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Asking the Right Questions Is The First Step To Drive Supply Chain Excellence

Each year, we compile a list of top-performing Supply Chains, termed the Supply Chains to Admire. Using balance sheet data from 2011 to 2019, we chart companies’ progress by peer group on rate of improvement and performance in the metrics of growth, operating margin, inventory turns, and Return on Invested Capital (ROIC). Companies that outperform their peer group while driving improvement and driving value (either by price to book or market capitalization) make the winners list. It seems easy, right? Trust me; it is not. In the past study, of 600 companies studied, 4% make a list. This year 21 companies (out of 600) make it to the Winner’s Circle.

This week, while all my friends are on vacation, I am writing the final report for the Supply Chains to Admire. The report with over forty tables takes over a week to produce. We share the report to help companies benchmark and reflect. Our goal is to continually redefine the definition of supply chain excellence. The number of shallow definitions in the market is a pet peeve for me.

Last week, I shared a preview of the results through a webinar broadcast. At the end of the presentation, I ask the audience for questions. (The charts and data get boring pretty quick.) Over and over again, I get questions that make me shake my head in amazement. The reason? The wrong questions get asked repeatedly, making me believe that many organizations are having the wrong discussion leading to stalled progress. Let me share some and see what you think:

  1. Does forecast ownership make a difference in outcomes? Does functional ownership matter? This question always makes me smile. Instead of asking what makes a good forecast and how to measure the impact of forecast performance, companies pass forecasting responsibilities around the organization like kids with a hot potato at summer camp. The best-performing companies measure and analyze Forecast Value Added (FVA), Coefficient of Variance (forecastability), Mean Percent Error (MPE), and Bias. They are clear on the role of the forecast and the budget (close coupling of the budget to the supply chain degrades performance). For a winner, the focus is on market-to-market orchestration and the use of market/channel data. The focus is not on who but on how to improve outcomes. This need is heightened through the pandemic experience. The use of market data decreases demand latency (time to sense and translate market shifts).
  2. What drives better performance centralized or decentralized planning? As an analyst, I have answered this question for two decades. The answer is similar to “How long are a man’s legs?” The answer is, how does your organization make decisions? Or how should your organization make decisions? The decision flows for planning need consistency to improve decisions. For example, J&J is a very decentralized organization, giving up the economy of scale to ensure local input and control. In this case, it makes sense for planning to be in the regions. In contrast, Dow Chemical, with thirty-two divisions with interconnected envelope interdependencies, needs global orchestration. Each division with global oversight drives the decision process. For leaders, the question is much different. The focus is “How can I make better decisions using insights from planning technologies?” A common mistake is implementing planning based on P&L versus decision flows based on supply chain constraints and dependencies—implementation by P&L results in gaming to make bonus targets.
  3. In winning companies, which technology is installed? What is the best supply chain technology? There is no correlation between types of technology—company or brand—and supply chain performance. The difference lies in selecting the right technology—alignment with the business model— and the integrity of the implementation.
  4. What is the forecast error of winning companies? When I hear this question, I just shake my head. Again, this discussion is chasing forecasting in isolation–like running after the bad boy in the room–versus understanding and designing the supply chain to absorb variation.

In the world of the supply chain, companies bandy about words—examples are end-to-end supply chain, control towers, and supply chain excellence—in a meaningless fashion. Most are just that words. They lack meaning. Leaders put meaning into their strategies. Top-performing supply chains differentiate through continuity of leadership, a focus on customer outcomes, and the alignment to a balanced scorecard or metrics. (A focus on functional metrics throws the supply chain out of balance.) Excellence happens at the trade-off of margin (not cost), growth, inventory, and Return on Invested Capital.

In conclusion, step back and make sure that you are asking the right questions. It is harder than you might think. A good question has clarity of purpose with a focus on outcomes. Start by asking yourself, “How do you define supply chain excellence?” Follow with the question of, “How should I use technology to improve decision flows?” And, “What makes a good decision?”

Good luck with your journey. If you have a break, send me coffee to help keep me awake as I tirelessly pound on these tables for the Supply Chains to Admire Report 2021.

Preparing for the Supply Chain Insights Global Summit

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The Supply Chain Insights Global Summit is happening on September 7th-9th in Franklin, TN.

We are taking the risk that everyone can get COVID shots to enable an in-person event in September. We will also have a virtual feed hosted by Supply Chain Now for those unable to travel. The goal of the conference is to Imagine the Supply Chain of 2030. We expect 100 attendees to attend in-person and 1000 to join us virtually around the world. We design each experience for extreme networking.

In preparation, I am handpicking the speakers, testing the results of outside-in processes in Project Zebra, and finishing up the Supply Chains to Admire analysis for 2021.

If you have a story you would like to share at the conference; please drop me an email at Mark your calendars to join us to think differently and Imagine the Supply Chain of the Future.

We Give to You. Will You Give to Us?

Our current research project is understanding the current state of analytics. Our philosophy is you share with us, and we share with you. We don’t believe that research should be locked behind paywalls. If you take the study, you will be invited to a closed roundtable to discuss the output. We would love to have your input on the study. This study closes this week so that we can finish it for the Global Summit.

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