The Need for a Supply Chain Strategic Plan
For many years, Supply Chain Management was an overlooked aspect of business. Everybody just expected supply chains to deliver. The pandemic and the Ukraine-Russia war changed the status quo while other big disruptions were already underway. Amazon fundamentally changed the consumer economy (and soon the industrial economy) when they built their supply chain to deliver a vast array of products incredibly quickly. The China-US trade war created the foundation for both inflation and a move to regional supply chains. Now everyone is interested in supply chain management and realizes that their business can be disrupted due to not having a supply chain strategy.
Equally important is the recognition that service companies also have supply chains. Sometimes service companies have physical supply chains, such as for construction, hospitality, field repair and retail. Others are information-based such as for accounting firms, banks, financial services, testing companies and many others.
Business leaders need supply chain plan to make sure they are not disrupted in the future. Instead they can make their physical and service supply chains a strategic advantage to profitably fulfill customer demand.
The Pillars of Supply Chain Management
Supply chain strategy is built by creating processes that support the key pillars of supply chain management. These pillars come from the proven Supply Chain Operations Reference (SCOR) model, which provides a straightforward way of thinking about supply chain management at your company. What I like most about using the model is it takes the term “supply chain management” and turns it into something you can do.
The 6 process elements are:
- Plan – Processes that balance demand and supply to develop a course of action that maximizes supply chain performance
- Source – Processes that acquire labor, materials or services, and manage suppliers of those resources, to meet demand
- Make – Processes that transform inputs to a product or service to meet demand
- Store – Processes that store resources or capacity to meet demand when needed
- Deliver – Processes that provide goods and services to customers
- Return – Processes associated with returning, or receiving returned products, for any reason
Plan
Planning involves some type of forecasting and calculation of your capacity to understand if and when you need to add or reduce resources, such as labor, inventory or capital equipment. In many manufacturing and distribution companies this is done by running a Sales & Operations Planning (S&OP) process. https://www.supplyvelocity.com/services/sales-and-operations-planning/
However, even service companies can use S&OP for their critical business processes such as processing loans (banks), conducting audits (accounting firms), getting materials and labor to a construction site (construction companies) and many other examples. Any critical business process needs a plan to balance supply and demand in order to maximize performance of that process.
An overview of S&OP is shown below in Figure 1.
Figure 1: Sales & Operations Planning Monthly Process
Source
Sourcing is the spectrum of how you manage and partner with suppliers. The model we use, which was developed by supply chain academics, is shown on the next page (Figure 2: Spectrum of Supplier Management). There are 7 levels of supplier engagement in the model. Knowing which level suppliers are part of can help drive sourcing decisions.
At the top of Figure 2 is the least engaged supplier relationship, where you are buying from suppliers in a transactional fashion. Most of your suppliers (20/80 or the 80% of the suppliers that are 20% of your spend) will fit into the top section of the spectrum. They are not important enough to your business to invest the effort to create a partnership.
Your most important supplier relationships should be set up on a relational basis (middle of Figure 2). Suppliers share openly and seek to make their customer successful through their products or services. They may take over parts of the customer’s business, such as inventory management, business process or IT outsourcing. There are incentives to perform and for the supply chain to succeed.
Sourcing for Critical Business Processes – Capital Equipment
Most supply chain management professionals think of sourcing around physical goods that they use in production or that they distribute. Another way of considering sourcing is how the company sources labor and capital equipment. Capital equipment requires large investments, but very rarely. Often this makes them transactional with infrequent but difficult negotiations. However, by standardizing on certain capital equipment there can be significant savings in maintenance, spare parts and training. One of the most well known examples of capital equipment standardization is Intel’s Copy-Exact program, which requires all semiconductor fabrication plants to use identical equipment. This has allowed them to achieve high levels of performance very quickly when commissioning a new fabrication plant. Capital equipment suppliers should therefore be part of your sourcing strategy.
Sourcing for Critical Business Processes – Labor
Since the pandemic accelerated the “war for talent”, many companies realized they need a sourcing plan for labor, including direct administrative or operational positions, professional, management and executive. What sources does your firm use to find the labor you need for your business to operate? Where should it fit into the supplier management spectrum in Figure 2? Are you using recruiting firms that are always looking for people to fill potential openings at your company? Is your recruiting or human resource department doing this continually, or only as needed? In today’s labor environment, recruiting needs to be an ongoing process. If you don’t have openings, perhaps you should have “on deck” talent that you can bring into your company quickly, when needed.
