SCM Pain Points: Findings 1 - 3
Rob Handfield , SCRC
Wolfgang Steininger, Supply Chain Redesign, LLC
It is increasingly clear that companies must collaborate with suppliers and customers to respond to market needs. Such collaboration, while often beneficial, may result in challenges that we refer to as pain points—that is, specific and well-defined aspects of SCM that are hindering smooth flow and ability to innovate in a firm’s supply chain. Findings from the study presented this week in-depth include:
2. Lack of Global Project Resources
3. Lack of Internal Collaboration and Business Intelligence
1. Supply Chain Fragmentation (31%)
The global business environment is creating longer and more complex supply chains, driven by increased outsourcing to low cost country suppliers. The integration and management of multiple partners in the chains are broad and deep and are likely to include several Tier 1 and Tier 2 low-cost country suppliers (from China, Vietnam, or Indonesia), several intermediaries in inbound logistics, and multiple downstream distribution channels. Complexity in these channels is driven by the inability to resolve the disconnects created by the lack of planning and alignment of manufacturing operations, capacity, inventory, and demand information. Transportation and long supply lines are complicated further by homeland security measures. When multiple business processes are poorly aligned, the result is a fragmented patchwork of technologies, staff members, and decisions that are not effectively working together, and problems arise. When personnel do not have a common platform and set of processes in a global environment, complicated by language and time zone differences, confusion ensues. The result is often a major disruption of supply chain flows of product and services. Our interviewee from the chemicals plant put it this way:
Synchronized supply chain is a major pain point, and maintaining the product all the way to the shelf to achieve good service and stock. One half of the problem has to do with improving visibility through collaboration with retailers. The other half has to do with how people take on special activities, promotion, and brand building, and managing events in a way that they don’t disrupt the normal process. In the first half, one can automate those things and link up, but when unexpected events occur, how do we gain visibility into that through event management across a complex network of retailers? This is where the real challenge occurs. We are constantly in a reactive mode as we are thrown into chaos and the product transitions. I think these problems are not handled well, and it [lack of visibility and being in a reactive mode] becomes the catalyst for a nonsynchronized supply chain.
Transportation availability and logistics issues are a problem, because there are fewer modes of transport available to us today, particularly in the United States and in Europe. With the consolidation of railways in the United States and huge imports from Asia, there is no space on the ships. Lack of visibility and control are increased due to homeland security. When we import materials, there are additional measures, protocols, and additional costs. Buying from a low-cost vendor may not be possible for me because I can’t accurately estimate the total cost of sourcing with confidence. The incremental cost of disruption is also difficult to estimate.
Relating pain point to supply chain trust and collaboration
Consider a group of children playing “crack the whip.” Before these children begin to move, little force and concentration are required to keep their hands attached. As chain length and speed increase, however, holding on becomes a primary activity. Similarly, as supply chains become longer in more chaotic environments, staying attached becomes increasingly difficult. Although representatives of companies in supply chains have not been accustomed to working hard to maintain such attachments, the pain they are currently experiencing in this domain indicates that holding on is a skill that managers need to acquire and may well represent a configuration of capabilities that firms will need to invest in through a focused recruiting effort. Development of such collaboration and trust implies a combination of enabling technologies and investment in relational capital.
Relational capital is often a function of improved socialization, both formal and informal (Cousins, Handfield, Lawson, & Peterson, in press). Relational capital between buyer and seller facilitates the ability of potentially useful and important information to travel quickly and accurately through the network. Relational capital (like social capital) is believed to be malleable (Oh, Chung, & Labianca, 2004) and can be focused to improve the social relationship interactions as directed by the actors in both firms. Recent research shows that relational capital not only facilitates the general relationship interaction process, but is also governed by joint operational metrics in the relationship (Cousins et al., in press).
2. Lack of Global Project Resources (12%)
Global expansion of operations and distribution requires resources to manage business processes, relationships, and information flow. However, many respondents complained of insufficient funding to carry out such expansion, describing situations in which the combination of increased initiatives and reduced resources resulted in project delays and gaps in deliverables. When asked to do more with less, the fragmentation of long supply chains is exacerbated as problems begin to overwhelm the supply chain systems. For instance, one respondent from a packaged goods manufacturing firm told us,
We have an overseas business with multiple sites in multiple countries—and their product has gone from a high-tech leverage product to a commodity item—so competition is much more difficult. So the supply chain (getting product from the supplier into manufacturing, getting it manufactured, and sending it out to the customer base all over the world) is not optimal. We need to run a major project with only a single individual (all we can budget) to re-look at that supply chain, including shipping, distribution, all the way to the end customer. We have already started to consolidate the supply chain and move the manufacturing from overseas sites to Eastern European sites (Poland, etc.). Our challenge is that we need to redesign a supply chain and only have one person to do it. We have huge downsizing—and huge consolidation and rationalization.
