Alignment in Supply Chain – is it really possible?
Recently I read a great news article in Supply Chain Digest titled “Triple-A Supply Chain” that actually talks about the article published in Harvard Business Review in the year 2004 by Hau Lee. I am sure most of you would have read it but for those who haven’t, I sincerely suggest that it is a must-read for all supply chain practitioners. Although the article is more than four years old, it is very pertinent in current business environment. Let me just provide the objectives of the three A’s mentioned in the postingf and then, I would like to share my viewpoints with respect to one of the A’s that I feel is the ‘most relevant and critical’ capability for all the companies. The three A’s that have been talked about are:
a) Agility – it is about how quickly a company can respond to any change in its business environment. It refers to short-term changes.
b) Adaptability – it is the capability of a company to adapt to business changes that are more permanent in nature and therefore, it is strategic and has a long lead time.
c) Alignment – it is the ability to have common and shared interests across the supply chain including vendors and customers.
The description for each capability is pretty simple and straightforward but in practice, it is extremely difficult to achieve excellence in building these capabilities. I have observed that most of the supply chain performance improvement initiatives can be directly or indirectly mapped to one of more of these capabilities, and I strongly feel that it is an evolving exercise. Companies need to continually gauge their current performance, sense the future to-be scenario and quickly mould its supply chain, in order to sustain its competitive advantage. Talking about the three A’s, I feel that ‘Agility’ and ‘Adaptability’ are still under the company’s control to an extent, but building ‘Alignment’ as a capability involves close interaction with supply chain partners. And since, it is partner-driven, in my opinion, it becomes challenging to deploy and control activities or institutionalize any change that affects multiple parties. On top of this, as the business environment changes such as the economic crisis we are in today, where we have slowdown and demand de-growth in almost all the sectors, it becomes extremely challenging to sustain the ‘alignment’ of objectives and have mutually beneficial business policies.
Let me explain the concerns and pain points with the help of three real-life examples:
I recall one incident from my prior experience that’s worth mentioning. I was in charge of demand planning function for a region and we were facing problems such as poor order forecast accuracy and high inventory in days with one of our big distributors (in Asia region). Since our entire planning was based on demand forecast, it was very important to include such big customers right in the demand planning process and incorporate the events that occur at distributor level in refining the demand forecast. In order to facilitate this process, I travelled to meet the team at distributor’s end and had detailed discussions with the Planning manager, who was responsible for maintaining the distributor inventory. To my surprise, I realized that his personal KPIs of inventory targets were not aligned to our objectives and that became a constraint in implementing the improved process. We couldn’t influence his superiors to change his KPIs and had to resort to some work-around, but my point here is that “Alignment” of goals, objectives and probably, incentives is not complete unless and until changes are done at the ground level. People tend to follow their internally set targets and what their superiors tell them to do. The key decision makers in the hierarchy greatly influence the priorities that are set in the supply chain. In fact, this is equally applicable within the company as well and it takes a toll to align interests of conflicting groups. In my opinion, people that belong to the same supply chain team including partners need to have alignment in their ‘thinking’ and ‘approach’ and that’s really an ‘art’ and probably that’s the reason why companies fail to do so.
Another instance that I would like to cite here is wherein one of our vendors wanted to improve its operational performance but lacked people with right skills. We had to go through multiple rounds of discussions to convince the leadership team to hire a person that finally helped in achieving the desired results. So, I feel that there should be some level of alignment in the ‘skill quotient’ of the supply chain partners; else it is very painful and difficult to adopt best practices across the supply chain on a continual basis.
And the last example is about a company that I have worked closely with, in supply chain planning domain. This company is an industry leader in adopting advanced supply chain practices and technology. They were moving at a fast pace to adopt CPFR practices with its key distributors in developing markets/regions, to have common and shared goals. They even went a step further to align the distributor’s KPIs with their planner’s KPIs to avoid any resistance and gain mutual consensus to make the execution successful. But in the last few months, I got to know that since their sales have got deeply impacted by the global economic slowdown, the business team lost its focus on this initiative and planned go very slow in taking it forward. Moreover, at distributor’s end too, the focus is more to control costs and put all such initiatives in the back-burner.
So, is it really possible to achieve alignment in supply chain? Not easy though, there are companies who have done this and continue to be competitive in business.
I would like to have your opinion on this topic. Any experiences, suggestions, feedback and ideas are more than welcome.