Figure 2: Spectrum of Supplier Management
Make
Make, which originally was meant as “manufacturing” should be thought of as the key value-adding operation in your company. There are many types of value-added operations:
- Physically transforming materials into a finished product
- Picking and packing items in a warehouse
- Processing claims at an insurance company
- Delivering education by a training firm
- Taking a lead and creating a quote
- Routing vehicles to meet customer time-windows and minimize distance travelled
- Designing products
- Coding software
- Field equipment maintenance and repair
- And many more
These key value-added processes should be the most streamlined, productive and fast processes in your company. This happens by applying Lean Process Improvement and by identifying and eliminating non-value-added steps. Figure 3 below shows a Current State Process Flow Map. The red dots on the post-its represent non-value-added steps. There are 73 steps in this process and 22 of them were identified as non-value-added and should be eliminated. This represents almost 30% of all steps in this process, which directly correlate with cycle time reduction.
https://www.supplyvelocity.com/services/lean/lean-process-improvement/
Figure 3: Lean Process Improvement – Current State Process Flow Map
Store
Storage in a physical supply chain is your warehousing and inventory strategy. This includes warehouse layout optimized for productivity or designing it to accommodate ecommerce (omnichannel) demand. Inventory optimization follows a specific methodology to ensure you are classifying your SKUs based on importance, using the most accurate forecast and calculating safety stock to ensure maximum customer service and minimum obsolescence. This is a deep topic and more information is available at these links.
https://www.supplyvelocity.com/creating-a-lean-warehouse/
https://www.supplyvelocity.com/ecommerce-and-omnichannel-supply-chain-management/
https://www.supplyvelocity.com/services/supply-chain-management/inventory-optimization/
https://www.supplyvelocity.com/services/supply-chain-management/demand-forecasting/
For a service company, “Storage” means building in capacity-flexibility for critical business processes so you can quickly respond to demand spikes. If you have a physical supply chain you can store inventory to buffer demand ups-and-downs. If you have a service supply chain you need to design your labor, IT or equipment capacity to flex up and down productively. This is more challenging than having a warehouse and storing inventory but it is needed for your service supply chain to profitably fulfill customer demand.
Deliver
Deliver is how you get your product or service into your customers’ hands. In physical supply chains delivery is transportation, which has many modes. Delivery can happen via ship, barge, railroad, large trucks, local delivery trucks, couriers and drones. Today the gig-economy also opens up alternative delivery options and many 3PL trucking firms are trying to be the “Uber of freight”, including Uber, which bought a 3PL company.
In service supply chains delivery is often email but it can also be a portal to provide a self-service option for customers. Portals require significant investments but make your company “easy to do business with” for your customers.
Return
The final pillar is return. This encompasses physical returns by your customers who are not happy with the product, or a reuse and recycle plan that you make available for your customers. Even service supply chains have returns, which is how you recover from a customer complaint or service failure.
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“Supply Velocity gave us the tools to analyze our business and processes based on the facts and numbers versus our perceptions. Our common quote was “Let the numbers lead us”. The key for our organization was how quickly we moved from classroom to actual project initiation. We were able to jump in, start using the tools and see a difference right away.
The get-into-action approach was good for our culture.”
“Mitch Millstein and his team helped guide our shop fabrication division in the re-layout of our custom pipe and steel fabrication facility when we moved into a new building. It is not only the results but how he helped. We were involved in every step. I personally did time studies and was able to see the non-value added steps required to manufacture in our old layout. When we created our new layout, everyone was involved, from the executive team to our direct labor force. With Mitch’s help we increased our throughput by a 3x multiple, while providing more competitive prices to our clients as a result of the efficiency improvements.This has enabled us to not only make more money but also to expand our commercial reach and serve more, and larger customers. I would recommend Supply Velocity to any company that wants to make improvement in supply chain and operations.”
“I am thrilled to provide this testimonial for Supply Velocity and their outstanding work in implementing Lean Warehouses and processes at Crescent Parts & Equipment through the COVID pandemic. With their data-first focus and Mitch’s exceptional coaching and experience, they transformed our business into a more supply chain-oriented organization, enabling us to grow while prioritizing employee safety and creating a better work environment. Supply Velocity’s expertise in Lean methodologies and their comprehensive evaluation of our customers have been instrumental in optimizing our operations and increasing customer satisfaction. We highly recommend Supply Velocity to any company seeking to implement Lean processes and enhance their supply chain efficiency.”
“For several years we have worked with Supply Velocity to support us with their expertise on Lean Operations and Supply Chain Management. Supply Velocity has helped us implement Lean, improve our inventory systems, and educate our people. They are professionals who are always available to help us as needed.”
