"Reform" and "Persistence" of Supply Chain Management

If there is one most appropriate word for the development of global supply chain management, it is definitely "revolution"! Especially after the financial crisis in 2008, the global economic environment has become complicated and confusing. In addition, driven by new technologies such as the Internet, Internet of Things, and mobile terminals, new business models emerge one after another, and the market structure is changing rapidly. The once mighty super enterprises have gone down the altar overnight, many of which are familiar names like Eastman Kodak, Nokia, and Blackberry. The reason is that they lack the courage to "change", follow the old ways, and rest on their laurels.

"Change" is a strategic issue for enterprises first and foremost. Change or change, in a complex market environment, the top management must first make choices for the enterprise. However, more often, change is not just a strategic issue, it is more dependent on whether the internal DNA of the enterprise can support the so-called "strategic change". The formation of such internal genes often requires "persistence" and "hard work". This is particularly evident in the supply chain.

We may have heard the story: Apple's use of multi-touch technology on its first-generation iPhone set off a revolution in the mobile phone industry, and it was this revolution that made Apple what it is today of brilliance. But who ever knew that the iPhone touch screen supplier TPK (Taiwan Chenhong Technology), its founder Jiang Chaorui first found Nokia with this technology in his arms, but was rejected by the world's leading mobile phone company at that time outside the door. In sharp contrast, when Jiang Chaorui timidly gave a demonstration to Apple with the transparent colored cellophane used by elementary school students, the latter, who was a computer company, immediately asked him to fly to the United States the next day to discuss cooperation matters.

There is a professional term in supplier management called ESI (Early Supplier Involvement) - early supplier involvement. It refers to the early involvement of suppliers in product development, joint product development with enterprises, and providing advice to the design team in terms of technology, production, quality, price, logistics and even after-sales service.

The highest state of "early supplier intervention" is to encourage suppliers to provide enterprises with new technologies and concepts, so that enterprises can capture even the slightest innovation spark that may set off industry changes. Undoubtedly, both Apple and Nokia have shouted the slogan of "strategic change" more than once in response to today's rapidly changing market landscape; even their supplier management level is exemplary in the industry, and they are both familiar with and ESI's technology is used in operations. However, the difference in the use of ESI technology alone is enough to determine the very different fortunes of the two companies.

The competition of enterprises is inseparable from the competition of the supply chain, and the competition of the supply chain depends on the pros and cons of each gene segment that composes its supply chain DNA. Just as cancer can be prevented by detecting whether there are mutations in its DNA sequence, every weak link in a company's supply chain management capability is likely to cause irreparable losses to the company. At first glance, this can easily make us nervous. Because even the best companies can't be without weaknesses or problems, and they can't be all-encompassing.

That's true, but we need to know first: Who are the business's competitors? Because in the competition, the enterprise only needs to do better than the competitors; even, the enterprise does not need to be better than the competitors in every item, it only needs to win in the most critical items! The former is like two people encountering a wolf in the forest, I can survive as long as I run faster than the other person; the latter is like Tian Ji in a horse race, we have to learn to choose, in management, it is called concentration.

However, we all know that even a company that is ahead of the competition is more likely to collapse due to a small problem or incident. So we also need to know when testing the DNA sequence of the supply chain: Do I have an Achilles heel? A classic case in supply chain management is the decisive fire in the battle between Ericsson and Nokia.

In March 2001, the Philips chip factory caught fire, and its two customers, Ericsson and Nokia, took completely different ways of handling the crisis in the face of the fire, which made Ericsson lose to Nokia. It can be seen that, in the "reform" environment, in order to compete in the supply chain, enterprises must first learn to focus and gain advantages in key capabilities, rather than covering everything; Fatal tiny loopholes to avoid random collapse of enterprises due to "unexpected events". It can be said that no matter whether the supply chain is "reformed" or not, supply chain management should also "stick to the same" in terms of basic principles and methods.

Focus on achieving excellence in supply chain

The internationally renowned research organization Gartner releases a ranking of the best companies in global supply chain management every year, which is by far the most respected and authoritative in the industry. rankings. In this ranking, there are three indicators that are hard to beat. Three-Year Weighted ROA, Inventory Turns, Three-Year Weighted Revenue Growth. The sum of these three indicators accounts for 50% of the total score weight, which shows its importance!

There are thousands of indicators in supply chain management, why only choose these three to evaluate the company's supply chain operation level? The reason is very simple, let's make a simple analogy. If the supply chain is compared to the human body, in order to achieve good health, we Chinese often say that we must "eat well, digest quickly, and transform well (transform into the energy needed by the human body)". A high revenue growth rate means we are "eating well", a high inventory turnover means we are "digesting fast", and a high return on assets means we are "converting well". Just as everyone pursues good health, the ultimate goal of the enterprise supply chain is to pursue the healthy operation and development of the enterprise. From this point of view, no matter what business, the ultimate goal is the same. All changes are inseparable, and you need to stay focused!

