Post written by Tony Clark – October 2019
Below is a fictional story of the meeting of 3 friends to discuss their supply chain challenge. Clearly this is meant as a light-hearted approach to introduce you to the idea of supply chain strategies and what they might achieve for the strategy of the organisation. I hope you enjoy the short story and are able to reflect on what this might mean for your own supply chain. The work starts by introducing the three characters – enjoy….
Our characters
Harry is a university graduate who is coming to the end of his Graduate training scheme
Pierre is fresh off his initial logistics Officer training course in the Army
Sally is a newly promoted manager fresh from her apprenticeship and works on the logistic shop floor.
The story:
Harry sat comfortably at the bar waiting to meet his friends who he had known since school days to watch the rugby. Harry, a recent graduate of the University of Lincoln, specialising in logistics was looking forward to completing the challenging placement on the graduate training scheme at the head office of SAMesco Supermarket.
While he waited he began to ponder the challenge that he had been set. To complete the placement he was required to design a supply chain that would support SAMesco in their new business venture in the Isle of Man.
With his cheeky smile and a generous offer of another drink, Pierre joined Harry at the table overlooking the river front. As they pondered the world and the rugby Sally joined them, and Pierre managed to complete his generosity by buying the round for all three of them.
After a quick conversation with the grumpy old bar man, Alex, who was only 30 but seemed to have the troubles of the world, they settled down.
“So what’s on your mind then Harry?” Sally chimed.
Harry looked over his glass apologetically and began to set out the challenge he’d been faced. He had learnt from his university days that working in collaboration was often the best way to create a solution to a problem. Having collaboration as one of his toolkits he had pulled in favours from both Pierre and Sally to arrange the meeting, based on the rugby game, and try to pick their brains on how to solve his supply chain problem.
Harry began to outline the challenge, “My boss wants me to design a supply chain that will serve the customer needs – sounds easy right? How difficult can it be to move boxes from A to B? “
Pierre quickly re-joined, being a proud military logistician, “We do this all the time. We often have to set up what we describe as deployment logistics operations to meet the needs of our dependencies when they deploy abroad.”
“So how do you do it then?” Exclaimed Harry.
“Well as highly trained military experts in the field of distribution and military supply we have extensive training and procedures to support this.” Scoffed Pierre.
At this point all three of them began to laugh identifying Pierre’s brand of humour and self-deprecation.
Sally, displaying her usual calm joined in, “Okay then so where do we start? In my place the first thing we always consider is what the customer wants.”
Pierre offered the question, “So what is that? I know from the supermarket point the customer is always right but there are so many different customer needs and wants. Do they want it as cheap as possible or do they want it at the best quality and always available? Or more likely both. “
Harry had worked on this idea already and had been clear that he wanted to offer the customer all they wanted but this might prove impossible. He had studied the role of low cost supply chains and seen how these contradicted more mobile and agile response based supply chains. How was he going to square the circle how could you offer low-cost and responsiveness at the same time? After all low-cost meant predictable and stable demand which could be forecasted and then the cheapest possible way of delivering the goods are identified. This worked because it happened over and over again. In his mind this was a tin of beans supply chain that offered efficient response to the customers in a stable environment. After all, everybody had beans in the cupboard.
But he also realised that some customers wanted the home delivery and to be able to order in the morning and have the food delivered within a time window that afternoon. Clearly this was more expensive than the tins of beans supply chain that he knew would be effective to reduce cost. For him this seemed to be a need for a trade-off between cost and responsiveness. This he explained to his friends and left them to ponder their answers.
Pierre was the first to respond, “You know what Harry, this is a real challenge for us as well. I have my boss constantly asking for savings. He is under the cosh from on high to make everything as low cost as possible to meet the demands of the government’s austerity. Yet at the same time we have to be responsive and flexible whenever our Masters in government call for us. It seems madness one day we are expensive dinosaurs living off the state the next day we are the heroes that respond to disaster relief in the Caribbean. It’s really hard to get the balance right in the supply chains to make sure everybody’s got what they need. “
Sally offered her view from the practitioner perspective, “Let’s go back to basics, do you know what your strategy is? Before you answer that let’s make sure we know what we’re talking about. I know for the supermarket there is often a low-cost option such as Aldi or Lidl or there is a differentiated offer such as that of Waitrose. Each one of those has a different strategy one is about offering cheap and cheerful the other is offering a more quality experience in which the customers are prepared to pay a little bit extra for the service and experience they receive. We might start with you Harry by asking “what does your strategy say about its unique selling points?”
Harry smiled, “you’ve got it there Sally what we want to do is move to be low-cost. We’ve already had a discussion in the office that we can’t be everything for everybody but we need to make that decision about what we want to do. So, although it’s not clear we would still like to be cheap but still offer some differentiation a bit like being in the middle. But we know that’s a real challenge. “
Sally responded by saying, “So, when you move this supply chain to the Isle of Man what’s the main priority?”
Harry, with a cheeky grin that’s so easy “cost!”
“Okay, let’s focus on that then. What kind of data do you have on the market and sales that’s expected in the Isle of Man? “, Replied Sally.
“Oh we’ve got lots of demand signals planned in to the office metrics. We know that we can predict the demand on a fairly stable basis. There used to be a supermarket on the island and we managed to buy that out and collect their data. So we are quite convinced that we can predict the expected demand on the supply chain.” Said Harry and Adding, “We will also be able to collect the data from the loyalty cards. This is really good as it lets us know when and where and what type of shopping people do regularly-a real bonus for demand forecasting. “
Sally pondered for a moment and then responded in a question like tone, “Who is that guy you were talking about the guru in supply chain management when you were doing your essay at university? I remember working with my boss and his name kept coming up for different supply chain strategies?”