“C&R was struggling with labor productivity. The construction crews were often missing materials that they needed to do their work. This caused significant idle time. Supply Velocity, Inc. and C&R used value stream mapping and visual management tools to make dramatic improvements in operations. Most importantly, two years later C&R is sustaining and improving on the implementation. C&R’s return on investment was 11:1. C&R had a record year last year in both sales and profits and would not have been able to pull it off without the changes Supply Velocity, Inc. helped us make.”
“Supply Velocity’s Lean Six Sigma System has given us new tools to help improve our sales performance. We have learned new ways to analyze our business which makes problem solving more accurate and has made us better leaders.”
“In thirty years of hiring consultants, Supply Velocity, Inc. was the first to tell me what they were going to do, set a price they stuck to and substantially exceed my expectations. I have recommended them to friends and acquaintances. They were true partners in assisting with the turnaround of an acquisition we had been struggling with for two years.Their math-based technology, solid down-to-earth facilitation skills, and positive, patient and enthusiastic attitude combined to make our implementation of Lean a very rewarding experience.
We increased our production by 50% in the first month of implementation and continue to see improvements. Improvements have not only been realized in productivity, but also in quality and morale. We have increased profitability by $2M on flat sales of $10M.
Based on Supply Velocity, Inc.’s integrity and our results, I will continue to refer them to others and utilize them in the future as we expand our company through acquisitions.”
“We are pleased that Essex selected Supply Velocity, Inc. as our Lean Implementation Partner. At one facility, we have saved over $350,000 in work-in-process inventory, reduced throughput time from 2 weeks to minutes and increased inventory turns 3 to 8 times per year. All these results are in just 6 months. Our return of investment is very high.”
“In the spring of 2003, the St. Louis Area Chapter of the American Red Cross engaged Supply Velocity, Inc. to perform a study and make recommendations to streamline office processes, maximize cash flow in purchasing and warehousing and restructure and enhance our maintenance department. Supply Velocity, Inc.’s process was methodical, flexible, staff-oriented, inclusive and, above all, trackable.In the last six months, our Chapter has realized expense savings of over $380,000 annually, and significant improvement in intra-company service levels has been attained. Supply Velocity, Inc. will return to the Chapter periodically throughout the next 18 months to audit our newly implemented processes. We have been pleased with our results and Supply Velocity, Inc.’s professionalism.”
“The role of the Erie Insurance Marketing Department has been evolving over the past several years – from a support role to a more critical role of driving growth in our organization. Because of our increased workload and desire to prioritize the most critical projects, we hired Supply Velocity to teach us the skills of Lean Six Sigma.Participants included the Promotions, Market Research and Agency Licensing sections of the Marketing Department.
We learned valuable tools to help us to prioritize based on the voice of the customer.
I firmly believe these skills made a difference in how we work every day. We are moving new projects forward, eliminating or changing ineffective processes, and we are a much stronger department. We continue to use the tools to help us with our highly-complex and time-consuming projects. Supply Velocity helped us to accomplish our goals.”
“Supply Velocity has helped Clean succeed in a number of ways. First, they provided the education that kicked off our Lean Process Improvement journey. They also facilitated a number of large supply chain and process improvement projects including: 1) building quality into our direct-labor productivity incentive program, 2) designing the layout of our garment warehouse, and 3) streamlining our route service process.We have integrated the methods that Supply Velocity taught us into our management and strategic planning. In the process our quality measurement has improved 22% from 2013 to 2015, we have reduced required annual labor by 2200 hours from the garment facility layout project and we’ve seen 50% decrease in error rate. Obviously the numbers speak for themselves, but just as important, Supply Velocity has been fun to work and have become true partners. They have “taught us how to fish” so our internal teams are able to implement change on their own, with the skills we learned from Supply Velocity. This relationship has been invaluable.”
“Myerson engaged Supply Velocity, specifically Ray Davis to visit our plant in Trinidad to conduct a two day assessment of our production procedures and provide us feedback on areas for improvement and where applicable, areas for future analysis.Put simply, we got everything we paid for and in addition to more in depth analysis, we got specific tasks that were immediately actionable. Our local management team found Ray to be engaging, highly credible and insightful based on his wide experience. In other words the cultural differences and lack of specific industry knowledge weren’t impediments to things we could implement immediately and on our own. In a nutshell it was money well spent and will pay itself back many times over.”
