Self-Assessment: A Foundation for Supply Chain Success
By Rhonda R. Lummus, Karen Alber, and Robert J. Vokurka -- Supply Chain Management Review, 7/1/2000
No longer can companies compete effectively in isolation from their suppliers and other associates in the supply chain. To succeed today, they need to create strong linkages with these partners through the concept called supply chain management.
Interest in supply chain management has increased steadily since the 1980s when companies began to see the benefits of collaborative relationships. More and more organizations today are realizing the importance of developing and implementing a comprehensive supply chain strategy—and then linking that strategy to the overall business goals.
For many companies, an essential first step in this process is to assess their supply chain capability. This article presents a set of self-assessment guidelines to help them in that effort. Also included is a graphical technique for better identifying improvement opportunities and communicating the level of supply chain management capability that needs to be achieved.
The concepts behind the assessment methodology are illustrated by the experiences of The Quaker Oats Company. Quaker has tailored the assessment principles to its particular operation and applied them to make steady supply chain progress over the last decade.
Quaker's Supply Chain JourneyTo understand the context in which The Quaker Oats Company has put the self-assessment principles to work, it's useful to understand how supply chain management has evolved at the company. About a decade ago, Quaker began what has become a very successful supply chain journey. Central to the company's success has been its ability to recognize the need to change as markets, industry, and technology move in new directions. At various points in its supply chain evolution, Quaker carefully evaluated its current capability and then took the appropriate steps to align itself with best-in-class supply chain performers. These efforts continue today as Quaker concentrates on becoming a demand-driven organization, strategically linking its supply chain initiatives to overall business strategies.
The supply chain initiatives began in the early 1990s. Among other initiatives under way at the time, Quaker became involved in the efficient consumer response (ECR) movement in the grocery industry. As part of the ECR initiative, industry members commissioned a task force to examine the grocery supply chain and identify opportunities to make it more competitive. The task force identified a set of best practices that, if implemented, could improve overall performance of the supply chain.
The task force findings served as a catalyst for making Quaker assess its own supply chain. The company began a program of training employees on supply chain concepts and evaluating its performance against that of others in its industry. As part of the evaluation process, the company developed new performance measures that looked across the supply chain and embraced both customer needs and supplier performance.
In 1993, Quaker launched a companywide supply chain management initiative. The main objectives were to reduce inventories, improve cycle times, and reduce operating costs by fine-tuning operations and developing more rigorous standards of product and process quality. Over a three-year time period, the company cut its supply base in half as it integrated the remaining suppliers more closely into the business processes. Other initiatives during this period included establishing vendor-managed inventories, improving supplier relationships, focusing on team-based work practices, and making line changeover improvements. In 1996, Quaker again assessed its supply chain performance and identified further opportunities to improve its capabilities and reduce costs. Based on this analysis, the company shifted its supply chain focus to leveraging Quaker's strengths to reduce end-to-end supply chain costs.
Then in 1999, Quaker began a three-year project to upgrade and optimize its manufacturing and distribution capability in North America. A core component of this initiative was to enhance supply chain effectiveness specifically by creating a more demand-driven warehousing environment. The project involves removing inefficient assets, building operating scale in key product lines, and integrating warehousing in different divisions.
The assessment associated with this project also revealed a need to concentrate on technological improvements. In response, Quaker is replacing its old business systems with more integrated resource planning applications that should make supply chain data more accessible and easier to use. The company wants to use technology to increase synchronized planning with retailers as well as suppliers. But Quaker realizes that for this to happen, internal information access must be improved.
In addition to synchronizing planning with its trading partners, Quaker has identified the following as future supply chain objectives:
- Exchange better demand information with suppliers and customers.
- Improve internal technical architecture.
- Streamline operations and information flow.
- Improve e-business capability.
- Focus on speed of delivery.
- Develop a paperless, error-free process for exchanging requirements with customers, including retailers and e-grocers.
As it strives to achieve these goals, Quaker continues to take stock of its current capability and to develop an evolving blueprint for change. Quaker views this ongoing process as a business necessity because, in many of the areas in which the company competes, competitive advantage no longer comes from low-cost production but from streamlining the supply chain. The company must continue to expand and develop relationships across the supply chain as it increasingly competes in an e-enabled supply chain world. Quaker recognizes that a new supply chain model is emerging. In that model, no longer will all of the supply chain members touch or take ownership of materials and goods as they move along the chain. Rather, information intermediaries and virtual manufacturers and distributors will play an ever-increasing role.
As this brief recounting of Quaker's supply chain evolution makes clear, much of the company's progress results from an ability to assess existing capabilities and reconcile them with overall business strategy. From there, the company initiates projects to align its capability with its supply chain objectives. In sum, Quaker answers the basic questions, Where are we? Where do we need to be? and How are we going to get there?
The remainder of this article describes an assessment method for companies to use in evaluating their own supply chain capabilities. The methodology allows a company to graphically visualize its current capability and begin to identify a plan for change. Once the assessment is complete, the next step is to link the supply chain strategy to the overall company strategy. This is a critical step. For real improvement to happen, organizations must focus on key strategic processes and realign these with the organization's overall supply chain strategy.