“Oh you must mean Martin Christopher.”, replied Harry, That’s a good idea he set out a 2 x 2 box. On one access he had the demand characteristics that was whether you could or not (???) the demand in marketplace. And then on the other matrix it was about supplies and the lead time that was required whether it was a short or long lead time.
Sally replied, “Well then let’s use this. It seems sensible to draw on some theory and after all if people have worked on this for a long time the ideas must be quite robust. So can you draw out that matrix for us so we can understand what the strategies are?”
Harry then drew out the model.
Pierre reflected on the model – He made the point, “Well if we use this and you’ve got predictable demand and short lead times – I guess tins of beans – again. Then we could use this continuous improvement model this Kanban idea. Although not quite sure what Kanban means.”
“Kanban. Okay I remember it’s about lean; it’s about the idea of continuous replenishment Kanban is a sort of signal that you replenish when it’s needed so it’s all linked to just-in-time. Guess the idea is once you’ve used one another one comes through-tins of beans seems to work well here.” Replied Harry.
Sally then added, “Yeah it’s the sort of things that we do at work but we differentiate a little bit more by adding volumes, so for us if it’s high volumes and stable predictable demand we just do the same thing over and over again that’s all continuous supply chain idea. Harry would this not sort of match the model that you’re talking about? “
Harry replied, “Yes, but it’s only that sort of cheap idea isn’t it I wonder if we can do something with this idea of agile. After all it’s that compromise isn’t it between low-cost and being able to service our customers really well when they want it that I am really after. I guess the challenge really is that we want sort of the efficiencies of continuous response such as being able to predict what’s needed and therefore buy and have it in the right place at the right time at the right cost. This is useful because it will save on inventory costs we don’t have to have thousands of tins of beans in big expensive warehouses just sitting there not making very much money and costing us a fortune.
But if we do this for other goods that are sort of unpredictable in demand -I don’t know things like barbecue packs for summer-we all know how predictable the British weather is! Then were at risk of having loads of things left on the shelf at the end of the year and we pay loads of money for them and loads of money to store them and move them around. How can we get past this how can we be agile and responsive and low-cost at the same time?” pondered Harry.
Pierre then joined the debate, “We have this a little bit as well and I think there’s something about being able to hold stock somewhere that’s not really close to the customer so that we can use it really quickly when we need to. It’s a little bit more than going straight back to the manufacturer and demanding it like those tins of beans. It’s about supporting those items that take a little bit longer to deliver within the lead time like in that matrix. All we do is we have this strategic stock-we call it deployment packs. We predicted what our units will use when they deploy and then we have it ready for them as and when they need it. But that’s an awful lot of inventory – and my boss says very expensive. Do you know how much a spare wheel for a helicopter costs?”
Sally reflected on his comments and added, “We do the same things but we differentiate each supply chain so we have one supply chain for fast moving consumer goods and one supply chain for different items so I guess we could just do a different supply chain.”
Harry “I guess that will work but how will we get these efficiencies of low-cost we don’t want to design a different supply chain for every item. Surely we want to make best use of what we can and get low-cost where and when we can. What would happen if we join two supply chains together?”
Pierre, “What do you mean? “
“Well”, pondered Harry. “What would happen if we had one supply chain but had like different links of the end you know like a something like a fork?”
Both Sally and Pierre smiled beginning to set themselves up to enjoy the image of the fork supply chain when Harry continued.
“What I mean by a fork is something like, what happens if everything started off in the same place such as a distribution centre and then was moved along the supply chain in such a way that we got the benefits of low-cost but somewhere along the line they separated out.”
Sally ponderingly replied, “That sounds really cool Harry have you thought about what that would mean. So, let’s think about this what we could have is this single supply chain and we could focus on this idea of just-in-time/low-cost or lean so we take all the waste off the process. But here the tins of beans could keep going in the same style because we know the predictable demand and we know they’re going to get consumed quickly. But at some point what we could do is move some stock into inventory stores. I don’t mean tins of beans but that stuff that we might not have the best forecast for such as all those barbecue packs. What we could do is decide on a point to separate out the lean supply chain from the response supply chain. To do this we could take those barbecue parks and put them into inventory something like it a warehouse or distribution centre so that they can be called upon, as and when they needed. If they’re already in the supply chain it should be quicker or more agile to get them to the customer quickly. “
“That’s brilliant. The closer to the customer let’s say on the Isle of Man we hold the stock the quicker we can serve the customer and the more costs we save as we have moved it through most of the supply chain. – but argh – we will still have to pay for the storage etc. and have the risk of it going out of date. My Boss hates having to do sales.” thought Harry aloud.
“Ok but is that not the trade-off we started with?” Exclaimed Sally.
“I guess so but we do have a SC know which can give low cost and responsiveness.” Replied Harry.
Pierre then smiled, “You know what we do this in the military all the time – or rather I hope we do. We have supply chain teams in this place in Bristol. They work with the manufactures to get stocks to the field forces. So I know they do different supply chains with contacted suppliers- they call it outsourcing. We get food into the barracks through this idea of continuous replenishment. But food for deployment is kept in special sites so we can only have it when we deploy. This means we have big stocks of it but always ready to use. I know that Bristol works had to buy and move it at the best price the low cost thing. But also when we need it we get it really quickly- that response idea.”
“Well then it seems the military are leading the way? But how about this place in Bristol- how does it move it so cheaply?” Asked Harry with a broad sarcastic smile.
“Well,” replied Pierre, “Army be the best and all that.”
They all rolled their eyes and thought about the next task. For Sally and Harry it was what we can learn about outsourcing but agreed this was for another day as the rugby started on the big screen.