Supply chain performance has never been as important as it is today. In an
economy where supply chains, and not companies, battle one another, how a
supply chain performs determines who will win the battle. To achieve maximum
benefit from a supply chain, creating competitive advantage in the supply
chain vs. supply chain wars, a supply chain must be performing at its best
or anything it has gained will be short-lived.
Supply chain performance has never been as important as it is today. In an
economy where supply chains, and not companies, battle one another, how a supply
chain performs determines who will win the battle. To achieve maximum benefit
from a supply chain, creating competitive advantage in the supply chain vs.
supply chain wars, a supply chain must be performing at its best or anything
it has gained will be short-lived. Yet, many companies are not aware of how
their supply chains are performing or even what supply chain they’re in. This
is not a disaster for these chains, however. Specific assessment criteria based
on the Six Levels of Supply Chain Excellence and a strategic assessment methodology
can help them determine how their supply chain is performing and thus plot a
course for improvement.
The Assessment Criteria: The Six Levels of Supply Chain Excellence
Before you can examine your supply chain and determine how it’s performing,
you must understand Supply Chain Excellence. Supply Chain Excellence is a process
with six levels that must be attained step by step. These levels are:
Level 1: Business as Usual.
At this level, a company works hard to maximize its individual functions. The
goal of individual departments is to be the best department in the company.
Organizational effectiveness is not the focus. Instead, each organizational
element attempts to function well on its own. Each division/department applies
its own strategy for applications used.
Level 2: Link Excellence.
If an organization hopes to pursue Supply Chain Excellence, it must look within
itself, eliminate and blur any boundaries between departments and facilities,
and begin a never-ending journey of continuous improvement. Its individual link
must be evolved to make it the most efficient, effective, responsive and holistic
that it can possibly be. Supply chain undertakings work better when the links
in them are performing
their best. The more effective you are internally, the more effective your supply
chain will be.
Level 3: Visibility.
Supply Chain Excellence requires that all links work together. Links work better
when they share information. Visibility establishes the groundwork for information
sharing. It minimizes supply chain surprises because it provides the information
links need to understand ongoing supply chain processes.
Level 4: Collaboration.
Collaboration is achieved through the proper application of technology and true
partnerships. Through collaboration, the supply chain can determine how best
to meet the demands of the marketplace. The supply chain works as a whole to
maximize customer satisfaction while minimizing inventories.
Level 5: Synthesis.
Synthesis is a continuous improvement process that integrates and unifies a
supply chain. Synthesis harnesses the energy of change to address a turbulent
marketplace and ensure customer satisfaction. It is from synthesis that true
Supply Chain Excellence is achieved because it enables a supply chain to reach
unparalleled levels of performance.
Level 6: Velocity.
After synthesis, the goal becomes accelerating the organization or supply chain
to a higher velocity. This is the ongoing acceleration of Supply Chain Excellence.
The Six Levels of Supply Chain Excellence are used to measure the components
of supply chain assessment criteria: enabling technologies, supply chain synthesis,
warehousing, logistics, manufacturing, organizational excellence, maintenance,
and quality. These components have specific characteristics that can help you
identify your supply chain’s level or levels. For example, the characteristics
of enabling technologies at each level are:
Level 1 – The technology at this level consists of legacy and homegrown
systems. These are islands of technology acquired and installed as a reaction
to specific situations. Duplicate entry and databases are rampant.
Level 2 – At this level, a link’s transportation management system
(TMS), warehouse management system (WMS), and order management system (OMS)
have been recently upgraded to industry standards and information visibility
Level 3 – Systems are integrated within and across the organization.
The TMS, WMS and OMS link to key partners to share information. Duplicate entry
Level 4 – Information concerning events and plans is freely shared
among first tier partners. Information has been integrated into each organization’s
execution and planning systems. Basic Executive Information Systems (EIS) are
Level 5 – At this level, first tier partners network with first tier
partners to collaborate. A robust EIS is automating key erformance indicators
Level 6 – This is synthesis with a forum for continuously improving
timing, quality, and quantity shared among multiple tiers of channel partners.
