The supply chain and logistics discipline started during World War II when armies needed to be supplied to multiple global theaters beginning from Northern Africa to Europe to small Pacific islands. Sophisticated planning and coordination effort at a period when there were no computers and the world wide web. The ability of military planners to achieve this feat caught the eye of the commercial industry. At the end of the war, they hired the experienced veterans to run their supply chains which had started to span the globe. Now, let us proceed to the current times once we have computers, the internet, and real-time data systems. One would expect to see further strides in supply chain management. Unfortunately, United States Government Accountability Office (GAO) was highlighting for the last several years that “Department of Defense supply chain management as a high-risk area due in part to ineffective and inefficient inventory-management practices.” We’re talking about hundreds of billions of dollars in surplus inventory with substantial back orders. Plainly said, the Government has too much inventory it does not need and too little the things it needs to fight wars leading to several billion dollars of losses to taxpayers each year. More importantly, it compromises military readiness.
Is this problem unique to the Government agencies? No. Any large corporation, whether retail, auto, oil & gas, consumer products, healthcare and any other manufacturing industry will tell you that they experience the same problem. They’ve a massive inventory of items their clients aren’t buying and back order of things that are selling. The issue is quite acute. It is estimated to take Gap, Inc. 9 to 12 months for their new designs to accomplish the marketplace. Imagine attempting to predict fashion trends in advance, and then start the process of procuring cloth and making clothes globally to provide markets. On the flip side, Zara claims it takes them 10 to 15 days to get merchandise from the design stage to stores. They’ve designed a highly responsive and demand driven supply chain which they credit for their achievement.
Before we discuss the root causes of supply chain problems, let’s understand what drives supply chain performance.
What drives supply chain performance?
A supply chain is a process of accepting material from suppliers through manufacturing and distributing to end users or customers. Below is a simple pictorial that explains the procedure. It would, naturally, vary from industry to industry and depending on the scale of operations can get quite complicated.
There is a simple metric to comprehend supply chain performance — Total System Cost (the impact of customer service is built in as out of stock or missed opportunity cost). The goal of the supply chain is to minimize the Total System Cost or maximize profit. The costs are lower at suppliers and build up quickly as you get closer to end users or customers. Based on the business, sales cost can range from 20% to 50% of the total system cost. For some industries, the total system cost will go beyond their four walls and might incorporate inventory being held by dealers or wholesalers to provide an overall perspective of the supply chain.
What are the critical challenges with supply chain?
- Hidden cost: Because of General Ledger structure in many businesses, costs get allocated to different functions which fail to provide an overall picture to management for decision making. A few expenses like missing sales never appear in GL. In our experience, sales cost is typically computed wrongly as the opportunity cost of lost sales and inventory costs are not well understood. Inventory cost includes the cost of carrying the inventory, warehousing, obsolescence, pilferage and other expenses. Similarly, missed sales cost should consist of the lost margin and the effects of lost advertising, after sales earnings and possible long-term effects of losing clients to the competition. Without proper computation of costs, management can end up making decisions that aren’t financially sound. Sometimes decisions are made to hold more stocks or run larger batch sizes without actually understanding its impact on the total system cost.
- Silo decision making: Most managers tend to make a decision that optimizes metrics they’re accountable for, without understanding interdependencies and influence on other areas of the business. By way of example, manufacturing might want to increase the batch size to improve throughput without completely taking into consideration inventory and obsolescence costs upstream.
- Old planning processes: Companies have implemented ERP systems. Financial transparency and management are the primary focus. The business processes for most other functions have been ported from pre-ERP days to ERP, without fully utilizing the capabilities of the new system. So, the new system instead of being helpful works as a roadblock to achieving business results. To our surprise, we’ve discovered many supply chain planners use Excel to plan their dispatch rather than utilizing the capabilities of the ERP system.
- Increasing complexity: Supply chains are becoming complexity. The trend towards globalization has extended supply chain to its limits. It is common now for goods to be manufactured in China, assembled in a third country before being sold in the U.S. The lead times have become longer which directly affects system inventory. Additionally, SKUs have increased due to the desire of companies to customize. One merely has to visit a grocery store to see how many different varieties are available for simple things such as salt or yogurt. Product proliferation significantly raises costs all through the system — more goods have to be manufactured, they have to be held in inventory and higher potential for going out of stock.
- Impact of SLAs on costs: Sales organizations might not be fully aware of the financial effect of service levels. In their desire to perform better than the competition, sales teams make promises that could break the bank and the supply chain. At a global telecom company, the sales staff was signing contracts with unrealistic lead time for shipping of equipment. It leads to significant penalties.
