This is an essay by Art van Bodegraven, managing principal of Van Bodegraven Associates and founding principal of Discovery Executive Services.
As we look for better ways to integrate and synchronize sourcing and procurement activities intelligently within the greater supply chain, it is easy to become confused about who and where the customers are. You know, the ones we are supposed to be delighting?
This is a burning question in both the B2B and the B2C worlds. And the obvious answer is not always the complete answer. For example, when a company's customers are the ones actually paying the bills, and the sales and marketing mission is to get them to buy as much as can be rationalized, plus some extra “just in case,” we cannot afford to overlook sales and marketing as an internal customer, whose needs and demands we must at least recognize.
In other cases, the most prominent customer from a supply chain management standpoint is the internal one. If the corporate charge is to build and maintain a physical infrastructure through which to deliver product and services to anyone who taps into the network, it is field operations, engineering, or some similar entity. That is the proximate and driving customer. They transform what the supply chain delivers into what the ultimate user consumes (and pays for).
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The reality is that we have customers all over the place, and our perspective on "who" depends a lot on who we are and what our role is. For the overall supply chain, "customers" include the CEO, COO, CFO, and shareholders. That's in addition to the usual suspects of end users, consumers, brokers, distributors, assemblers, and converters. Downstream demand comes in all forms as goods progress toward application or consumption, the end of useful life, and returns for purposes of re-use, recycling, refurbishment, etc.
And, lest we forget, our organizations are full of peers who might not be customers in any traditional sense, but whose needs, interests, cooperation, collaboration, and requirements we need to proactively recognize and live up to in our pick-and-shovel work. Think legal, IT, HR, real estate, R&D, and finance.
Along the way, do think about Schonberger's 16 Principles, not only in how they affect processes and protocols in customer and supplier interaction, but also in how we use them to help communicate the totality of our effort to our direct customers and our supply chain universe at large.
Cries and whispers
Military operations, social movements, and all kinds of major changes tend not to rely on brute force against the widest possible front to get results, at least not in this century. Instead, select forces or groups in higher-success environments undertake targeted and specific actions. The metaphor of a spear to represent an important and game-changing objective is appropriate. And, as is the case in other milieus, a crack unit with special talents, special training, and extraordinary commitment usually leads the action, becoming in essence the tip of the spear in breaching the wall of yesterday's paradigms.
The supply chain, with sourcing and procurement as the tip of the spear, must meet internal needs in order for the enterprise to meet external demands. However, these relationships are often fraught with conflict, with enough finger pointing and blame to satisfy the needs of any sizable kindergarten. "They didn't get the stuff here on time.” "The specs changed and the idiots didn't know.” "They can't read blueprints.” "Their pet supplier is a thief, and my pet supplier is a super-hero.” "They just sit around all day, gassing on the phone, while my customers are doing without.” Any of that sound familiar?
The long-term solution lies in a sincere execution of – call it what you will – S&OP, advanced planning, whatever. The core process, best facilitated by supply chain management, gets all supply chain components aligned with internal customers to determine what is going to be needed and when, what the probable upper and lower limits of these demands are, and whether new products or changed specs that might change acquisition and inventory are in the works.
Only then, when everyone is on the same page, can the organization translate plans into budgets and avoid the CFO in the ivory tower trap. Meanwhile, smart and committed employees will be directly working with ultimate customers or surrogates and suppliers to determine realities in both demand and supply capabilities. In an intermediate action, SCM leadership must prepare analyses and recommendations for processing and storage capacity, whether the solutions involve capital investment, third-party support, or both.
But this is beginning to sound iterative, as well as interactive. Right you are. For today, it's the best way to run a railroad. For tomorrow, it will be the only way.
And from all this we get…?
The benefits of all this work are numerous, which is what makes the level of effort involved more than worthwhile. When we know the approximate timing of need for specific products or materials and approximate quantities, we can build supplier relationships and agreements that support more or less a just-in-time delivery program, which means that we are not carrying vast inventories for months and months prior to need. Once again, we have discovered that it is folly to try to manage inventory levels as if it were a monolithic entity. The risks involved in making arbitrary inventory cuts can be avoided when we recognize that inventories are outcomes of processes.
As for translating technical needs into actionable sourcing and procurement actions, there has to be a two-way street. Much like a manufactured product is built up from a bill of materials, an infrastructure component is made up of a myriad of related and connected parts. If the internal customer doesn't have the budget or resources to translate drawings into parts lists (a specious claim, by the way), perhaps the SCM organization can provide a resource to do so and share the cost. Or, perhaps even absorb the cast as a good-faith move in building a closer, high-trust relationship.
As to any contention over whose pet supplier is less corrupt than the other's, going to war does not really solve the problem, even when there is a winner of the moment. War will break out again, and who knows which side has developed stronger political allies in the interim? Rational face-to-face discussion, based on facts, data, and analysis is the only hope, along with a willingness for moderate compromise when a small loss contributes to a greater long-term good.
Tying the part to the whole
Critical as the role(s) of sourcing and procurement are in all this, it takes working the issues and the processes under a bigger and more dispassionate supply chain management umbrella to pull off. And it takes growing into a mature set of practices and relationships. We are all in this together, this sauna. It is hot, it is steamy, it is exhausting. But, coed or not, it is cleansing and liberating, refreshing and renewing.