The Need for Capability AssessmentIncreasingly, companies recognize that successful implementation of a supply chain strategy can lead directly to important competitive advantage. Yet few actually know how to begin that effort. As one director of purchasing commented to the authors: "We have 'implement supply chain management' as one of our corporate objectives, but we have no idea how to begin doing it."
The change initiative needs a champion to bring focus and direction. That individual could come from any supply chain functional or process area within the organization. It also requires a broad cross section of participants who can bring input and perspective from different parts of the enterprise.
Before any supply chain initiative begins, however, the organization first needs to understand its current capability. This means identifying those areas that are most critical to success and focusing on improving performance in those areas.
Assessing current capability is the starting point for change, the baseline against which future progress is measured. Self-assessment provides insight into which elements of supply chain management need improving. The initiatives that flow from this analysis then become the organization's strategic objectives.
Through the assessment process, the company basically takes stock of its current capability and develops a blueprint for change. This process involves answering the same three key questions that Quaker addressed:
- Where are we?
- Where do we need to be?
- How are we going to get there?
Self-assessment begins by analyzing the structure of the company's various supply chains and mapping the supply chain processes. This exercise can help the organization understand how material, information, and funds currently flow through the supply chain. From here, the company must establish a measurement framework to determine how well it currently performs each of the elements in the supply chain process. The measurement needs to include the specific supply chain processes as well as the information technology capability and organizational enablers. Once that activity is completed, the company is ready to assess its capability in each supply chain element and develop a blueprint for change.
The Assessment ModelCompanies could undertake any one of a number of supply chain improvement initiatives. But while improvement opportunities are endless, capital is not. Hard decisions need to be made on where to invest to improve supply chain competitiveness—recognizing that the processes and technologies that have worked in the past may no longer be good enough in today's environment. So where do you begin?
Generally a gap exists between where a company is today and where it needs to be tomorrow—if it wants to be more successful. But before that future can be envisioned, a company must first understand how it is performing right now along certain dimensions. Assessing current capability begins with a candid evaluation of multiple supply chain elements. One proven method of evaluating current capability is through a series of questions that enable companies to assess their performance in those key elements—and then determine where they stand in relation to competitors and/or world-class organizations.
The table on page 87 includes a comprehensive set of questions to help organizations assess their current supply chain capabilities. The questions are grouped into seven key supply chain-related capabilities. These include organizational structure, production capability, supplier relationships, transportation/warehousing systems, customer service, information sharing, and e-business readiness.
The task is to analyze each question and determine where the company stands on each element. Each of the assessment items should be evaluated from a high of 1 to a low of 5 based on knowledge of industry competitors and/or best-in-class performers. For example, in response to the question, How good is your inventory visibility across the entire supply chain? a company might give itself a low score of 5 if it only knows its own on-hand inventory. But if the company also has access to information about inventory on-hand at the supplier or the freight carrier (but not at the distributor or at the customer), it might score itself as a 3 on that capability. Finally, if the company has inventory information across the chain—data on stock on-hand and carried by suppliers, carriers, distributors, and customers—a 1 would be the appropriate score.
The best way to apply this method is to have multiple individuals in the company make the assessments. Then use the responses as a basis of discussion to come to an agreement on a score. This discussion should result in a consensus by all of the participants on where the company stands before improvement plans begin. Arriving at a consensus assessment will yield an excellent perspective on the organization's supply chain capability.
After the evaluation is made and a consensus is reached, each element can then be summed and averaged to determine the overall capability for that category. Once all seven categories are evaluated, the results can be plotted graphically to obtain a "picture" of overall supply chain management capability and readiness. The assessment chart used for plotting the scores is shown in Exhibit 1. The scores for each of the supply chain elements are plotted on the appropriate axis. The chart is designed such that the better your supply chain management capability, the closer to the center of the chart you are. Thus, the objective is to "zero in" on your supply chain capability over time.
Exhibit 2 shows the self-assessment of a sample company as plotted on the chart. The scores reveal that the company is performing better on supplier relationships and information sharing (scores of less than 3) than it is on customer service, process capability, and e-business readiness (scores of about 4). The weakest capabilities are in organizational structure and transportation/warehouse systems (scores of about 5).
Exhibit 3 illustrates where the organization might find itself one year after the improvements began. Based on the first stage of analysis, the organization determined that it needed to improve those areas affecting operational costs (process capability, transportation/warehousing systems, and organizational structure) and customer responsiveness (customer service). In each case, it recorded significant improvement.
Linking to the Business Strategy
As discussed earlier, the process of implementing supply chain improvement begins by answering the question, Where are we? Used effectively by companies like Quaker, the assessment model can answer that question and provide the framework for answering the next two questions, Where do we need to be? and How are we going to get there? Quaker, for example, has determined where it needs to be to gain a competitive advantage in its industry and realizes that it must align its current capability with that future. This process serves to integrate the supply chain with the overall enterprise direction, while providing measures for monitoring and execution.
