Does your team create problems for suppliers?
Mycroft Assistant : When building the supply chain, it is important not only to automate the work and abstract quantitative values as such, but also to solve organizational issues and solve problems with the interaction in the company. Management must take into account and be aware of the difficulties associated with building an effective supply chain, and organize at the proper level the interaction between different departments. If this is done, then the synergistic effect obtained as a result of solving organizational issues and applying automation methods will give a much greater effect for building an efficient supply than using only one component. For our part, we can solve the issue of automation (by offering Mycroft Assistant expert inventory management system), but organizational issues should be resolved within the company by the will of the manager.
The main problems related to communication within the company in the context of building an effective supply were well described in an English-language article by the well-known consulting firm McKinsey (founded in 1926; profiled in management consulting; 17,000 employees), which we bring to your attention in Russian .
Coordinated work between departments is an important step towards building a modern supply chain.
(C) McKinsey, January 2011 | byChristoph Glatzel, Jochen Großpietsch, and Ildefonso Silva
Creating a global supply chain that will work well in our world with ever-increasing work complexity and uncertainty is a much more difficult task than new approaches to working with assets or creating long-term strategic forecasts related to risk assessment in production and supply. Organizational problems also make a significant contribution, since decisions related to the supply chain influence (and are subject to influence from the outside) both on the sales department and on the marketing, production, etc. departments.
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In any case, as a result of the work, we can only get a set of compromises. For example, should a company transfer production of goods to a factory with a low production cost in order to reduce costs, if this entails an increase in delivery times? Will the reduction of the company's product portfolio, designed to reduce production costs, affect the ability of the marketing department to reach the customer? When will the benefits of quality service cover the costs that a company will incur to provide this service?
Specialists in supply, sales and marketing often see these problems through the lens of their own problems and areas of responsibility, and this often leads to a misunderstanding between them. In this light, McKinsey's recent global management survey of companies revealed the absence in various departments of the company of the realization that each side influences the formation of the supply chain in the form in which it operates, and the absence of this awareness is the main barrier to starting a search. compromises.
Ineffective cooperation has been a sore point for a long time for good organization of supply, but despite this, the problem is not solved, and the costs associated with this problem are constantly growing. If today the company does not even have an opportunity to agree on one working supply chain, then there will be a lot of problems when the company deals with several integrated supply chains, each of which requires an individual approach. In this situation, for example, to ensure short-term and long-term goals, a “simple” decision can be made: to transfer production to a more expensive, but at the same time, closely located plant, to protect against demand volatility and reduce transportation costs.
In addressing this and more complex problems in the organization of supply, one cannot do without the participation of the top management of the company. The result is visible when managers work together to find interaction points where their joint work can best influence the result. We highlight three problems where interaction between departments can give the best effect for creating a flexible and efficient supply chain.
When organizing an effective supply, there is a constant struggle with volatile demand. Since the unexpected peak of demand leads to the unexpected costs associated with the need to ensure that demand. Also, there is a problem when poor-quality sales forecast leads to a shortage of goods in the warehouse, missed sales, or an excess of goods in the warehouse, which can only be sold at a discount. Each of the departments and sales, and supply, spend a lot of effort to predict the demand and volatility of demand, and then blame each other, if their predictions do not converge with reality.
If these departments worked together, then they would be able to discover the underlying causes of volatility and work together to influence it. Such an approach will lead to significant, and, most importantly, rapid, qualitative changes in the work of the company. The result of teamwork - in the long term, such interaction will allow you to quickly and coherently respond to unforeseen circumstances. This is the most important result, taking into account the uncertainty that will always be present in even an established supply chain. Here are a couple of examples that demonstrate the effect of collaboration.
The first is an auto parts supplier, whose sales department receives quarterly bonuses for sales. Buyers know this, and trying to win on this situation, they keep orders until the end of the quarter, knowing that they will be given big discounts in order to close quarterly sales targets. And for logisticians this is a headache, since it is necessary to ensure the entire quarterly volume almost at the same time, by the end of the quarter, which significantly loads the company's logistics capabilities and increases costs. To solve this problem, the purchasing director and the sales director worked through the issue, and they decided how to make the demand more predictable, and it was possible to distribute the demand evenly throughout the quarter. The key decision was made as follows: they cut back the opportunity to offer discounts at the end of the quarter, but instead, they gave an opportunity to give discounts for sales, loyalty and participation in marketing activities. The company has also developed a new structure for encouraging sales managers to ensure an even distribution of goods supply throughout the quarter.
