The Benefits of an Aligned Supply Chain (and How to Realize That...)

Many supply chains are not aligned. This fact came to my attention discussing competitive edge strategies in a downturn economy with some executives. The advantages of aligned supply chain are well worth the trouble. Solve challenges with: 1. Higher costs, and Higher capital demand, 2. Lower quality, and 3. Poor customer service. I will elaborate on this a little more using some material form a very good paper from AT Kearney. I also present you an example of the health care industry.

3 Causes Of the Misaligned Supply Chain

A supply chain is considered to be one fluent process that flows like a calm and steady river. That this is not always the fact and we therefore have a misaligned supply chain is caused by 3 problems:

  1. An unstable demand caused by a partial process optimization of the chain, leaving the other process parts pick up the peaces: Try to catch up with all exceptions.
  2. Under-investing in capacity, because suppliers do not implement the requested demand. They are afraid that the expensive capacity might not be used. This leads to overtime, late delivery, poor quality and poor service.
  3. Overcapacity caused by manufacturers overstating the demand in order to trick suppliers in investing adequate capacity. The results is higher cost, unused capacity, and more labor personnel then required.

How Can You Align a Supply Chain

Supply chains have everything to do with reaching an optimal efficiency state, and nothing with effectiveness. Supply chains 'cost money' when they store 'things', like material, half fabricates, and personnel. Alignment of a supply chains is therefore optimizing the complete chain, from begin to end, from supplier to manufacturer. This a simple and at the same time very difficult principle because nobody lets someone else look into his kitchen. And this is what is required.

Let us now make this concrete and define some actions as a rough guidance to align your supply chain.

  1. Understand the true demand. A frequent and accurate communication with chain partners regarding demand, collaborative planning and forecasting tools. Don't fall in the trap of overestimation in order to avoid shortages.
  2. Improve visibility of total supply chain costs. Make sure that you understand the costs of all partners up and down the chain. The trap here is to 'hide' the true costs in order to protect core knowledge, competitive advantage, and negotiation power.
  3. Align incentives. The best incentives are those linked to reducing the total supply chain costs. And what gets measured, gets done!
  4. Coordinate decisions and track compliance. Make sure you 'own' the chain and that you van mange the chain.

These 4 actions can help you a lot, pick the low hanging fruit, and give you a very good head-start! And when you optimized the chain according to these steps, you can start thinking about next step. Because much more is possible!

An Health Care Example Of Supply Chain Alignment Business Requirements

I will present you with a simple health care example.

Expensive costs are personnel, doctors and others.
Expensive capital are housing and medical diagnostic apparatus, and operation rooms.
Poor quality creeps in when there are to many stations, 'touch points', and interaction moments. This also increases the total duration of a patient visit.
Poor service is the result of miscommunication, or no communication at all.

Thank you for bearing with me so far. You would do me a great favor is you give some kind of feedback. Please feel free to discuss supply chain issues in the Results2Match Community!

This blog is part of a series on strategic planning:

  1. The Everlasting Rise and Downfall of Strategic Planning: Lessons Learned in More than 40 Years! (this blog)
  2. Driving Change: Drive Safely (My Checklist)
  3. "Live Fast, Die Young!"
  4. The Benefits of an Aligned Supply Chain (and How to Realize That...)
  5. How Many Customers Did You (re)Win This Year?

This blog is also part of a series on operational performance improvement. Other issues:

  1. The benefits of an aligned supply chain (and how to realize that) (this blog)
  2. Reduce complexity, and rise your EBIT
  3. How many customers did you re-win this year
  4. Food for thought: AMR Research presents the major risks for 2008
  5. What benefits can I expect from a business process implementation

Results2Match has a strong vision on successful business strategies and result driven implementations.

This blog is written by Hans Lodder. Hans is a very experienced change management consultant and interim manager. You can contact Hans through his Results2Match email address.

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