This is a story for the Eds, Franks, and Toms working together in supply chains across the globe. It is also a story for a young supply chain manager attempting to make a difference, but feeling stymied.
Sharing My Experience
The year was 1982. I lived in Cincinnati and worked in R&D for P&G. My ex-husband decided that we were going to move to Delaware. As he spoke, I groaned. The problem? My position at P&G was not relocatable, so to make a career move, I would need to resign from P&G. For me, this was a tough choice. I loved my job at P&G.
My husband, through connections with his best friend, found me my next job. I started to work at General Foods’ largest plant in Dover, DE, at the age of 24. When I entered the doors of the factory, I heard the reassuring rhythm of the production floor, but as I walked the hall to my office, I felt a level of organizational friction that I did not experience at P&G.
My Monday morning staff meetings could have been a Saturday night live skit. Frank, the line manager for manufacturing, dominated the meetings. Tom, the colorful warehouse manager, constantly heckled Frank for the increasing inventory levels while Ed, the quiet material/logistics manager, constantly questioned if there was a better way. Frank had little patience for Ed.
The plant, twenty-four acres under a single roof, was an experiment to achieve economies of scale. (Labor issues were a barrier to achieving the goal.) Jell-O product line was the highest volume in the factory and dominated much of the conversation. However, the aggregate size of Jell-O brand was in decline as the number of items in the line grew precipitously.
My job, as the plant engineering manager, was to drive innovation and implement technology improvement. I remember one project quite well. We had a choice to either install newer high-capacity machines for the Jell-O lines (CM Bartelts) running at over 1500 packages/minute or slower, more flexible equipment (IM Bartelts) at a rate of 650 pouches/minute. The changeover times for the CM Bartlelts was 5X more prolonged than the more agile IM machines. As we talked about the project, Ed cautioned that we were having the wrong discussion. When Ed spoke, Frank would put his head in his hands in disgust.
The powder for the packaging machines was gravity fed down three floors of lorries (the size of rail cars) and high-volume mixing equipment. When there was a flavor change, the team washed three floors of heavy equipment. Equipment washouts represented 11% of the change over time and were a significant barrier to agility. With each washout, sweet colored water flooded the drains. Ed argued that instead of buying new packaging equipment that we should work with R&D to have a base flavor and add the color and flavoring at the head of the machine. He argued the need for agility, but Frank kept harping on improving the number of cases per hour.
The idea was so novel and counter to my project direction that I did not know how to react. I reached out to the corporate R&D team for help, but they did not have the time to work on the change. As a result, we shelved Ed’s idea. Testing Ed’s idea was beyond my circle of control.
The high-efficiency machine project was approved by Fred, the Corporate Controller. He felt that inventory was no problem, he would just cut it at the end of each quarter to make the balance sheet goals.
By the time of the new line start-up, the Jell-O brand product complexity was so high that the high volume machines were no longer a good fit. Yes, we could run a lot of product for each run, but the market requirements were much lower by item. Consequently, changeovers escalated.
The So What?
So you might ask, “Why is Lora telling us this story?” I share it because it is real life. Despite goals to improve agility and resiliency, functional metrics for manufacturing efficiency continually throw the supply chain out of balance. Strong manufacturing organizations do not make the most effective manufacturers. Efficient supply chains may not be the most effective.
I am currently writing the Supply Chains to Admire report for 2020. The analysis covers the period from 2010 to 2019. The research, now in its sixth year, is an analysis of peer group performance and relative rate of improvement on four metrics (growth, operating margin, inventory turns, and Return on Invested Capital (ROIC)). The analysis includes over 700 companies across 28 industry sectors. Each year, when I publish the report, the first question from a supply chain leader is, “What technologies does winner x use?” When this happens, I laugh. The reason? We are so hard-wired to think about the technology that this question is usually top of mind. However, in my research, I find four factors make the difference (correlations at an 80% confidence level):
- Supply Chain Leadership
- Strength in S&OP
- Strong Supplier Development Programs
- Organizational Alignment
In addition, I do not find a correlation to the selection of any technology or consulting partner. Let me repeat, in the research of over 15,000 quantitative responses over ten years, I do not find a correlation to technology or consulting partner selection. (Please do not email bomb my inbox…)
Need for Supply Chain Leadership
Supply chain leadership takes many different forms. The first step is the definition of a clear strategy. The second is to align the organization to the vision. In an organization run by Frank’s and Tom’ s—functional supply chain leaders—this is nearly impossible without a leadership position that combines source, make, deliver, plan, and customer service.
While companies speak for the need to drive agility and resilience, the real focus is operational excellence. Despite the insistence by supply chain leaders on the need to improve supply chain agility and resiliency, it isn’t possible without creating space for Ed’s great ideas to live. Most supply chain leaders speak out of both sides of their mouths…
In my case study, Ed’s approach was brilliant, but the organization did not value agility. (I define agility as the organizations capabilities to have the same cost, quality, and levels of customer services given the level of demand and supply variability.) Agility is different than responsiveness. (I define responsiveness as the shortest cycle.) Agility, efficiency, and responsiveness are three very different supply chain responses. Each requiring design.
Figure 1. Supply Chain Characteristics
The first step for a supply chain leader is clarity on what is possible. The patterns are distinctive by sector. The first step in the development of a strategy is benchmarking. Shown in Table 1 are the averages in the process industry. (The pharmaceutical industry has both the highest operating margin and the lowest level of supply chain excellence on the list.)
Table 1. Sector Averages in the Process Industry
The second step is to align metrics to the strategy. A focus on cross-functional metrics improves supply chain resiliency. (I define supply chain resiliency as the ability to drive predictable and reliable year-over-year.) If Frank and Tom define functional metrics, the organization will never be resilient. If manufacturing establishes the supply chain strategy and if Return on Assets (ROA) or OEE define excellence, then results will be less predictable. In our research of plotting orbit charts, this means that the pattern will be larger and less predictable.
One method to view resilience is to plot an orbit chart. Note the difference between Kimberly Clark and Procter & Gamble in Figure 2. P&G is more resilient and higher performing.
Figure 2. Orbit Charts of P&G and KC for the Period of 2010-2019
P&G created a Director of Supply in the early 80s to ensure cross-functional leadership of customer service, deliver, plan, and manufacturing. Procurement was added to the role in the early 2000s. The recognition of the need for cross-functional leadership happened earlier at P&G than its peers. In contrast, KC remained very focused on manufacturing efficiency.
In the Supply Chains to Admire research, neither company makes the list of winners. KC due to a lack of performance at the intersection of operating margin and inventory turns, and PG due to a lack of achievement of performance at the intersection of growth and ROIC. (P&G lags in the industry in year-over-year revenue and return on invested capital.)
P&G, like many in the industry, lost ground with multiple mergers and spin-offs. The merger mania of the last decade did not create value for most companies.
Instead of asking the question of which technologies do leaders use, instead ask the question, “How do I create an organization to help the Ed’s in the organization to drive agility initiatives?” Closely followed, by the question of, “What is the best-balanced scorecard to align Frank and Tom? And, help Fred better understand supply chain?”
This work is not sexy, but it matters. Look for the Supply Chains to Admire research next week.