The second example is a global manufacturer of manufactured goods. The company has determined that marketing campaigns among only five customers leads to a significant change in demand, which makes the main contribution to the overall volatility of the company's demand. Despite the fact that the marketing plan was designed to increase the company's profits, marketers did not take into account the impact of supply demand volatility. With the help of the opportunity to stretch the marketing campaign for several months, and with the sale of the action, taking into account the needs and possibilities of the supply chain company, the company managed to smooth out the volatility of meeting the needs by 25% percent.
But when the company released a new marketing plan, managers saw another problem: many customers, without producing effective management of their level of service, sporadically placed an order for unreasonably large volumes of goods. The company was able to work together with its customers a single efficient ordering process with the joint efforts of its supply and sales departments. As a result of teamwork, the uniformity of the ordering process and the supply of goods was ensured, from which both parties benefited.
Problems like these are typical of most supply chains. Without paying attention to these problems, companies may win in the short term, but lose in the long-term, when the joint work of departments allows building an effective and stable supply chain for goods.
The second problem, which exists for a long time, but becomes most acute when the company tries to build a flexible global supply network based on the customer service level. How fast should the delivery be? Should some customers receive goods faster than others? What should be the minimum level of commodity supply? In our experience, companies mainly rely on these issues for the sales department, who make decisions without understanding and not taking into account the problems of implementation and the costs incurred to ensure the specified indicators.
When supply and sales departments work together, then, taking into account the factors arising from accepted service level indicators, they can avoid problems that arise from wrong decisions. This stage was passed by one supplier of chemical goods, whose sales department forced the logistics department to reduce the delivery time from three days to two. This goal was achieved, but only with the help of increased storage space and the use of more manpower, while the vehicles were loaded in a less efficient way than it was before the change. All this led to an increase in logistics costs up to 5%.
This could be acceptable, under certain conditions, but upon closer inspection with the participation of the head of the logistics department and the head of the sales department, it was revealed that most customers do not object to the delivery of goods instead of two days - three, four or even five days . For customers, service was really important only in the first 24 hours. So, returning the delivery time of orders back to three days, the company returned back its level of distribution costs. At the same time, the company additionally launched a special 24-hour express delivery service with a premium rate. As a result, this did not significantly increase the company's expenses, but it gave the opportunity to expand its business.
With the increasing complexity of the supply chain and the growing range of the company, the importance of making the right decisions about the level of availability and speed of delivery of goods only grows. A company that wants to cope with this task should increase the level of interaction between the departments of supply, sales and service.
The elimination of key problems leading to the complexity of supply chains is the next positive result of the joint work of the departments. Take the difficulties stemming from the expansion of the product range. The sales and marketing department is actively working to add new products to the range, expand market niches, and meet customer expectations. In the process of this, the assortment is actively growing and many niche products appear. For example, in one manufacturer, we found that about a third of the 6400 SKU of their assortment in total gives only 1% of the total revenue.
Such problems lead to high costs, since products with a low production volume are more expensive to produce than products with a large volume (economies of scale). The same company, calculated that the cost of niche products was 129% higher than the bestsellers. Also, working with such products led to additional administrative and organizational costs. And finally, this leads to costs in the field of supply - maintaining a high level of availability of goods becomes more complex with the growth of the range. When the company calculated all the costs incurred, the result was stunning - it turned out that 25% of their product range is just “dead” money.
Seeing these numbers, the company decided to reduce the range. But you also need to understand that the thoughtless reduction of the range, based only on the volume of sales of goods is also a bad practice. Some low-speed goods must be presented in an assortment, and only the joint work of the supply and sales department will be able to competently identify positions that are reasonable to leave. This work does not exclude the need for optimization and segmentation of the supply chain, but allows you to correctly prioritize.
Top management of the company is a place where all the problems stated above should be solved. But, as practice shows, many managers do not spend too much time on supply problems. From the data we collected, it follows that not more than 26% of respondents indicated that joint work is being done within the company on issues related to supply chains. More than 38% said that the manager does not take part at all, or very rarely takes part, in solving issues related to supply.
