When I hear the term "supply chain," I have two images in my mind. One is of a straight, finite-length standard chain, with each link assigned to a function like raw material mining, processing or synthesizing, transportation, manufacturing, distribution, etc. The other image is of a circle that begins and ends with recycling, reclamation, or raw material.
In actuality, the supply chain has many tributaries that look more like a river delta network; it does not always flow in a unidirectional manner. My mind says, if it were possible to straighten out the turns and kinks, knowing the shortest distance between points is a straight line, then wouldn't the traverse from one end to the other be shorter and faster? I'm still thinking graphically here. If the distances between the links could be made shorter, then the effective time from one link to another would be faster, also shortening the length of the entire chain.
Enter the concept of vertical integration. If I have one location where I synthesize the raw material; form it into usable bulk material packets; process the bulk material into products; pack the products; and ship the finished good to a consumer that's within walking distance and has an insatiable appetite for my goods, I have the greatest competitive potential in the world because my production, material, and transportation costs could not be any lower. I also have the huge advantage of controlling every step of the process along the way. Admittedly, that scenario is unrealistic, but, as in most cases, an ideal is a concept by which we can measure our progress towards the best possible results for our efforts.
Perhaps we cannot do much about the distance between links -- because in most cases, we don't own the whole chain. That means we have to target the links over which we have influence and, to some extent, control. Perhaps full control stops at the front and back door of your company. This is the reality for most companies. So, what would happen if we began to look at what goes on inside our companies as mini supply chains? What if we look at what goes on inside individual departments as mini-mini supply chains?
Every individual has deliverables that contribute to the deliverables of the department that contribute to the deliverables of the customer. Once the customer receives the delivered goods or services, it closes the supply chain by sending a check back to the company. With that check comes the resources to sustain the business.
Now that we have a controllable supply chain within the company, I would like to list the significant tools for shortening the inner-link's times and distances. So in my next article, I will identify some key tools that can be used to maximize supply chain efficiencies within a typical R&D and manufacturing operation. We'll see that the result will be a faster time-to-market with a higher quality product that will be the most competitively priced while earning the highest return on the company's investment.
The focus on mini supply chains within an organization reminds me of the tenets of lean manufacturing. By targeting attention to the little things, you reduce waste and increase efficiencies. The idea you wrote about seems centered on improving the little things so the big thing can be better. Would that be a correct assessment?
@Bolaji, I think any improvement at any level in a system will improve the system dynamics. When I used the term "Mini Supply Chain" I was evoking more of a perspective for approaching process and procedure improvements. Every employee has deliverables and every manager that has oversight of the individual contributors will aggregate all the contributions into a department deliverable. I have a diagram on my website that I call an I/O (Input/Output) diagram. It is just a box surrounded with circles depicitng requests and expectations on the left outside border, and circles with results and deliverables on the right outside border. Inside the box, I name the process or procedure that must be executed within the department in order to produce the throughput results. The supply chain likeness is the basic demand and supply model. The inputs are the demands placed upon the department and the supply are the deliverables. By each department's careful review of their internal supply chains...communications, records management, order taking, order fullfillment, timeliness of deliverable, etc. , I believe any internal enhancement will make for faster turn-arounds on "Customer" requests and ultimately happier customers in general. An argument can be made that as soon as you stop improving, you stop growing. Sooner or later, an inefficient system will be weighed down by an overload that arises from increased expectations that come from the growth process. An employer should be just as busy about growing their employees as they are about growing their business. Stop one growth area and the other will either slow down or fail altogether. In that vein, employees that want to stimulate growth and have the know-how to get the job done, should be given every opportunity to succeed by being heard and taken seriously. The biggest potential supply chain enhancement is to have the right people with a full support system behind them enabling them to do their jobs. Make all the links strong and the whole chain will be strong.
