Recently, when discussing the importance of the supply chain to its eCommerce business to a startup I was advising, I struggled. I finally came up with a way to communicate this in as clear and easily digestible a manner as possible — LEGOs™. Playing with LEGOs™ was a critical moment for many of us in our childhood, which for many of us was a sign of our advancement as we put our developing minds to work to build anything we imagined.
Now granted, LEGOs™ have greatly matured since my childhood (sigh… there I go reminiscing of my youth and a “simpler time”) with preconfigured kits (e.g. Star Wars sets), but back in my day (in my mature voice as I drink my Ovaltine), you were given a pile of LEGOs™, left alone, and just started building whatever came to mind.
Foundational to the construction of every one of our “creations” was the Green LEGO™ board (GLB). The GLB was the starting point for all of our projects, a canvas, if you will, allowing us to place our individual pieces in various patterns, both vertically and horizontally, and connect with other objects on our GLB. And, if you didn’t like your creation, you could always hit “Restart” and just wipe away your LEGO™ creation and start anew.
The analogy of the GLB rings true as we think about what contributes to a sound eCommerce solution. The supply chain serves as the basis upon which a successful eCommerce solution is built and thrives. The GLB (“supply chain”) provides a structured canvas that allows one to establish, lock in, and connect all the fundamental pieces (components) of an eCommerce solution. Like your LEGOs™ on the GLB, the key components of an eCommerce solution are 100% inter-connected with all the supply chain components involved.
As a former supply chain consultant and executive at a startup focused on supply chain solutions, I have spent a considerable amount of time educating companies on supply chain concepts and the value-add to a business. Most recently, I have attempted to explain the importance of the supply chain to traditional brick-and-mortar retailers seeking to replicate Amazon’s eCommerce success. I have cited that foundational to Amazon’s platform is that early on, Jeff Bezos and team made constructing, enhancing, and bolstering their eCommerce supply chain a critical focal point. The result of this laser focus has greatly contributed to Amazon’s success enabling it to now hone in on execution and growth.
Amazon’s supply chain isn’t perfect, but it is stable, reliable, and consistent…which sadly explains the volume of boxes arriving daily at my household. In this article, I want to convey how important it is for you to build out your own GLB, aka, an efficient supply chain.
Your Organization’s GLB (“Supply Chain”)
Your organization’s GLB provides an entire system of processes and resources involved in sourcing and turning raw and/or work-in-process materials into final products/services and delivering them to your end user (aka “customer”). The supply chain involves the design, planning, execution, control, and monitoring of activities. The objective is to create net value, building a competitive infrastructure, leveraging worldwide logistics, while optimizing performance globally.
Supply chain management (SCM) is the management of the processes that control the flow of goods and services within an organization. SCM includes all processes and resources that turn materials into final products/services. To be most effective and optimal, a supply chain synchronizes supply with demand/consumption.
The core components of a supply chain include — Planning, Buying (Procurement), Making (Design, Development, Production/Manufacturing), Moving (Transportation, Distribution), Selling (including Marketing, Finance, and Customer Service), and Managing the Return of Goods. The primary entities involved in the supply chain include:
- Transportation companies
- Distribution centers; and
Driving Supply Chain Efficiencies
Companies drive supply chain efficiencies so they can reduce their costs and remain competitive in their business landscape. An optimized supply chain can lower a company’s overall costs and boost profitability. If one link (in the supply chain) breaks down, it can affect the rest of the supply chain and can be costly. By cutting back on delays and cost overages, successful supply chains also help boost customer service and lower the final cost to the consumer.
A connected supply chain can be a critical asset to your organization’s success by effectively minimizing data and information leakage between components thereby minimizing delays and costs.
I define a connected supply chain by
- Clearly defined activities;
- Robust data (inputs and outputs, format, compliance agreements); and
- Clearly defined ownership (single entity).
An analogous relationship is a sports team whereby everyone knows their place/position on the field, expectations of their role/position, owns that role, trusts in the performance of fellow teammates, and they execute at the highest level. For reference, see the 1998 New York Yankees or the 1996 Dream Team.
How to Get Started
To get started in constructing your supply chain, I recommend taking the following key steps:
- Define your processes: Using a process flow tool/format (e.g. Visio or PowerPoint), list all of the key activities in order of their occurrence detailing data inputs/outputs, time constraints, costs, and any other critical information. Please also look online for available templates with many already having predefined process flows and associated metadata patterns.
- Determine what’s key/critical to your supply chain: As you review your list of processes, determine which processes are critical (e.g. can not fail) to execute your supply chain properly. Critical to this steps involves defining key performance indicators and thresholds for individual steps within your process
- Define Ownership: Determine who should be the primary owner of the process; this is the person who is ultimately accountable and/or impacted by the successful completion of the process including any related outputs.
