Mid-tier companies manage supply chains differently

You’ve read the book. You know the book I’m talking about. It’s the one that tells you what wonderful things Toyota and Dell Computer have done with their supply chains and how you and your company can do the same if you employ the same procedures and techniques.

While middle-market companies operate in the same space and their supply chains face many of the same challenges as more complex supply chains, moving to the globalization of company sales and procurement, as well addressing shorter product life cycles, often stresses company resources past limitations.

Rarely do middle market companies have the same resources available to larger companies which ultimately limits their ability to mimic procedures many larger companies employ.

While everyone knows running a streamlined supply chain, regardless of company size, helps drive down business costs and improves productivity to boot, things that work for Toyota may not necessarily work for your company.

Middle-tier companies have their own issues and it’s the proper adoption of the right methods put in place to address these issues that determines the difference between success and failure.

Nathan Overbeek, supply chain manager with mid-tier EMS provider Sonic Manufacturing Technologies (Fremont, CA) explains, “Sonic sets its internal processes to address the quick-turn NPI (new product introduction) segment of the market. We select suppliers that can respond on a minute’s notice, allowing us to continually meet the increasing demands our customers place on us. Building products on a short timeline is demanding enough, but maintaining quality is even more difficult.”

Setting realistic expectations
Too often, large company supply chain methods are held in high esteem by middle-tier companies. Middle-tier executives want to emulate the methods only to be frustrated with poor results due to fewer economies of scale.

While many companies don’t have the resources to replicate methods at Dell and Toyota, there are places middle-tier companies can look at when developing a roadmap for success. For instance, an open exchange of ideas with someone from a similar company in another industry might result in some ‘best practices’ that can be applied by both companies.

Executives embarking on supply chain initiatives should also place considerable emphasis on setting realistic goals and determining appropriate criteria in order to properly measure progress.

Most technology product companies have little time to go beyond the basic requirements of supplying and supporting their manufacturing floor thus making them averse in their thinking regarding new initiatives.

However, as middle-tier companies hire more experienced people from larger companies, the number of supply chain awareness techniques increase. Of noteworthy mention, a recent industry survey revealed 42% of medium-tier company supply chain managers surveyed indicated they had one year or less experience, or no supply chain experience, whatsoever.

Too often, middle-tier companies focus on supply chain gains they anticipate they will obtain and then plunge head first into implementation without proper planning or, they set plans so rigid they leave little room for mid-course corrections.

Few, if any, companies develop a perfect plant right out of the chute.

As executives drill down into their models, minor corrections can yield huge dividends in output. Constant monitoring of supply chain capabilities must be in place in order to be able to tweak phases that are not moving toward accomplishing desired results.

Well-developed plans need to be cross-organizational — including all functional departments touching any material function. Sales, marketing, and logistics as well as manufacturing must each be taken into account to create a clear picture of what must be included in plans of action.

Risk-reward analysis
As part of company planning, executives need to develop a risk / reward analysis. A move toward setting the framework for this could include asking questions such as, “By altering stock levels, what risk does this pose to my production line flows?” Sir Isaac Newton’s law where every action produces a reaction certainly applies here.

Mapping out anticipated risks and what benefits can be obtained by addressing such risks in advance can greatly improve thought process and reveal any potential flaws in thinking.

Terry Precht, president and founder with Technology Driven Products (Loveland, CO) employs a risk / reward analysis when evaluating business opportunities. “We’ve been in growth mode for the last three years,” says Precht. “The cost / benefit approach seemed too conservative for a small company wanting to optimize growth while managing cash flow.” He adds, “Risk / reward analysis resulted in better decisions for us and an understanding of how large the risk could be if, in fact, the worse case occurred.”

“By conducting risk / reward analysis, we’ve learned to apply probabilities not only to customer forecasts but also to our internal processes and supply chain parameters. By applying probabilities to delivery schedules and costs of various suppliers, we’ve been able to identify potential risks in inventory increases and cash flow constraints ahead of the fact.”

However, to perform these types of balancing acts best, companies must thoroughly examine their true needs and core capabilities. Once completed, executives can assess stress points and determine what rewards can be derived from exploiting particular areas.

Measuring success
Certain measurement criteria are standard in well-run supply chains. Inventory turns and how turns are calculated will not create much opposition from most executives in industry.

When deciding on metrics and setting targets, look to key indicators for your particular business and how these fit best with your objectives.

Benchmarks set by other companies may have little or no bearing on your company just as timelines for larger companies may be too long or too short for your company.

Company criterion should clearly define the executive’s interpretation of success while asking: “Are these goals attainable goals for our situation?” If careful evaluation determines these are not attainable, initial planning strategy should be reexamined.

I know, I know — but the book says…

Written by Steve Vecchiarelli