Building Supply Chain "Security" by Advancing your "Maturity"

The topic of "security" enters into nearly every aspect of our lives as we attempt to manage our individual risk exposure – sometimes we think consciously about it and other times our actions have simply become second nature.   Consider that we: Take care whilst traveling to ensure our personal belongings do not "wander" away.  Lock our cars and our homes to protect against the unwanted visitor. Obtain an insurance policy to protect ourselves and our families from the "unexpected". Invest in a portfolio of potential offerings in case the market moves in an unanticipated direction.

But how often do we extend this same due diligence to our company’s supply chain and take the time to purposefully consider the level of security that we have built into it? Do we take the same degree of caution? 
eKNOWtion wanted to explore this concept further – and what did we find?

Time to Grow up!

Quite simply what we discovered was that the best way to build supply chain security is to make advancements in supply chain maturity - making our supply chains "grow up"!  A word of caution however – this theory was not the result of extensive data intensive research that forced us into "analysis paralysis".  We took the old fashioned approach – we "talked" to people!   The resounding message we heard consistently was that the more effort that companies placed on climbing the maturity ladder, they hoped to add another layer of protection into their supply chain.  Their investment in supply chain maturity (SCM) was their insurance policy.

The first question we must ask is:  why bother?  Is our supply chain risk substantial enough that we need to be concerned?  Will anyone really feel the pain?  And who are we trying to protect?  We are primarily trying to protect ourselves and our stakeholders (customers, suppliers and of course, shareholders!) from disruption.

For evidence of why such a SCM insurance policy makes sense, we only had to look at the study performed by eKNOWtion’s friend from the Georgia Institute of Technology, Dr.Vinod Singhal – Dr. Singhal’s study on supply chain "disruptions" and their impact on shareholder value produced astounding tales of woe for those companies who did not "protect" themselves (see KNOWledge article "Devastating Effect of Supply Chain Disruptions on Long-term Profitability and Shareholder Value")

Some of the key findings were:

• Disruptions have a significant negative effect on profitability. In the year leading to the disruption, the average effect is 107 % drop in operating income, 93% drop in return on assets, 7 % lower sales growth, and 11 % growth in cost.
• Over a three year time period around the disruption, disruption experiencing firms report 33 to 40% lower stock returns relative to their competition.
• In the year after the disruption the share price volatility is 13.50% higher when compared to the volatility in the year before the disruption.
• Disruptions have a debilitating affect on performance as firms do not quickly recover from disruptions. Firms continue to operate for at least two year at a lower performance level after experiencing disruptions.

This study of course addresses the potential impact to our shareholder value.  What must our customers and suppliers think of our immaturity?   I suppose at some point we may be forced to stand in the corner with our nose to the wall!   But worse yet, our supply base support may disappear and even our customer orders may dry up.  Just like the socially conscious teenager – we don’t want to be associated with those who are acting immature and we will migrate our alliances elsewhere!

Climbing the ladder. . . rung by rung!

In seeking the answers – we have witnessed that most companies that we work with or have attended one of our KNOWledge academy workshops -  position themselves between Level 2 and Level 3 in their supply chain maturity self analysis (see diagram below).  While at the same time, they are developing a transition plan to advance to Level 4 or beyond - Next Generation Supply Chain.  However, this requires an understanding of the company’s current SCM position and the development of a specific strategy to fuel the advancement – to climb the maturity ladder.

Measuring up?

The more immature that we are - the more we need protection.  As adults, we feel the need to place further protection around the children in our lives.  However, with increased "maturity" the need for protection is less because with maturity comes the built- in disciplines – our protection becomes second nature – inherent.

Increased supply chain maturity provides this inherent protection.   As we evolve our supply chain  we break down the vertical silos resulting in departmental optimization.  We begin to treat our customers and our suppliers with respect and like "partners" and depart from the adversary relationship.  The level of knowledge transfer between us increases in a "trusted" and frequent manner.  We even look for opportunities to integrate our enabling systems architecture to provide a seamless approach to managing our supply chain. 

Yes, in fact - your likely assumption is correct – there are very few companies who have achieved this level of maturity!  Want to be one?

Wannabe (want to be!)

eKNOWtion suggests to clients that they should do an annual Supply Chain Assessment to gauge their current level of maturity.  This must be done annually at a minimum – remember that as you are climbing the ladder – so is your competition!  That which is today required to reach the Next Generation Supply Chain level will indeed require more from you and your company in just one short year from today.

We also believe that you should consistently measure the cause and effect of your supply chain advances – by consistently monitor your supply chain maturity.  This is where you turn the mirror on yourself and judge whether you are actually making the advances that you had hoped and are indeed seeing the results of your efforts in your supply chain performance.  We must consistently monitor our supply chain so that we can “connect the dots” and see the "cause & effect" between what we are doing to transform our supply chain and what our Key Performance Indicators (KPI’s) tell us regarding our realized performance.

For more information on Supply Chain Maturity Assessments or our Supply Chain Maturity Monitor tool box - simply send us an email at SCM2@eKNOWtion.com 

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Enjoy the journey!