Why It Matters
Article by Lora Cecere from Supply Chain Shaman; published on October 1st 2013
As I work with companies, I often contrast the strategies, approaches and outcomes within a peer group. Over the last five years, I have helped two companies, Sonoco Products and Owens Illinois (OI) with their selection of technologies to improve Sales and Operations (S&OP) planning. Both companies provide packaging materials to the food manufacturing industry. Owens Illinois provides glass products and Sonoco Products provides flexible packaging. Here I contrast their results.
Six years ago, Owens Illinois’ primary question was IT standardization versus the choice of best of breed vendor. The decision was a political tug of war. Waging factions under-mined progress on business process. IT and the business teams were not aligned. They were unclear on their supply chain strategy and the role of supply chain planning. Complexity reigned in the business and they were unsure how to manage it.
Sonoco Products, on the other hand, had a clear objective to maximize asset utilization while improving customer service for strategic customers. Their goal was to visualize excess capacity and make it available to enable their sales teams to offer upstream opportunities to their clients. It was their way of “shaping demand.”
As a supplier three-to-four levels back in the supply chain, life as a packaging provider is tough. Demand is volatile, price is competitive and complexity reigns. Food manufacturers, over the course of the last decade, have pushed costs and waste backwards in the supply chain. Products have proliferated by 37% over the last five years and packaging suppliers are being asked to provide more and more innovation to help the food manufacturers bring new products to the market.
The companies are similar in size. Sonoco Products, is a $4.5B dollar company, located in the southern portion of the United States. Their journey to be more market driven with a strong focus on Sales and Operations Planning (S&OP) is now seven years old. Owens Illinois (OI), a $6.3B company, manufactures glass containers with headquarters in the mid-west. OI has been more focused on transactional efficiency, procurement and IT standardization.
As I write the new book, Metrics that Matter, I am studying the patterns of corporate performance based on choices in supply chain program execution. A company that is effectively working a supply chain strategy will have a nice, neat pattern at the intersection of operating margin and inventory turns. A company that is not balanced will tend to have a pattern that oscillates with no real trend for improvement.
Contrast the patterns of the two companies in figure 2. Owens Illinois oscillates with little predictability. While Sonoco Products is losing margin (in large part due to a tough market), they are making improvement in inventory turns. The pattern is much more reliable and they are executing a growth strategy.
So, what can we learn?
A Marathon not a Sprint. The story of supply chain excellence cannot be told in a one year snapshots. It cannot be accurately represented by studying two years or even three. It requires a study of the patterns over a five-to-ten year period. Supply chain leaders deliver reliability and resiliency in the results.
Conscious Choice. The journey is about conscious choice and leadership. It cannot be about singular metrics. Instead, it is about managing the trade-offs and improving supply chain potential. The supply chain needs to be managed as a complex system to drive continuous improvement against the supply chain strategy.
The Focus Needs to be End-to-end. I am teaching a number of workshops this month with well-intended clients that have defined supply chain as a limited function of distribution, manufacturing and procurement. They will make limited progress unless they can redefine their initiatives to cross over and define their go-to-market strategies.
S&OP Matters. Sales and Operations planning done right (focus on the management of the supply chain to maximize opportunity and mitigate risk end-to-end) improves organizational alignment and agility and improves operational resiliency.
Don’t Waste your Time on the Wrong Battles. The discussion of which system is less important than moving forward with a system. The supply chain as a complex system cannot be effectively modeled on a spreadsheet. The political arguments of IT standardization often result in one function winning the battle while the company loses the war.