Of course, focus is not only on the surface of numbers, how to maintain focus in the process can better reflect the operation level of the supply chain. Let's compare Amazon and Walmart, both of which are on Gartner's 2013 Global Supply Chain Top 15 list and are direct competitors in the retail market. However, their respective areas of focus are quite different. One is the traditional offline retail overlord, while the other is the world's best-known online retail giant. On the same demand curve (see Figure 1), Walmart focuses on "popular products" at the top of the curve, while Amazon's success comes more from its extraordinary ability to cover "long-tail niches." This is further reflected in their respective supply chain operation priorities. Walmart advocates "everyday parity" and achieves cost leadership through its excellent supplier management and efficient operations; while Amazon advocates "convenience for shopping" , by providing a wide range of products, as well as convenient and reliable logistics and distribution, it has an advantage in customer experience. And that explains why when we shop, the prices we get through Amazon.com may not necessarily be the best.

Gartner lists what it calls the "Supply Chain Operational Excellence Metrics" (see Figure 2) through its research on the best companies in supply chain management. This pyramid-shaped indicator system covers all the most critical indicators in the supply chain except "innovation capability".

However, after careful study, we will find that many indicators are actually mutually restrictive or even contradictory. such as cost and responsiveness. No business can stay ahead in cost and in responsiveness at the same time. Because improving responsiveness often means that companies need to maintain a certain amount of safety stock, reduce the uncertainty caused by outsourcing, increase vertical integration and asset investment in the supply chain, and use more pull-type supply chains to pursue speed for supply. The primary goal of chain operations is to ensure that customers can respond quickly when their needs change. These practices often run counter to the goal of cost leadership.

Professor David Simchi-Levi of the Massachusetts Institute of Technology, once expressed the relationship between cost and response in a coordinate graph (see Figure 3). This curve represents the so-called "efficiency frontier". At the same efficiency, going up the curve means having to increase costs in order to improve responsiveness; on the contrary, going down means having to reduce the ability to respond to customers in order to reduce costs. Only when the enterprise moves from A to B, or from A to C (note that it is a translation), can the overall efficiency of the enterprise be improved. Such improvements are often driven by the adoption of new technologies or new operating models, such as lean manufacturing, Six Sigma, synchronous manufacturing, automated warehousing systems, more advanced ERP systems, and more. Moreover, companies cannot expect to significantly improve two mutually-restricting indicators in the process.

In the same way, enterprises can find their corresponding "efficiency frontier" in the mutually restrictive or contradictory indicators such as "quality and cost", "inventory and service level", "outsourcing and self-production". "Efficiency Boundary" represents the current level of supply chain management of an enterprise, and promoting the translation of "Efficiency Boundary" is the source of power to promote supply chain reform! This requires companies to focus more on a certain aspect of the indicators, make choices and insist.

Risk management escorts supply chain "change"

Let's look at the risk management of supply chain. For supply chain executives, the world seems to have been inexorable. Not to mention the recent challenges such as the volcanic eruption in Iceland in 2010, the challenge to Eurasian transportation, the impact of the floods in Thailand and the tsunami in Japan in 2011 on global supply chains, and the impact of bird flu in food in 2013

Industry upheaval. Natural disasters are avoided, but there are also many "man-made disasters". Rising raw material prices, rising labor costs, and exchange rate fluctuations put pressure on enterprises; industrial transfer and supplier resource transfer have increased the difficulty of supply chain management; and customer tastes have become more and more elusive, and the niche market With the booming rise of multi-variety and small batches, it has gradually become the mainstream, which makes many enterprises love and hate.

Aside from the above problems, the more direct risk comes from the company's grasp of its own operating capabilities. The inventory problem of Chinese garment enterprises that has continued since 2012 is ultimately due to the unclear definition of supply chain management goals by enterprises, and repeated tossing about "determining production based on sales" or "determining sales based on production". The most ironic thing is that before this, many domestic garment enterprises learned ZARA's "fast fashion supply chain model". But that didn't change the ensuing collective burst of inventory problems.

Interestingly, when clothing companies regard ZARA as a learning model, they ignore other learning objects that may be more suitable and more suitable, such as GAP. In stark contrast to ZARA's unique supply chain management model, GAP's model is much more traditional. It outsources more, opening up the market as a "cost + fashion" combination. And this model may be more suitable for the status quo of Chinese garment enterprises. The market is cruel. Before the crisis, the company is waiting to die, but it may be courting death if it changes! Is it a drastic change, such as learning ZARA; or a gradual change, such as learning GAP. The timing and direction of change are particularly important. More importantly, in the process of change, there must be sufficient risk prediction and control.

The supply chain is a complex system, and its risk control has always been a hot topic in the industry. Professor Ma Shihua, a well-known domestic supply chain management expert, divides supply chain risks into endogenous risks and exogenous risks (see Figure 4).

Professor Ma believes that endogenous risk arises from moral hazard, information distortion and individual rationality; while exogenous risk mainly comes from politics, economy, law, technology and natural disasters. We can classify and analyze the various potential risks faced by the enterprise supply chain, and then use quantitative analysis to estimate and measure the possibility of specific risks and the scope and extent of losses. According to the risk management objectives, select appropriate risk management tools, establish a risk early warning mechanism, and reduce risks by optimizing combinations, avoidance, transfer and other methods.

