A manager once told me that if you add up all the supply chain cost savings projected by various supply chain improvement initiatives over the years, you would have enough money to buy the company five times over. No wonder management is skeptical of benefits offered by improved supply chain planning. Every project offers an improvement, but many times the projected improvements never materialize. One of the key reasons is that folks don’t often realize that improvements in software and processes offer the opportunity for savings.
Projected supply chain improvement opportunities don’t automatically translate into savings. It requires effort and works to change business processes and practices to exploit the opportunities.
I’m reminded of a vehicle rental company that had the practice of changing oil and filter every two months on its vehicles. On the average, this was every 3000 miles. The purchasing department evaluated a proposal from the supplier of the oil which offered to replace the regular oil product with synthetic oil which had approximately four times the life of the regular oil, at twice the cost of the regular oil. The savings were substantial because the time between oil changes could now be extended to six months and more. The purchasing department approved the change, and in fact, the department head got a nice token of appreciation at the end of the year.
A year later, the folks in purchasing who had instigated the change to synthetic oil had moved on. A bright guy in fleet maintenance noticed that oil was being changed every two months and the company was using synthetic oil. In his opinion, there was no reason to use synthetic oil, and he directed that future purchases should be for the regular generic product. He claimed substantial savings for this change and got a nice reward from the company. Meaning, even though purchasing had made the change to synthetic oil in hopes of extending the maintenance schedule to 6-months, this was not the reality because maintenance was operating with the same 2-month oil and filter change schedule that existed previously.
The result: the company had somehow counted savings twice without changing anything. Operating in disconnected silos is much more common than you might think.
Finding the missing link between actual and projected supply chain improvement initiatives
First, the supply chain is not a series of disconnected improvements but must be looked at as a whole. Second, improvements don’t happen by themselves. The conversion to synthetic oil provided an opportunity to extend the time between oil changes. But to exploit the opportunity, procedures needed to be changed at the maintenance facility. Similarly, simply calculating lower values for safety stocks does nothing by itself. You need to put in the operational procedures to sell off excess or obsolete stock if you are going to exploit the lower values.
Supply Chain Planning software is simply an enabler. It provides the opportunity for companies to operate rationally and collaboratively. The software can provide a platform for consistent data and an environment for reconciling competing objectives. It cannot by itself generate savings. Many companies continue to implement software expecting a return on their investment without having in place any plan to take advantage of the opportunities provided by the software.
This is, unfortunately, a waste of money and time.