Richard Cushing is principal/consultant for Cushing & Associates. He is an ISCEA Certified Demand-Driven Planner (CDDP) and JobOps Certified Product Specialist. Cushing has been an invited blogger at conferences sponsored by CFO Magazine and Supply Chain Insights and writes regularly for RKL eSolutions and more. His expertise includes demand-driven supply chain consulting, Theory of Constraints consulting, technology selection and implementation consulting, and business improvement and change management.
A few weeks ago, we had the opportunity to sit down with Richard Cushing to discuss his thoughts on supply chain management and get his advice on how businesses can achieve visibility today.
What are the biggest changes to supply chain management in the past 30 to 35 years?
As late as the late 80s, at least for the majority of North American companies, supply chains were predominantly local and, perhaps, nationwide at most. Most companies weren't buying from China or Taiwan or Malaysia like they are today.
In addition, many product lifecycles at that time were measured in years, with only some items measured in months. Even new electronic gadgets probably had a lifecycle of a couple of years. Now, most products don’t have a specific lifecycle because they are mass customized to satisfy the customers, but greatly reduced lifecycles may be only one of the many issues.
These two developments, along with others, have led to longer lead time cycles on the supply end and much shorter demand cycles, measured in terms of customer tolerance times, on the demand end—and the supply chains are being squeezed in the middle.
How are organizations dealing with this new reality?
The first thing to understand with supply chain is that the primary goal is achieving the flow of relevant materials. When flow is maximized and matched to consumer demand, then eliminating inefficiencies, reducing costs, and maximizing revenues is the natural outcome. To maximize the flow of relevant materials, organizations need maximize the visibility of relevant information across the supply chain. We need to keep in mind, it's not the production or storage of materials that makes it possible to achieve these flow and higher profits, it’s only the flow of relevant materials. The only kind of supply chain visibility that is worth spending time, energy, or money on is visibility that promotes and protects the flow of relevant material.
How has supply chain visibility changed in the past decade?
The biggest advancement in supply chain visibility in the last decade has been the recognition that enterprises and supply chains are not linear. They're actually complex adaptive systems (CAS), but software really likes linear processes. Software likes things that always respond the same way time after time, but a complex adaptive system is both nonlinear and extremely sensitive to very small initiating events.
When we embrace this fact about supply chains, it will begin changing the way we think about how we have to manage our supply chains. We need to strategically buffer our supply chains against change (e.g., volatility, risk, disruptions), not try to predict the variability with greater accuracy.
Many organizations that I work with all too frequently have got plenty of visibility into data. They're swimming in data. But what they lack are insights. By lack of insights, I mean having easy access to relevant data about relevant materials in the supply chain. I also mean that these data are being presented in a way that allows supply chain managers and executives to make both effective and unambiguous decisions about priorities and actions.
How do enterprises sort through this voluminous data?
The first and most significant issue for many organizations is that they haven't yet been able to recognize that relevant data is relevant in different planning periods. For example, a forecast is relevant for longer-term planning but not relevant for immediate action (i.e., supply chain execution).
If the system is integrated in such a way that it's directly including forecast data in driving supply chain execution, doing so generally won’t help the organization make effective decisions about what actions should be taken this afternoon or tomorrow morning or even this week. The supply chain might be producing and shipping irrelevant materials (i.e., materials not being demanded by consumers) right along with relevant materials, which means the organization is going to be using its resources poorly.
Proper and effective supply chain visibility should help executives and managers effectively manage their data so that relevant information is included in the relevant timeframes. The shop floor managers must be able to see only data they need; otherwise, they're going to be distracted at best and misled at worst. The same thing applies to the managers who are looking at the longer term; they need to be looking only at the data they need—the relevant data for their planning timeframe.
The crucial data that supply chain managers and executives need most is, “Where is my supply chain at the greatest risk of imminent failure? Where are the greatest risks, and what are the most logical actions to take to abrogate those risks?” This means having the right data at the right time. To do this, organizations need to start by assessing what data is needed where and eliminating unnecessary data that gets reported.
What advice would you give organizations help them reach this ideal state?
I'm a huge believer in a theory called inherent simplicity, which basically says, the more complex a problem is the simpler the effective solution must be.
I think some organizations really go about supply chain integrations backwards. Especially when big box companies try to do business with middle market companies. The big-box managers come in the vendor’s door and say, "We'd like to integrate our supply chains with you and here's what we need from you." Then they hand them a list of data requirements as long as their arm. Most small to mid-size companies, while they may be very polite when they're in the room, are really thinking, "These people have no business with all this data that we consider to be proprietary."
What’s involved in an effective integration?
Supply chain success is really all about becoming a truly demand-driven supply chain that executes based on actual demand, while employing forecasts properly for capacity planning and other appropriate applications.
I believe an effective integration really begins with a simple conversation between the two parties that are involved, about what the buyer really needs to know from the seller. This list may be some relatively simple and very fundamental data: 1) What is the condition of the [stock, time or capacity] buffer for this item? 2) How likely is that buffer to fail within the next replenishment cycle? 3) What actions are going to be required to replenish the buffer to make it safe again?
Buffers may be stock, time or capacity buffers, but the essential data integration points, in a great many supply chains, could be narrowed to 10 or so data points on every item (SKU) that's being exchanged.
Now, that's not to say that there shouldn't be other integrations that may be involved. For example, it may also be valuable to know the condition of the shipping buffer, so having some logistics integration with the shipping companies that are handling the transportation of the materials, which could also be valuable.
It sounds like the integration of systems across the supply chain is really a lot about organizational culture.
That's absolutely right. Effective demand-driven supply chain management, visibility and integration actually requires a change in culture, a change in ‘thoughtware.’
There's an internal problem. Different functional areas are often actually being managed to different goals. If you ask 20 different people, "What's the goal of our supply chain?" You'll probably get 20 different answers. One will say, "Keeping our inventory down." Then another will say, "Keeping our cost down." Then another one will say, "Running our equipment efficiently." They're all focused on different goals that lead to different actions that cause conflict. When that happens, it breaks down the internal culture of the organization. There's no unifying effect across the organization, but you can fix that.
For example, in the Toyota production system, the whole factory floor is a black box to accounting. They take the inputs and the outputs—we put this much in and we sold this much product at the other end—but accounting never looks at the efficiencies or the cost of an individual operation on the shop floor.
Toyota's profits over the last 20 years have made most other automobile manufacturers around the world envious. They are profitable virtually every year. What they've proven is that, if you protect and promote flow, you're going to maximize the amount of money you make out of that organization.
Want More About Companies That Are Gaining Supply Chain Efficiency?
Alwazzan Foodstuffs Industries Group has taken integration even further by implementing Oracle Manufacturing Cloud Service, Purchasing Cloud Service, SCM Cloud, Financials Cloud, ERP Cloud, and Procurement Cloud.
Finally, The Wonderful Company has created better visibility for the organization, suppliers, and customers with its Oracle Cloud applications integration—including full financial and supply chain suites in the Oracle Cloud—which is already driving costs down.