Supply Chain Innovation: The Role Of Continuous Improvement In The Supply Chain
By Paramaguru Prakash, CSCP, PMP
When it comes to marketplace innovation, time is of the essence. Over the last two decades, 52 percent of Fortune 500 companies have gone extinct. This statistic alone proves that very few businesses, even stellar ones, don't survive for an extended length of time without going through a reinvention of some sort.
The tough decision for today’s enterprise leaders is knowing when to undertake a strategic, innovative transformation; when to change a company's core products or change its business model. This, combined with the high risk of failure, makes the transformation journey a harsh reality.
Harvard Business Review research has suggested that more than 80 percent of executives at large enterprises recognize the need for transformation, but only one-third of those executives are confident that they can get the job done in five to ten years. No doubt, reinvention or transformation of any sort doesn't happen overnight; it happens over a period of time. To mitigate the timing issue, more organizations are pursuing the concept of continuous innovation.
A Three-Part Solution
Today's supply chain business is volatile, divided, and uncertain. To succeed, organizations require mapping, analyzing, and redesigning the supply chain business processes. As such, a good place for mapping and measuring the supply chain processes starts with the customer and working backward. To improve, leading organizations benchmark their supply chain process by gathering performance data, thereby capturing organizational metrics, including everything from shipping and arrival date, quality inspection, put-away, and warehouse pick, pack, and ship. Also, they determine whether or not the data collected are valid, reliable, and accurate. It’s quality data that add value, and the best organizations benchmark these data points against their own organizational goals (existing and historical) and industry standards to find the performance gaps that exist in their supply chain models.
Since it's all about time, the whole process of gathering performance data has to be improved. Adopt advanced analytics (i.e., continuous intelligence), which include predictive analytics (those that identify data patterns and anticipate future scenarios) as well as prescriptive analytics (a set of capabilities that finds a course of action to meet a predefined objective). Advanced analytics is the conduit making the data available to all stakeholders at the right time, thus increasing efficiency and saving time and money. Connected data provides continuous intelligence, which is the fuel enabling executives to make real-time informed decisions. For example, in the case of the aerospace industry, where a part failure could cost lives, the sensor data from the Internet of Things (IoT) will be able to perform predictive analysis to determine the probability of parts’ failure before it happens. Based on this, then, prescriptive analysis can be performed to suggest the next course of action.
Once data are gathered, the next step is to analyze the data to provide insights as to how the product flows through the supply chain ecosystem to the customer and the process inefficiencies along that path. Based on those insights, comparisons can be made across the organization to determine performance standards. Are the processes viable? What trends do we see? What is the forecast accuracy? Where do we stand concerning shipments’ status, fulfillment times, on-time-delivery variances, quality rejects, etc.? In the end, these analyses form the empirical basis of continuous improvement plans and, ultimately, supply chain redesigns.
To identify process inefficiencies, adapt the Supply Chain Operations Reference (SCOR) model. The SCOR is a process-reference model, one that integrates data collection, measurement and analysis, and supply chain improvement steps into a cross-functional framework based on six functions of the supply chain: 1) plan, 2) source, 3) make, 4) deliver, 5) return, and 6) enable from supplier's supplier to customer's customer. Developed by the Supply Chain Council of the Association for Supply Chain Management (ASCM), this model is a bridge between performance to process and people. It seeks to help companies analyze their supply chains, giving them an idea of the problems embedded within each step of their supply chain process. According to the ASCM, “The model enables full leverage of capital investment, creation of a supply chain road map, alignment of business functions, and an average of two to six times return on investment.” To keep up with the change in times, SCOR standards have been recently revised to move from sequential chains to digital supply networks; it's the new SCOR Digital Standard (SCOR DS).
What comes next after the analysis of the supply chain is the improvements to the supply chain’s performance; but, of what kind? An organization must determine whether these changes will be short-term or incremental improvements, and include recommendations for changes to processes, technology, or metrics that better align with strategic or long-term objectives.
Enter the saving grace of technology. Paired with powerful advanced analytics and the industry recognized, standard SCOR process model, today’s supply chain management technology fundamentally changes how companies operate, simplifying, and standardizing operations based on what a company needs. Today’s technology is aware, thanks to sensor technology; intelligent, thanks to automated decision making and self-learning capabilities; connected, particularly when paired with other devices; and responsive. What companies get, then, is the ability to collect and analyze performance data and improve processes in a fundamentally more efficient way.
A great example of what to improve for supply chain companies is the perfect order metric, which measures every step of a customer's experience, from order entry, credit checks, inventory availability and picking, to on-time delivery, invoicing, and payment. Only an order that gets everything right counts as a perfect order, and it does matter to profitability. According to Advanced Market Research (AMR) research, a 3-percent increase in perfect orders equates to a 1-percent increase in profits. Since so many things can go wrong, it isn't surprising that even the best organizations have considerable room for improvement in this area.
One thing is certain: Over time, companies review the core processes and eliminate those activities that don’t serve or add value to their customers. They find system flaws and work to change them or purge them from the system. They increase their supply chain’s visibility and automate where it counts, keeping all aspects of the supply chain well-managed and improving efficiencies. They work to enhance customer satisfaction by capturing value and telling the stories that matter to their customers. In short, they focus on evolving their people and organizational culture, their data management, their processes, and their technology to evolve their supply chain. It’s imperative.
A Matter Of Timing
Many innovators have held the right vision for their organizations, but their successes and failures were challenged by time. In general, consider any big-name companies like Toys "R" Us, Kodak, and Compaq that have disappeared over the past decade or so. Chances are those companies failed to execute the fundamental concepts of continuous improvement in time. As innovation increases and the viable life cycles of the innovations shorten, the increased pressure on the supply chain can lead to grave failures. Understanding that failure can be used as a pivot, supply chain organizations can re-establish themselves and the innovation cycle can continue. In an extremely crowded supply chain business, continuous improvement is a necessary element of organizational success, if not survival.
About The Author
Paramaguru Prakash is an IT leader with 17 years’ experience in enabling business transformation through simplification and standardization of business processes, creating, and capturing business value, producing data-driven insights, and implementing continuous process improvement and digital transformations. He holds a Master of Science degree in software engineering and is an APICS Certified Supply Chain Professional, a PMI Certified Project Management Professional, and recipient of multiple prestigious recognition and performance awards. For more information, please go to https://www.linkedin.com/in/paramaguruprakash.