How to Evaluate Supply Chains
It is very common these days for us to get a message from someone in some part of the world that goes like this:
“Hey George, we run a ___ business. It’s a good business, but we are constantly fighting battles with our inbound and outbound supply chains. We try to do analysis, but everyone involved suggests overly simplistic answers (usually directed at some person or department). This is way more complex than we can manage. Can you come out and take a look?”
Such is the Genesis of many of the projects we do. Yet, the work we do in many cases could have been solved (or partially so) by the client by following a few key steps. I want to use this post to offer some advice to you who sit atop a complicated supply chain or value chain that seems forever locked in less-than-optimal performance. In the end, you may still need some professional assistance like the work we do, but you will have substantially reduced the effort and cost in any case.
In this post, I will interchangeably refer to supply chains (the interface between the firm and outside parts of its ecosystem) and value chains (the inherent sequence of actions inside the firm to generate a product or service) as the principles I will reference will work in either context.
My own inspiration for doing effective supply chain work comes from a groundbreaking paper called “Staple Yourself to an Order”, written by Benson P. Shapiro, V. Kasturi Rangan, and John Sviokla in Harvard Business Review in July 2004. In this article, the authors stressed the idea of carefully and methodically defining a company’s Order Management Cycle (OMC), what we often refer to these days as the order-to-cash cycle, as defining the process heartbeat of the company. Everything you need to know will be revealed by understanding the OMC, as everything material to the business is less than 2 or 3 degrees removed from it.
The best investigator for supply chains is someone who is not a Subject Matter Expert (SME) within it. That may seem counterintuitive, but SMEs will tend to gloss over details and concepts they already know rather than ask naive (and sometimes uncomfortable) questions about how a system works and why it works the way it does.
In the spirit of Staple Yourself to an Order, you can get started by asking the question to an SME: how does it work? What happens first? After that thing, what happens next? …and so on. Try to constrain conversations about exceptions ruthlessly—these can often lead you far afield of the core value chain, leaving you with little value. In an ideal world, after a session with an SME, you will be left with a more-or-less chronological set of notes that can then be converted into something useful.
When you combine the ideas in StapleYourself to an Order with a rigorous schematic syntax, you can now investigate, express, and critique a value chain. It is here where I drew my inspiration from a completely different source: the US Military.
In the 1970s, the US Air Force was under intense pressure to design and build weapon systems most efficiently, using computer technology in all aspects of design and manufacture under the Integrated Computer-Aided Manufacturing (ICAM) banner. The USAF created a visual language for describing complex systems, which consisted of function blocks that accomplished singular tasks with inputs coming into the block from the left and outputs extending from the right side on. Blocks were then chained together as much as needed to describe an entire system or factory.
You might suggest that this is simply process flow diagramming, and you would be mostly correct save for two very unique features of ICAM: into the top of the function block flows something called a control, or the information/signals influence the input-to-output conversion. If you were baking a cake, such a control would be the recipe.
Moreover, coming into the bottom of the function block are resources or mechanisms, those assets or pieces of infrastructure that help make the input-to-output process work. Again going back to the cake analogy, the oven, pots and pans, bowls, and mixers are the resources in this case.
These two subtle additions over the basic input/output view of systems make an incredible difference in representing the crucial information flow in a supply chain. Therefore schematics that use this ICAM-style approach are more like system schematics than mere process flow. It’s like the difference between a chart listing a patient’s vital signs versus an MRI or an X-ray, the latter providing much more depth for diagnosis.
A summary of a typical function block that I use in my own work is shown below:
Finally, one needs a good, robust drawing tool to make it all work. Every day I see well-intentioned work wasted because practitioners use terrible tools to express their schematics. The most common excuse is: “Well, that’s what my company’s IT department provides us.”
Pathetic.
If you are really serious about doing this work, do not use the worst-suited tools to create and distribute your diagrams. There is a reason tennis players obsess about using the best rackets, golfers use only the finest clubs, and race car drivers go apoplectic about the quality and type of their car’s tires. Good gear makes for good results, delivered efficiently. Full stop. Don’t compromise.
Now I will not leave myself open to lawsuits by telling you what the terrible tools are. I’ll let you figure that out on your own. I will tell you what my team and I use: Lucidchart. I have no financial interest whatsoever in Lucidchart, I don’t have any special status within the company, and I don’t receive any discounts on their products. I use it because it works well. Lucidchart has the full functionality of any good drawing tool, but it is a web application, which means you can then distribute your work easily over the web. We have found this latter feature to be indispensable when sharing our work with our clients, which is one of the most important aspects of building schematics in the first place – an ability to use them as a “language” of exchange between yourself and your client about complex and detailed features of the value chain.
So there you have it, the three ingredients needed to conduct a serious and effective investigation into a supply chain: the OMC, the visual syntax, and a professional-level drawing tool. Use them wisely, and you will produce schematics that become the centerpiece of important conversations in your company about the most crucial activity you have: delivering enterprise value for the owners.