We think this is a mistake. The manager gives a plan for his team, and in the hands of the manager, inspire and show by example the need to solve supply issues with the participation of all departments of the company. But do not limit yourself to just that. In one of the best established supply chains in the company that we have ever seen, the manager took part in supplying with missionary zeal. This manager always tried to keep abreast of supply issues in the company, visiting shops he always asked line staff about how his decisions influenced the store, including in terms of logistics. He collected feedback and discussed problems with procurement and supply departments at meetings, which inspired the managers of these departments to work independently in the field in a similar way.
In order to get a full return, the manager must start by asking himself five questions that (in our experience) will reveal problems in the interaction that prevent the supply department from reaching its full potential.
1. Are the production facilities in the right place, for today and for tomorrow's situation?
2. Does the sales department do everything possible to make the demand uniform and predictable?
3. Are customers offered the level of service they really need?
4. Does my marketing department ask me to expand my product range to many niche products, the cost of which is too high?
5. Were our procurement options taken into account when deciding on procurement?
Low levels of interaction and narrow thinking often prevent companies from getting more from their supply chains. In the future, with the increasing complexity of supply chains and instability, the solution of these eternal problems will become an urgent need out of the usual competitive advantage.
Christoph Glatzel head of the McKinsey branch in Cologne, Jochen Großpietsch head of the branch in Barcelona, and Ildefonso Silva head of the branch in São Paulo.
For our part, as a company engaged in the automation of supply, we can only confirm that indeed - not all problems lie only in the area directly related to quantitative indicators and work automation. Issues of interaction within the company are no less acute, and management should make all possible efforts to establish normal interaction within the company between departments. As a result, it will be possible to organize a high-quality and efficient supply, which will, in the end, reduce costs and improve the quality of the company.
Well, with questions related to automation, forecasting, inventory management, building plans and other related work with the supply - with this you can contact us at Mycroft. Our automated expert inventory management system Mycroft Assistant helps small and medium businesses to avoid overstocking or shortage of goods in stock, reduce costs and costs, and increase company profits. Analyzing the history of sales and current balances by divisions, Mycroft Assistant makes a forecast and gives recommendations on which goods need to be purchased, and on which trade needs delivery. It also creates a plan for sales and purchases in future periods. The system replaces manual analysis and work with Excel, which allows the company to develop and work effectively without the involvement of additional staff.
The main problems related to communication within the company in the context of building an effective supply were well described in an English-language article by the well-known consulting firm McKinsey (founded in 1926; profiled in management consulting; 17,000 employees), which we bring to your attention in Russian .
Does your team create problems for suppliers?
Coordinated work between departments is an important step towards building a modern supply chain.
(C) McKinsey, January 2011 | byChristoph Glatzel, Jochen Großpietsch, and Ildefonso Silva
Creating a global supply chain that will work well in our world with ever-increasing work complexity and uncertainty is a much more difficult task than new approaches to working with assets or creating long-term strategic forecasts related to risk assessment in production and supply. Organizational problems also make a significant contribution, since decisions related to the supply chain influence (and are subject to influence from the outside) both on the sales department and on the marketing, production, etc. departments.
')
In any case, as a result of the work, we can only get a set of compromises. For example, should a company transfer production of goods to a factory with a low production cost in order to reduce costs, if this entails an increase in delivery times? Will the reduction of the company's product portfolio, designed to reduce production costs, affect the ability of the marketing department to reach the customer? When will the benefits of quality service cover the costs that a company will incur to provide this service?
Specialists in supply, sales and marketing often see these problems through the lens of their own problems and areas of responsibility, and this often leads to a misunderstanding between them. In this light, McKinsey's recent global management survey of companies revealed the absence in various departments of the company of the realization that each side influences the formation of the supply chain in the form in which it operates, and the absence of this awareness is the main barrier to starting a search. compromises.
Ineffective cooperation has been a sore point for a long time for good organization of supply, but despite this, the problem is not solved, and the costs associated with this problem are constantly growing. If today the company does not even have an opportunity to agree on one working supply chain, then there will be a lot of problems when the company deals with several integrated supply chains, each of which requires an individual approach. In this situation, for example, to ensure short-term and long-term goals, a “simple” decision can be made: to transfer production to a more expensive, but at the same time, closely located plant, to protect against demand volatility and reduce transportation costs.
