Supply Chain Performance

Stephen DeAngelis

October 25, 2011

Companies are forever trying to come up with clever names to support the solutions they are pushing. I admit that we’re no different at Enterra Solutions. Product names and catchy slogans can help differentiate your company from the competition. There are some names, however, that are so well-established that trying to change them makes little sense. For example, supply chain analyst Lora Cecere feels that way about efforts to change the name of Sales and Operations Planning (S&OP). To find out why, read her post entitled “S&OP: Letter Perfect.” [Supply Chain Shaman, 7 June 2010] In a recent article, Sue Gillman, Partner and Co-owner of Aveus, adds to the confusion by referring to organizational structures as “performance chains” then tries to differentiate them from “supply chains.” [“Supply Chains vs. Performance Chains,” SupplyChainBrain, 6 October 2011] She’s not the first. Others have used terms like “value chains” instead of “performance chains.” She writes:

“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 too many leaders fail to capitalize on is that the supply chain is just one piece of a much larger chain: the performance chain. Supply chain. Performance chain. What’s the difference? By definition, the supply chain is the sequence of processes from supplier to customer involved in the production, sourcing, planning, and distribution of a commodity (here’s how Wikipedia defines it, for another perspective). Meanwhile, the performance chain is all the tangible and intangible elements that have to move from the moment you trigger demand until you have cash in the bank – all the ins and outs that have to work together to drive the outcome you want. Why is it important to understand the difference? Because it’s easy to get caught up in the day-to-day or local supply chain problems: The need to streamline invoices, reduce inventory, or increase manufacturing performance and on-time fulfillment, for example.”

Although I agree with Gillman that the supply chain “is just one piece of a much larger” organization, I think that calling that organization a “chain” can be misleading. A company is more like a complex organism than a chain. Processes within an organization are not necessarily linked end-to-end like a chain. They are not even linked intricately like a medieval knight’s chain mail. By her own admission, an organization involves a lot of “tangible and intangible elements.” Her point is well made, but her choice of monikers is misleading. I think she would have been better served calling her concept a performance network of which the supply chain is a major part.

My biggest concern, however, is that by embedding the supply chain in a larger “chain” she may be undervaluing the important role that supply chain processes can play in helping integrate and align an organization — especially the S&OP process. Some consultants would like to change the name of S&OP to integrated business planning (IBP) because they see it as the essential process around which companies can and should organize. As noted above, Cecere is dead set against this. She agrees with how essential S&OP is as a driver for the supply chain and she agrees that it should be a driver for the entire company, but a name change won’t make it any better. When implemented properly, S&OP can help break down traditional corporate silos and ensure that all executives and planners are using the same data. You can’t achieve integration and alignment if you’re not talking about the same data set. As Cecere likes to say:

Write once and read many times. In big data supply chains, focus on one system of record. Everyone has the moments when they show up at a business meeting only to argue about ‘whose report has the right data’. Solve this problem by writing once and using many times.”

Other analysts disagree with Gillman’s premise that “companies spend an inordinate amount of time and resources on” supply chain issues. For example, back in 2008, Randy Littleson, a Vice President of Marketing at Kinaxis, wrote that he didn’t think C-level executives paid enough attention to supply chain matters. [“Companies don’t compete; supply chains compete,” Industry Week, 26 November 2008] He wrote:

“[I] came across this good post entitled ‘Companies don’t compete; supply chains compete‘ which attributes this quote to the CIO of Nortel. I’m not sure you’d get everyone to fully agree with this given how many other pieces there are to the puzzle, but I think it’s more true than not. Worse yet, I think there are way too many important people that wouldn’t believe this at all.”

“Companies don’t compete; supply chains compete” is a mantra that I’ve read often in supply chain literature. It recalls Napoleon’s strategic insight that “an army marches on its stomach,” meaning that without a good supply chain wars can be lost. Ulysses S. Grant believed in and used this strategy to win the Civil War. The North’s supply chains were superior to the South’s. Napoleon and Grant were positioned well to act on their insights. In the corporate world, CEOs and other high-level executives occupy those positions. As Gillman writes:

“If you’re an executive overseeing a business unit or larger enterprise … you’re in the position to oversee the big picture. You are one of the few people in your company who has the ability to see how processes are working together (or not working together) across the organization. … You are the one who can and should 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.”

