Seven Steps to Manage Your Supply Chain

A schedule of seven steps to transform its management model and generate value through the effective implementation of Supply Chain Management

The concept of Supply Chain Management (SCM) and Supply Chain Management is not new [1,2]. Various settings can be found in the literature, as well as different models of processes [3,4,5]. However, the number of successful cases, where it can be seen the transformation of the company management of departmental / functional model for a chain model are disproportionately smaller than the number of articles and references in literature. This article seeks to present in brief seven steps that can and should make up the current agenda of an executive responsible for the project or a Supply Chain Management, as well as describe some trends that agenda. Although much of the literature cite the chain from the perspective of collaboration between companies, this article will address the vision of the inner chain, ie, within a company, since there is no effective collaboration with other firms if the internal areas not collaborate between them. Much more than a review of the literature on the subject, these seven steps are the result of observation and action in transformation projects in large Brazilian companies, in which this agenda was common in lesser or greater degree.

Supply Chain: management processing

To be able to present and discuss the proposed seven steps, it is necessary to define a little better understanding of Supply Chain Management (SCM). Briefly, SCM is the management of a company oriented to their streams of adding value and not for their duties. Obviously, this flow consists of different functions, but their focus is on how these functions connect, integrate, collaborate, etc.. In fact, many of the major themes of recent years in the management world view from the observation that there are numerous strategic and operational viewing opportunities for flows of a company: Reengineering, Integrated Management Systems (or ERP – Enterprise Resource Planning), Lean Manufacturing (or Lean Manufacturing) [6,7,8,9]. And these issues found a number of barriers to its implementation, similar to the one found in the SCM. The word flow here can be used as synonymous with what many authors have used and still use for words like chain or business processes. The flow that best represents didactically SCM is the Order to Delivery (OTD), or order entry to delivery to the client. One can even extend it to the Order to Cash which includes the discharge of titles ending the financial cycle of the application. For a didactic purpose, both flow will be used. If studied in detail the flow OTD may be noted that the most important decisions from the point of view of a company’s operations pass through it:

• Which requests to accept? The Most Profitable? The most strategic? The largest volume? The appearing on the sales forecast? And who decides what is profitable or strategic? This is formalized?
• As the services of a company are executed in the request? His term reliability? Her flexibility in meeting? His speed of delivery? Its specification product?
• And as the internal chain company that is prepared to order? There is the stock in quantity and in the right place? There logistical and operational capacity to absorb this factory order? The chain was prepared early enough? Note that these questions refer both strategic and tactical and operational issues, and hence the importance of supply chain and its management model [9]. He should be able to answer questions ranging from the commercial aspect, through logistics and production, reaching its suppliers. Also the management model should align to operational strategic level. In several successful businesses, the model of how these answers are given at the center of its competitive model, noting that the supply chain can be used as the main competitive advantage of a company, not only as a process efficiencies [10,11,12]

Looking at the recent history of project implementations Reengineering, ERP, Lean SCM and more specifically, and always with the ” background ” of a corporate vision for flows, perhaps the root cause of their difficulty in application is the management the variability or uncertainty of its flows. These variabilities that make taking uncertain and complex decision, is leading executives, managers and operacionalizadores functions to ” relinquish ” the vision of the flow to remain in view of its function, facilitating their individual role, but exponentially increasing difficulty of the primary role of a company serve its customers and shareholders. Customers and shareholders are served by flows and not by function. Take the concept of Six Sigma to the theme of variability management is strengthened. The issue Lean / Six Sigma implementation is strongly internationally, just as it unites the management vision by flows (Lean) with management by variability (Six Sigma). And why the view function is still so much stronger than the vision flows? One answer has already been given: the ease to take decision. Another, deeper and rooted, is that the very functional vision is recent, ie, the world still sees the function new. The functional vision did not exist in the craft model, as this performed all functions. When you break the line model for series production, about 100 years ago, there were no functions as we know them today. Take up the fields of Engineering 100 years ago and compare it to today, there is the degree of specialization that was created. The novelty and grace 100 years ago was not the flow, but as alone sell, deliver, make or buy on a scale previously unimagined. This deficiency, research models, education and management were created properly developed for the need of that time, but perhaps now no longer the most appropriate. We notice therefore that sell, produce, deliver or supply are not processes, but most of the sub- process to meet a client. However, we can say that this time the vision flows can be more successful than before? Yes, and for reasons of organizational structure. Several companies, if not most of them, create departments or areas of Supply Chain Management, even though under different names. Fact is that Supply Chain Management is inserted into the organizational structure of enterprises, clearly with a close or direct to the presidency of a company bond, and this area is intensifying further with traditional areas of business, conflict of functional vision versus vision flows. It is worth noting that there is no consensus on the name of the area of ​​Supply Chain in companies, there is also no consensus about which functions reporting to her. In general, one can find areas including: purchasing, logistics, sales and operations planning (S & OP), customer services, management and service orders (Order Fulfillment) and Lean / Six Sigma.