What can companies do?
- Get total system cost: Finance organizations can put together a high-level total system cost picture that may significantly assist in making educated supply chain choices. The trickiest part is to estimate the sales cost since there are no agreed norms for estimating stock outs and missed opportunity cost. With some fundamental principles determined (such as stock price as 15% to 20% of inventory value), these could be estimated consistently across product segments or lines.
- Ensure company goals drive company metrics: It is vital to link functional metrics to overall organization goals to steer clear of silo decision making. By way of example, for high margin businesses, manufacturing throughput isn’t as critical as responsiveness to orders. There’s a need to know interdependencies better to reduce overall system price.
- Move to demand-based planning where feasible: Due to ERP and point of sale technology, demand data are now readily available and can be used to plan for dispatch. But many businesses and government agencies spend enormous time and money attempting to predict customer demand and utilize it in shipment planning. Which one you believe is more accurate, actual demand data or prediction based on historical data? Procter & Gamble in India implemented demand-based planning which reduced total delivered price from 75% of earnings to 55% of earnings, reduced system inventory from 115 days to 60 days, perfect order (right amount, right time, right billing) in 40% to 90 percent and enhanced quality (PPM) by 30,000 to 5,000. Then, why demand-based planning isn’t typical? Well, it requires a significant change in direction. For instance, you need the discipline of not producing more than what’s being demanded by customers. This is tricky when you’re handling organizational silos and older ways of cost accounting.
- Manage complexity: We can’t change the move towards increasing complexity — globalization and demand for personalized services are likely to continue. Apple established iPhone with a single version; today it comes in so many different sizes and colors. A better method is to consider how best to manage complexity with supply chain design. Products that have routine demand, it’d be logical to have a streamlined manufacturing and supply chain. But products which have unpredictable demand (for example, cosmetic) an assembly line production won’t be suitable and would require much more flexible manufacturing and supply chain.
- Make sure sales team understands the cost implication of service levels: Most companies don’t have a suitable means of assessing the fiscal impact of different service levels. A modeling exercise could provide insights into the cost involved.
- Utilize data to identify improvement areas: Data analytics can not only offer timely reporting but also help in modeling and simulation exercises. For instance, some businesses assume that their network layout is fixed. But, data analytics may offer insights into how to optimize and tweak the system because of market demand changes due to seasonality or changes in customer preference.
Supply chains can provide a significant competitive edge to businesses. Getting total system cost to drive design and improving business processes can resolve the underlying ailments. Processes like demand-based planning, tiering of supply chain based on demand pattern and rationalizing service levels based on customer profitability have shown to boost supply chain performance.
There’s no use building a bridge if your customers don’t want to go there. This book shows you new ways to prioritize your customers. How can you use engage with changing customer needs—not just push old products at new needs? How can you win by helping your customers win?
Suman Sarkar’s ‘Customer Driven Disruption’ is not just another book preaching customer focus to business executives. Rather than restrict himself to homilies, Suman lays down five strategies that can help bring the ‘C’ into business planning. He illustrates each strategy with a rationale backed by numbers and specific steps to bring it to life with examples from across industries. The book ends with a set of guiding questions that can be used by thoughtful executives either by themselves or in a team setting to develop an action plan for their organizations.
This book disrupts disruption! It redefines what causes disruption and what you can do about it. It accomplishes this with an elegant paradigm shift that’s profound and yet simple. Suman’s conclusions are based on powerful insights from research, case studies of leading companies, and decades of business experience. You will never think of disruption in the same way again.
Suman Sarkar redirects the focus back to what made your business a business: it's customers. With many case studies and concise takeaways, this book is a handy guide to shaking up your innovation strategy.
Suman Sarkar is a strategist after my heart—like me, he believes that real change and innovation come from customers’ actual needs and wants, not from researchers in lab coats. Customers WILL tell you how to make your business thrive and win the future--if you learn how to listen. This book explains how to open your ears.
Sarkar puts forth new, actionable definitions of customer focus, personalization, and quality along with a roadmap that your team can use think creatively and be more willing to take intelligent risks.
This is an excellent, thought-provoking book that offers clear strategies enabling you to understand buying patterns and generational expectations. Customer-Driven Disruption will inspire you to effectively plan for and stay ahead of your competition by focusing on your customers and what they want.
In Customer Driven Disruption, Sarkar shows that technology isn’t the real driver of disruption, and he unveils many more surprises that will challenge your assumptions and prepare you and your organization to stay ahead.