In addressing this and more complex problems in the organization of supply, one cannot do without the participation of the top management of the company. The result is visible when managers work together to find interaction points where their joint work can best influence the result. We highlight three problems where interaction between departments can give the best effect for creating a flexible and efficient supply chain.
Problem # 1: Purchasing and Sales
When organizing an effective supply, there is a constant struggle with volatile demand. Since the unexpected peak of demand leads to the unexpected costs associated with the need to ensure that demand. Also, there is a problem when poor-quality sales forecast leads to a shortage of goods in the warehouse, missed sales, or an excess of goods in the warehouse, which can only be sold at a discount. Each of the departments and sales, and supply, spend a lot of effort to predict the demand and volatility of demand, and then blame each other, if their predictions do not converge with reality.
If these departments worked together, then they would be able to discover the underlying causes of volatility and work together to influence it. Such an approach will lead to significant, and, most importantly, rapid, qualitative changes in the work of the company. The result of teamwork - in the long term, such interaction will allow you to quickly and coherently respond to unforeseen circumstances. This is the most important result, taking into account the uncertainty that will always be present in even an established supply chain. Here are a couple of examples that demonstrate the effect of collaboration.
The first is an auto parts supplier, whose sales department receives quarterly bonuses for sales. Buyers know this, and trying to win on this situation, they keep orders until the end of the quarter, knowing that they will be given big discounts in order to close quarterly sales targets. And for logisticians this is a headache, since it is necessary to ensure the entire quarterly volume almost at the same time, by the end of the quarter, which significantly loads the company's logistics capabilities and increases costs. To solve this problem, the purchasing director and the sales director worked through the issue, and they decided how to make the demand more predictable, and it was possible to distribute the demand evenly throughout the quarter. The key decision was made as follows: they cut back the opportunity to offer discounts at the end of the quarter, but instead, they gave an opportunity to give discounts for sales, loyalty and participation in marketing activities. The company has also developed a new structure for encouraging sales managers to ensure an even distribution of goods supply throughout the quarter.
The second example is a global manufacturer of manufactured goods. The company has determined that marketing campaigns among only five customers leads to a significant change in demand, which makes the main contribution to the overall volatility of the company's demand. Despite the fact that the marketing plan was designed to increase the company's profits, marketers did not take into account the impact of supply demand volatility. With the help of the opportunity to stretch the marketing campaign for several months, and with the sale of the action, taking into account the needs and possibilities of the supply chain company, the company managed to smooth out the volatility of meeting the needs by 25% percent.
But when the company released a new marketing plan, managers saw another problem: many customers, without producing effective management of their level of service, sporadically placed an order for unreasonably large volumes of goods. The company was able to work together with its customers a single efficient ordering process with the joint efforts of its supply and sales departments. As a result of teamwork, the uniformity of the ordering process and the supply of goods was ensured, from which both parties benefited.
Problems like these are typical of most supply chains. Without paying attention to these problems, companies may win in the short term, but lose in the long-term, when the joint work of departments allows building an effective and stable supply chain for goods.
Problem number 2: Supply and Service
The second problem, which exists for a long time, but becomes most acute when the company tries to build a flexible global supply network based on the customer service level. How fast should the delivery be? Should some customers receive goods faster than others? What should be the minimum level of commodity supply? In our experience, companies mainly rely on these issues for the sales department, who make decisions without understanding and not taking into account the problems of implementation and the costs incurred to ensure the specified indicators.
When supply and sales departments work together, then, taking into account the factors arising from accepted service level indicators, they can avoid problems that arise from wrong decisions. This stage was passed by one supplier of chemical goods, whose sales department forced the logistics department to reduce the delivery time from three days to two. This goal was achieved, but only with the help of increased storage space and the use of more manpower, while the vehicles were loaded in a less efficient way than it was before the change. All this led to an increase in logistics costs up to 5%.
This could be acceptable, under certain conditions, but upon closer inspection with the participation of the head of the logistics department and the head of the sales department, it was revealed that most customers do not object to the delivery of goods instead of two days - three, four or even five days . For customers, service was really important only in the first 24 hours. So, returning the delivery time of orders back to three days, the company returned back its level of distribution costs. At the same time, the company additionally launched a special 24-hour express delivery service with a premium rate. As a result, this did not significantly increase the company's expenses, but it gave the opportunity to expand its business.
