What is in this article?:
As the world has gotten flatter and supply chains have gotten longer, the need for companies to follow best practices in global supply chain management has intensified.
Ensuring Reliability of Supply
In a poll of C-suite supply chain executives, analyst firm Aberdeen Group found that the growing complexity of global operations is the biggest challenge these executives face. “Supply chains that were once purely domestic have now gone international as an increasing number of shipments flow across borders and supply and demand imbalances increase,” points out Bob Heaney, senior research analyst at Aberdeen Group. But what many of these companies are discovering, he says, is that “many of the benefits derived from their finely tuned/optimized domestic supply chains are being cancelled out by their poorly performing global supply chain.”
Technology, Heaney points out, has become a key enabler in the transformation from domestic to global supply chains, particularly to gain visibility to all supply chain partners. Mike Owen, vice president, global supply chain, with $6 billion specialty chemical company The Lubrizol Corp., a Berkshire Hathaway company, would certainly concur that the right solution can provide a competitive advantage, particularly as the company executes on its growth strategy in some sizable regions – Asia-Pacific, Latin America, India – where Lubrizol has not had a large supply chain employee base.
“Reliability of supply is core to Lubrizol’s DNA,” Owen emphasizes. One of the key enablers of that reliability is the company’s global ERP system, which provides a single version of the truth throughout the world. “We not only use the same ERP system [SAP] globally, but it’s the exact same version of that ERP system in every implementation. Everything is connected and all the data is live, so it expedites the decision-making process where speed and accuracy in our business is absolutely critical.”
He offers an example to illustrate how the global ERP system helps fulfill Lubrizol’s mission to its customers. “Let’s say that, for some reason, we have a supply issue and we’re unable to get one of our key raw materials. Our one-version ERP system allows us to immediately put in mitigation plans to protect our customer. We’ll immediately know what product that raw material goes into. We’ll know the manufacturing locations where that raw material is used. We’ll know exactly how much inventory of that raw material we have on hand, how much inventory of the product we are making we have on hand, and how much is being shipped to customers at that specific time. We’ll know immediately the number of approved suppliers for that product, on a global basis. We’ll know what is shipped on a real-time basis, we’ll know it accurately and we’ll know it immediately.”
As a result, if there’s an issue with a raw material, Lubrizol personnel throughout the world will have global access to all the relevant supply chain data and will be able to put together mitigation plans that will allow the company to utilize all available inventory, all sources of supply and all manufacturing locations to protect its customers from the supply shortage.
On the risk management front, Lubrizol’s global supply chain team adheres to a formula of its own devising: “Risk” = “Likelihood of a Critical Shortage” × “Impact It Would Have.” “For Impact, we use gross profit of the raw material of the products it goes into,” Owen explains. “To determine the likelihood of a supply disruption, we work closely with our suppliers to make sure we fully understand their supply capabilities. Then we work to understand the overall market dynamics that could impact that supply. And then we also dive in to fully understand our suppliers’ business continuity plans. So we end up with very strong knowledge—not only of our suppliers but the industry as well.”
Finally, Lubrizol measures its performance using roughly 10 operational standard metrics, which are updated on a monthly basis, which include such things as: Did we ship as we promised? How long did it take us to respond and confirm the shipping date after we received the order? How accurate was our invoice? “It all gets back,” Owen stresses, “to the cornerstone that reliability of supply is key to whatever decisions Lubrizol makes.”
|MAPPING THE GLOBAL SUPPLY|
Percentages equal numbers of all companies having suppliers or customers in each region. Source: Aberdeen Group