Supply Chain Performance – A Lead Indicator For Business Success

Supply Chain Performance is a good, early indication of your business’ overall success and long term sustainability.

What makes a successful supply chain? How do you know if your supply chain is underperforming? In this blog and my next post, I’ll endeavour to answer these questions.

Supply Chain Management is all about optimising activities across various partners, to satisfy a customer’s needs in the most effective and efficient way.

In fundamental terms, Supply Chain Management refers to all aspects relating to the buying, making, moving, storing and selling of goods (and services).

This includes the flow of information, goods/services and financial resources (sometimes delayed) to enable all activities.

It typically spans multiple partners, located at various geographical locations and over a protracted period of time.

Yes, it is complex and businesses are simultaneously involved in a matrix of various supply chains, with activities occurring over different time horizons:

• Strategic (i.e. design of the distribution network, capacity and location of facilities; typically 1-10 years)
• Tactical (i.e. planning of operations; typically 1-12 months)
• Operational (i.e. execution of activities; typically 1-30 days)

What does it take to construct a successful supply chain?

From my experience in supply chain consulting and operations, it’s crucial that all players in the end to end supply chain have a close, open relationship. This ensures accurate, timely information is available, so each partner can best plan and execute their activities.

Here are some characteristics of successful supply chains that I’ve observed:

• Accurate forecasting (demand planning) as initial step
• Driving just-in-time supply/replenishment decisions with other partners (i.e. procurement of raw material or components)
• Optimal manufacture of components or assembly of products
• Timely movement to points of expected consumption

In reality, the benefits of Supply Chain Management are much wider and will greatly enhance an organisation’s ability to sustain operations.

This will eventually lead to the notion of supply chains competing against other supply chains (or ideally competing against disadvantaged competitors in fractured supply chains).

The impact of sub-optimal or failing supply chains is clear: it creates underperforming and/or distressed businesses.

And when supply chain partners are interwoven, failure or dysfunction in one can affect the other partners and jeopardise otherwise good businesses.

What are the characteristics of underperforming supply chains?

• Unnecessary high stockholding (raw material and/or work in progress), required as buffer stock
• High levels of redundant/obsolete stock and finished goods
• Longer than expected lead times for both raw material supply and delivery of finished goods
• General uncertainty by, up and down stream supply chain partners on future business activity levels
• A high level of goods returned for credit, delays in payment and cash flow unpredictability
• Poor performance in “on time, in full” delivery metrics, leading to poor customer satisfaction and delays in payment
• A mismatch between resources available (equipment and people) and resources required, leading to low utilisation and/or availability percentages
• High transportation and warehousing expenses due to wrong location decisions and multiple handling activities

In my experience, these characteristics are good lead indicators of financial performance. They may also provide warning signals of a company in need of performance improvement (or even worse, tell-tale signs of a company in distress).

In my next blog, “Applying Supply Chain Thinking in Operational Turnarounds”, I will explore how to leverage Supply Chain Management principals to create operational improvement/turnarounds.

Vantage Performance is a national performance improvement and turnaround firm – Winner of the 2011, 2010, 2009 and 2008 Turnaround Management Association – Turnaround of the Year Awards.