I think if you are making a mini supply chain within your organizations and treating indiviudal departments/functions as if they exist as independant companies, you need to have measures to track the performance and output of each department. You need to assess each department as if it were an independant company and there must be KPIs to see the performance of the department in isolation regardless of how the overall company has been performing.
I think it all comes down to efficiency and cost for the organization. Vertical integration makes sense where control of IP, raw material and produiction quality, and scale-up are key; outsourcing makes sense where cost reduction based on volume across a set of customers (by your supplier) helps keep your cost down on mateials and components that don't fall into the first category.
Elredge, Agreed. Vertical integration only makes sense when you have the control of inputs and raw materials. On the other hand, outsourcing makes sense when you don't control the materials and you want to produce bulk items of a similar kind.
@Syedzunair - outsourcing may also make sense when the material or component you need has a broader based market that increases your suppliers volume and decreases per unit cost to you.
I believe companies looking and targeting sustainable growth and long term stabling will always assess their current organizational practices across different functions and identify the areas of simplification. Mini suppy chains with in the company are one of the major things which is reviewed constantly and looking for reducing the time and efforts.
Raw material cost is one of the key variables for production and if you can decrease the cost of raw materials you can make the product in lesser cost. However, I believe that the decision to outsource should not only be made on the basis of cost of raw material. There are some other factors involved like production facilities, infrastructure, compliance etc. If the site that you want to outsource to meets these criteria then outsourcing might be a good option.
@syedzunair - I agree. I don't think I expressed my thought very well in previous post, but was trying to say that it may be far more economical to purchase rather than make a material or component when there is a broad base over which your supplier of that material or component can spread their fixed expenses.
When there are problems in raw material supply quantity and prices, vertical backward integration should be a worthy investment and when customers are demanding service quality which retailers are not being able to provide, vertical forward integration should be made. Most of the times, expected bid price outweighs the benefits of integration.
Organizations must focus on process re-engineering if they are to benefit from Douglas's idea of refining the mini-supplychain. Often there are redundant processes or methods that are inefficient to the speedy delivery of the product to the next process in the mini-supply chain. However, nobody has time or gives effort to identifying to these operational weaknesses and people are too involved in routine tasks.
"I have the greatest competitive potential in the world because my production, material, and transportation costs could not be any lower"
@Doughlas: Shouldn't you be lowering costs if you're outsourcing functions like packaging or shipping to other businesses? Those businesses specialize in these areas and they do it for a large number of organizations so their costs have to be lower than yours. If you are to lower your total costs in the supply chain, you have to outsource certain processes.
I keep envisioning the supply chain as a web--it has its circular aspect as well as the tributaries you mention. Either way, I agree that vertical integration has a significant comnpetitive advnatage and in some cases outsourcing has run amok. Looking forward to further discussion.
@Barbara, the web anology is apt. The chain link fence or river delta system with parallel and intersecting paths, seems like the picture for multi sourcing and contingency planning that would aid in risk mitigation and consequently a higher level of confidence that the supply will be there when you need it.
I agree about the web analogy although at times I believe this web is so broken in places that flies are just zipping in and out at will.
As you are aware this has been the case for quite a while and it will continue to be so in the near future because the web isn't built for one "spider," it's not a single web either and there are just way too many spiders with conflicting interests. The web isn't working for the benefit of all but often its limitations impact all.
@ Bolaji, I like your analogy of many webs and many spiders. I got bit by one of the poisonous spiders last week. My entire website was hijacked and all the links took visitors to bogus sites. I cleaned up the redirecting files and a day later was bit again. So, I hired a security service who is now watching my site 24/7. I also upped my registration requirements to ferret out the spider spam bots. Anywhere the supply chain has an open link, is a potential for a incursion, diversion, and subversion. Anyway, thst's my version of this issue.
Radio frequency identification device technology is rapidly gaining interest by assuring the integrity of supply chains through rules-based management.
Machine-to-machine technology is growing so rapidly that one report says there could be 10 billion connected devices by 2016. That's a big market opportunity.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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