Design For the Future (DFF) in Supply Chain

Overview

The majority of organizations have continuous improvement programs (KAIZEN) in their supply chains. The majority of these improvement projects are focused mainly on improving the efficiency of the supply chain. As a result, driving transformational change is always the biggest missing link in the supply chain.

?Most organizations take their existing network as the foundation and then try to drive value from it. Many times, the core supply chain doesn't get changed, but we try to refine it a bit to drive value out of it. On the other hand, transformational changes produce dramatic results in a supply chain that result in really higher ROIs. Nevertheless, transformational changes are only possible if we question the current base supply chain network itself.

?The great news is that, following the COVID wave in 2019, most of these organizations made the decision to move in the direction of challenging their base network itself. There is a proven framework for leading a design for the future program in the supply chain.

?Therefore, the purpose of this article is to share a proven framework for driving design for the future in supply chains.

This framework consists of 4 Stages

STAGE 1: As is State or the Current State Mapping

As part of stage 1, we map out the as is state or the current state. In other words, we map out the entire existing supply chain, from the very beginning to the end, depending on the type of supply chain. So if it is a manufacturing organization, we start from the sourcing to the conversion of raw material to finished goods and then warehousing and distribution of the product to the customer. Although there are so many tools available today for documenting the current supply chain, the value stream map has always been the top pick.

?With a value stream map, you can document the following,

●??????current supply chain,

●??????the flow of products,

●??????the flow of information,

●??????the different technologies and systems involved,

●??????the different decisions we make, and

●??????even the current performance data

Out of all the four phases, this phase of documenting the current supply chain is the most crucial one. Further, if this exercise has to be financially focused, you can also complete a unit economics map as part of the value stream mapping itself, wherein we talk about the unit cost spent at each stage of the supply chain we map.

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STAGE 2: Analyzing the Current Value Stream or Supply Chain

Basically, phase two consists of analyzing the current value stream or supply chain once phase one is completed. I recommend the three-prong analysis:

?A. Dipstick Analysis

?First, we will perform a dipstick analysis where-in we will not go deep into all aspects of the supply chain but we will conduct a dipstick analysis of every node or function within the supply chain and evaluate its performance. The dipstick study is entirely focused on evaluating your current state. Thus, it could result in areas that are the key bottlenecks within the supply chain.

B. Benchmarking

Benchmarking is the second analysis that is suggested to be conducted, which is a very effective exercise if done correctly. Therefore, you may decide on a mix of primary and secondary research on the industry and find out how your competitors are doing, and how you compare with them. But before you do that, you must devise a list of key performance indicators that reflect the health of your supply chain. You would then find the benchmarks for the sector, evaluate your organization against the benchmarks, and will be able to decide where the organization stands today and what the road map looks like moving forward.

?C. Gap Analysis and Stress Analysis

?Among the favorites is the gap analysis or stress analysis. I prefer to call this a stress analysis. The reason is, at this stage, we are not going to arrive at the current gaps but we focus on what could potentially become a bottleneck. And to arrive at this, we simulate the supply chain using multiple constraints and then find out areas that could become a bottleneck in the future. If a choice is to make between the dipstick benchmarking and stress analysis, the stress analysis exercise is very proactive because it is going to prepare your supply chain for some issues which could come in the future as a bottleneck. And then you are going to mitigate it right now itself and this would yield the organization a competitive edge. In most cases, to do proper stress testing a simulation model of the current state is built and multiple scenarios are run on that. We have used ground up excel or SQL models or even used Python?Tableau for simulating this.

Once done with all this analysis, you will end up with a list of opportunities. Prioritization techniques should be used to decide on the focus areas / final solutions. Thus, it is recommended to do a quick ROI analysis and then use that to prioritize it.

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STAGE 3: Simulation and Modelling Phase

Now the third phase is the simulation and modelling phase, and this is the actual design for the future. What is done in this particular phase is that for each of the opportunities we have prioritized, we are going to consider and come up with multiple ways we can solve or fix that issue thereby reaping the value prop out of that opportunity. Thus, here we are going to use design thinking tools to come up with the best way forward. And specifically, you should develop your simulation model wherein you can run multiple futuristic scenarios to decide which solution would yield you the best return on investment. This model would be completely different from the earlier stress testing model since the goal of both of the models are unique.

Earlier during the analysis phase, we had conducted the ROI. Here as part of the design for the future phase as well we do a very extensive ROI estimation. It is because in the supply chain there is no single defined way of solving a problem- it is always multiple ways of solving a problem. And in most cases, it is an optimized solution rather than a best solution. Thus, it is very essential to conduct an extensive ROI analysis and for that, the simulation and modelling tools are very crucial.

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STAGE 4: Implementation

Once done with all these above phases, the last phase is implementation. It is very essential that this realization phase is handled well as it is going to be a huge change in the organization. Change management thus has to be followed right from phase one throughout this transformation. And as part of the implementation phase, the first and foremost thing you should come up with are:

●??????the stages of implementation

●??????pick up all the low-hanging fruits (Quick wins)

Gradually you go for the next set of improvements which could be short-term and then can go for the long term. And in this way, you can drive your implementation effectively. We should also do a proof of concept and do it on a very smaller scale. Start by evaluating whether your solutions are going to get you the intended results and then you can go for a full-fledged implementation in your organization.

So these are the four different stages and part of the transformational framework for the design for the future in the supply chain.

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Benefits

The benefits that you get from the transformation are high. I have used two real life case studies to share them as success stories:

Case 1:

In one such global project, this organization has a presence in more than 30+ countries and has hundreds of stocking points as part of the network that distributes multiple Electronic products to the end customers. While we drive this exercise, in the analysis phase we have identified almost 30% of the total stocking points were not actually adding any value to the supply chain or the customer experience. The amount of negative impact it had on the P&L is high. But then it is a great opportunity as well, and we picked that as a business case and we have solved it during the design for the future. The realized value prop is in millions of US Dollars.

Case 2:

In another organization based out of India that supplies household products to close to 20+ states in India, During the transformational framework we identified following opportunities:

●??????Firstly, they were holding more than 40 percent of excess stock than the optimum inventory levels to provide the same service level to the customer.

●??????Secondly, we identified a huge negative impact in terms of service levels to the customers because the expectation of the customers is not even captured well as part of the supply chain.

So, once the opportunities were identified,?the fixes were pretty straightforward- within one quarter we were able to put across the recommended storage quantities for every node within the supply chain leading to a huge benefit in terms of the carrying cost in the overall supply chain. Simultaneously, the survey was rolled out to the customers to understand and capture the voice of the customers in a better way. And that voice of the customers was integrated into the futuristic supply chain visualized during the design for the future phase.

Concluding Note:

Though I called this as a Design for Future in the Supply Chain framework, by the techniques we have used we can also call this a network modelling exercise in the supply chain.

“It is strongly recommended that this is the right time that each organization should evaluate its core network itself.”