All too often, companies perceive supply chain management simply as a new term to describe their manufacturing and distribution operations. So they continue to conduct business as usual, attempting improvements along traditional—and fragmented —functional lines. At best, they achieve only partial synchronization among functions.

What these companies fail to understand is that synchronized supply chain management requires a comprehensive review of functional interactions among traditional manufacturing and distribution operations, marketing and selling activities, and customers and suppliers. This review should lead to a significant redesign of supply chain processes, a reallocation of management responsibilities and accountabilities, and the implementation of information systems that support the new operational and managerial processes.

Time has a negative impact on supply chain operations. First, time affects leadtime on overall inventory levels, which we've come to view as the mismatch between customer demand and supply chain cycle time. Typically, the further the component or finished item is from the end customer, the longer the leadtime.

Exhibit 2 shows how a one-day demand can have a twenty-fold impact on supply chain inventories. In this illustration, the customer has a demand of 100 cases per day (for a nonseasonal item), and is looking for a reasonable and consistent multiple of daily demand. Given this requirement, let's start working back through the supply chain. First, we see that the delivery cycle time is equivalent to five times the daily demand for the operational cycle time of processing and delivering an order. Next, we approach the conversion process, where actual production typically takes place in hours, but production schedules are set one to four weeks in advance. Using an average of two weeks, we add another 1,000 cases to the inventory. Finally, when we incorporate supplier leadtimes that are greater than four weeks for key ingredients and packaging components, we potentially add another 20 days of demand for 2,000 cases. Exacerbate the problem with supply or demand deviations and errors, and inventories can accelerate rapidly.

Consider the hypothetical example in Exhibit 4. A consumer-products manufacturer responds to changing market conditions, but supply chain disconnects create negative results. In an attempt to capture share, this manufacturer extends lines, creates new products, and may even attempt to customize existing products. To place these new products with retailers, it creates introductory marketing and slotting campaigns. To fund these efforts, the manufacturer diverts advertising and marketing monies from established products, whose sales begin to decline. Unless there is a corresponding sales lift from the new items, quarterly earnings drop. The result: reactionary trade promotions to meet earnings projections. Unfortunately, the sales spike from the promotions cannibalizes future demand, setting in motion a "promotion/cannibalize" cycle.

In the post mortem of a failed product introduction or a missed sales target or stockouts at the retail shelf, it's easy to blame the forecast ("If only our forecast had been better, we could have ..."). But in today's world of packaged consumer goods and most durable consumer goods, this is a lame excuse. We know what we are going to sell. In fact, we know it virtually by day of the week. But we look for information in the wrong place. We don't recognize the inherent consistency of sales and exploit that through synchronization. Instead, we try to predict the future in an attempt to maximize service and profits. These are worthwhile goals. But when attempted through forecasting, they are rarely achieved.

Let's consider an example of sales consistency. Exhibit 6 shows the actual sales pattern of a well-known packaged consumer product, distributed through a leading chain of stores. The numbers demonstrate a high level of sales consistency, even when the product is on promotion. With this kind of sales pattern, two to three days' worth of product sales would easily cover any demand contingency.

Let me clarify an important distinction. We are talking about consistency at a high level of aggregation, not at the individual selling location. Thus, we are relying on facile distribution systems to move goods in selling-location—specific quantities. Put another way, stock in the aggregate frequently for the smallest period of time; deploy just what is needed to the individual selling location.

Depending on whether you're a manufacturer or distributor, you may be asking yourself one of the following questions:

• If two days' worth of supply will cover sales, why do I have multiple weeks on hand?
• If distributors have this kind of information, why are their ordering patterns so irregular?

If you go back to our description of how inventory levels get accelerated (refer to Exhibit 2), you'll find the answer: asynchronous time periods for review and sales coverage, exacerbated by micro-level forecasting.

Another condition also can create supply chain mismatches. Specifically, goals and performance bonus incentives for individual functions often are at odds with the corporate mission. For example, the retail buyer is driven to maximize gross margin often at the expense of downstream costs in distribution or stores. Similarly, the production manager's performance is measured by cost per unit, so he or she maximizes run size without considering the impact on inventory levels. Of course, these examples overstate the issue to make the point. But the fact remains that individual performance measures—just as the overall supply chain—need to be synchronized.

The goal of synchronized supply chain management can be stated this way: To develop production and delivery mechanisms and processes that can produce goods to the actual end-user rate of demand for the smallest time period manageable. To meet this goal, supply chain partners must change long-established operating processes and behaviors.

The following example illustrates the scope and nature of the challenge. On a recent project, a replenishment buyer was explaining the rationale behind what I perceived to be higher-than-necessary stock levels—particularly considering that the inventory was categorized into A, B, and C movers. The buyer explained that the goal was never to be out of stock on best sellers; therefore, he wanted to keep 10 to 12 weeks minimum on hand at all times. Probing further, I learned that the vendor for these products had a weekly ordering cycle, no shipment minimum, three-day order fulfillment, and a near 100-percent service record for fill rates and cycle times. Even with the capability to order whatever was needed weekly, to receive it within three days, and to almost always get what was ordered, the buyer still had 10 to 12 weeks' worth of inventory. I wish that I could tell you this was an isolated case, but it isn't.

