12.16.2016

Common Misconceptions About Building a Supply Chain

I recently had a very informative phone conversation with William T. Walker, CFPIM, CIRM, CSCP, about his most-recent book, Supply Chain Construction: The Basics for Networking the Flow of Material, Information, and Cash. During our conversation, I asked Bill: “What are the most common misconceptions about building a supply chain?” Here is his full response:

At the highest level, there are two broad misconceptions about building a supply chain. First, there are businesses that see no need to build or renovate their supply chain. Let me give a few examples from former work colleagues:

One just left his employer to start a computer consulting company. Why would a service company startup need a supply chain? The answer is that third-party relationships, forecasting, planning, matching customer demand with service supply, cash-to-cash velocity, and delivery lead time are each basic supply chain considerations. 

Another colleague just traveled to Shenzhen, China to observe the pilot run at a new contract manufacturer making a new family of products. The parent company is small, engineering focused, and has a limited understanding of the operations side of the business. Why should they care about a supply chain? Won't the contract manufacturer will take care of it? The answer is that demand planning, inventory investment, process variability, and intellectual property protection each depend upon the relationship between the basic supply chain network design and the product design. 

And a third friend recently moved to Texas to establish a cross-border distribution center for product manufactured in Mexico. This was explained to me as just a simple cost-reduction exercise; how is this so important in a supply chain context? The answer is that landed cost, import/export compliance, risk management, information connectivity, and performance metrics are each basic supply chain operational imperatives. Such demand life-cycle events and supply life-cycle events often collide triggering the need to renovate or build a new supply chain.

My book, Supply Chain Construction: The Basics for Networking the Flow of Material, Information, and Cash, presents the supply chain from three basic perspectives. The network container is first. This is the set of trading partner relationships, information transactions, and cash processes that connect from raw materials to the end customer. The product contents are second. These are the locations of inventory items and SKUs across the network that supports product delivery. The matching of demand and supply is third. This is the consideration of push versus pull, capacity constraints, and/or dynamic pricing to operate flexibly and risk tolerantly under both small order and large order conditions.

A second broad misconception is among business organizations that understand the need for a supply chain but think only in terms of their most immediate suppliers and customers. A competitive supply chain is fully integrated and multi-echelon. The detailed blueprint presented in my book sequences the basics of how to build a competitive end-to-end supply chain. It explains how to budget price/landed cost from raw materials to the end customer. The book explains how to calculate inventory turns upstream and downstream. And it presents the concept of a Value Circle to tie together multi-echelon performance measures.

What do you think of Bill's response?  What other misconceptions in regard to building an effective supply chain do you think are worth noting?

0 comments: