How to Establish Supply Chain Management Goals – goals | modern supply chain | productivity
How to Establish Supply Chain Management Goals
Supply chains have many things they try to accomplish. Contribute to profit? Yes. Cut costs? Perhaps. Make great products? Sure. But let’s try and organize the long list of possible goals. How do we do this? Well first, let’s remember a supply chain is only part of an organization and typically, the primary goal of these organizations is to produce a profit. Profit. So, profit equals revenue minus cost. Now, most folks will say supply chains are all about cutting costs but that doesn’t really make sense. If you don’t buy any inventory, if you don’t make anything, if you don’t deliver anything, you’re costs are zero. Do you think you made the company profitable though? Of course not. Supply chains that are tasked with only cutting costs will hurt your company.
Modern companies understand that the best supply chains help drive up revenues by making great products. So let’s review this first goal. Modern supply chains must be dual contributors to profit, drive revenue by making great products or services that get to the right place at the right time but all the while, control costs by eliminating waste. Now, let’s get just a bit more specific. In order to make great products and services, we need to define what the customer wants and also define how we will differentiate ourselves from our competitor. We can do this by using four categories, cost, quality, speed, flexibility. Take any two competing companies, such as Walmart and Target, Toyota and Mercedes, Domino’s Pizza and your favorite pizza restaurant. In each case, they have different goals in these four categories. Let’s try it.
Pick any two competing companies. Go ahead, write them down. From the perspective of the customer, which of these two companies has lower costs? Which has higher quality? Which provides faster service? Which provides you more options and greater flexibility? This isn’t an accident. The best companies understand how important this is. When a supply chain understands its goals in the areas of cost, quality, speed, and flexibility, the supply chain is better able to make the customer happy and thus contribute to revenue. And by understanding what is not required, the supply chain can eliminate waste and control cost.
So, let’s review the second goal. Modern supply chains must be able to define what the customer desires in terms of cost, quality, speed, and flexibility. This helps supply chains understand what the consumer finds valuable and what might be deemed wasteful. As supply chain managers, we have two sets of bosses, the boss and the customer. What do they expect from the supply chain? Well, customers want value, lots of great stuff at the best price possible. On the other hand, bosses expect productivity, create lots of great stuff at the lowest possible cost.
That’s the third set of goals. Create value for the customer but eliminate waste so you can simultaneously drive up productivity. Those three sets of goals, help us connect the organization’s strategies and desires to what happens in the supply chain every day. But what if we just wanted to focus on the supply chain? What should a supply chain manager think about every day? They need to have three goals. Be effective. This means they need to give the customer the cost, quality, speed, and flexibility package that they desire. Be efficient, meaning makes the boss happy by doing things without waste, eliminating defects, wasted time, and confusion. Be adaptable. The best supply chain managers anticipate and plan the change before their competitors.
The needs of customers change, technology changes, new employees and suppliers will be added to your supply chain. Supply chains are tested under stress so as an exercise, let’s think about something we hate waiting for. Coffee, the grocery checkout, the cable guy. Ask the customer, what do you expect from them in terms of cost, quality, speed, and flexibility? You’re the customer. You should know that one. Surprisingly, most companies don’t know what you want.
Second, why do you think that sometimes things go wrong for a company? Is it the other customers in front of you? The worker and how they were trained? Low-quality materials? Perhaps it’s just a bad plan. In other words, what’s causing the problem? Finally, which changes does a company need to incorporate? Will you want more from them in the future? Are there new technologies they should consider implementing? Next time you get poor service, don’t get frustrated. Think like a supply chain manager.