To change this all-too-common mindset—and truly synchronize for success—companies need to take action on three fronts: (1) adopt a counterintuitive inventory-management strategy; (2) take a predictive pull approach; and (3) put inventory in motion.

A counterintuitive approach to inventory management is required to begin synchronizing supply chains for optimal performance. Rather than trying to adhere to a universal weeks-of-supply dictate, we should rationalize stocking rules to demand and production requirements. For many products that are not freshness-sensitive, for example, instead of trying to optimize production scheduling and sequencing to maintain a 12-week supply of all product (where many of the items fall below the economic production quantities), why not stratify stocking rules along the following lines:

• For C movers, make an economic production run and carry whatever number of weeks of supply that quantity represents.
• For B movers, determine the inflection point between run frequency and inventory levels based on total net profitability.
• For A movers, make them all the time.

The result will be better service with lower inventory. Why? Because you will have increased the availability of slower-moving products that often experience service failures from production shortfall and reduced the total amount of inventory by taking faster-moving products to lower levels of supply. Exhibit 7 illustrates the advantages of the synchronized vs. traditional inventory-management approach.

The second key action is to shift from a forecast push-operating scheme to a predictive pull method. Again, using the smallest increment of applicable time, create operating and run strategies synchronized to demand. For manufacturers, this means compressing the time cycle of supply, conversion, distribution, and delivery. A predictive pull system is not one that is whipsawed by customers. Instead, it leverages internal and external synchronization to ensure excellent service. For manufacturers, this requires pull-signal—driven strategies for the total supply chain. This same logic can be applied to distributors by recognizing POS (point-of-sale) data as the true pull signal. Regardless of whether you are a manufacturer or distributor, failure to synchronize with consumer demand results in inventory levels that fail to match actual sales activity.

The third key action is to put inventory in motion. With consistent selling patterns and demand requirements known well in advance, we can put in place orders and resupply triggers across the supply chain. In an ideal scenario, Distributor X analyzes sales and finds that a consistent pattern of movement exists for one of its key supplier's products. Recognizing the potential of this information, Distributor X contacts Manufacturer A and establishes a weekly order value that is fixed within the leadtime and variable by an agreed-upon percentage outside of the leadtime. A regular order thus has been established.

Distributor X plugs that information into its transportation routing system and uses that consistent movement as the anchor point for generating transportation efficiency. The distributor also uses the consistent order to reduce purchasing administration costs and maximize distribution center efficiency through better workload planning. Simultaneously, Manufacturer A establishes production schedules and stocking rules using the consistent order as the catalyst for smoothing production and developing consistent order processes with key suppliers.

This is a simple example. But it clearly shows how we can simplify supply chain management by recognizing and using information differently. Keep in mind that this does not have to be a "100-percent solution." Synchronizing the supply chains of just a few major relationships can significantly improve overall operating cost and service to your most important customers.

To this point, we have discussed synchronization as a stand-alone effort. The reality is quite the opposite. Although many other supply chain initiatives are linked to (or dependent on) technology, supply chain synchronization requires broad application of people, process, and technology.

To create a synchronized organization, roles and responsibilities must be realigned. Traditional silos need to be removed and measurement and incentive systems designed to encourage behavior consistent with synchronization strategies. For example, production schedulers may need to be measured on finished-goods fill rates as well as line/plant utilization. Retail buyers may need to be graded on net profitability—not just gross margin. Sales and marketing staffs may need to be evaluated on per-product productivity and account profitability. Personnel measurement criteria should reflect the goals of supply chain synchronization and incent people to achieve those goals.

Redesigned measurement and incentive systems will function within redesigned processes. It's important to remember that supply chain synchronization is a function of processes, not tasks. End-to-end processes designed to simplify the movement of goods between trading partners through regular, predictable movement will bear little resemblance to today's disconnected and sequential functions. These integrated processes are designed to flow goods through the system, rather than bring large pools of inventory to rest at multiple locations. They consider both the external and internal requirements to create this flow and look to both suppliers and customers to exploit synergies.

Information is the enabler of synchronized supply chains. But information must be used strategically. Although advance planning systems play a vital role in execution, they should be applied only after demand patterns have been determined and a strategy to exploit them established. Throwing more advanced applications at the problem without first creating the strategy will result in a far less than optimum solution. In a synchronized supply chain, information has a dramatic cross-partner impact. Although we all recognize the value of sharing data on demand, we need to move toward collectively exploiting information. You may not need to form partnerships, but you will need to selflessly exchange data that may benefit your trading partners as much as it benefits you.

Like the Borg characters in "Star Trek," relentlessly integrating all they come into contact with, we all will be synchronizing sooner or later. Synchronization is inevitable; resistance in futile. As mergers and acquisitions create ever-larger companies, synchronization will become the only way to realize the benefits of scale between trading partners. The time to synchronize is now. In the supply chain, time is not on your side. In fact, it's the enemy.