Value/Supply Chain Management – Where Do You Start?

John R. Dougherty

All or nothing???  Not when it comes to Value/Supply Chain Management.  One of the great advantages of this powerful new approach of improving customer service while lowering costs is that it can be done incrementally, a link of the value/supply chain at a time.

Not only can you take small steps, but you can take them in different directions!  You can begin work first on your “supply side,” that is, working with suppliers, subcontractors, transportation providers, and their suppliers and subcontractors.  You can start with as little as one company, or perhaps one link of the chain, which might be a subcontractor, along with its subcontractors and suppliers, following through multiple links out to the ultimate suppliers of raw materials.  And as you learn and gain confidence from successes with those links, you can expand it to other suppliers or subcontractors involved in similar commodities, or start in entirely different areas of your value/supply chain.

Our experience with companies successfully implementing Value/Supply Chain Management is that they start small and focus on one or two links of the chain in the beginning.  When they learn from this, and gain confidence, they then spread the approach in increasingly wider circles, encompassing more and more of their suppliers.

But in virtually no case does a company involve every single subcontractor, supplier, or transportation provider in their network.  The law of common sense prevails.  Only build value/supply chain partnerships with suppliers where the level of business can produce significant enough benefits to offset your efforts and costs.  Companies are often tempted to start with their highest dollar suppliers first.  This may or may not be a good idea.  Certainly the level of financial involvement should be a factor, but many successful companies have found it best to start with their supplier who is best prepared to undertake Value/Supply Chain Management.  That means a company that is well-managed and has its own house in order; for example, a supplier with 95%+ on-time delivery, short, flexible lead times and well-managed costs, and perhaps has even built similar partnerships with other of their customers.

How About the Customer?

The other direction that should be pursued is working with your customers, their customers, wholesalers, distributors, dealers, transportation providers, etc.  Work in this area can be in parallel or precede work on the supply side, depending on the potential business benefits that can be achieved.  Again, start with a rifle, not a shotgun.  Pick a “demand chain linkage” that offers not only significant business benefits (improved market share, increased sales, lowered inventories, etc.), but pick one that has an early chance for success based on the business savvy and track record of the partners with whom you are working.

Figure 1 (below) summarizes the approach followed by many companies successful with Value/Supply Chain Management.  The basic guiding principle for directing your efforts at any stage of a Value/Supply Chain Management project is, “where can I look next to gain the most significant benefit, most easily and most quickly?”

Figure 1

How Far Should You Go?

This is the easiest question to answer.  Keep expanding your partnerships and involve more and more Demand and Value/Supply Chain partners as long as there’s a payback for the effort.  Pick the low-hanging fruit first, then work your way up the tree as long as the climb is worth the basketful of fruit.  If the fruit starts thinning out, stop and continue to manage the remaining Demand and Value/Supply Chain partners using more traditional tools such as forecasting, make-to-stock and make-to-order, purchase orders, safety stocks, etc.

But First…

Make sure you’ve got your own house in order.  If you don’t have accurate data, 95%+ reliable schedules, and well-managed changes, you run the risk of frustrating and disappointing your value/supply chain partners.  In this case, Value/Supply Chain Management must start in your own company.  Your company must have implemented and institutionalized Best Practice approaches for resource management.  Whether you call it “World Class,” “Lean Manufacturing,” “Class A,” or whatever, make sure that you’re managing everything that is within your control as well as it can be managed.  Then you’ll truly be ready to leverage those strengths with your partners!

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