Supply Chains vs. Performance Chains: 4 Differences and What They Mean for Your Business

Nov. 30, 2011
Taking a performance chain approach provides the opportunity to ask the tough questions, determine the overall health of the performance chain, identify the pain points that need attention and assign the right people to address them.

A lot of people toss around the phrase "supply chain." Sometimes quite loosely. While the supply chain is certainly a key aspect of many businesses, too often companies spend an inordinate amount of time and resources on that one piece of the puzzle. What many leaders fail to capitalize on is that the supply chain is just one piece of something much larger: the performance chain.

Today's supply chains are a complex tangle of data and relationships. You worry about continuously improving the sequence of everything from planning to sourcing, production and distribution of (usually) a product. Yet your supply chain is part of an even larger and sometimes more complex system: your organization's performance chain. What's the difference?

Your performance chain is all the tangible and intangible elements that have to move from the split second you trigger demand to the time you have cash in the bank -- all the ins and outs that have to work together to drive the performance outcome you want.

As an executive, you have the luxury of a bird's eye view of your supply chain and your performance chain. A view of the supply chain is crucial, certainly. But how clear is your view of the performance chain that creates the value customers will not merely accept, but pay you for?

Taking a performance chain approach provides the opportunity to ask the tough questions, determine the overall health of the performance chain, identify the pain points that need attention and assign the right people to address them.

Let's take a closer look at four ways supply chains differ from performance chains-and what those differences mean for you and your business:

Big Picture vs. Bigger Picture

Every organization has both a supply chain and a performance chain. It takes a wide lens to see the effectiveness of the former, and an even wider one to see the latter. Look no further than Gartner's annual ranking of the world's top performing supply chains to see this distinction. Ranking both on public financial data and on public opinion, Gartner notes:

"These companies understand that, although a long-term supply chain vision is critical to communicate future value, the ability to replicate, scale and continually build on best practices across the organization in a sustainable way - going beyond a one-time success or pockets of excellence -- is just as critical."

Topping the Gartner list is Apple, noted in IndustryWeek contributing editor David Blanchard's Chain Reactions blog. I found no mention in the rankings of Apple's on-again, off-again issues with its offshore producers, environmental concerns, or nod to supply chain power by sheer size. A big part of the reason Apple wins in the supply chain is because the company is so successful overall. Their savvy performance chain approach - aligning the supply chain to larger market requirements that drive performance -- is difficult to call anything but stellar.

Flow of Products vs. Velocity of Cash

Sure, it's important to make sure products and processes are flowing smoothly across the supply chain. However, at the end of the day, cash reigns supreme. Businesses live on the circulation of dollars from customers to the bank.

At Dell, the supply chain focuses on the flow of product. Components are planned, purchased, assembled and delivered to customers in a mass-customization flow so polished some call it "the Dell way." In the broader performance chain, performance focus is on the velocity of cash. To change the velocity of cash through the performance chain, Dell builds computers after customers place orders, providing positive cash receivables that can be leveraged. This just-in-time approach placed responsibility of suppliers to hold inventory until cash was already in flow to pay for it.

How are processes like turnaround time, closed lot cycle time, time to market and days cash outstanding impacting your cash flow? What steps you can take to speed up that flow, without sacrificing customer experience and quality (because you don't have to)?

Tangible Goods vs. Product or Service

When we think about supply chains, we typically think about companies that sell physical goods. Some, like Johnson and Johnson, are vertically integrated and manufactured; others like Cisco or Amazon are a complex web of external relationships that create or distribute products. Yet every organization -- regardless of product or service -- has a performance chain.

Take my business, for example. We're a consulting and education firm. We have staff and clients on three continents, and our product is people and their ideas delivering value to customers every day. We don't have a traditional supply chain, but we do have a performance chain.

Which leaders across your organization can see and manage the issues critical to a product-based supply chain versus the demand-to-cash-in-the-bank system that is your performance chain? Look for "T" people: those who have a deep, deep grounding in the drivers of performance in the supply chain, but can see the impact of any opportunity or pressure on the performance of your business overall.

Heavy on IT/Tracking Systems vs. All Kinds of Business Processes

Supply chains tend to rely heavily on IT and tracking systems to enable flow, track performance and support decision making. Think again about Dell, or any automotive manufacturer. Mass customization is profitably possible only through reliance on complex and highly efficient IT and tracking systems.

The broader performance chain requires people and processes that paint a more complete picture of the Dell, or Ford customer experiences -from the time the customer realizes a need to the time these firms have money in the bank. Be sure to think about all the processes that go into delivering on a customer's need-not just the IT team and tracking enablers.

How healthy is your performance chain? How does your supply chain contribute? How are the supply chain and performance chain different in your view? And, what do those differences mean for your business?

Sue Gillman is a partner at global strategy and operational change firm Aveus LLC with more than 25 years of experience leading development, planning, operations and supply chain improvement efforts.

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