How to manage multiple supply chains

Managing multiple supply chains is the next big challenge for logistics professionals. The trend towards multiple supply chains stems from various factors, including the proliferation of new product introductions, rising expectations for fast and differentiated service, and outsourcing. Each new chain brings with it a host of additional relationships to be managed — and a greater risk of problems.

Success in managing multiple supply chains requires each chain to be clearly identified and designed to meet both external and internal needs. Configuring your supply chains in light of these needs, while leveraging commonality and ensuring both organizational authority and accountability, can offset the challenges of implementation.

Identify your supply chains
The first step toward successfully managing multiple supply chains is to define each of the supply chains you manage. A typical product company has three primary supply chain types: new products, service parts and indirect purchases.

A company with multiple product lines may have a unique supply chain devoted to each line. This is particularly the case if the company serves customers throughout a range of industries or within different segments of the value chain.

At least two supply chains typically support service parts: forward logistics (e.g., sending the part to a distribution center or directly to the customer), and reverse logistics (e.g., getting the damaged part from the customer to a repair center).

All companies buy a wide array of products and services, ranging from car rentals for employee travel to office supplies and temporary labor. It takes specialized expertise to manage the purchasing of these disparate products and services.

Clearly identifying the supply chains by type, and categorizing purchasing activity according to the chain supported (new products, service parts, or indirect purchases), is a critical first step to managing multiple supply chain complexity (see Figure 1 for an example).

Design the supply chain to meet external and internal needs
The second step in managing multiple supply chains is to design each supply chain to satisfy both external (customer-oriented) and internal (business-oriented) needs.

Let's consider a supply chain that provides drill bits for oil and gas exploration as a way of illustrating the interplay between external and internal factors. Material components are few, but highly specialized. The bits themselves are uniquely designed to match both geographic requirements and customer preferences. Each bit is machined in a process with hundreds of steps. The product is distributed to the far corners of the world. The customer never quite knows what he will require, given the vagaries of the terrain where drilling occurs. Nonetheless, the customer can never afford to be without the right bit once drilling starts. The bit maker — not the customer — owns the bit until it has been used in the well.

How does the drill bit maker balance the external needs of its customer with its own internal need for manufacturing efficiency and profitability? One drill bit company's solution was to differentiate service based on the specific bit. Some bits turned out to be high runners — those serving areas with large oil and gas deposits, for example, where the terrain is well known. In this case, the company switched from a build-to-order supply chain to a deliver-on-demand model.

Other bits were highly specialized and rarely purchased. The company stayed with its build-to-order approach for these bits, but worked to reduce cycle times to minimize its liabilities for carrying safety stock of these low-volume bits.

While both high-and low-volume products served the same customers, different supply chain models were required to accommodate the service levels deemed appropriate for each by the bit maker. By employing two models, the bit maker was able to satisfy the customer's requirement for both bit types, while minimizing its own inventory liabilities.

Leverage commonality
The third step in managing multiple supply chains is to determine what elements can be managed in common and which require differentiation by supply chain. It is important to critically examine the tradeoff between effort and integration, and not apply more effort to integration than is warranted. Experience provides a few guiding principles:

Plan
Managing demand/supply planning as an integrated process is wise because planning requires balancing requirements for multiple supply chains across a finite set of resources. Planning at the more detailed level — for sales and operations, for a particular customer set, or for a specific factory's material requirements — is best done by those closest to the end user.

Source
Supplier management is another area where an integrated approach is valuable. Although many companies use a single enterprise resource planning (ERP) system's purchasing module, it is still fairly common to divide all sourcing activities by plant. If no central purchasing entity oversees the relationship with the supplier, the supplier can and will charge a higher price. Although supplier management may be best centralized, day-to-day purchasing transactions may be most efficiently handled at the local level.

Make
Few companies today have the luxury of managing the manufacturing portion of the supply chain as an integrated set of activities. Companies outsource some manufacturing processes abroad, subcontract other processes to those who perform the work locally or abroad, and generally retain at least some level of manufacturing in-house. Managing these activities effectively requires a wide range of technical, project management and relationship skills.

Deliver
Managing the product once it leaves the factory can be one of the biggest challenges for a supply chain executive. Because the distribution approach is so tied to customer service level expectations, it can be difficult to integrate the distribution function if multiple unique supply chains are in place. Some customers may require manufacturing line-side replenishment with a 100% service level, while others (distributors, for example) replenish their own stock and will accept a reduced service level in exchange for lower freight charges.

Information technology enablement
At this point in the evolution of the supply chain, little value comes from implementing different core applications (such as ERP) to support multiple supply chains. However, the item master, financial transactions, inventory records, and sales and commissions credits should operate off the same or interconnected systems.

Performance management
Unique supply chains can be difficult to manage using common performance standards. Yet the metrics themselves don't need to be different. For example, "on time to customer commit" may be a common metric across different supply chains, but the performance target may vary. The target for make-to-order products might be 90%, while the target for make-to-stock would be higher, at 95%.

Ensure authority and accountability
The fourth step in managing multiple supply chains is to ensure organizational authority and accountability for the performance of the individual supply chains. The chief operating officer should be less interested in the aggregate performance of the supply chain than in the individual performance of the company's top three to five supply chains.

Implementation challenges are inevitable since so many things can go wrong, such as:

Islands of data can once again develop. Advice: Continue to take advantage of the improved availability of tools to organize, display and act on information.

There are so many priorities that nothing gets done. Advice: Limit the number of unique supply chains to those that are truly essential to support the business strategy. Assign accountability for the performance of each, but don't allocate all resources to these supply chain managers.

Technical expertise becomes fragmented and difficult to engage. Advice: Successful supply chain performance depends on a combination of people, including those with broad-based problemsolving skills as well as experts in specific functional areas (commodity purchasing, freight carrier selection and pricing, customs and duties). Ensure that specialized expertise is available to all supply chain managers, not just those supporting a specific, dominant supply chain.

Supply chain partners (especially suppliers) can be confused by the requirements being placed on them. One part of the company wants service, another part wants low cost. Advice: Ensure that overall accountability for supply chain partner relationships is defined, but continue to work as a team with major suppliers in cases where you require differentiated service.

Despite its challenges, managing multiple supply chains offers many benefits. First and foremost, the fine-tuning of external and internal priorities can drive significant improvements in profitability and customer service level. In the case of the drill bit supplier described above, this reprioritizing helped reduce the lead time for critical products by 88%, which allowed field inventory to be reduced by 86%. Customer satisfaction with the supply chains for both build-to-demand and build-to-order bits significantly increased. Market share increased, and the cash required to fund working capital plummeted.

Any company offering more than one product to more than one market segment is managing multiple supply chains. To do so successfully requires a solid understanding of customer expectations of performance, and a supply chain configured to meet those expectations. Each core process area must possess functional excellence, across both single and multiple supply chains. Finally, clear accountability is required to enable productivity and desired performance. As supply chains continue to multiply, these practices promise real results.

Kate Fickle is a director in the supply chain management practice at global management consulting firm PRTM (www.prtm.com)