Since becoming a grandma, I love to buy cookie cutters. I dream of the day that my grandson and I can stamp dinosaurs, cars and trucks in the dough. I imagine flour dripping from the counters, and excitement in sampling our creations. He is now only three months old; but today, I am shopping, and storing up cookie cutters in anticipation. They make baking cookies easier. I look forward to the day when we can do this together.
As I reveled in the purchase of a new one in the airport gift shop on my way home from a client, a thought crossed my mind. In my work life, I believe that I am dealing daily with another type of cookie cutter. It is the design of a supply chain that is stamped or molded routinely without thinking about form and function. In this blog, I am going to call it the supply chain cookie cutter syndrome (SCCCS). I feel that this syndrome is becoming more acute.
Cookie cutters come in all shapes and sizes. When I looked up the term in Wikipedia, I found an interesting antidote, “Cookie cutter,” when used as an adjective, is defined as a “lack of originality or distinction” a reference to the uniformity that results from the use of a cookie cutter. An example might be a reference to a suburban subdivision’s housing, all looking pretty much alike, as “cookie cutter homes”. I thought hmmm. I am seeing more and more cookie cutter supply chains. What happened to the understanding of the basics?
How you know if you are building a cookie cutter supply chain? Or SCCS syndrome?
I have worked with over 250 executive teams. I feel very blessed to have experienced the breadth of interactions across nine years and many industries. When I walk into a room, I know quickly if SCCCS is at work. There my top five signs:
- The organization has a new supply chain leader that is systematically applying their process from the prior company to their current experience. The first sentence in a meeting is, “we did it this way at company x.” Everyone nods. It must be right because company X did it.
- A team has recently completed a supply chain assessment using a generic assessment tool, and wants to tell you why they are now class A, but cannot answer questions on supply chain fundamentals.
- The supply chain team has invited you to speak on a topic, but you find yourself in a room with people that have never met before.
- A team of employees have just come back from a conference full of what they believe are best practices. They ask you what they think are easy questions, and you then try to respond and find you are stuck. Their questions are:
- What should I use as my planning horizon?
- At what level do leaders plan?
- How frequently do the best companies plan?
- What tools are used supply chain leaders?
- Where should the supply chain organization report?
I know that there is SCCCS at work when I ask what I think are seemingly easy questions, to help facilitate the right answer and they look at you like a deer in the headlights. I ask these questions to help the groups get clarity, but I find that the groups have not thought about the basics.
- What are your supply chain drivers? Constraints? Cycles?
- How do you make the right trade-offs between sell, deliver, make and source?
- How do you plan globally and execute regionally? What does global mean?
- How do you define supply chain excellence?
- What are your moments of truth?
- How do you define a supply chain? How many unique supply chains do you have?
- How would you characterize your supply chain? Are you market driven? Demand driven? Supply driven? Sales driven?
DANGER! A cookie cutter approach to a supply chain for Sales and Operations (S&OP) planning is RAMPANT!
Right now, the cookie cutter supply chain syndrome is particularly acute in the area of S&OP. It seems like everywhere I go, that everyone seems to be an expert touting “advanced S&OP”. When I ask what “advanced S&OP means to them”, I get “vendor speak” or what I term “consultaneese”. I say, “Enough! Stop the madness.”
I do not feel that the most effective S&OP processes cannot be built through a cookie cutter approach. It should start with design. So let me help you paint outside the lines and answer my own questions:
- What are your supply chain drivers? Constraints? Cycles?
There are four basic types of supply chain drivers: constraints, variability, velocity, and life cycle. The best teams design their supply chains based on these factors.
There are five basic types of constraints: material, manufacturing, transportation, financially imposed or regulatory constraints. The bottlenecks shift depending on volume and mix. Great teams understand these and instinctively know the pain points and build models to better manage them. These vary by business and by supply chain. They even vary sometimes by the time of year. If you are operating in a constrained environment, you must plan at this level of constraint to have a feasible plan.
The cycles or the rhythm of the supply chain is driven by the required cadence of decision making. Instead of ascribing if the S&OP process should be weekly, monthly or daily, ask yourself, “at what frequency do you need to realign the value chain horizontally to make better decisions?” For most companies this is monthly with a horizon of 12-18 months. However, in high tech and electronics the cycle needs to be shorter, and in pharmaceuticals, the duration needs to be longer.
- How do you make the right trade-offs between sell, deliver, make and source? Where should the teams report?
Reporting structures for S&OP should be to a profit center manager. In this structure, this manager is held responsible for the trade-offs of the supply chain of: forecast error, customer service, working capital, profitability and revenue. In this type of reporting structure, the teams get good at making trade-offs and the S&OP team serves them. For most, this is a struggle. How to best make trade-offs is a key question that less than 5% can answer. The solution lies in supply chain strategy (not to be confused with network design) work.
- How do you plan globally and execute regionally? How do you make decisions?