“Our experience with Supply Velocity was one of the best values we have ever had from a consulting project. Cyril Narishkin brought a structured lean methodology, invaluable experience and engaging facilitation skills to help us streamline a very complex and disjointed sales order process. Just as importantly, our team now has the knowledge and process competencies to address other business improvement opportunities going forward.”
“Anheuser-Busch Precision Printing had been implementing Lean Operations on our own for the past two years. We needed to move faster and partnered with Supply Velocity, Inc. Through Supply Velocity, Inc.’s mathematical workflow balancing and visual management tools, dramatic improvements were achieved. The entire converting operation was rearranged based on Lean principles. The result is a 20.6% productivity improvement, enabling us to operate with 23 fewer people in production.”
“Closure Medical recently completed a major reorganization in order to enhance our ability to rapidly create innovative medical devices. We hired Supply Velocity to help us map out the process and service flows of the new organization that would maximize our product development process (PDP). In four weeks, Supply Velocity helped us envision a new PDP structure, develop measures and accountability for each step, and gain consensus within the organization. Supply Velocity’s focus on speed and accountability helped us complete a critical project in a timely fashion.”
“Supply Velocity is driving instrumental change in our inventory management processes. This is critical for us to be competitive in a supply chain environment with numerous disruptions. They are making change happen, which can be challenging in a 182 year old organization.”
“In a time of volatile supply chain disruption, Supply Velocity is helping us develop Demand and Supply Planning processes to proactively tackle these new challenges. They are genuine partners, working with our team, facilitating and teaching.”
“Supply Velocity has provided the technical expertise and political capital to move our project forward. They have just the right amount of push and the right amount of support. Supply Velocity has helped us make real changes to improve efficiencies in logistics without jeopardizing our performance. We’re happy and our customers are happy.”
“Many thanks to all three Supply Velocity presenters. I think you guys took a very difficult time for learning and capitalized on everyone’s time and training needs. I truly hope this helps your business as this was a considerable undertaking on the part of Supply Velocity. Outstanding!!”
“In 2015 we began working with Dr. Mitch Millstein to optimize our inventory locations supporting e-commerce and in-store inventory needs. From this work we developed a new omni-channel warehousing and inventory plan that entirely redefined our approach to warehousing, inventory management, store distribution and fulfillment. As a result of the analyses by Dr. Millstein we have begun the move to an improved omni-channel design by reassigning MSAs to new warehouses, greater leveraging of in-store inventories to satisfy e-commerce demands, and exploring acquisitions of new warehousing space in strategic locations. We have already seen an improvement of $300,000 from both more efficient shipping strategies due to better inventory management.”
“We used Supply Velocity to rethink our sales process. By analyzing the entire process we found wasted time in our Sales, Admin and Operations departments. Streamlining this process created extra time for each Sales Rep, allowing them to spend more time with Customers and increase the value we add. Gross profit margins are up 40%!We are now using Supply Velocity to help us rethink our entire Strategic Plan.”
“Isolating a problem, finding short, and long term solutions with measurable results is what was promised and results is what was delivered by Supply Velocity. Upon launch of the Lean Six Sigma Selling System, we knew more about our customers, our products, and were able to create a solid plan to increase sales of our most profitable products. Within months of implementation, our booked sales jumped 60% and our most valued customers were getting direct, active, and calculable attention.”
“Supply Velocity created visibility within our Assurance Services Group… visibility of performance, Client-service, employee satisfaction and processing time. Using the Supply Velocity System, Audit Report Cycle time is down over 50%. We are using his strategies to create greater Client loyalty.”
“We engaged with Supply Velocity to help us embed process improvement at all levels of the business. Our team learned from Mitch to let the data drive decisions, to use Lean tools to help us see our processes critically and objectively, and to create a control plan to manage all of the tasks that were the outcome of the data study.The project turned out to be very significant to the company and most importantly, our customers. We reduced our customer wait times by 40%, and cut in half the labor cost to fulfill customer orders.
Some results are not able to be measured. However, as a result of this project, we have started to build a Lean mindset and culture, which is part of our strategic mission to save our customers money. Supply Velocity has been a valued partner in this mission.”
“We used Supply Velocity on our Warehouse optimization project. One of the key characteristics of Supply Velocity is that they listened to our requirements and provided a clear path for our Warehouse processes using lean tools and our future sales growth as objectives.”
“We are using Supply Velocity’s Lean Six Sigma methods to analyze a variety of processes including rationalizing SKUs (stock-keeping-units). By using math to evaluate SKUs we took some of the emotion out of our decisions. We expect significant increases in sales and productivity from reducing poor performing SKUs.”