Part 1: Supply chain alignment, the critical success factor
Written by Vijay Mehra, Supply Chain Practice Leader for Phase 5 Group
“What is Supply Chain Alignment? Why does it matter? How do we create supply chain alignment in our company where functional silos are strong?”
“Why are some companies excellent at optimizing their supply chains and why do others fail miserably?”
“What separates the ‘winners’ from the ‘losers’? What is the ‘secret to success’?”
These and many other questions are often foremost in the minds of supply chain executives as they embark on the journey of getting the right products to the right customers at the right time – and maximizing profits simultaneously. In supply chain jargon, this is oftentimes referred to as ‘maximizing velocity’……and yes, it is much more difficult to achieve than it sounds.
Many supply chain initiatives start with much organizational momentum in terms of budgets, organizational commitment, visibility to the board, and much more. Many of these initiatives meander and sputter along the way, and eventually meet their demise due to ‘failed objectives’ or ‘shallow benefits’ or a host of other very significant reasons.
Supply chain alignment ….it’s about ‘going horizontal’
Why does this happen? While the answer is often complicated and obtuse, there is typically a common ingredient, a common theme that spans each of these failed initiatives and it has something to do with the organization’s failure of ‘going horizontal’, the failure of transitioning from a ‘silo-based’ entity to a cross-functional processes driven entity, in which the horizontal flow of information and decision making work like a ‘well-oiled machine’ and the vertical-silos play their supporting roles to make the horizontal processes highly efficient and effective. Put more simply, the failure typically stems from (in some way shape or form) the systemic break-downs resulting from poor Supply Chain Alignment.
What is Supply Chain Alignment (SCA)? Well, to understand Supply Chain Alignment more fully, one has to first understand the overall supply chain eco-system and what managing the supply chain essentially entails in the context of this eco-system.
According to the SCOR Model, simply put, supply chain encompasses the Source, Make and Deliver functions along with the supporting Planning and Returns processes, as shown in Figure 1 below.
Figure 1: Supply chain as defined by the SCOR model
The difficulty lies not in optimizing ‘each piece’ of the SCOR model, but in ‘optimizing the flow’ across all the ‘pieces’. The ‘flow’ is bi-directional and involves the flow of physical product and the flow of information (see Figure 2 below). This is what makes supply chain optimization inherently challenging, and this is also what makes Supply Chain Alignment a critical enabler to achieving supply chain optimization.
Figure 2: Why alignment is difficult in the supply chain eco-system
Key components of supply chain alignment
Supply Chain Alignment enables the synchronization of flows (physical flows and information flows) across the components of the SCOR Model, and it does so by connecting the ‘pieces’ of the SCOR Model via seven key integrative elements:
1. Strategic Alignment
3. Collaborative Organization Structures
4. Core Business Processes
5. Information Technology
6. Standardization of Improvement Strategies
7. Network Optimization
It is only after effective “horizontalization” of the enterprise has been achieved via the above seven integrative elements of Supply Chain Alignment, that the company’s supply chain can be effectively optimized. For any major supply chain transformation program to be successful, Supply Chain Alignment must be a fundamental cornerstone of the overall transformation. This holds true for enterprises that are at different levels of evolution in their supply chain journeys – for the ‘beginners’ and the ‘stalwarts’ alike.
It’s important to also note that Supply Chain Alignment is needed both ‘intra-enterprise’ and ‘extra-enterprise’, i.e. both within the company and across its supply chain eco system. For a typical manufacturing company, the ‘burden of alignment’ typically falls on the inbound portion of its supply chain (i.e. between its suppliers and its manufacturing operations). For a retailer, on the other hand, the ‘burden of alignment’ typically falls between its suppliers and the retail stores, with intermediary stocking points (distribution centers) in between.
About the author:
V. Mehra is the Supply Chain Practice Leader for Phase 5 Group, which enables companies to achieve systemic supply chain and operations improvements via a proven set of codified best practices, organizational development methods, change management and traditional management consulting.