Thanks to disruptive events over the past two years, supply chains have become central to business success, forcing CEOs and other business executives to spend a much larger portion of their time and strategies focused on this once afterthought of their operations. What has changed? What will the business environment be like moving forward? Why and how must companies move up the supply chain spectrum to succeed in this new environment? To address these questions, we were fortunate to have Mike Regan, Co-Founder and Chief of Relationship Development at TranzAct Technologies (and recipient of the CSCMP Distinguished Service Award in 2014), on a recent episode of Talking Logistics.
Need to Consider The Whole Supply Chain
Mike began by explaining that CEOs have to consider what he calls the whole supply chain, which goes beyond transportation to include warehousing, inventory, and several other factors. Mike says that when you take this more complete perspective of the supply chain, “it typically represents 12%-20% of a company’s sales revenue. Companies have to manage that with a different approach. They can’t ignore that and assume they won’t have issues.
“This is a wonderful opportunity for supply chain professionals because now CEOs are actively looking for their input and advice on ways to improve their business,” continues Mike. “So they better get used to the spotlight.”
The Supply Chain Spectrum
There has been a lot of talk about digital transformation of supply chains, but how many companies are actually doing it? Mike explained that the supply chain spectrum stretches from a five, where a company’s supply chain is holistic, strategic and proactive, down to a one, where supply chains are siloed, reactive and very tactical.
“When I explain the supply chain spectrum at conferences, I ask everyone to stand up,” notes Mike. “What shocks me is when I ask all those who rate their supply chains as average or better to remain standing, 85%-90% of the audience sits down. Here’s a function that represents 12%-20% of your sales dollar and it’s mediocre at best.”
Rating Your Position on the Spectrum
To help companies rate where they fall on the supply chain spectrum, Mike asks them three questions. First, do you have a written supply chain plan that documents how your supply chain works and the critical factors that affect it? Few companies do. They have cyber-security plans, disaster recovery plans, sales and marketing plans, etc. because they consider these areas critical, but they don’t have supply chain plans.
Second, have you mapped your supply chain? And how many tiers up the supply chain have you mapped? Few companies have mapped beyond Tier 1, which can have severe liabilities. Mike gave an example of when Ford Motor Company mapped out its multi-tier supply chain, it found that the most critical part that could bring its supply chain to its knees was a ten-cent part that never showed up on its high-level analysis.
And third, have you stress-tested your supply chain to find out where your weaknesses and points of failure are? What KPIs are you using to measure this? If you hadn’t mapped and stress tested your supply chain prior to the pandemic, chances are you had significant disruptions.
For example, Mike notes that lead-times for overseas order shipments went from 35 days to 55 days. So, companies pre-ordered and now have excess inventories or inventories out of balance with current demand, which is adding tremendously to expense.
Why Move Up the Spectrum?
What are the benefits for companies that invest in moving up the supply chain spectrum? Mike says, “When companies move up from a two to a three or four, they can achieve cost savings between 8% to 20% or more. We do a rapid assessment with customers where the least result we’ve gotten is an 8% reduction, and we’ve had cases with 20% to 25% savings. And the good news is they are getting these savings by simply improving their internal operations.”
From a different perspective, Mike comments that if you’re at a two and everyone else in your industry is also a two, you may feel you’re doing ok. But all it takes is for one competitor to decide to move up the spectrum, like Amazon did with its distribution network, and suddenly you’re in trouble competitively.
What steps should companies take to move up the spectrum? Mike has four specific actions companies should take to begin this journey, as well as some interesting lessons learned from the past couple of years of disruption. Therefore, I recommend that you watch the full episode for all of his insights and advice. At the end of our conversation, I shifted gears and asked Mike about the “Words of Encouragement” email he sends every Friday. Why did he start writing it? What’s been the response from his readers and followers? Again, watch the full episode for all the highlights!