So that they are clear about the roles of management flows and variability of a Supply Chain area, four basic roles can be proposed:

• Visibility: make it flow performance, and not the areas of course for the entire company. Here, strongly flow indicators such as OTIF (On Time / In Full) and need for working capital (inventories, for example) are used. Another key indicator is the variability of the flow, ie, planned versus performed in each area and their correlations ;
• Alternatives: once visible flow performance, arise naturally diverse crossroads (or trade-off). What is the best relationship between customer service and cost to serve? What is the best relationship between logistics costs and storage? The role of the Supply Chain here is clear that there are no magic, but alternatives;
• Decision: Since the proposed alternatives to a stream, it is for the Supply Chain to create and manage shared decision-making forums, in which the functional decision be changed to a decision flow, but based on facts (alternatives) to the uncertainties and risks the decision to be condensed among all. It is in this role that a true leader or executive Supply Chain has his leadership skills proven process to the maximum;
• Constancy: once oriented to the flow decision, it has to be followed and respected. Here, the functional view must be replaced by the vision and respect flow and constancy of what was decided together should be prioritized. Right now is that structural issues are questioned, such as indicators for variable remuneration or promotion criteria.

These four basic roles of Supply Chain generate a trust technical and factual discussion between areas before in constant conflict. Thus, a series of protections and discontinuities are eliminated and the link between the areas is strongly established. The elimination of protections as immediate result has a smaller stock and lead times, resulting in less need for working capital for the same operating performance. Have greater integration between areas allows time and quality best reaction, since in rapid variability detected in an area is felt in another, and the existence of alternatives previously studied with appropriate fora decision make better and faster reaction. What is the benefit of business to be expected by a company that transforms its management to a model of Supply Chain? Better business results with less need for working capital. Obviously for that the company should have known their strategic priorities, otherwise decisions will be guided with the short-term, which makes it impossible chain management. A good example is that after 14 months of a transformation project in a large Brazilian company processes OTD and S & OP, have improved customer service by 30% with a reduction of 45% in stock.

The seven steps to transformation

As seen previously, the role and reality of a Management Supply Chain is contemporary and developing, however its formalization in the organizational structure of the companies is a clear trend. Thus, the visibility of the difficulty of making decisions that involve trade- offs in traditional businesses grow and sometimes also raise the exacerbation of conflicts between people and areas. The professionals responsible for management of a supply chain is a series of intense conflicts between different areas of a company and thus a transformation agenda is mandatory. The correct choice of topics and steps that can change the routine schedule of a Supply Chain Manager of reactive and proactive taxing on strongly and obtaining significant business results. The following seven steps of an agenda for transformation of a Supply Chain Management are proposed. These seven steps are listed as a suggested sequence, without requiring to be followed exactly this way. Another important point is that they are related and complementary, ie they must be used together.

Step 1. Set beliefs under which the administration will be based.