The book is very inspirational for anyone working with Sourcing and Supply Chain. Sourcing and Supply Chain is not always a top priority in many companies, but this book shows some really good examples of how this can make or break a company. There are also some very good concrete examples of what and how to do which inspires you to challenge your own thinking.
The book is very inspirational for anyone working with Sourcing and Supply Chain.
Excellent book. Well developed and hitting some excellent new and futile SC topics.
Suman’s mission is to help clients achieve a competitive edge in the marketplace. With more than 20 years of international consulting experience, Suman has a proven track record delivering an innovative and strategic approach with outstanding results.
Successful companies in every industrial sector have long recognized that competitive advantage comes not just from the products or services that they offer but from the supply chains that support them. In this easy-to-read and insightful book, the author explores the opportunities that exist for improving profitability through supply chain excellence and provides practical guidance on how to achieve the goal.
This book is indeed thought-provoking for supply chain practitioners as well as for business leaders. Suman Sarkar’s guided multi-step approach focuses on simplification without ignoring business complexity. It will help companies reform their supply chains to enable a healthier business.
As someone who teaches supply chain management, I was very interested in this book. Overall, I enjoyed the book. It was a good, quick read that offers advice, wisdom, examples that you can import into your own business or job. Suman describes in detail some of the great projects he has gotten to be a part of during his career. The book offers a lot of great advice, which could help you and/or your organization avoids some mistakes. The book leans towards the marketing side of the business a bit. I like that there are actionable ideas presented.
The Supply Chain Revolution is a brilliant, clear, and simple guide for corporate executives who want to transform their supply chain. I have never seen such a clear and actionable plan for taking supply chain management to the next level. Supply chains have become more complex in the last three decades as a result of globalization, the increasing pace of innovation, and competitive intensity. Suman Sarkar explains how best-in-class companies debottleneck their supply chains by drawing from his own experience transforming supply chains both from inside a company and from outside as a consultant.
This book has done an excellent job in explaining many important areas of supply chain like customer segmentation, customer service, demand planning, alliance management, inventory management, streamlining supply chain, fixing bottlenecks in supply chain, managing store investment, enhancing marketing efficiency, facilities outsourcing, sourcing excellence, supplier selection, relationship management and many other areas. One area that could have received more attention in this book is in the area of logistics. Overall this is an excellent book to read and enhance your knowledge in the area of supply chain and sourcing.
The Supply Chain Revolution identifies and explains many supply chain challenges that frustrate executives most. It delivers corresponding practice-proofed approaches to respond the challenges. The fruitful hands-on industry practices throughout the book provide significant value for organizations to transform their supply chain. This book is a great resource for executives and senior supply chain professionals to use for self-learning or training, and for MBA students with a concentration in supply chain management to complementarily use in class.
Suman Sarkar does a great job in explaining the practical solutions to common supply chain problems. He delivers an engaging balance between strategic perspectives and operational issues that make for an interesting read.
Suman Sarkar does an excellent job of demystifying supply chain concepts and presents a logical framework to unlock tremendous value across the organization value chain. The fact that Sarkar has been a “hands-on” practitioner himself allows him to showcase solutions that will resonate well with supply chain managers /leaders across the industry spectrum. Well done, Suman . . . . eagerly awaiting future insights.
A wonderful book for supply chain and business leaders. He has presented examples that tell the story of the fundamentals in a memorable way. It demonstrates the value of supply chain in delivering bursts results. I highly recommend him to anyone leading a supply chain.
The Supply Chain Revolution provides a lucid commentary of some of the most basic supply chain challenges frustrating senior management across different industries. Adopting a methodical approach to inventory tracking, product fulfillment, and channel distribution will help yield significant value in cash flow and reduce inventory obsolescence costs.
The Supply Chain Revolution provides a lucid commentary on some of the most basic supply chain challenges...
The book was a good, quick read that offers advice, wisdom, examples that you can import into your own business or job.
Suman Sarkar does an excellent job of demystifying supply chain concepts...
A wonderful book for supply chain and business leaders
Thought-provoking book for supply chain practitioners as well as business leaders.
The Ideal Supply Chain Primer for the Time-Pressed CEO or Government Executive
Brilliant, Clear and Simple Explanation of Supply Chain Transformation
The Ideal Supply Chain Primer for the Time-Pressed CEO or Government Executive In clear, concise language Suman Sakar de-mystifies the complexities of supply chain management. The key to his process is simplification. In a world of business books full of buzz words and unnecessary complications, this is a refreshing approach. Sakar breaks supply chain management into its component pieces and succinctly lays out the relationships. If you are getting foggy, conflicting advice from staff and suppliers, as I frequently did in a career managing large organizations, you will find this short read welcome clarification.