What should be the guiding objective of the corporate supply chain?

Key Objectives for the Supply Chain Organization

What should be the guiding objective of the corporate supply chain?  With the Covid-19 pandemic, new questions have arisen about the effectiveness of Supply Chain Management principles.

Supply Chains were caught flat-footed, nay almost footless, in handling the response to the global crisis and may supply chain failures.  Out of stock on many products at the shelf, inability to react to surging demand spikes, inventory challenges in the channel everywhere.

In this context, we should re-examine the over-arching objective of a supply chain.  We can think of the following key principles to drive a supply chain.  But do they qualify as objectives?

  1. Improve demand forecast accuracy for better visibility
  2. Increase Customer order fill rates and improve customer service
  3. Improve in-stock levels at your customer to minimize supply disruptions
  4. Minimize your DC inventory
  5. Be agile to respond to the changing customer needs and environment.

Forecast Accuracy and Forward visibility

Demand forecast accuracy is a key driver for the supply chain. 

It is important to have forward visibility to both demand and supply – the longer the visibility and broader the horizon about the possible scenarios, the better prepared the supply chain can be.  This will help you become truly agile. 

However, this should not become the objective of the supply chain. 

In-Stock Levels

Keeping the customer in-stock seems to a better goal.   Having an eye for the in-stock levels at the customer helps you ensure that there are no shortages or disruptions in the customer value chain. 

Consumers don’t go empty-handed and your customer does not have to stop the production line if you keep it humming with a regular flow of materials needed without over-stocking it.

Minimize your DC Inventory

Although you want to optimize your inventory levels, You want to keep the right levels of inventory – not too little, not too much.  The right amount of inventory will allow fulfilling customer orders without shorting or canceling the orders.  As we noticed during the pandemic, inventory has become a boon rather than a necessary evil.  People on the margin have a bias to over-stock. 

Improve customer service and order fill-rates

At the core of any supply chain, the key objective should be customer experience regardless of the type of business - whether manufcaturing or service business.  

The customer experience dictates optimal in-stock levels, the freshness of the product, quality, and sufficient availability along with overall experience in fulfillment.

Here are some comments from various supply chain professionals on this post.  

  

Comments –

“I see demand planning as the signal that the supply organization needs to follow in order to maximize customer service. Increased forecast accuracy for its own sake can be self-serving and can also be achieved by constraining things too much. I’ve seen examples where the forecast was low, inventory was therefore low and the sales group were limited in what they could sell. Sales = the forecast but the forecast did not = the potential demand. Minimizing stock can also be a slippery slope if you don’t know how much of your stock is from forecast error. There are many other reasons for stock” - Group Forecasting and Planning Manager at Motion Asia Pacific

“Hard to choose … they are not independent objectives. Even though is not the only factor, and if I had to pick one now, I’d go for improvement in forecast accuracy which would lead to an improvement in fill rates, lower inventories and customer in-stock” -President at ECO Finishing Company

“Customer in-stock level should be the primary objective as it prevents lost sales. Order fill rate is the secondary metric to drive it. Forecast accuracy is one step further as it helps in better order fill rate with lower DC inventory. Improvement in forecast accuracy are crucial but such improvement only translate into organic sales if rest of the supply chain is able to deliver to the consumer” - Global Supply Chain Planning at Kraft Heinz

“Organisation should try to increase the fill rate as this will lead to an increase in business and also in-stock level. Org should put system to improve the Forecast accuracy which will help to reduce the supply chain cost in regards to inventory” - Head of Customer Service at Hindustan Foods Ltd.

“Forecast Accuracy has an impact on others, hence the obvious choice; though fill rate, in stock, and inventory can be controlled better with Allocation management. Every organization has focus customers, product lines, SKUs, etc. based on amount of revenue or margin and product volatility, hence reviewing data at those levels can help achieve better fill rate, in stock, and inventory, without having better forecast accuracy” - Manager, S&OP Planning at Bolthouse Farms

“So many votes for forecast accuracy and comments about it “leading” to success throughout the supply chain, but they are missing the point. The overarching “objective” of the supply chain should be to improve customer in-stock in order to meet the demand of their customers. There is much more to servicing demand than simply forecasting it. It should be a measured KPI, but not the objective” - Service – Driven Supply Chain AE at Toolgroups

“FA improvement leads you to get better results with the rest of KPI’s however be aware they are Lag measures (drive past performance). Act on Lead measures.. Lag m tells you how was the score but Lead m helps you to win the game” - Demand Planning & Replenishment Manager (Central America & Caribbean)

“To me, these would be forecast accuracy and S&OP maturity but these two will need to be coupled with supply chain flexibility and agility. This is especially relevant given the market context today” - AIM Executive MBA Candidate

“Higher and stable forecast accuracy improves all Supply Chain measures. This is the start of improvement and as soon as the business realize this, the focus change and cross-functional collaboration becomes a reality” - Demand Planning Manager Lactalis South Africa

“Forecast bias will be affecting inventory and service level. Therefore good forecast accuracy will have impact in increase service level and reduce obsolete stocks. Resulting in higher cash turnover and increase profitability” - Head Supply Chain Management, PT Bumi Manara Interusa

“Improving FA will lead to increased fill rates, customer in stocks, and will minimize DC inventory. Invest in the front end, forecasting, and it will help throughout the Supply Chain and execution!” - Director, IBP Labs at SCMO2 – Principal, Powertaps LLC

“As per my experience, if you have a mature forecasting process in place which necessarily gives a good forecast accuracy, it will give all other points as an output. Yes, at the same time it has to be bundled with a matured and active S&OP process.” - Manager, Demand & Supply at Cipla

“Well, it’s a no brainer isn’t it! If you improve your forecast accuracy then you can minimize your inventory, improve your customer in stocks and increase your order fill rates. So, a 4 in 1 solution. Winner, winner, chicken dinner!” - EIMEA Demand & Inventory Manager at WD-40 Company

“There’s a reason that Demand Forecasting sits atop Gartner’s Hierarchy of Supply Chain Metrics. Accurate forecasts drive improved fill rates AND inventory reductions!” - Supply Chain Planning Consultant

“Forecast accuracy with Bias metric will always solve for both Service level and Inventory level along with other SCM metrics which results in higher profitability” - Demand Planning at Diageo