‘Allow 28 days for delivery’ is one of those phrases which, like ‘the cheque’s in the post’, has become something of a business cliche. But despite IT, despite business re-engineering and despite all the theories of management gurus, it’s surprising just how often the words still appear on order forms.
Supply chains are still not that good at reducing the order to delivery cycle – of killing time. The internet was supposed to usher in an era of high-speed, responsive supply chains. Business was going to be conducted at the ‘speed of thought’ as Microsoft’s Bill Gates memorably put it in the title of his book.
Gates saw companies adopting 12 steps to create a ‘digital nervous system’ that would speed up a company’s response to its business environment, competitors and, critically, its customers. According to Gates’ version of the future, all internal communication would switch to e-mail (pretty much the case now), paper processes would switch to digital processes (on the way) and customers would solve problems for themselves with digital tools (forget it).
It’s all about velocity
Gates summed up the steady progression to the digital future: ‘If the 1980s were about quality and the 1990s about re-engineering, the 2000s will be about velocity.’ It is always tempting to package up history neatly into decades or centuries. But the world doesn’t actually work like that. And the fact is that quality and re-engineering should still be part of the management agenda. Even more so, if Gates’ vision of business at the speed of thought is to come anywhere near reality.
In fact, Gates is partly right in that many large companies did spend a lot of time during the nineties trying to engineer cost out of their supply chains.
But the question now is whether companies were focusing on the right target when they sought to slay the cost dragon. Possibly not if the objective is to move towards the Gates’ vision of high velocity business. For then, the key issue becomes taking time out of the supply chain.
And here we stumble across what might prove to be one of those fascinating paradoxes which could just possibly help to illuminate the path ahead. It is this: focusing on cost reduction doesn’t reduce supply chain time, but focusing on time reduction may reduce supply chain cost. Now the first thing to say is that this is not an immutable law of the universe. But there does seem to be enough anecdotal evidence at least to make it worth using as a rule of thumb. The key seems to be that focusing on time – and thus velocity – means looking more closely at the way the supply chain adds value for customers.
In a recent interesting paper on ‘highly effective supply chains’ Dr Richard Wilding, senior lecturer in logistics and supply chain management at Cranfield University School of Management, points out that velocity is distance divided by time – but that direction is critical. He argues that in a supply chain, distance ought to be defined as the ‘added value journey we take a customer on’ and he says that understanding that added-value journey is critical to supply chain success. It follows, Wilding argues, that organisations can gain advantage by taking customers on the ‘same value adding’ journey in less time or a longer journey in the same time as the competition.
So why should focusing on time reduce cost – when the reverse is not always the case? Partly because it’s a standard measure which is the same anywhere in an organisation everywhere in the world. So it’s not susceptible to arguments about conversion or apportionment – for example, the kind of inter-departmental rows you may get with costreduction techniques such as activity-based costing. Partly it’s because using time as the measure is a very good way of seeing what actually happens in the supply chain. It encourages transparency which Wilding argues is the key to winning those cost reductions as well. He gives the example of a supply chain which reduced costs by three per cent. But to do it, manufacturing had to increase its costs by 15 per cent and transport by four per cent. Time plus transparency had focused everybody on the opportunity.
The openness had removed the cause of the turf wars that start in cost-cutting battles because the end objective was clear. It comes down to trust.