The first imperative of management in any for-profit enterprise must be to create customers. Without customers, there are no profits; only costs and expenses. If the above statement is true, then to maximize the return on investment (ROI)—since it is almost always more expensive to create new customers than to sell to existing customers—management’s second big imperative is to build stronger supply chain customer relationships. Regardless of what your supply chain looks like, what every supply chain manager and executive needs is information that triggers actions that will build strong customer relationships.
When constraints manage you...
What does this kind of information look like? Simple. Information that leads to stronger customer relationships is information that leads to the effective constraint management. As someone has wisely said, “If you don’t manage your constraints, your constraints will manage you.” When your constraints are managing you, you will probably be plagued with nearly constant and costly firefighting accompanied by large, recurring expenses related to expediting. Since it is impossible to eliminate variability in supply chain flows, it becomes imperative to manage to minimize the effects of variability across your supply chain. However, our observation is that most supply chain managers and executives appear to be trapped in a recurring cycle that looks something like the graphic included in this post. Things are changing too dramatically and too fast in the global economy.
Reforming existing systems isn't enough
In my opinion—and I’m certainly not alone in this—business enterprises and supply chain managers will not discover any pathways to significant or long-lasting competitive advantages (read: higher profits and improved ROI) by simply reforming their existing systems. The vast majority are still relying on data coming from their enterprise resource planning (ERP) systems for management information. But, regardless of the make-up put on them by their purveyors, ERP systems are primarily focused on providing financial data, and simply are unable to provide detailed information required for effective supply chain management. Accounting systems do not capture, and cannot provide to supply chain managers and executives, any real-time information about customer expectations or process capabilities, in most cases.
Achieving responsiveness in supply chain customer relationships
If supply chain managers today must help their companies and supply chains respond to the imperatives of the fast-paced, global economy, then what they must be able to provide in their supply chains are responsiveness and flexibility (sometimes referred to as “agility”). Responsiveness in a supply chain almost never is achieved unilaterally. Since the part of the supply chain under your direct control—within your proverbial “four walls”—is continually affected by changes both upstream and downstream (that is, by both your suppliers and your customers), real responsiveness in your supply chain can only be built by building solid relationships with satisfied customers, happy suppliers, and empowered employees. Furthermore, flexibility (agility) flows out of those relationships as supply chain managers and executives build collaborative and integrated environments that reduce variability in end-to-end processes and, thus, dramatically slash delays and excess inventories. The supply chains that are leading today are the supply chains that have adopted new ways of thinking about how supply chains work—and fail to work, not just new technologies intended to “accelerate” old, outdated practices. Let me know what you think in the comments below.