Another example is supply and its characteristics:
Level 1 – Sourcing decisions are based almost exclusively on low price.
Level 2 – Cost of acquisition replaces price to include transportation,
quality and flexibility.
Level 3 – Partnerships are formed with key suppliers, and the partners
are sharing current and historical demand information.
Level 4 – Major suppliers participate in product design and planning
activities. Information is visible to all, and transactions are electronic and
Level 5 – There is interactive design and/or replenishment over multiple
levels of the supply chain. A Supply Chain Council facilitates continuous improvement.
Level 6 – The Supply Chain Council moves online.
Similar lists can be compiled for the other components and make excellent guidelines
when it’s time to apply the Strategic Supply Chain Assessment Methodology.
Supply Chain Strategic Assessment Methodology
The Supply Chain Strategic Assessment Methodology is comprised of seven steps.
Level 1 – Map current business processes at a high level.
Document information flows, business rules and so on. Determine if they meet
business and mission-critical goals, if they are automated, and if they can
be outsourced. Check how well these processes are measured and determine key
matrices. The result should be an understanding and documentation of strategy,
objectives and priorities.
Level 2 – Drill down in the business processes to see how
they are linked and what information is flowing or needed by these processes.
Develop a detailed process flow. This step includes understanding and documenting
your supply chain’s KPIs, conducting 360-degree feedback with executives and
business process owners and conducting an assessment of information technology.
Level 3 – Develop a current supply chain map showing external
supply chain relationships. Identify gaps and links. Then, develop a continuous
Level 4 – Take the assessment data from Step 2, evaluate them
and arrive at supply chain conclusions. It is possible that you will discover
processes that do not have ownership, processes that are not well documented,
processes that do not map well to your company’s goals and mission, and processes
that are not automated. Identify supply chain alternatives and recommend the
best alternative and business case.
Level 5 – Develop supply chain process recommendations. Identify
supply chain alternatives and, from them, recommend the best alternative and
Level 6 – Use the recommended actions to develop implementations,
create savings and determine ROI. Assess the availability of internal resources.
Develop a detailed and prioritized implementation. Take the income statement
and balance sheet cost-drivers, one-time capital and expense drivers and experience
and feed them into a strategic network optimization modeling tool
that will determine risk, reward, return and reality and recommend the best
strategic alternative and strategic direction.
This methodology will allow those performing a supply chain assessment to complete
a high-level evaluation of the supply chain, compare current-state operating
environment and levels of supply chain performance against best practices, identify
improvement opportunities, anticipate business impact and construct a program
that drives improved business performance. This must be done thoroughly and
with cooperation from all links in the supply chain.
Those who have never conducted a supply chain performance assessment should
consider working with a third party with extensive supply chain and assessment
experience. The benefits to this approach are unbiased documentation and recommendations
performed by those who understand the supply chain performance assessment process
and have made it one of their core competencies.
Obstacles to Collaboration
Collaboration is critical to completing a successful supply chain assessment.
Before you embark on an assessment, you should look inward at your company and
ask two key questions:
How willing is your company to collaborate?
How willing are the companies in your supply chain to collaborate?
If you poll your company and the other companies, the answers may surprise
you. Many companies are resistant to collaboration for various reasons,
- Short-term financial focus
- Inability to agree on how to share the costs of implementation
- Inability to agree on how to share the savings
- Concerns over visibility and sharing sensitive information
- Fear of weakened negotiating stance
- Fear that collaboration creates commitments
- History and culture of adversarial relationships
- Links with competing supply chains.
How can you overcome these obstacles? By going beyond willingness and intention
to commitment. Collaboration requires discarding the traditional relationships
common between organizations today. This can be done by focusing on the opportunity
for additional contribution to the growth and profitability of the supply chain.
This applies to both a customer looking at its suppliers and a supplier looking
at its customers. The focus should be on communicating clearly and adopting
a continuous improvement process. What’s important is understanding that your
objectives are really the same-you want the supply chain to succeed.