The set of beliefs which is found in business and still reflects strongly propagates a functional view. Many and diverse are the evidence, but all generally reflect a search for the great location and not the internal chain of the company. This set of beliefs functional and great places you can call a “map of hell ” in the chain, as the saying goes, “The road to hell is paved with good intentions.” Many companies work hard and enthusiastically, but their beliefs lead to jail for a bad performance. “Map of Hell ” begins with the belief that a customer should always be 100% satisfied. This belief presupposes that everything can be done on behalf of the client: change orders, dates, quantities at the time needed. This variability propagates internally in the chain causing an intense and extremely damaging instability. The second belief is on demand. Few companies have an internal consensus than is demand: orders or wallet? Projected sales? Sales goals? Market potential? Regardless of the lack of consensus that exists in common is that as this demand change much and always, every effort in providing for it and plan for it is in vain, because it is always wrong. Thus, it is important to be prepared to react to it. Again this takes creed to allow a large number of changes in the short term, and are added to previous belief, 100% client service propagates further variation which has to be absorbed by the inner string. The third belief refers to stocks. Not uncommon to hear the good stock is zero inventory and that all those who receive praise reduce. But again few companies understand what stocks are and that there are different types with different calculation methods: safety, seasonal, transit, strategic, etc.. Stock is actually a consequence of how the chain is managed, they serve primarily to absorb variability. They are a necessary evil, especially in the case of chains with high variability, which if not understood and systematically eliminated, you never know internally what the appropriate sizing of inventories, becoming a sentimental stock, ie, adequate to absorb insecurities personal managers of links in a chain. The fourth belief is not allowing idle capacities in jail, whether suppliers, machines, devices, trucks, operators, etc.. Good resource is one that produces a full charge. Thus, considering the three previous beliefs, there is no entity in this chain focusing on the causes of variability and neither the absorbing, but propagating them. Variability is the “black hole ” of the chain, but no one bothers to take the game or else to define who will be with him. He goes from link to link, and who is harmed is the performance of the chain. Therefore, in a Supply Chain Manager agenda shall specify that the variabilities exist and should be taken with a choice variability which the company goes live: change orders, production changes, etc.. Stop always fighting for the same things month after month, is already a great achievement. Becomes mandatory in the transformation agenda of a chain manager to map existing beliefs into your business, and define new beliefs that allow management processes are properly entrenched over time. Certain behaviors should be explicitly defined as inadmissible and policy consequences should be established in advance, as well as an award for monitoring and compliance with new beliefs should be created.

Step 2. Establish a vision of what will be obtained with the transformation and the role of each area in this new reality.

As a transformation chain presupposes that their links work collaboratively, all links should be consulted and involved from the beginning to understand how the company will be the reality from the moment that a model chain management function. The links should be clearly understood what could be done or not with the new model. There rarely are projects in which at the beginning is identified that there will be success, because what a link is expected to end in contradiction with what others expect. An example is a sales area with the expectation of increased flexibility, finance inventory reduction and productive of greater stability in production simultaneously. The clear alignment between the areas of what will happen is crucial for the links a chain pull in the same direction. Without it, there is a management model that resist. This alignment must be guided by the company’s business agenda, ie, by its strategy. In this alignment, should be given what will be the role of chain links. Here, it becomes critical to good understanding of the value proposition of the company. She will direct much of what is done in terms of managing the Supply Chain. Dependent strategy, even the variability of the chain can be an integral part of its management and, rather than eliminate it, part of the deal leaving it high but manageable, and as part of the company strategy of Supply Chain. The unmanageable variability out of schedule, which is masked and affect the entire performance management by flows. For this alignment occurs not only at the beginning of a project, but throughout its course and even after entering the air, a methodology and a model transformation process management should be adopted. The correct choice is essential to guarantee the success of a model chain management. Another key element is the choice of business indicators to be positively impacted by transformation. Finally, it may be recommended that a cockpit indicator chain is implemented at the beginning of a transformative work, so that the evolution can be measured and reported. There is resistance to sag to good results effectively measured and reported.

Step 3. Implement immediately a program of conceptual training for the entire company.

