The Perfect Order Execution in an Age of Pull
The era where companies pushed products out to customers is gone. In today’s über-connected digital world, customers pull products from companies: they tell them what they want (in sometimes exasperating detail) and expect it to be delivered when and where they want it.
Welcome to the new world of supply chain.
In his keynote presentation on the final day of Nulogy xChange 2017, Dr. Karl Manrodt addressed this new world, with a focus on metrics and measurement. Manrodt is the Director of the Master of Logistics and Supply Chain Management program at Georgia College, an on-line master’s program for working professionals. He has more than 20 years of experience in logistics, transportation, and supply chain research.
“It’s interesting to think of how much our world has changed—how much logistics has changed—during the last 25 years,” says Manrodt. “It’s hard to plan for what that change will look like going forward; a lot depends on the attitude towards how we’re going to fact those changes.”
According to Manrodt, the attitude towards metrics is a big part of perfect order execution; an attitude that must be more strategic and more collaborative than it has been heretofore.
Bringing balance and precision to metrics measurement: The five “Ds”
“The most important thing is that it is not just me,” he says. “It’s not my supply chain; it’s not my supply chain with my supplier, but multiple organizations moving the goods.” Today’s supply chains are about networks and systems; different elements that are increasingly interconnected over vast distances. For that reason, supply chains are highly complex.
“In fact, they’re complicated to a point where it is an advantage if I understand how to manipulate and manage the supply chain better,” notes Manrodt. “In this case, metrics will become more critical— not just to the pointy end of the spear, but for everyone behind the spear as well.”
Manrodt focused on five essential metrics—the five “Ds”— that impact measurement within a supply chain, from a historical perspective:
Consider how difficult it was even a decade ago to get data on performance.
“I remember working on my master’s degree and going to a steel mill in 1988,” recounts Manrodt. “Does anyone remember what the computers looked like then? Raised floors, glassed in rooms, priests of the technology wearing white lab coats. Getting data was complicated and manual. That facility had 400 shipments a day and it was all done manually with paper and pencil. So think about trying to determine performance with those conditions.” Today with digitalization and global interconnectivity of the supply chain, data has become the new oil. It is a resource available in every growing abundance.
In terms of doing the work: how much time was involved in getting the data? This was another significant challenge for organizations of the past–and for even some today. Traditionally, companies had to dedicate one person to gather all their data, this was a difficult and expensive process. For many companies today, the concept of ‘who’s doing data’ doesn’t even make sense. Data is just there. It’s a part of everyday life. It is available and instantaneous, what’s required is a system able to capture, analyze, and use it.
Delay in information used to be a big problem. Information wasn’t available in real-time, so companies had to worry about how far back they could look to make a change. “If you think about driving your car and looking in the rear-view mirror, you’re not going to go very far before you hit something,” says Manrodt. In today’s environment more data is needed, with no delay in it, to understand how shifts in demand are occurring. The challenge for measuring metrics today comes in the ownership, refinement, and use of real-time data.
Thinking about a perfect order in today’s environment can be confusing, so having a precise definition of the domain of a supply chain is critical. It’s impossible to work with another company if each party uses the same words to talk about different things.
Manrodt used the audience’s feedback to show the differing opinions on the limits of a supply chain’s domain, “If I went around this room today and asked for a definition of a supply chain, how many definitions do you think we’d have in this room? Would you agree that we’d all have a different definition and that some would change their minds as they listened to other people?”
Here’s a clear and straightforward way of talking about the domain of a supply chain: A supply chain is a set of three or more organizations directly linked by one or more of the upstream and downstream flows of products, services, finances and information from a source to a consumer.
The final “D” is for defining your metrics, which can be a serious challenge. Manrodt cited a study he did several years back which examined what one would think is a simple, straightforward metric: on-time delivery. Respondents were given four choices.
a) Is jointly defined by the customer and supplier
b) Is defined for the supplier by the customer
c) We don’t know its definition.
d) We’re working on the definition.
The top two options received 60 percent of the responses, meaning a staggering 40 percent could not define what on-time delivery was or were trying to figure it out. “That should scare you,” says Manrodt. “Today, I don’t think companies are doing any better job at defining it, because we haven’t done a good job of calculating through how we define different measures that we use in our organizations.”
Top three measurement trends over the past 14 years:
Unsurprisingly, along with defining what a measurement is, communicating what is measured is also a huge challenge. Over the last 14 years, Manrodt has looked at developing measures in several areas, including 50 of the top measures in distribution. He shared three key findings from the analysis of that data:
1. If you look at the median overall, the “march of the median” has been occurring. Over the last 10 years, more than 30 measures out of 50 have improved every single year. So when you look at your measurements and your performance over time, if you haven’t improved year over year, you’re falling behind the best-in-class.
2. To get a more detailed picture of development, we break the whole into five 20 percent slices— quintiles. In these terms, the best-in-class (i.e. the top 20 percent) have improved faster in all measures compared to everyone else. So the best-in-class are not sitting still; they’re getting better—faster—than everyone else.
3. Over time, the quintiles have merged. When the study started, they were normally distributed; but as everyone is improving, the difference between the top 20 percent and the next 20 percent has become very small. So the best-in-class are getting really good and the next 20 percent are following close behind. And the implications of this— the margins that define competitive advantage are becoming increasingly thin.
Being attuned to customer demand pays off
Metrics don’t occur in a vacuum; the measurements have—or should have—a bearing on corporate strategy. “I asked a director in a $2.5 billion company what his strategy was,” says Manrodt. “The director had a hard time answering the question. If he had a hard time, I can guarantee that everyone reporting to him would also find it difficult. Getting communication all the way down from suits to boots is a significant challenge.”
In another survey, Manrodt examined how companies thought about strategy. When the survey was produced, one possible answer was accidentally added, called ‘Mix’, which was defined strategy as being all things to all people. “Thirty percent of the people chose that strategy!” reports Manrodt. “We thought that was crazy. How do you operationalize trying to be all things to all people? We analyzed what it meant, and it translates to flexibility, adaptability and the idea that every customer matters.”
Manrodt relates this approach with the increased focus on customers who are pulling the product companies once pushed. As time passes and markets evolve, strategy may not be as cost-focused or innovation-focused as once thought, but dominated instead by customer-focus: meeting the needs of customers.
This is happening in the market today, and Amazon is a great example of how this change in focus is changing processes significantly. Amazon’s business model has triggered a mirrored response from their major competitor Wal-Mart. And both organizations are pivoting to take advantage of new SaaS specialist technology to ensure the perfect order and capitalize on the huge potential of omni-channel.
“Strategy becomes critical because it’s all about execution,” notes Manrodt. It’s about delivering what the customer wants when and where they want it. Critical as well is the idea of a single point of access. “Why go to a mall and multiple stores when you can go to one place and get everything you want?” asks Manrodt.
“As the requirements of the perfect order escalate,” says Manrodt, “We need to be much more attuned to the idea of having of our products pulled rather than pushing them out into the marketplace. It comes down to vision: becoming the most customer-centric supply chain to meet the new expectations. To do this, you need to think hard about your supply chain— and the relationships you have within the supply chain.”