Surge and uncertainty--the real supply-chain test

By William C Copacino -- Logistics Management, 6/1/1998

Many companies have focused on enhancing their supply-chain performance through "operations excellence." They have been able to achieve efficient and effective manufacturing by employing a number of operational strategies, including cellular operations; quick set-up/changeover and Just-in-Time (JIT) principles; efficient distribution operations that are thoughtfully designed and effectively managed; effective buying, scheduling, and management of transportation; and developing the best processes and technologies for demand planning and inventory management. Operations excellence embraces considerations that are necessary--but are not sufficient--for achieving superior supply-chain performance.

Although operations excellence is important, the real determinant of supply-chain performance is how companies manage "surge and uncertainty"--that is, how they respond to any unplanned rise and fall in demand. These situations generally arise from circumstances outside of the supply-chain organization. Resolving them, therefore, requires collaboration across the full management team.

The most splendidly designed and managed supply chain will perform poorly if surge and uncertainty are not managed. That is because surge and uncertainty create unnecessary (and costly) capacity requirements, unnecessary inventory, and unnecessarily complex and therefore inefficient operations.

Some causes of unnecessary surge and uncertainty include:

* Quarter-end, month-end, and year-end loading, which cause capacity constraints and "peak" management issues at every point in the supply chain;

* Poorly planned trade promotions;

* Poorly planned new-product introductions;

* Long planning or processing-cycle times;

* Limited visibility into channel usage and

inventory levels;

* Poorly designed forecasting and demand-

planning processes; and

* Poor cross-functional communication and collaboration.

These issues generally are beyond the control of logistics and supply-chain managers. To achieve superior supply-chain performance, therefore, companies must establish cross-functional management processes that allow their managers to address these broad-based issues. Otherwise, their investments in building superior supply-chain capabilities will not be fully exploited.

William C. Copacino is managing partner of Andersen Consulting's Strategic Services Practice for the Americas. A frequent speaker before business and professional groups, Mr. Copacino has a number of publications to his credit, including the book Supply Chain Management: The Basics and Beyond (The St. Lucie Press, 1997). He is based in Andersen Consulting's Boston office, 100 William St., Wellesley, MA 02181. Phone (617) 454-4480.