initiative can bring new levels of employee involvement as you drive accountability for performance throughout the organization. This in itself can help drive cross-organizational efforts to meet goals and objectives. This will lead to the next level of efficiency as individuals change their behavior to meet performance metrics that are not just individually targeted.
The opportunity to balance your efforts in embedding efficiency and effectiveness improvements through leveraging existing systems and providing required information will bring new focus to your organization. As you look for methods to improve your supply chain performance, realize that better internal and external visibility can provide others the ability to better optimize existing efforts and align their actions with the direction your organization requires. To achieve the goals you demand, ensure that improving operational performance is managed across the supply chain, with an effort to leverage information technology to its fullest advantage and you will find yourself improving your efforts directly.
