Supply Chain Strategy: The importance of doing RIGHT things

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If I ask a simple question that how do you think your supply chain is faring and which are the improvement areas you identified for this year, I will get more questions than answers requesting that the question needs to be more precise. Exactly this happens if I give you an answer for a question that what do you think is the definition of a perfect supply chain? If the answer is like, "A perfect supply chain means delivering the right product in the right quantity to the right place at the right time in the right condition to the right customer at the right cost."....oohhff...I lost my breath for few seconds. Did you get to understand the answer? I have more questions now after seeing the answer and similarly I am sure you will also be in same position.

Well, the answer makes a lot of sense but will need a little elaboration so that the correct Supply Chain Strategy can be out in place to reach that perfect level or to be nearest to it at least. Let me start with the first ingredient which is "Right Product" - some of us will wonder if it is really a big deal to ship the right product to the customer and the answer is - Yes, it is. consider an example where your organization manufactures rail engines that have long life. If after 12 years of engine operation, you get an order from the customer that they need the oil pump for an engine that you sold to them and to add a pinch of salt here, they also need a clamp of the hose pipe that comes out of the radiator. They do not have a drawing of the parts they need but since the engine has stopped working - they are losing revenue and need the parts urgently. After receiving the order, the order entry executives searched through the database and looked at the inventory but could not find the same part as long back your organization improved the part quality as well as design of the engine to next level and these parts are no longer available with them. But after discussion with the customer engineer, they conceptualized what exactly is required and ordered a supplier to send this to them at the earliest. What do you think - the chances of sending the wrong part exist or not? This is not an exception and its occurrence is substantially high to impact your supply chain. I have a personal example to state here - I ordered a pizza recently with the one of the popular chains and found that instead of delivering the pizza that I ordered, they sent me another pizza. After I called them to state my dis-satisfaction, they claimed that since the pizza I ordered, was not available so they sent me the higher priced pizza at the same cost but since the pizza they sent, had mushrooms in it and I am allergic to mushrooms, it was of no use to me. So again an issue of "Right Product". There are numerous examples like where we fail to understand the real need of the customer and hence fail to ship the right product - This is the starting point of your supply chain perfection aspirations - Ship the Right Product.

The next three important ingredients - the Right Quantity at Right Place at Right Time, is somewhat easy to explain as all of us understand if we do not supply the full quantity of the product at the requested time and place, we lose on customer satisfaction and service levels. Some times, we might have to face penalties and other times, we might lose the customers themselves. These ingredients drive the most important and cost centric supply chain strategy which is to decide on inventory levels, order entry & execution bandwidth and location & number of distribution centres. All three of them are cost centres and it is highly recommended to optimize these if we need near perfection in supply chain.

The next one is the right condition, which again is easy to understand that we need to send the shipments duly packed so that they reach their destination in the condition which we want them to be in, when they reach the customer end. Please note that this not only pertains to the breakable or brittle items only but almost to all items like in the case of hazardous material - enough risk mitigation is required, in case of eatables or flowers - speed of shipment is important, in case of complex toys - a catalogue of assembling the toy, is required etc. So we need to make sure that we ship the item in such a way that it reaches the customer in right condition.

We now move to the next right move, which is Right Customer. Sounds like an easy one and people will start saying that we know our customers, we know who has ordered and we always send to them. But, slowly we will start hearing that yes, we had sent the generator self start batteries last year to the Cincinnati plant of our customer instead of sending to Atlanta and we had to airlift them at our cost to ship them back to Cincinnati. What would have happened in this case? What are the SCM Metrics, that were impacted by this error - the most important of them all i.e. Ontime delivery. Whole measures that were put in place to improve supply chain performance were of no use and we still missed on our on time delivery despite huge inventory carrying costs that we were carrying to ensure better service levels. So it is ultra important to Ship to the Right Customer.

The last and the controller of supply chain performance is the right cost. Obviously, if cost is not one of the criteria of a perfect supply chain, it would have been much easier for us to reach the perfection level. We can easily pile on inventory to make sure that we never hit stock outs, employ more than enough people to execute shipping, have state level distribution centres to ship the item with minimum shipping time etc. but since the organization needs to make money and one of the important factors in that endeavor is cost, we need to make sure that the delivery of the product to the customer is at the Right Cost to the organization.

I hope, we are now more clear on the ingredients of a perfect supply chain and this can help all of us to make better Supply Chain Strategies to reach our goals.