The term “Supply Chain” can sometimes be a daunting term to understand even when broken down to it’s simple components.
Perhaps instead of looking at Supply Chain in terms of its pieces, most people might find it easier to understand it in terms of problems and solutions.
The biggest problem Supply Chain Management aims to fix is the coordination of every individual, organization, and company in order to move products from raw materials in the ground to finished products in the consumers hands.
This is a broad problem statement with the millions of possible permutations of issues that could encompass it. I’ll continue to drill down into the problem itself to make it a bit clearer.
Now that we know what the problem is let’s look at the primary obstacle, using a term that most in business will find relatively familiar The Silo Effect.
The Silo Effect is a theory that describes the breakdown of communication when different company departments isolate themselves and focus on their own department goals at the expense of other departments and ultimately the company itself. (Silo Effect article coming soon)
The Silo Effect can be extremely damaging to companies, but in the context of Supply Chain, it’s only one of the 3 great barriers
Inter-departmental Silos are in this context the easier problem to fix, considering that everybody is working under the same leadership. But what happens when these different Silos are reproduced at each company that is now involved into getting all their products pushed along the supply chain to a single customer? When the inefficiency of one or more companies in your supply chain are now affecting your delivery dates, quality, and your final product?
This is is the second part problem. The Silos that inherently exist when all the different companies have their own priorities, by which they align themselves with, instead of the piece of the supply chain they contribute to in regards to your product.
What happens when your interest of increasing profits clash with your customer’s interest in saving money? Or even worse, what happens when in return the products you supply stop aligning themselves with the products your customers demand?
Herein lies the 3rd problem.
So we can neatly summarize these three problems as follows.
- Coordinating within itself
- Coordinating with others
- Coordinating with market demands
So far most Supply Chain managers have a limited focus on their own company, since that’s primarily all that they can control. They focus on the inputs, internal processes, and outputs. So let’s organize the three primary supply chain problems in a more logical way.
- Coordinating products with market demands.
This point serves the WHY we do what we do. All the money, time, and energy lead up to WHY we are doing this to begin with. If your company sells fruit arrangements, then all the money, time, and energy need to be aligned with this primary goal. This is what top management focuses on, from product selection to geographical area of distribution
2. Coordinating within itself
This point gives the HOW we coordinate with our primary goal. This is how we optimize our efforts and have the most control. This coordination is how we take the inputs we need, and turn them into the final products the customer needs. There are a lot of opportunities to be found here, and it’s often the main focus of Supply Chain Mangers.
3. Coordinating with others
This is how we strategically position ourselves. This is how we find competitive advantages that are unavailable to us as a single entity. Most companies only have limited visibility to the companies immediately before or after, without knowing anything about the rest of the players that affect their products. Could you imagine for example, how difficult it would be for a simple grocery store, to make every single one of the products it sells from scratch? It would need to own a dairy farm for it’s milk, a slaughterhouse for it’s meats, acres of lands for it’s wheat, kitchens to process it’s products, machines to create and package it’s own products etc. and it would still never compete with a grocery store that purchases all it’s products for resale.
3 legendary and insurmountable barriers seemingly impossible to conquer.Further more, these 3 barriers are always changing. Markets change as players enter and leave, new technologies challenge the existing status quo, governments regulate and deregulate their territories, opportunities are found, created, and disappear.
Looking at Supply Chains from this point of view can create a grim outlook for anyone trying to manage them, but in each and every person, there lies the the unique ability to take insurmountable challenges and finding out a way to overcome them through intelligence, determination, and hard work.
These 3 great barriers will be the topic of further exploration within the upcoming posts. One topic at the time, one step at the time, and one insight at the time, until these 3 great barriers seem like 3 ant hills.
For any questions, concerns, or ideas please feel free to email me at Hugo@DailyGameTheory.com
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