5 supply chain questions for CEOs

Five Questions CEOs Should Ask about their Supply Chain

March 21, 2013
It pays to be proactive in making sure your supply chain is designed for success, and that means asking some key questions about it.

Recent news reports about flaws in diverse products—from a leading smartphone application to a highly anticipated aviation product, to the recent “horsegate” affair in Europe—have focused on the large number of suppliers in the chain, potentially creating the impression that the scale of the supply chain might in and of itself have been a contributing factor in these quality control failures.

While there’s no question that the number of suppliers in a supply chain can, in some instances, result in a product flaw, for almost any product there’s far more involved in quality control than just the number of suppliers.

If all the recent media attention to quality control has made you think twice about your own supply chain’s capabilities, it’s worth stepping back to take a fresh look at how it compares to best practices.

Supply chains can be defined as the movement of three critical resources: materials, information and money. A failure in the movement of any of these can lead to a failure of the entire chain, whether there is only one supplier or hundreds. If a payment is late, a part held up, or there’s no data or misleading data available to track a component, the supply chain will fail.

And, to build on this, if you think quality in a supply chain is just having the right materials in the right place at the right time, you’re not thinking broadly enough. Supply chain management must also focus on the quality of the materials, the accuracy and content value in the information shared between supplier and customer, and the accuracy and timeliness in the financial transactions.

As a CEO, you may not be directly responsible for the inner workings of your company’s supply chain. But your supply chain is a huge contributor to the safe and timely delivery of your goods to customers—which means it’s critical to your financial success. It literally pays to be proactive in making sure your supply chain is designed for success, and that means asking some key questions about it:

1. Is quality built into your supply chain, or do inspection and correction occur after the fact?

2. Is supply chain management a strategic senior level position in your organization or is it a part of an operations activity?

3. Is the movement of information and money as critical in your supply chain as the movement of materials? In other words, does it take longer to create paperwork and process payments than it takes to deliver the goods?

4. Do you have a built-in change management process that constantly reviews the elements of your supply chain and looks for opportunities to improve quality and operational efficiency—or do your systems, policies and procedures block improvement?

5. Does your supply chain minimize the amount of touches and the touch time in supply chain transactions, so as to reduce the number of potential failure points?

Responding to Any Situation

The issues surrounding these five questions revolve around culture; capability, flexibility, capacity and technology; systems and processes; repeatability and reliability; and collaboration. Let’s look at each briefly.

• When we talk about culture, we talk about whether relationships with supply chain partners—both internal and external—are adversarial or collaborative, and whether all parties are committed to quality. We also talk about whether the organization is prone to taking risks or is risk averse. A company’s culture also determines whether supply chain management is considered to be a senior-level function or simply a component of operations.

• With capability, flexibility, capacity and technology, it’s all about the ability to respond to any situation. We look at the capacity buffering or flexibility within the components of the supply chain so that if there’s a surge in demand, the supply chain can leverage its systems and technology to meet the demand. Likewise, if there’s a delay in a part’s production halfway around the world, or if there’s a supplier quality control problem, is the supply chain able to switch to a back-up or alternate supplier to maintain responsiveness and customer confidence and availability?

• Systemsand processes can make or break a supply chain. They must offer high visibility into the supply chain’s day-to-day operations to facilitate responsiveness. They should be structured so that there are minimal touches through the supply chain, and they should be constantly reviewed for improvement.

• A well-run supply chain features repeatability and reliability. You look for standardized processes to reduce errors, and repeatability to reduce cycle times and gain efficiency. The win is increased quality and reduced costs.

• Finally, supply chains are ultimately about collaboration, given that they are by definition networks of linkages and relationships. Effective supply chains aim for trust and sharing accurate and timely information, like actual demand and capacity to optimize the chain. This results in lower inventory and lower cycle times for all parties. While you can’t immediately have this relationship with a new partner, the goal should be to drive toward trust to create a more responsive supply chain and achieve greater cost reductions.

As you can see, minimizing supply chain disruptions to maintain a high level of quality control requires a best-in-class approach to addressing the complexities inherent in the system. It shouldn’t take a high-profile quality control failure for CEOs to take a fresh look at what’s happening in their own organization since a supply chain failure of any kind could devastate or destroy profitability. Start being proactive by asking the five key questions and ensuring that your supply chain organization has a culture of collaboration, responsiveness and constant improvement.

Brian Nolf is global supply chain management practice head for Wipro Consulting Services. He is based in London, UK. Gerhard Plenert has written extensively about supply chain strategy, most recently as co-author of Driving Strategy to Execution Using Lean Six Sigma(CRC Press, 2012). He is based in Sacramento, Calif.

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