Is Your Supply Chain Effective, Efficient or Neither?

OK, I have to confess. I had to look up the exact difference between the two terms: efficiency and effectiveness (or being effective). I saw many similar definitions but the one below from facilitiesnet.com seemed to be the closest to how I would describe the difference between the two terms.

“Efficiency and effectiveness are not the same. Efficiency is defined as the ability to accomplish something with the least amount of wasted time, money, and effort or competency in performance. Effectiveness (or being effective) is defined as the degree to which something is successful in producing a desired result; success.” The words in italics are mine.

As a consultant in the supply chain planning space, I am very familiar with the concept of efficient supply chains. Can we do this while minimizing our costs? Can we minimize the setup times? How about the number of changeovers? A lot of planning, related modeling, optimization, etc. are all aimed at this search for efficiency. The thinking makes sense: If I must meet this demand, why would I not try to do it most efficiently? I have an existing supply chain network with sunk costs and want to optimize my ongoing costs. This, in different words, is a search for the best way to do the things we have already decided to do.

The search for effective on the other hand is focused on the right things to do. Is this the right thing to do given my business strategy? Are these the right products to make? Are these the right customers to work with?

This leads to interesting questions: What is my business strategy? Is it to be the least cost provider of the commonly used materials or commodities? Or is it to be innovative and bring out cutting-edge products that solve new problems? Or is my business strategy to be closely aligned with my customers’ needs and jump through whatever hoops I need to meet their needs? Or something else entirely?

Once one is clear on the business strategy and goals, one needs to make sure the business activities are aligned with this strategy. Now, something like this will not happen without active effort. As part of the planning process, companies must spend at least some time every cycle to ensure alignment with this strategy. If not, the day-to-day pressures will take over and auto-pilot will or could do the course corrections that would significantly deviate from the strategy.

Of course, like anything else in business, it might be near impossible to ignore efficiency. So, a balance will need to be struck between these two ideas.

About the Author: Sujit Singh

As COO of Arkieva, Sujit manages the day-to-day operations at Arkieva such as software implementations and customer relationships. He is a recognized subject matter expert in forecasting, S&OP and inventory optimization. Sujit received a Bachelor of Technology degree in Civil Engineering from the Indian Institute of Technology, Kanpur and an M.S. in Transportation Engineering from the University of Massachusetts. Throughout the day don’t be surprised if you find him practicing his cricket technique before a meeting.