While companies speak of supply chain ‘best practices’, and boast about improvements in operating margin, inventory levels and asset management—in speech after speech, in conference after conference—the results of these investments in supply chain excellence are hard to pinpoint in the analysis of balance sheet information for any industry. The reasons? There are three:
- Project-based Approach. A project-based approach is the implementation of multiple projects simultaneously. For years, companies have believed that if each project had an ROI above an established threshold, that when implemented correctly, each would add value. Many companies have thousands of projects that are focused on admirable goals, but they are not aligned, thus creating slower progress.
- Focus on Vertical Excellence. A supply chain is composed of the functions of source, make and deliver. Deep within the back office of each company, they become strong vertical silos—almost a fortress—within the larger organization. Mistakenly, companies focus on vertical excellence not realizing that the best balance sheet performance happens when the functions are aligned cross-functionally. Knocking down the walls of the silos is an opportunity for all. The strongest performance occurs when the functions are aligned together on total cost, customer service (order fill and on-time delivery) and inventory turns.
- A Lack of Corporate Understanding. The supply chain is a complex system with tightly interwoven and nonlinear relationships. While corporate finance is backward-looking based on transactions, the supply chain is forward-looking based on business flows; like order flows, channel withdrawals, translation of demand into product availability, and sourcing strategies. Many companies mistakenly try to manage the supply chain based on historic transactions which limits the potential of the supply chain.