An Operations View of SCM

Bobbin, Oct, 1999 by Jane Griesinger

Kurt Salmon Associates

Much of the talk about supply chain management (SCM) emphasizes "silver bullet" software systems that promise a seamless pipeline from source to sale. While information systems are very important to SCM, they shouldn't over-shadow your company's focus on its basic ability to execute operations effectively.

If your operations are not functioning effectively, implementing new systems and equipment is like turning up the water pressure on your garden hose when there is a kink in it.

Consider the following example: A few years ago, Jones Apparel Group experienced considerable pipeline pressure when it was faced with rapid growth, increasing customer demands and chaotic operations. In the words of Doug Means, vice president of distribution: "Sometimes it felt like we had two choices: Change ... or explode."

Through efforts focused on standardizing and improving not only systems but also operations, however, Jones began to gain greater control over its business, improve the productivity of its facilities and deliver better customer service. As Means emphasizes: "Systems and operations must be engineered in parallel. You must constantly redefine both of these variables around some fixed parameters."

Within your company, it's likely there are operational improvements that would: increase throughput by 30 percent to 50 percent; improve the accuracy, quality and thus the value of orders; reduce labor costs by 25 percent to 40 percent; and delay the need for capital expenditures.

To achieve these benefits, operations improvement must be approached as a many-faceted SCM endeavor, including the following steps:

* Define the right methods, procedures and layout for each job within the area of the company that is the focus of the operational improvement.

* Set goals that are specific, measurable, challenging and achievable for this area.

* Establish a system that holds associates accountable for the goals, and provides feedback and rewards when goals are achieved.

* Keep the continuous improvement cycle going. Managers and supervisors should constantly look for better ways to accomplish operations, always considering existing methods and procedures as works in process. Better systems and equipment should be continuously evaluated and implemented.

If you're not sure of whether your company needs to tackle operational improvement as part of its SCM strategy, consider the following 10 questions. Unless you can answer "yes" to all 10, you need to make some operations changes to achieve SCM success.

1. Are there standardized, documented methods and procedures for each operation? For example, does the associate checking in freight on the receiving dock have a step-by-step procedure for doing his or her job within arm's reach?

2. Is there a standardized training program for both existing and new employees? Does it specify the length of the training and how the results of training will be measured?

3. Are there performance goals for each job? For instance, do packers know how many cartons or units they are expected to handle per hour?

4. Are performance goals fair and accurate, taking into account different types of work? For instance, has the company evaluated the level of effort needed to yield a certain level of performance in different departments?

5. Are service, quality and accuracy weighed equally in measuring performance to meet goals? For example, are the results of accuracy audits included in performance reviews?

6. Do associates receive daily, objective feedback about their performance, including quantitative measures of their levels of efficiency, accuracy and quality?

7. Are such quantitative measures used as an important part of the review process? Do performance reviews reflect what each associate has been told through daily feedback?

8. Are there rewards to motivate associates toward goals? For instance, does the company offer extra money, recognition, days off or other perks as positive reinforcement?

9. Are there appropriate measures of accountability and documented methods of discipline that are consistently administered for poor performance? Does each associate know his or her minimum acceptable level of performance and the consequences of falling below that level?

10. Are managers and supervisors trained to effectively continue the operations improvement cycle? For example, could each supervisor orchestrate an operational improvement program, leading a small group of associates through the implementation?

Remember that improving the execution of operations is a cornerstone of SCM and that a kink in a section of the supply chain can bring the best systems and equipment to their knees. With effective operations, on the other hand, the possibilities of SCM can be endless.

Jane Griesinger is a manager in Kurt Salmon Associates' Logistics practice, specializing in helping clients improve their supply chain performance.