Enabling Continuous Supply Chain Process Improvement

From WikiSCM

At the advent of the 21st century, continuous process improvement is an accepted way of life in business. Few companies lack a continuing quality or process improvement effort. But it wasn’t always this way. Only since the 1980s has quality improvement occupied a prominent role in corporate strategies, thanks primarily to the work of W. Edwards Deming and Joseph Juran in the industrial miracle that was then referred to as Japan, Inc.

By the late 1980s, Deming’s early work had been somewhat codified in Total Quality Management (TQM), followed shortly thereafter by other improvement methods, such as business process reengineering, Six Sigma, lean manufacturing and constraint theory. These continuous-process methods shared a central characteristic. All were applied to refining processes that were already established.

Discontinuous progress, complexity and increased uncertainty

Unfortunately, supply chain management (SCM) hasn’t enjoyed the same kind of refinement approach. This is not to say that SCM hasn’t changed, just that the change has been more revolutionary than evolutionary. Because the SCM environment has been more turbulent, and because it has been perceived as support for manufacturing rather than as a co-equal system component in its own right, changes to supply chains have been less deliberately planned and more reactive. And these reactive changes tend to be larger and more abrupt.

Take the corporate shift from vertical to horizontal structures. What’s commonly referred to as outsourcing began in the 1960s, as vertically integrated companies such as the automobile manufacturers began to flatten their hierarchies, simultaneously unloading organizational responsibility (and the accompanying overhead) for many parts of their operations. Not surprisingly, this trend coincided with the shift toward globalization.

The commercial aircraft industry is a case in point. As airliners became increasingly sophisticated and complex to build, the major manufacturers began subcontracting up to 6 million parts per airplane to thousands of suppliers in multiple tiers around the world.

This tendency to outsource has produced some unintended consequences. Companies that have become “leaner and meaner” through outsourcing have traded one kind of problem––high overhead––for another: loss of control. External suppliers and the process of obtaining from them what was once produced internally are inherently less controllable by companies doing the out-sourcing. And the additional process complexity needed for ongoing management of a consistent, reliable external source is inherently riskier than maintaining internal control.

Technology-driven versus functionally driven improvements

Another phenomenon that characterizes supply chain development over the last several decades is speed. The restructuring just described has happened with such speed that many companies are sorely challenged to keep up. Such improvements to SCM have been driven more by technology than by process. Supply chains have traditionally been considered subordinate to production operations, and because technology (particularly computerization and automation) has driven a breakneck pace in manufacturing improvements, supply chain managers found themselves struggling to keep pace. What good is it to realize one- or two-day manufacturing cycle time if it takes eight weeks to obtain raw materials and three weeks to distribute to end users?

As a result, supply chain practitioners have embraced technology with the same eagerness as production groups, often because that technology promises dramatic local improvements, albeit without a complete understanding of the ramifications. Radio frequency identification (RFID) is an example. It isn’t just a refinement, it’s a new way of doing supply chain business. For many companies, such technology is adopted in self-defense, as a way to keep from being left behind. No technology underscores this better than the Internet. But the technology improvements drove the change, not necessarily a perceived unfilled need for process improvement.

A critical disadvantage of letting technology developments drive change is that it puts the initiative for process improvement in the hands (and minds) of technology developers, not the operators. And the technology that typically results from this approach is a “one-size-fits-all” box, with little flexibility to adapt to a changing supply chain environment. Moreover, technology-driven changes are more likely to be reactive than consciously and deliberately planned. Another drawback is that technology developments usually address process “pieces,” rather than the whole supply chain. And improvements during the last 50 years have been aimed primarily at cost reduction. It’s only in the past few years that company management has begun to recognize the revenue-generating potential of a robust supply chain.

Enterprise resource planning (ERP) is the ultimate in technology-driven advancements. Software developers saw an opportunity to capitalize on the quantum increase in hardware computing power that had grown since material resource planning (MRP) and MRP-II were developed in the 1970s.

ERP also provided a variety of new capabilities for company-wide sharing of information among different, formerly “siloed” functions. The promise of ERP lay in tightly integrated applications—commercial, off the shelf (COTS)—that would facilitate running an entire business from a single software platform. It was a great idea, but there was a downside.

Companies had to adapt their processes to the pre-set configuration of ERP. Deviating from this prescribed ERP process (billed as “best practices”) punished firms with cost overruns and botched implementations. They had to change their culture and behavior significantly to satisfy the rigid “overlay” of ERP. And it ended up making companies generic. It became increasingly difficult to differentiate and compete on the basis of process excellence.

The technology versus process dilemma

In order to have an effective supply chain, companies need both good functionality and manageability. Supply chains are notoriously complex, depending on sophisticated information availability. Manageability is thus a function of technology, particularly information systems. So there is a persuasive argument for allowing technology improvements to drive supply chain management.

On the other hand, the customer doesn’t care about a company’s manageability problems, except when those problems impact the customer’s satisfaction—i.e., “what I want, when I want it!” And an excellent supply chain also depends heavily on a robust functional process, one that delivers the right item to the right place at the right time. If form is to truly follow function, then process improvement, not technology, should drive supply chain management.

Flexible, customizable technology

Fortunately, this dilemma can be resolved with a groundbreaking solution: technology that is both flexible enough to adapt to a turbulent, external supply chain environment and customizable to the unique needs of an industry or company. In previous generations of SCM, most of the improvement money was spent on the technology to enable supply chain processes (e.g., licensing, deployment, maintenance, etc.). Very little was devoted to actually innovating processes, because it was difficult to implement behavior-changing technology, configuration was time-intensive, and the technology had little capability to adapt to the unique processes companies wanted to execute.

In the new generation of dynamic process improvement, businesses can create enabling software as part of the process design effort. With business content libraries (see article, page 18) and dominant industry designs as an accelerator, each company is able to adapt this baseline to its unique needs and processes. The need to change information technologies with each new iteration of the supply chain environment is eliminated. The result is that a significant percentage of financial investment in SCM improvement shifts from software to process innovation.

More importantly, once a new process is deployed, it can be continually evaluated for effectiveness. Companies can analyze deviations, parameters and unintended consequences and quickly deploy corrections, confident in the knowledge that the information technology can quickly be adjusted to support the newly improved process, instead of the other way around. Businesses can pursue process excellence in ways they never could before.

Technology and process functionality have a kind of yin and yang dynamic. Each depends on the other for its existence. In the last quarter of the 20th century, technology drove process improvements. In the 21st century, technology still promises to influence everything we do. But it is finally reaching a point where process improvement can actually take the lead and technology has the capability to support it.