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Supply Chain : "wall-to-wall"
written by : William F Bryant Supply chain from an operations perspective does not necessarily focus end to end, raw material to store shelf. It is more so on everything that happens from receiving to shipping, for a couple of reasons. First, other businesses may be operating and managing those areas of your supply chain because that is a ‘value addition’ that they sell to companies like yours. It could be direct handling of raw materials or end user distribution. This does not necessarily mean there is no risk involved to your company, but if you place an order for raw materials your operations will be concerned with receiving, storage, usage and payment all the way to final goods, shipping and payment.
Second, and related to the first, ownership matters. Companies take ownership of all kinds of operationally related items, not least of which is the service you provide. These items involve your company’s capital and hence become operational concerns, many of which fall in the supply chain. A basic example is when receiving or shipping materials or a product, the ownership of the shipment may not change hands until it is received or it may change hands at the shipping point. There are also contractual guarantees of quantity, quality, time, product specs, service levels and warranties. Your ownership implies that future sales and your company’s reputation depend on your focus. Third, operations are generally concerned with everything downstream from their position in the chain. This point is related to the second in that brand reputation may be at stake, but also, from the perspective of markets and sales. When demand driven capacity is increasing or decreasing beyond expected revenues operational changes may need to be made. This translates to changes in capacity, materials, labor, plants and equipment. All of these also affect company capital. It is interesting that there is less worry about upstream issues except in times of expected inflation and corresponding rising commodity prices which is now, obviously, a greater issue than it has been in the past decade. For these listed reasons, I feel it is best to mention the concept of supply chains and introduce the potentials of risk, but for purposes of consulting I will stick to “wall-to-wall” operational comments. No matter your specific business industry, whether it be the service, the merchandising or the manufacturing industry, you should first and foremost understand your operational current capacities and determine if these are fully optimized. This is fairly standard practice for many in a manufacturing setting, but is less common in service or merchandising industries. Perhaps this is because flow is much easier to measure and visualize in the manufacturing setting, but regardless, you need to benchmark where your company is currently operating if you wish to measure any changes or improvements. You may wonder why this could possibly be important, but the fact is, this is the process for turning your business’s inputs into outputs. It therefore directly impacts your business’s ability to compete and differentiating your company in the most pronounced areas of competition is a necessity for success. It is generally accepted that a business can compete on cost, quality, flexibility, or speed. All are directly related to your company’s transforming of inputs into outputs, but the first thing you may notice is that you can not have all of them. Compete on Cost: Cost is an all-encompassing measure that, from the business’s perspective, are all the capital outflows necessary to get to the output. Some of these costs may be sunk, optional, fixed, variable or even segment costs, but note that I did not say from the accountant’s perspective because we have not yet begun to break down the types of costs, brand marketing, margins or segments. The point, broad based, of competing on cost is that a competitive price can be offered to the end user that will still allow a maximizing of expected profit. (Note how closely intertwined this will be with pricing in your marketing strategy.) Compete on Quality: Quality. This competitive differentiation is one that can be distinctly identified by your target customer. It is also one that may not refer to the product or service alone. Quality is an experience, and one that leaves your customer fully-satisfied. This quality could be in the value your product brings to your customer, but it also extends to the way your customer is treated throughout the purchasing process up to and including warranties and rebates. This is not simply the components or the time put into a product or service but an experience. It is probably the most costly of the competitive differentiations, but it may also be the closest to guarantee a brand loyalty and raving fans of your company. Is it necessary for every company? No. You can offer good quality for a good price and still have loyalty. It truly depends on the needs of your customer, but for those competing on quality the bar may be set high and it is expensive. Compete on Flexibility: This differential may sound peculiar relative to products or services but it is probably exactly what you are thinking. How flexible are your company operations when it comes to orders? Do you have minimum quantities? Do you offer customization and to what degree? How far will/can your operations go to meet a customer’s needs? Of course, personnel, equipment and time play into this area but it can be a great competitive factor for the right business. A personal example, I needed a unique part to create a braking system from a machine shop. The machinist had the equipment and the skill and used scrap parts to machine the disc, including developing a method for the lathe to hold the disc. It took time, but I returned to that machinist for every part that I needed on that automotive rebuild. Compete on Speed: Speed is measured in time for the customer. However, speed is measured in capacity for a business. It often takes excess capacity, or the ability to quickly expand capacity, to compete on speed. The reason for this is that speed is directly impacted by your operation’s bottleneck. You either have (potential) excess capacity at your bottleneck or you do not. In most cases, competing on speed is due to innovations and technology that have enabled your operations to move more quickly than industry competitors. In either case, expanded capacity or innovation, this is probably the second most capital-intensive competitive differentiation. As noted, you may have begun to identify obstacles to achieving multiple competitive differentiations. You may have also have begun to surmise that certain competitive segments align better with certain industries or types of operational set-ups and businesses. You would correct. It may seem that in business there is “nothing new under the sun”. While there is some truth to this statement, it is those businesses that find the new combinations of differentiation that succeed. |
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