I agree with that assessment; but it begs the question, “How does an executive get the big picture?” An executive might be in a position to see the big picture, but he or she needs to know where to look or someone needs to paint it for them. That’s where supply chain professionals can really add value in an organization. Gillman, however, is not convinced. She goes on to describe four “ways [that] supply chains differ from performance chains—and what those differences mean for you and your business.” She writes:

“1. Day-to-day vs. Big picture — Keep in mind, the supply chain is just one piece of the larger performance chain across your business. While you definitely want to pay attention to your supply chain(s), you most certainly want to step back regularly and take a look at what’s going on from the moment you trigger a customer’s need to the moment there’s cash in your pocket.”

That’s absolutely correct; but, as I stated above, where does an executive go get that information. Nowadays the answer is probably found “in the cloud.” It’s supply chain professionals who make sense of big data and help provide the big picture. That’s why IBM is moving quickly into the supply chain arena. Gillman continues:

“2. 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. So, make sure you’re taking a closer look at how processes like turnaround time, closed lot cycle time, time to market and days cash outstanding are impacting your cash flow and what steps you can take to speed up that flow, without sacrificing customer experience and quality (because you don’t have to).”

What am I missing here? Does Gillman really believe that supply chain professionals aren’t concerned about cash flow and the financial impacts that the supply chain has on a business? A quick perusal of supply chain literature should disabuse anyone of that notion. A number of recent articles talk about how CFOs are getting more involved in supply chain matters. Why? Because the supply chain has such a significant impact on corporate finances. She continues:

“3. Product-based vs. Industry agnostic — Supply chains are typically focused on companies that sell products. Manufacturing companies, for example. The product goes from point A to point B and on down the line until it’s in the customers’ hands. Performance chains are relevant in any product or service industry. They are industry-agnostic. Why? Because a performance chain contains all the tangible and intangible elements, or the people, decisions and processes that must move successfully to translate demand into a solved customer need and cash in your bank.”

Although Gillman wants to believe that service-oriented businesses don’t have a supply chain, I believe she’s mistaken. It may not be as complex an industrial supply chain, but it exists. I agree with her that many service-oriented businesses don’t have a Chief Supply Chain Officer or even a logistics department. They are, however, likely to have a professional services group that focuses on delivering the right product, at the right time, in the right format. The names may be different, but the underlying principles are the same. Gillman concludes:

“4. Heavy on IT/tracking systems vs. All kinds of business processes — Supply chains tend to rely heavily on IT and tracking systems. Think about FedEx. What an incredible supply chain—from the moment a customer sends a package to the moment the intended target receives it. But, that supply chain is dependent on complex and highly efficient IT and tracking systems that make that flow possible. The bigger performance chain involves all sorts of people and processes that paint a more complete picture of the FedEx customer experience—from the time the customer realizes a need to the time FedEx has 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.”

The best supply chains are more than IT and tracking heavy. Karin L. Bursa, Vice President of Marketing at Logility, insists that a successful S&OP system will take into account “people, process, and technology” [“A Foundation for Successful S&OP,” Supply Chain Digest, 10 February 2011]. She writes:

“This trio of people, process and technology, is the foundation for success. This foundation will provide needed structure along with the flexibility to evaluate and respond to a variety of business challenges and opportunities.”

Bursa focuses on having the right people involved in the S&OP processes. She writes:

“Critical to the success of any initiative is the people behind it. You need to ensure you have the right people for the job. Just as important, you must empower them. Provide each person with the authority to make decisions and drive confidence across the enterprise. From this confidence, your sales and operations planning process runs more smoothly, stays focused on the goals and helps ensure buy-in from all parties.”

The bottom line is that Gillman is straining too hard to sell a name (the performance chain) and is doing so by creating a straw man supply chain just so she can knock down the straw man. Her intentions are good (as are the principles she espouses); but, she didn’t need to denigrate the supply chain to make her point. The best supply chain experts understand the big picture. They understand the need for alignment, agility, and transparency. Get the supply chain and its associated processes correct and you will have a much better chance of improving what Gillman calls the performance chain (aka the organizational network). Just ask Apple or Procter & Gamble — companies that have been recognized for their supply chain excellence.