While most supply chains leaders will state that they are “global”. The supply side (procurement) is usually very global to achieve favorable pricing from aggregated buys, while the commercial processes are very regional to best serve customers. The most global teams (across all supply chain functions) are in chemical and oil and gas, and the most regional teams are in retail. Other types of manufacturing fall on the continuum. The right process for how to plan globally and execute locally is also strongly influenced by culture. It varies by peer group. For example, at Johnson and Johnson consumer or Unilever, the structure is designed to serve the region and enable the best decision making in the region. However, at Colgate or Procter and Gamble, central planning plays a more prominent role. Answering the question of where decisions should happen to drive the best result for the supply chain is a key element to driving excellence. It is necessary to enable work processes and to help employees know their boundaries.
- How do you define supply chain excellence?
Many supply chain leaders make the mistake of assuming that the most efficient supply chain is the most effective. We can see in the balance sheet data of companies over the past 35 years of supply chain management that this is not true. I find it analogous to getting fit. (My friends know that I am on a quest to run a triathlon before I turn 60.) When we build muscle, we can lose balance and flexibility. Similarly, when the supply chain design is lean, it is less flexible, responsive and agile. There is no supply chain that I have ever found that can be efficient, agile and responsive simultaneously. Companies struggle to get support of finance and executive teams that the best supply chains reduce costs. For many companies, the re-wiring of objectives and incentives is a major barrier.
The best supply chain teams run the race like a decathlon competition. They compete in sell, deliver, make and source events, and they build the skill to be the best in each event, but they decide when to be the best to drive supply chain strategy. For example, in the recession, Intel made a conscious choice in purchasing to not drive down the costs of their suppliers. Their focus was on fair margin and helping the suppliers build resiliency through the Great Recession.
- What are your moments of truth?
In each supply chain, there are different moments of truth. At Procter and Gamble, AJ Lafley defined two moments of truth: Purchase and Usage. He organized supply chain processes around winning at these two moments of truth. In other supply chains, the moments of truth differ. A moment of truth is an inflection point, where the success of the supply chain is clear. It is making the decisions that matter at the inflection points.
I am working with an agro sciences company with four moments of truth: planting, harvest, sales and yield. I also worked this year with a contact lens manufacturer that had a unique moment of truth. The lens when it comes out of the mold is variable. As a result, the product definition is ascribed at this moment of truth. For apparel, the moments of truth are dying the fabric, cutting the garment, finishing the item, and selling the finished good.
The best S&OP processes organize decision making around the moments of truth.
- How do you define a supply chain? How many unique supply chains do you have?
Sadly, I find that the term “supply chain” is a politically charged word. This is especially acute in manufacturing-centric organizations where the supply chain group reports to manufacturing.
The best teams define and own the processes from customer’s customer to suppliers’ supplier. However, in interviews, 85% of companies state that their supply chain processes stretch the length of the supply chain, but in reality, the processes that they have the “permission” to manage are deliver and make. The alignment of commercial and procurement processes and the building of extended value chain relationships differentiate and are still only done by a few companies.
- How would you characterize your supply chain? Are you market driven? Demand driven? Supply driven? Sales driven?
This is one of my favorite questions. While many people state that they are market driven, in fact they are marketing driven. The difference is huge. Marketing-driven processes are focused on meeting marketing objectives. They are inside-out. They are organized around a vertical silo: marketing. Market-driven processes connect buy-side and sell-side market opportunities to align the organization to maximize business opportunity. They are outside-in. They are horizontal stretching from customer’s customer to supplier’s supplier.
Sales driven and supply driven are analogous. They are inside-out. These processes are all about functional excellence and will reduce the ability of the company to maximize business opportunity. Similarly, demand-driven processes help the organization to sense, shape and respond to demand with minimal latency. It is a first step in becoming market-driven, but is insufficient to maximize the response in an environment of material constraints.
Conclusion
So, I say enough! I am tired of the cookie cutter approach to supply chain management. I am struggling with all of the hype about “advanced S&OP”. My Point of View: I do not think that advanced S&OP happens with the coolest technology or the consultant’s latest framework. I hate a forced march for an organization when it makes no sense. (E.g. consider the destructive effect of the fixed march for MRP II or Class A S&OP). …or, conversely, the damage that is happening in the market through the confusion of analysts touting IBP. Yes, I think that cookie cutters have a place. They belong in my kitchen drawer for playtime with my grandson. They are not a appropriate for solving today’s supply chain problems
Today, I am flying to the Altimeter offices to host a session on disruptive technologies to improve listening. I will be presenting with Susan Etlinger. It will be discussing the evolution of sentiment analysis. Look for my blog post later this week where I contrast the evolution of the applications of the social reformers with those being launched by the enterprise expansionists. While the focus is on the evolution of the technologies, I think the most interesting element is shifting from a value chain that drives a blind response to building one that can listen, test and learn. Look for my post.
So, what do you think? Are you guilty of attempting to implement the cookie cutter approach to S&OP? In your opinion, how do we get out of the endless circle of cookie cutter approach after cookie cutter approach?