For the exchange of beliefs and alignment occur, the key people in the company and their areas should know the concepts of Supply Chain, always in correct proportion. It is desirable and recommended that every participant becomes the chain in a specialist Supply Chain, but the basics should be known and assimilated. It can be stated, the experience in transformation projects, the transformation problem of managing a supply chain is not given by the lack of solutions to the complexity, but the lack of basics. A conceptual program should ideally have the following themes: business processes, logical supply chain, information technology and individual and group behaviors. The topic covers the business process concepts to work by flow and not by function. Concepts are already relatively well known, but little practiced. Should give special attention to the fact that processes are structured and unstructured others, and each is managed differently. Processes are typically structured and routines can be easily transformed into automated systems. Have unstructured processes are negotiations and shall be treated in discussion forums. A process interáreas companies always have both types of processes and therefore will always be a sum of systems with people. Already the subject of logic Supply Chain discusses the techniques, methods, philosophies that a company adopts. This theme is central to the new management model is being operated correctly. A company must have some experts and many generalists logical Supply Chain. Power would report numerous problems that companies face due to the lack of understanding the logic of Supply Chain, being perhaps the simplest difficulty is to implement an ERP system in operational areas (sell, produce, deliver, supply, etc..). The ERP has a logical process and if firms and their links do not understand the whole process will be full of spreadsheets after six months of implementation, because the logic of an integrated ERP is turned off in the name of meeting the functional requirements. The technology theme refers precisely to the previously mentioned. People should not have a knowledge of the tool itself, but her logic and the system can not do. And most of what it takes to make the system work and support the logic of processes. Advanced Systems Supply Chain, characterized by being analytical, do not hold without strong discipline Cleaning continuous data. Have transactional systems create this discipline more mandatory form, but can be understood as an additional work if your benefit to the whole is not understood. Finally, the behavioral issue should be worked so that new beliefs are incorporated. This is a key qualification for interáreas processes are created. Typically, business games are an efficient method for this type of training because they simulate situations in which beliefs can be understood, modified and worked.

Step 4. Strongly Work on understanding and reducing the variability of its chain.

The biggest obstacle in a stream is an unplanned interruption, uncertainty or variability. These variabilities mean that decisions are taken out of the flow and thus an expected result is not achieved or required more time is needed. They are more difficult to organize a company by flows. For a manager of flows, which is the case of the Supply Chain, the understanding of the great variability of the chain and its visibility to all who participate in this flow is essential. And in these cases, a good management system integrated as ERP systems are not sufficient because they help to manage a flow given a particular set of variability, but does not help to reduce or eliminate. An example is the registration of lead time in the queue time is an average time. Therefore, the intrinsic variability of waiting time is stored in registered which, however, is not systematically reduced. Thus the variability in the system is perpetuated. It is therefore essential for a Supply Chain Manager to take its transformation plan an initiative, or part of one, in which the variabilities are explicitly represented and eliminated or at least reduced. Projects Six Sigma and Lean Manufacturing are a good example, but projects of Total Quality extended to all business processes within a vision of flow, may also help. No wonder that in most international conferences and Supply Chain Lean / Six Sigma is a major theme. Another key point, and that it is primarily in the Supply Chain Manager, is to make the correlation between the variabilities, using mathematical models. In these analyzes, it is possible to assess the variability which has greater weight in the total variability of the chain.

Step 5 Start the organization of logic flows, understanding and aligning the decisions. Outlets are integrated and deployed.

With the above four steps, the structural conditions to design the processes are created. However, the word process, by its heavy use in recent years, may be worn. Thus, it will use the term logical flow that uses a lot of the concepts of business processes. The advantage of using the term logic flow is that its representation is not exclusively obtained by structured and explicit part of a stream (which is the case of business processes and their designs), but also by the non – structured flow or else tacit, difficult representation. Represent structured processes within a logic flow is the simplest, but the unstructured requires different approaches to representation. A non – structured in a logical flow suggestion representation is part of the design of the various meetings that exist in flows, composed of their agendas, decisions, information, participants and functions. Each company creates an unstructured logic, mainly because of the part, which is strongly influenced by the people and their beliefs. However, the concepts are very similar, reinforcing the aforementioned step 3. It is not uncommon for meetings with these companies find themselves unique and different from all but the end realize and recognize that their peculiarities are exceptions and many general concepts can be used in its logical flow. Once represented the logic of its current and desired flow fits a very strong action alignment among all the chain, so that the logic is implemented and bring the possible outcomes. This alignment is time consuming and requires very strong follow-up actions, since the tendency to return to functional logic is very strong. This alignment must be done in a spiral model, ie, starts with good lap after lap and seeks the best. Actions greatly impact a misleading generate short-term results, because the natural tendency is to return the functional logic. Here, we test the limit of endurance of the manager. A good way to start is to join this spiral key people in the chain and show the hierarchy planning company, ie, the logic flow that is responsible for what time horizon, and what the basic elements of this logic, as examples: time horizon, frequency of occurrence, level of aggregation of information, leading indicators, among others. In this hierarchy is also represented as every time logic unfolds in lower logic, ensuring that long-term decisions are aligned with the short-term decisions and vice versa. The planning hierarchy must be, at all levels, contributing to the main dilemma: how best relationship between customer service versus cost of service. The service and the cost to serve are the strategic level, with decisions, such as which markets and which meet the design chain to be taken (number and location of plants and distribution centers), to medium-term decisions with determination of working capital to be made available to serve clients. Finally, in answer to what has been defined in the application for his client. The attendance of the client must be clearly formalized through the establishment of a level of service, in which attributes valued by the client are surveyed and their formal service is proposed. Moreover, companies must invest in understanding their cost to serve and not only processing. To implement the cost to serve, become clearer the actual margins of a chain. A good design of logic is also a vital link to the IT tools that will support the logic flows. When doing the drawing and Proposal of logic must be known to the tool to be used as a support, because the logic can be leveraged much limited by or tool to be used.

