Every organization regardless of its size micro, medium, small, and big is trying to juggle between higher revenue and lower cost, so is the supply chain businesses or supply chain department in your organizations as well.
I promise to keep this discussion simple by avoiding the use of jargon’s without losing relevance to the core issue. Specific jargon could bring relevance but also have the ability to paint a very narrow perspective and could potentially restrict out-of-box thinking on this topic.
One of the key quality requirements of a successful logistic and supply chain organization and/or contract execution is to be able to supply what is required by its customer in a timely and accurate fashion which directly affects revenue and cost. it is trivial to say that success comes by running this show at a lower cost to be able to sustain and grow the business in the future.
Let us visualize this!
Without getting too vague about this, I would like to draw your attention to a real example.
In a scenario, where a train or automobile, utilities parts supply chain company (novel strategy proposed here is relevant to any supply chain business as well) is serving a major public transport or a car maker and a major energy utilities customer
In a recent discussion with my client John (not revealing the real name) who is Managing Director along with his General Manager in a fast-paced contracted supply chain business and is faced with a challenge of a huge variation of parts requirement from one of the major customers. The variation is not just coming from the volume of orders of existing parts that they have been supplying so far but variations are led by SKU’s (Pardon me for using this jargon, SKU = Stock Keeping Unit) which they never supplied in the past.
Let us deal each of the requirements from John’s customer one-by-one
Firstly, not been able to supply what is required in numbers of existing SKU’s affects John because, quantitatively speaking, it decreases revenue (money not made by not supplying) and increases the cost of doing business (penalties charged by their customer for not supplying parts on time as per the contract/SLA = service level agreement)
Secondly, not been able to supply the parts which they never supplied in the past affects them in both quantitatively (as it decreases revenue growth by losing potential opportunity to supply more SKU’s) and qualitatively as well, meaning; by losing net promoter scores, customer’s confidence, and customer satisfaction aspects, low-with-in-the-team-morale, etc.
As a result, John’s procurement and delivery teams are always firefighting the causes trying to just meet the needs of their customer, needless to mention customer delight, fulfillment rate (how many orders fulfilled successfully) and unmet-delivery-dates created below satisfactory business engagement. This has adversely affected John’s and his team’s ability to progress towards strategic desire/vision to become a world-class supply chain partner in a smooth, effective, efficient, repeatable, and reproducible manner. Trivially, even the surroundings have started doubting his leadership capabilities as well for no mistakes of his own.
If you are familiar with this scenario, I could promise a ray of hope and a potential solution approach to this commonly available problem at the end of this article. We will find out how a novel approach could help achieve early detection of variation in the demand requirement
While many risks’ factors affect accurate and on-time supply abilities of the supply chain, I could recall major risks affecting a supply chain would be like poor accuracy of stock & it’s information, cost of sourcing, non-availability of material, trained/happy human power available, safety at operations so on that govern the success of a supply chain business when it comes to the goals mentioned above. These risk factors draws more attention since they are easily perceived and are tangible in nature.
A very neglected or I would call rather unacted upon risk factor due to its non-tangibility is the inadequate quality of information and its assessment before, during, and after the supply chain action on every request/order being processed (keep reading please and it will make sense at the end!)
In the current practice, the strategies are more focused on prevention of occurrence of the risks as mentioned above, depending on at what stage is the customer (car maker /public transport provider ) and supply chain supplier relationship is, meaning is it before or during or after supply chain action. To put into perspective before = contract negotiation stage, during= delivery of material ordered, after = reporting stage once the delivery has been made. The preventive strategies are good. However, they only help with the risk’s factors which occur between before & during stages of the supply chain action, where you have lost a great deal of quality time and is the point of no return, meaning, you are left with a couple of days or weeks before the customer is expecting the delivery of the material
How a preventative strategy is done today?
