In order to gain an advantage you need a competitive supply chain. Focusing too much on your own company leads to sub-optimization, which can hurt your teammates on your supply chain team and reduce your competitive advantages in the market.
In basic terms, your supply chain consists of your suppliers, your customers and, of course, yourself — the producer. We refer to this grouping in our SIPOC diagram below. SIPOC stands for Supplier, Input, Producer, Output, and Customer.
You are the link to your supplier and your customer. Yet you are only as strong as your weakest link. If any one of you is weak then the whole chain is weak. How can you tell what your weaknesses are?
In our discussion of management leadership we showed how inventory turns is a composite measure of your raw materials + work in process + finished goods. These components are one way to measure if you have a strong and competitive supply chain. High turns are a measure of a strong chain.
High raw material turns can only be derived from a supplier that can deliver quickly with little added cost. High raw material stocks are needed to compensate for long lead times or large minimum orders which constitute our supplier inefficiencies. These inefficiencies are supply chain costs that are passed on to the producer and customer.
High work in process stocks are used to compensate for unreliable or long manufacturing processes, bottlenecks, delays, or large manufacturing batch sizes which represent our manufacturing inefficiencies. The producer passes these costs on to the customer in the supply chain.
High stocks of finished goods are used to compensate for infrequent orders, slow moving products or chaotic demand, which represents our sales and marketing inefficiencies. The customer must pay for these too.
A competitive supply chain gives you a huge advantage. No producer is an island nor can any organization work independently from its supply chain. Every organization works in teams or supply chains. So if any part of your chain is weak then your whole business model becomes weak. Wastes and inefficiencies that cannot be passed on to the customer result in costs and low profits for the producer – an uncompetitive position to say the least.
So, the question is, what can we do about it? The answer: manage your supply chain.
You are a team. So think like a team. Bring together your suppliers and customers to discuss uncompetitive issues you have discovered. Brainstorm as a group to solve the problem. You would be surprised at how helpful suppliers can be once they understand what those raw materials you ordered are being used for in a customer product.
Once everyone in the supply chain is working together as a team then you will no longer have just any old supply chain. Instead, you will have a value chain — a chain that creates value for its participants. Value is at the heart of lean thinking.
In order to maximize your competitive advantage you need to strengthen your supply chain and lead it as an integrated team. The goal is to make it a value chain instead of a supply chain.
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