Step 6. Include information technology in its vision of transformation, but be sure to implement it at the correct time.

It is common to find transformations of Supply Chain initiated the implementation of a system. There is nothing wrong with this approach, but the risk is too great. The risk lies in the focus being given to transformation. The greatest transformation occurs in a Supply Chain is not system, but of logic: the functional to flow. This logic is not only influenced by its structured part, but also and especially by the non – structured. In companies where the functional beliefs are still very strong, transform structured part, through the system, and unstructured simultaneously is almost a certainty of failure. Practice shows that the company mistakenly tends strongly to enhance the transformation of the structured part. No one has a clear proof, it can be stated that people understand and relate more easily with the structured part, because it has a structured profile. Most of these people did of course search and exact sciences such solutions to their problems. However, the transformation logic takes place predominantly in the unstructured part. And so it is recommended in step 2 the adoption of a methodology for processing, complementary to a project, they tend to give a clear focus on the unstructured transformations. Not managing the supply chain without good IT tool that support exists, but its implementation must be well planned. Again, the logic flow should already be implemented and its participants must then ask for a tool flow logic, because then the focus on systems at the correct time. Remember that in Supply Chain there are basically two types of systems: transactional and analytical. Transactional assist in the automation of repetitive processes and reduce operational and its runtime effort, while also ensuring the integrity and consistency of data. Have analytical use these data to generate information and knowledge to search and generation of alternatives and thus significantly improve the quality of decisions. So before you think of analytical tools Supply Chain background of what is today called Advanced Planning Systems (APS), the transactional system should function properly as well, and especially their data and routine data update. APS systems do not work in environments where their transactional systems and data cleaning processes do not function properly.

Step 7. Question the way people are measured and evaluated and seek alignment between function and flow, formalizing roles and responsibilities.

The last step, but equally critical is the question of how the results of the people and areas are currently recognized. The possibility that this occurs in an environment where the functional logic is valued is very high. In general, the industry was created a scale model of management where more is good, ie, sell, produce, deliver and buy is always a sign of more good result. In the logic of Supply Chain, this may be true, but it can also not be. Many companies create extreme risk by agreeing not possible sales volumes and production, giving serious damage in customer service. But as perhaps they are still making a profit, they delude themselves as being better. The correct would be more with less (working capital), better (measured by the level of customer service) and faster (measured by service time). These three indicators are happening simultaneously the best statement that the flow logic is implemented in place of the functional logic. Returning to the question of how people and areas are measured, there is a tendency to evaluate their individual contribution to the increase in volumes and not the flow management. It is noteworthy that attempts to measure the flow at all have been extremely complex, for a very paradoxical reasoning. Take the OTIF indicator as a flow indicator and use it as an indicator for the variable remuneration for executives in functional areas (sell, produce, deliver and supply). Although there is a recognition that the OTIF is an important indicator of customer satisfaction, all argue that they contribute partially to the success of the indicator and it is not fair to be charged at all. But while all part of the flow that is critical to the customer. Who then should be charged and awarded by the good performance of a flow in a company? So one of the more complex activities in the transformation of a Supply Chain is to create a complementary model evaluation and bonus that meets the needs of a flow logic. Once the alignment, roles and responsibilities must be established and formalized rewritten for this change to be perpetuated.

Source: Revista Mundo Logística

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