- Define Success: Detail the key factors, quantitative and qualitative, along with any other indicators that denote the successful completion of your process. These factors will enable you to hone what to optimize in your supply chain.
- Review: Review your supply chain with all assigned owners and key stakeholders capturing and addressing their feedback.Your objective is not consensus but rather to ensure you capture all critical process areas and associated data requirements noting any gaps and/or problematic areas.
- Eliminate waste: As you review your defined process, determine which steps or activities are redundant or unnecessary that can be eliminated to optimize the completion of the activity and streamline the delivery of expected outputs. This will enable to define a lean, optimized supply chain with minimal waste.
Additionally, I strongly recommend assigning a program owner to own this entire process interfacing with process owners and key stakeholders while ensuring that all steps are owned, executed, and completed.
Process design focuses on identifying the critical components involved in your supply chain that you believe will have the greatest impact on your success delivering your product to your customer. Again, our focus should be on the primary goal…optimally (e.g. cost, time, or some other criteria) delivering the product/service to your customer. Make the main thing the main thing. Factors such as logistics and distribution costs, inventory investment, product availability, customs duties, serviceability, and flexibility in dealing with unexpected changes, are important considerations which can be affected by the design of the product or its manufacturing process.
Echoing Peter Drucker, “You can’t manage and do things right in your business if you’re not measuring it.” Establishing and employing metrics and thresholds to measure the performance of key activities within your supply chain will be critical to an organization’s success requirements enabling you to define the requirements for an activity’s successful and complete execution.
Metrics/key performance indicators can be captured via scorecards (think “report card” for your organization). Scorecards enable organizations to evaluate performance and further enable organizations to monitor progress in achieving a stated goal while helping to identify areas for improvement.
To establish an effective set of metrics/key performance indicators (KPIs) within the scorecard, organizations should set SMART goals. SMART stands for:
S — Specific
M — Measurable
A — Attainable
R — Relevant
T — Timely
Along with assigning ownership, ensure that you define SMART KPIs for each critical activity within your Supply Chain’s critical processes. KPIs should align with prespecified service level agreements (SLAs). In addition to identifying your typical throughput, this will further enable you to identify problematic, wasteful areas within your supply chain that are impacting your supply chain.
Launch your supply chain, test throughput, and monitor process execution capturing performance and identifying and prioritizing areas that can be further improved. Also, allow activity/process owners the ability to refine their process ensuring that they understand that they will still be held accountable for their assigned SLA performance.
As you evaluate your supply chain’s performance, identify, and address 1 or 2 critical “waste” areas impacting your supply chain’s performance that you believe will have the biggest impact.
To get started:
- Identify the critical activities/processes in your supply chain.
- Establish and agree on the ranking system you will use to prioritize how you will address issues (e.g. cost impact, time delay, customer satisfaction, etc.)
- Survey team members and stakeholders and identify those critical issues in your area of the supply chain employing Pareto Analysis commonly known as the “80/20” rule — you will often find that 80% of your issues/costs are attributed to just 20% of your solution.
- Rank problematic issues in accordance to the parameters of your ranking system.
- Identify the 1 or 2 items that by addressing them will have the biggest immediate impact on your supply chain (e.g. lowered costs, improved efficiencies, increased customer satisfaction).
- Focus on these items and once they are in a reasonable state, move on to the next list of items. I highlight this because oftentimes during this exercise, organizations try to tackle EVERYTHING and despite the great launch nothing really progresses. Again, It should be noted that this list is dynamic and the priority ranking of critical areas will often change.
As you progress and advance also look to evaluate and refine your approach evaluating your area of the supply chain as you best see fit.
The Green LEGO™ board has always been a critical component and foundation to everyone’s Lego project. The GLB provided a solid base for all creative projects, enabling users to build, connect, and add on other items to a LEGO™ project. And, enabled you to restart a project at any time.
The analogy of the GLB rings true as we think about what contributes to a sound eCommerce solution, a robust supply chain. Looking at Amazon’s eCommerce platform as an example, a sound supply chain can serve as the basis upon which a successful eCommerce solution is built and thrives.
While I am in no means recommending that you build your GLB all at once, as you think about building and optimizing your organization’s eCommerce solution (beyond your website), I strongly encourage you the significance of the GLB in mind and look to build out and optimize your solution one LEGO at a time. This will enable you to differentiate your offering, streamline your services, and identify additional areas by which you can bolster your offerings and increase customer satisfaction and activity.