18 Steps to Designing an Effective Logistics Supply Chain for Your Company
From the January 2002 edition of Managing Logistics
Supply chains should not Ïjust happen.Ó To be effective and productive they must be deliberately designed and developed by logistics professionals. Supply chains determine the ability of the organizations included in them to compete in the marketplace,Ó maintain Thomas A. Crimi, C.P.M., supply chain team coordinator, Texaco, Inc. (Bellaire, Tex.; firstname.lastname@example.org), and Ralph G. Kauffman, C.P.M., University of Houston- Downtown (Houston; email@example.com).
Globalization demands that organizations focus on improving their entire supply chain if they are going to gain or maintain competitive advantage, observes Ann K. Willis, CFPIM, CIRM, president, Ann Willis Associates (Mooresville, N.C.; firstname.lastname@example.org).
How to design/construct your ideal supply chain.
In an ideal supply chain, each member performs those things that are their core competencies and assign to other chain members those things that are not core competencies,Ó Crimi and Kaufmann explained at the National Association of Purchasing Management's 86th Annual International Purchasing Conference (www.napm.org). Therefore, when designing supply chains, logistics professionals must be aware and consider the core competency of each participant. They then went on to describe a recommended supply chain design process. The essential steps include:
- Select a chain. Criteria for selection may include: what are the largest products or purchased items in terms of sales dollars or spend, products/materials/services that need improvement in cycle or response time, problem products (those that affect customer satisfaction and cost effectiveness), product/items critical to company mission or goals.
- Form design team. Include all affected parties both inside and outside the company. Be sure to have representatives from other members of the supply chain, such as suppliers, customers, and third party service providers.
- Map the supply chain. As a team, get a common understanding of what you are working to improve. ÏThe entire chain does not need to be mapped in detail if you are only focusing on particular parts of it, Crimi and Kauffman offer. But the entire chain should be mapped generally to assure that all members who could be affected by changes are identified.
- Determine supply chain performance criteria. Where or in what activities or results must the supply chain develop and maintain a competitive advantage. At what level must criteria be set. For example, what level of quality or service is necessary to compete in the final consumer market for the product in question?
Performance criteria will drive the metrics, or performance measures, that will be used to determine if the supply chain and its individual members are performing well enough to compete, they allow. Areas of performance criteria and metrics might include:
- total cost;
- cycle time;
- reliability; and
- specific product performance characteristics.
- Analyze each step of the selected supply chain. Select the best way of performing that step. ÏUse benchmarking and best practice studies as references and sources of improved business methods,Ó they offer.
Identify specific measurement criteria and levels to be used in determining metrics and levels of performance that the supply chain must achieve to compete.
- Evaluate the impact of changes. First, evaluate the impact of the potential changes from practice needed to perform each step in the supply chain as a whole. Then identify and evaluate tradeoffs of changes at each step to determine the overall best way to perform that step to meet the performance required of the overall chain.
- Repeat the evaluation step. ÏRepeat evaluating the change impact process until the combination of practices that best meets the supply chain performance criteria ids determined,Ó Crimi and Kauffman advise. The critical areas of supply chain design.
There are a number of elements that logistics professionals must pay special attention to when designing their ideal supply chain. They are:
- Supplier selection. ÏSuppliers must be carefully selected and based on the particular combination of attributes they must provide to the supply chain, they explain. There may be one criterion of primary importance, but others must not be overlooked.
For example, a low-cost supplier that has low delivery reliability, or poor financial condition may not be a good choice even if low cost is the principle attribute required.
- Supplier development. To get the exact ÏfitÓ or combination of attributes desired, it may be necessary to work with suppliers to help them develop exactly the right capabilities to enhance the supply chain.
- Value-added. ÏA supply chain should, or must, enhance the customers' ability to compete when the customer is not the final consumer,Ó they maintain. For example, the supply chain may be required to provide services such as quick replenishment or training, or results such as overall cycle time reduction.
Each chain member must add some value to the ultimate final product. Each chain member must provide flexibility to innovate and help to bring unique value to the chain,Ó they insist.
- Supply chain tier integration. Supply chain tier integration, reduction, expansion, cooperation and communication determine how the chain members fit together. Get the best combination of members, functions, and responsibilities to meet customer requirements, they recommend.
Determine in detail with affected supply chain members how they will work together initially and ongoing. Use written understandings and procedures to minimize misunderstandings and problems.
- Change management. Decide how to implement changes necessary to initially launch the supply chain relationship and how to agree on and implement subsequent changes that may be necessary.
- Relationship between information and process or activity cycles. Determine how information will trigger processing or activity.
Determine how activity will be recorded and reported to affect future processing or activity. Determine how information systems will be adapted to the needs of the supply chain.
- Communication within the supply chain. What, when, where, how, and who must be planned in detail.
- Goals of particular supply chain. Specifically, what must the supply chain achieve? Define in terms of quality, performance, cost and other goals.
- Goals vs. vision for supply chain. The initial development of a supply chain should come from a vision of what it must accomplish. This vision must be translated into specific goals that can be made operational.
- Match supply chain goals with members' goals. It is essential to match the goals of the supply chain with the individual goals/objectives/ mission/value of the members of the chain. ÏAny significant mismatch will result in an ineffective and probably noncompetitive supply chain,Ó they explain.
- Coordination of supply chain strategies. There must be coordination of supply chain strategies, planning and operations. Use the team approach and involve all affected parties. Develop written procedures and guides.
- Performance measures. ÏIt is absolutely vital to know if the supply chain is performing as needed and to determine where improvements or changes may be needed, they explain. ÏThe performance metrics must be agreed upon as valid and necessary by all affected supply chain members.
Continuous advantage gained from supply chain design must be sustained by a planned continuous improvement program and supported by a vigorous, proactive change management initiative,Ó Crimi and Kauffman conclude.