As a result of today's fast-paced global business environment, the gap between the velocity of supply lead time and customers' order cycles is widening. Most companies address this gap by attempting to increase forecast accuracy and carrying additional inventory in the channel pipeline. Unfortunately, despite the use of the most sophisticated of techniques, forecasts will often be wrong. Even worse, as each node in the supply network builds buffer inventories to manage variability, inventories at each channel node become subject to the infamous "bullwhip" affect. As lead times cascade down the supply chain, the ability of supply chains to serve an increasingly demanding customer becomes alarmingly problematical. Surely, the solution for increasing velocities lies in another direction other than focusing on forecasting and expanding channel inventories.
Closing the Gap
Mitigating the risk of supply chain disruption while simultaneously increasing product velocities requires the creation of supply chains that are agile and nimble enough to thrive in today's global marketplace. Such an objective requires that supply chains possess the following attributes:
1. Knowledge of customer demand — The first rule in managing supply chain velocity is to fully understand customers, their needs and the intensity of the experience they expect from their suppliers. A full understanding of customers' business requires more than just establishing forecasts; it requires an intimate knowledge of the solutions and delivery values each customer wants.
2. Increased supplier flexibility — A critical driver to improving supply chain velocity is improvement of supplier relations. Suppliers that are "seamlessly" integrated into the channel system can continuously work on reducing lead times, possess knowledge of — and are capable of quickly responding to — product changes, and are committed to transparency and openness.
3. Increased internal flexibility — Driving increased velocity requires operations functions that are lean and agile. The application of what has come to be known as the toolbox of Lean techniques permits managers to attack wastes anywhere in the company or in the supply chain. The goal is the removal of non-value-added functions that simply elongate lead times and increase supply chain volatility.
4. Technology-enabled — Gaining visibility through technology tools into orders, inventory and shipments across the extended supply chain is critical to effectively manage supply chain velocity. The goal is to deploy technology to improve everything from on-time delivery and self-service order configuration to delivery synchronization and status visibility. Technology tools can be separated into those that improve operational efficiency and channel visibility (enterprise resource planning, electronic data interchange, Web and radio frequency identification); those that provide connectivity, information sharing, event tracking, exception management and dynamic optimization to reduce lead times and wastes, and increase supply chain agility (collaborative planning, forecasting and replenishment; advanced planning and scheduling; and sales and operations planning); and those that focus on customer experience enhancement, customer order and service management solutions, shipment tracking, channel disruption management, supply chain improvements, and regulatory functions.
How do these four attributes increase supply chain velocity? To begin with, lean, collaborative and adaptive supply chains are capable of increasing supply chain productivity and profitability by ruthlessly reducing wastes found anywhere in the channel network. Lean supply chains seek to create customer-winning value at the lowest cost through the real-time synchronization of product/service needs with the optimum supplier. Achieving such objectives requires supply chains to be both responsive (capable of meeting changes in customer needs for requirements such as alternative delivery quantities and transport modes) as well as flexible (adapting assets, pursuing outsourcing, and deploying dynamic pricing and promotions). Finally, lean supply chains are dedicated to the continuous improvement of people and processes throughout the extended supply chain.