Supply chain processes are the core business of every supply chain professional. In doing so, the focus is often on efficiency and cost reduction. Yet there is at least as much potential in more effective processes with which you can increase sales and margins.
The link between strategy and operational execution are processes. Processes are thus the heart of your operations.
When optimising processes, the focus is often on making themmore efficient, and thereby reducing costs. However, this is a rather narrow perspective, which risks missing important signals and opportunities.
More important, in fact, is making processes more effective. By organising processes in such a way that your product and services optimally meet the wishes of the target group, you achieve real competitive advantage. You distinguish yourself better, customers become more satisfied and that leads to higher sales.
How you then best set up those processes depends on the chosen strategy. Is speed important, customer service, customisation? Or a combination?
Values
An important link between the overall strategy and its translation into tactical and operational decisions is the value strategy. A proven model for this is Treacy and Wiersema's, which distinguishes three possible value strategies:
- Product leadership: a superior and unique product
- Customer intimacy: service excellence
- Cost leadership (or operational excellence): a competitively low price
The challenge lies in the fact that many companies have different product-market combinations (pmc's), each with its own value strategy. Yet processes are often still laid out uniformly. The order management department, for example, has a fixed method of processing orders. However, a customised order is very likely to benefit from a different approach than a bulk order.
Balance
This is where the further development of choices across the board begins. Each strategy involves a different service, you incur different costs and it is therefore only logical to link a different selling price to it. The trick is to always find the balance.
You do this by classifying your product and customer portfolios into PMCs. Then set service levels per PMC. And stop thinking in terms of departments (vertical) and start thinking in terms of processes (horizontal).
From vertical to horizontal
Most companies are organised into vertical departments, with their own processes, which start at the department door and end when 'our job is done'.
Very often, KPIs are formulated per department and each department has a different culture. Yet employees and departments should work together to align processes from front to back.
Therein lies the essence of supply chain management; adding value throughout the chain, with the customer (and thus PMC) as the starting point.
Designing processes
There are eight basic supply chain processes:
- Customer relationship management
- Customer service management
- Demand management
- Order fulfilment
- Manufacturing flow management
- Supplier relationship management
- Product development & commercialisation
- Returns management
Each of these runs throughout the organisation. Production starts long before the machines are switched on, which starts with estimating customer demand and planning supplies.
Correctly designed processes ensure that the chosen strategy is translated into the daily actions of all employees. They promote cooperation between different departments and chain partners. Departmental interests become subordinate to customer interests. Traditional tensions in the organisation, e.g. between generating the maximum number of customers (Sales) and stock reduction (Finance), are thus bridged. All noses are pointed in the same direction because it is known what needs to be delivered and who contributes what.
From dream to deed
So good supply chain processes are the bridge between dream (goals) and deed (operation).
Differentiating processes better leads to happier customers, lower costs, higher margins and a much stronger competitive position.
Want to know more about how to design your supply chain processes better?
During the ICT&Logistics fair, Ir. Gijs Dolmans MBA will give a seminar on this subject in the Supply Chain Theatre. His colleague Bastiaan van der List will share his view on supply chain processes on 6 November in the same theatre.
Participation is free, but register soon to be sure of a place!
Author: Ir. Gijs Dolmans MBA
Senior Supply Chain SpecialistBLMC Supply Chain Optimisation