An overall issue that I have is a lack of organizational structure on the international front to deal with our global expansion plans in the next couple of years. The issue that we are facing is aligning pan-European buying on the procurement side while leveraging whatever we can on transportation and other global commodities. We need to use agents who can enable us to find sources around the world for low-cost country sourcing, but we can’t afford such people, who are often difficult to find.
Relating pain point to supply chain trust and collaboration
When companies strive for more efficient and effective supply chain performance, it is often assumed that working together will occur naturally and that little cost will be involved; hence, limited resources (if any) are made available for such efforts. Collaboration and trust are not free, however, and there are clear trade-offs involved with their deployment. Often, companies extend their supply chains in search of cost reductions that prove to be relatively minor, without adjusting their calculations to include the costs that will arise from increased coordination. Better decision making concerning supply chain extension will require increased understanding of the costs and benefits of collaboration and trust.
Furthermore, in evaluating the value of an investment in supply chain integration, it becomes necessary to use new tools to conceptualize the network. SCM research traditionally looks at dyads, but a network perspective—including new approaches to designing and describing the network—will aid companies in determining the resources required to keep their chains functioning well. Also, the specific sets of skills and competencies required to create trust and manage relationships is relevant, because managers often fail to understand the delicate balance that must be managed through close relationships with critical suppliers and customers (Giunipero & Handfield, 2004).
3. Lack of Internal Collaboration and Business Intelligence (10%)
Poor communication between business units and disjointed legacy systems prevent coordination and alignment of sourcing and logistics strategies. In many companies, internal spend data is not accurate, and people have to estimate their total spend. Internal business performance plans are not aligned with external customer demand requirements. There is also a fundamental lack of supply market intelligence, which provides insights into the current changes in global supply markets, associated risks, and contingency planning strategies (Handfield, 2006). As one of our interviewees noted,
We are a highly decentralized company. From a sourcing point of view, that decentralization is painful, because the information required (spend and vendor data) is captured in a variety of different computer systems, Excel files, and Access databases—homegrown systems. Furthermore, this data cannot be accessed electronically, implying a huge manual collection and formatting task. To make matters worse, there is disagreement about the meaning of various terms. Until this year, there was no consistent commodity coding structure. This problem is very common for multi-industry manufacturers. It takes so much time and effort to pull all this information together that it is not done often enough.
Relating pain point to supply chain trust and collaboration
In this pain point category, the executives we interviewed referred to weaknesses in the systems through which information flows between supply chain members. Collaboration depends on enabling technologies, and new ways to use technology to support collaboration continually emerge. What are the technologies that enable collaboration, what are the problems that arise with their use, how extensively are they used, how reliable are they, and what are the implications when a technology does not work as it should? To what degree are new technologies pushed into the supply chain environment, rather than being created to respond to supply chain integration needs?
These questions illustrate a costly and paradoxical problem facing businesses today. The multiple sources of unstructured information (contained in e-mails, call center notes, news groups, presentations, Web pages, etc.) has created an environment in which the answer to almost any question can be found. Yet common reporting and analysis tools available to knowledge workers focus only on structured information (that may be housed in a data warehouse.) This places the onus on end users in supply management to creatively search multiple internal and external repositories of information for supply market and business intelligence, then combine and deduce the results to arrive at needed answers (Handfield, 2006).
Typical forms of information that are required include internal business intelligence elements such as total forecasted product demand and total cost of goods sold, as well as current performance data for internal business units and suppliers, internal finance budgets, quality reports, and other key pieces of data. This information is generally located in a variety of different databases that are dispersed widely across many companies.
Even more difficult to attain is the set of data required to develop supply market information. This includes information on trends in diverse supply markets (found on Web sites and in analyst’s reports), industry trends (perhaps available in various trade magazines and Web sites), goods and commodities pricing, financial status of specific suppliers, new technology trends, and mergers and acquisitions. It also includes information on emergence of cutting-edge suppliers in diverse geographical locations, competitor strategies and acquisition, and technology shifts, as well as other forms of general and specific knowledge regarding industry events that have a direct impact on sourcing decisions. All of these data are located in diverse and difficult to identify sources that must be continually scanned, read, filtered, and summarized into packets of information. These information packets are synthesized and processed into templates that must be communicated effectively, efficiently, and in a timely manner to key decision makers involved in critical SCM processes. Only then can users apply this information to make more effective decisions.