In fact, with the highly developed information technology today, there are many advanced software and systems available for supply chain risk management. For example, using the all-weather disaster warning system designed by Google Maps, we can make rapid deployment in the face of natural disasters; SAP's adaptive network plan can define and monitor various supply chain emergencies in real time. and response.

In addition, supply chain risks can also be resolved by the collective strength of partners in the supply chain, which is especially common in Japanese companies. Toyota has a supplier called "Aisin Seiki", and 98% of Toyota's brake flow valves are purchased from this supplier. The price of this kind of valve is usually very cheap, equivalent to about 50 yuan / piece. However, an unexpected fire on February 1, 1997 forced the supplier to stop production. Although the production shutdown is expected to be only two weeks, it is a disaster for Toyota's factory that implements the JIT production method and produces about 15,000 cars per day.

However, a miracle happened at this time. Under the call of Toyota, more than 200 Toyota suppliers even coordinated and cooperated closely with each other, and it took less than a week to help Toyota manufacture a qualified and sufficient brake flow valve. Interestingly, these 200+ suppliers did not produce such parts at all before. Obviously, the establishment of this kind of partnership also requires long-term "persistence" and "trust". If Toyota, as the "chain master" of the supply chain, is constantly clamoring for price cuts and changing suppliers, it is impossible for this to happen at a critical time. miracle happened.

In order to strengthen the risk control of the supply chain, some enterprises have set up a supply chain risk control department. This may be a way to reduce risk, but the risk control of the supply chain should be an embedded system. It is embedded in every supply chain process, every supply chain related department, and even every person involved in supply chain management operations. With these developed foundations, there are already many advanced software and systems available for supply chain risk management. For example, using the all-weather disaster warning system designed by Google Maps, we can make rapid deployment in the face of natural disasters; SAP's adaptive network plan can define and monitor various supply chain emergencies in real time. and response.

In addition, supply chain risks can also be resolved by the collective strength of partners in the supply chain, which is especially common in Japanese companies. Toyota has a supplier called "Aisin Seiki", and 98% of Toyota's brake flow valves are purchased from this supplier. The price of this kind of valve is usually very cheap, equivalent to about 50 yuan / piece. However, an unexpected fire on February 1, 1997 forced the supplier to stop production. Although the production shutdown is expected to be only two weeks, it is a disaster for Toyota's factory that implements the JIT production method and produces about 15,000 cars per day.

However, a miracle happened at this time. Under the call of Toyota, more than 200 Toyota suppliers even coordinated and cooperated closely with each other, and it took less than a week to help Toyota manufacture a qualified and sufficient brake flow valve. Interestingly, these 200+ suppliers did not produce such parts at all before. Obviously, the establishment of this kind of partnership also requires long-term "persistence" and "trust". If Toyota, as the "chain master" of the supply chain, is constantly clamoring for price cuts and changing suppliers, it is impossible for this to happen at a critical time. miracle happened.

In order to strengthen the risk control of the supply chain, some enterprises have set up a supply chain risk control department. This may be a way to reduce risk, but the risk control of the supply chain should be an embedded system. It is embedded in every supply chain process, every supply chain related department, and even every person involved in supply chain management operations. The pros and cons of these gene fragments determine the pros and cons of the entire system of supply chain risk control. It is not enough to rely solely on the push of external forces to control risk. Similarly, in terms of process control, personnel education, etc., enterprises need to invest and stick to it for a long time!

The complexity of the business environment businesses face today is unprecedented. Shorter product life cycles, frequent corporate mergers and reorganizations, frequent changes in partners, changes in business processes, and high configuration of products and services have transformed the enterprise-centric enterprise value chain in the past to today's customer-centric business value chain. The value chain is transformed, and companies move from organizations emphasizing internal processes to ecosystems emphasizing dynamic alliances. In this ecosystem, complex network relationships have been formed between enterprises, and the point-to-point interaction method that was strictly required to follow standard processes in the past has gradually been replaced by a more user-friendly and flexible three-dimensional interaction method. Like social networks, enterprises are constantly facing "change and change" in such dynamic network alliances. "Division and reorganization" are happening at the moment, and "risks and opportunities" go hand in hand.

Excellent enterprises, because of their long-term persistence and persistence, have formed a strong ability and vitality in the supply chain. In the face of "changes and changes", they will not panic, and will gradually advance steadily and steadily. On the contrary, companies that are led by the external environment, resist change or conduct disruptive and disorderly changes often lose the good genes that should have been retained, and the ones that should have been abandoned. But it stayed, and in the end, the company will self-destruct due to "too much tossing". Change is hard, persistence is even harder! Supply chain management is not a gimmick, it is worthy of continuous efforts by enterprises, it is worthy of continuous practice by enterprises, and it is worthy of continuous "change and persistence" of enterprises!