The Preventative action the story of today: between before & during stages of the supply chain action
Efforts are normally taken while at the establishment of a new contract so to ensure all the SKU’s are available / listed as per the requirement forecast and turnaround time to secure the supply from child suppliers
As we would realize by now, one effective to way eliminate risks posed by variations from the customer demand (volume of existing SKU’s, and request of new SKU’s) and create the success of a supply chain would be to act at before stages of supply chain action which could be months before the customer is expecting the delivery of the material ordered. This proactive approach help gain time plus trump all the supplier turnaround times enhancing any supply chains ability to address challenges posed by variations in the customer demand
How to do this?
The need for Predictive and Proactive action the story of tomorrow: Before supply chain action stage (months before)
To achieve transformative effects on the ability to achieve on-time and accuracy of supply which is how sooner any supply chain company have understood the need of its customer so that materials could be sourced without being affected by turnaround times of the suppliers of the material.
A two-dimensional strategy is proposed, which is both predictive and proactive in nature underpinned by elements of Lean, Digital technology, and Analytics
The Predictive part
1) To capture early signatures of volume variation of existing SKU’s, an approach to perform innovative predictions based on unexplored data of past using models like (Seasonal decomposition, Time-series analysis etc.) could be used. Do not worry, you are not alone, a knowledge/solution partner could always help you develop a solution that is reusable in the future, where, you are trying to preempt a situation by looking into past information in the search of customer’s behavioral information.
The Proactive part:
The key goal here you are trying to achieve is to preempt a situation for which you have no past behavioral information/data (Hang on! There is light at the end of the tunnel)
2) To capture early signs of new material request (the one you never stocked before, but your customer needs them now). We may have to empathize and understand, what is driving customers’ actions resulting in variation in requirements. To do this we may have to understand what information the customer had (without even realizing it!) which could have given early signs of this future disruption to the KPI for example, we analyzed how the customer stores information (thanks to the Lean principle for non-utilized resources waste concept, to learn about Lean see the link below) about the products (cars or trains or utilities) and rarely gets used for which we are tasked with supplying material for as a supply chain partner. In this case, the drawings, each product’s/ variant’s (BOM = bill of materials), product catalog, etc., are under consideration.
Next, we figured out how we can extract information from these unusual sources of information, and combine it with obvious sources of information (historic material supply data), can technology help us? Is there a smarter way to achieve this?
The answer lied in the innovative and tailored-to-fit-the-purpose solutions developed by Aurion Systems (i-Proactive Supply) solution which helps compare the unusual and disparate sources of information and draws clear comparisons (technologically) and differences in your capability as supply chain organizations and demand from your customer. This proactive strategy as proposed will potentially be an effective step in achieving success for your end customers and leadership status for your supply chain positioning in the market
What stops us today to build a predictive and proactive strategy?
Like any other change in life we wish to head-on with could easily be summed up as follows:
1) Awareness of the issue/goal you are faced with.
2) Desire to address the issue or achieve the goal proactively
3) Knowledge of the solution addressing goal /issue which might be available somewhere out there
4) Your ability to use the solution to address the issue/goal
5) Sustain or embed as a culture to reproduce successful results
How to start the right after reading this piece?
I would recommend starting simply by just taking this approach, which has negligible risk, simple and yet an amazingly effective positive step towards our goal of a proactive strategy
A) Take pen -paper or manual method (start now)
Complete one cycle end-to-end of converting unfamiliar information into a useful method of early detection of future customer demand variations so that you get traction and early benefits of proactive strategy-based approach/solution
B) Take help from technology
Try to Speed up the search for unexplored information from disparate sources using technology by engaging a solid, affordable solution partner
This proactive and prompt action proposed above is tedious and demands a remarkably high amount of effort, which is rarely available (mostly teams are constrained by capacity and capability) when you are busy supplying materials or bidding to new customers for your supply chain contracts. In both cases, you need high accuracy on customers’ needs at hand and in the future.
If you are a COO/Managing Director/General Manager who is spending more time in reactive/preventive mode than future-facing, please reach out for an exploratory conversation.