With the increasing complexity of the supply chain and the growing range of the company, the importance of making the right decisions about the level of availability and speed of delivery of goods only grows. A company that wants to cope with this task should increase the level of interaction between the departments of supply, sales and service.
Problem number 3: Supply and expansion of the range
The elimination of key problems leading to the complexity of supply chains is the next positive result of the joint work of the departments. Take the difficulties stemming from the expansion of the product range. The sales and marketing department is actively working to add new products to the range, expand market niches, and meet customer expectations. In the process of this, the assortment is actively growing and many niche products appear. For example, in one manufacturer, we found that about a third of the 6400 SKU of their assortment in total gives only 1% of the total revenue.
Such problems lead to high costs, since products with a low production volume are more expensive to produce than products with a large volume (economies of scale). The same company, calculated that the cost of niche products was 129% higher than the bestsellers. Also, working with such products led to additional administrative and organizational costs. And finally, this leads to costs in the field of supply - maintaining a high level of availability of goods becomes more complex with the growth of the range. When the company calculated all the costs incurred, the result was stunning - it turned out that 25% of their product range is just “dead” money.
Seeing these numbers, the company decided to reduce the range. But you also need to understand that the thoughtless reduction of the range, based only on the volume of sales of goods is also a bad practice. Some low-speed goods must be presented in an assortment, and only the joint work of the supply and sales department will be able to competently identify positions that are reasonable to leave. This work does not exclude the need for optimization and segmentation of the supply chain, but allows you to correctly prioritize.
Drawing the line
Top management of the company is a place where all the problems stated above should be solved. But, as practice shows, many managers do not spend too much time on supply problems. From the data we collected, it follows that not more than 26% of respondents indicated that joint work is being done within the company on issues related to supply chains. More than 38% said that the manager does not take part at all, or very rarely takes part, in solving issues related to supply.
We think this is a mistake. The manager gives a plan for his team, and in the hands of the manager, inspire and show by example the need to solve supply issues with the participation of all departments of the company. But do not limit yourself to just that. In one of the best established supply chains in the company that we have ever seen, the manager took part in supplying with missionary zeal. This manager always tried to keep abreast of supply issues in the company, visiting shops he always asked line staff about how his decisions influenced the store, including in terms of logistics. He collected feedback and discussed problems with procurement and supply departments at meetings, which inspired the managers of these departments to work independently in the field in a similar way.
In order to get a full return, the manager must start by asking himself five questions that (in our experience) will reveal problems in the interaction that prevent the supply department from reaching its full potential.
1. Are the production facilities in the right place, for today and for tomorrow's situation?
2. Does the sales department do everything possible to make the demand uniform and predictable?
3. Are customers offered the level of service they really need?
4. Does my marketing department ask me to expand my product range to many niche products, the cost of which is too high?
5. Were our procurement options taken into account when deciding on procurement?
Low levels of interaction and narrow thinking often prevent companies from getting more from their supply chains. In the future, with the increasing complexity of supply chains and instability, the solution of these eternal problems will become an urgent need out of the usual competitive advantage.
The authors
Christoph Glatzel head of the McKinsey branch in Cologne, Jochen Großpietsch head of the branch in Barcelona, and Ildefonso Silva head of the branch in São Paulo.
For our part, as a company engaged in the automation of supply, we can only confirm that indeed - not all problems lie only in the area directly related to quantitative indicators and work automation. Issues of interaction within the company are no less acute, and management should make all possible efforts to establish normal interaction within the company between departments. As a result, it will be possible to organize a high-quality and efficient supply, which will, in the end, reduce costs and improve the quality of the company.
Well, with questions related to automation, forecasting, inventory management, building plans and other related work with the supply - with this you can contact us at Mycroft. Our automated expert inventory management system Mycroft Assistant helps small and medium businesses to avoid overstocking or shortage of goods in stock, reduce costs and costs, and increase company profits. Analyzing the history of sales and current balances by divisions, Mycroft Assistant makes a forecast and gives recommendations on which goods need to be purchased, and on which trade needs delivery. It also creates a plan for sales and purchases in future periods. The system replaces manual analysis and work with Excel, which allows the company to develop and work effectively without the involvement of additional staff.
Source: https://habr.com/ru/post/292904/
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