As more and more companies are discovering, supply chain management can be leveraged as a competitive differentiator. Yet while excellence in a given supply chain dimension can provide a competitive opportunity, shortfalls in any dimension can eliminate this edge. In short, all components of the supply chain must have the capability to meet strategic objectives.
Effective supply chain management is more than simply managing the activities of the internal functional areas. It also means managing relationships externally among suppliers and customers. The cross-boundary nature of supply chain management makes it imperative that supply chain goals and capabilities be incorporated into the company's overall strategic plan. By focusing on this kind of integration, companies can leverage the supply chain for maximum competitive advantage.
There are seven key steps in the process of linking supply chain and business strategy. These include:
- Defining the role the supply chain will play in achieving overall business strategies.
- Identifying/prioritizing improvement opportunities.
- Defining supply chain goals.
- Developing detailed work plans to achieve those goals.
- Making supply chain performance review a part of the regular business review process.
- Executing plans to achieve results.
- Monitoring progress and making necessary adjustments.
The objective of this linkage is to identify the supply chain's role in achieving business strategies and to assure that work is aligned with strategic imperatives. In most companies, corporate strategy statements are little more than a compilation of functional strategies. Performance measures are still based on the effectiveness of the manager's department—regardless of how that performance added to or detracted from the overall business outcome. Furthermore, the performance measures typically applied are derived from narrow functional views rather than a broader business perspective.
All of the supply chain initiatives that take place should support strategic initiatives. The business leaders must set strategic direction, both short-term and long-term, so that the entire organization has a clear picture of where the business is headed. Management's answer to, Who we are, what we do, and where are we headed? should chart the course for everyone and establish a strong organizational identity. Every activity taking place in the organization—from establishing a distribution network, to producing a product, to accounting for the sale of the product—should connect to the business strategy. If an activity doesn't, it should be eliminated.
Developing supply chain strategies begins after corporate and business level strategies are in place. Managers must have a depth of understanding of each business strategy before developing the complementary supply chain strategy. For example, if the business strategy states "Be the low-cost producer," the supply chain strategy must address such questions as by when and for which specific product. These kinds of questions are critical to aligning supply chain management initiatives. Strategies can then be developed that link the supply chain objectives to the business objectives.
An Ongoing AssessmentCompanies like Quaker that have been focusing on supply chain management for some time continue to assess their current supply chain capability and align their capability with their strategic plans. For companies beginning their supply chain journey, the first step is to assess their capability across a variety of key elements. The process begins with a candid evaluation of current capability against the seven elements included in the assessment model. By answering the series of questions and scaling the answers based on where the organization stands in relation to competitors and/or world class organizations, the company has a starting point to begin its supply chain improvements. Managers from all functions and at all levels of the organization should evaluate the elements to give a broad perspective on capability. Once the group arrives at a consensus on each point, the improvement initiatives can begin.
Quaker Oats, like others that have implemented the methodology discussed here, understands the importance of setting an appropriate scope for the desired change. This means identifying those areas most critical to the organization's success and improving performance in them. Once the improvement opportunities have been identified, the organization can create its future vision and outline a path for implementation. Over time, the company can re-evaluate its performance and diagram the changes as a visual method of displaying improvements in performance using the plotting charts in the accompanying exhibits.
Assessing current performance is only a starting point in implementing effective supply chain management. As Quaker and other successful companies have demonstrated, the next step is to link supply chain strategy to the overall business strategy. The objective here is to identify the supply chain's role in achieving business strategies and to assure that the improvement initiatives launched are aligned with strategic imperatives. This cascading method of first assessing current capability, then setting supply chain objectives linked to the organization's objectives, and finally implementing supply chain improvement initiatives will assure that the organization continues to zero in on supply chain excellence.
| Organizational Structure | (1–5) | |
| 1. Have you defined a supply chain strategy with improvement objectives? | ||
| 2. Do you have well-defined operational responsibilities and thoroughly trained personnel? | ||
| 3. Have you eliminated functional silos that result in ineffective processes and delays of timely information and material flows? | ||
| 4. Do you have well-formulated partnerships based on strategic alliance agreements? | ||
| 5. Have all parts of the organization been trained to provide fast decision-making and material flows? | ||
| 6. Do you have adequate logistical business models to use for planning and improvement? | ||
| 7. Do you use performance measurements that encourage and reward supply chain performance? | ||
| Average | ||
| Production Capability | ||
| 1. Do you have access to and influence over the amount of inventory at all nodes? | ||
| 2. Is your production schedule designed to make only what you need when you need it? | ||
| 3. Do you have clearly defined procedures to ensure defect-free products? | ||
| 4. Do you experience wide fluctuations in demand? | ||
| 5. What is the reliability of your production system? Can you measure reliability? | ||
| 6. Do you have automatic replenishment programs in place with key customers? Do those shipments drive added cost? | ||
| 7. Are agreed-upon demand forecasts used to pull products through the supply chain from raw materials to the customer? | ||
| Average | ||
| Supplier Relationships | (1–5) | |
| 1. Do you have long-term agreements with suppliers? Do you know your costs of shipping from multiple suppliers? | ||
| 2. Have you standardized products for supplier consolidation? What are the savings from standardization? | ||
| 3. Are you single-sourcing strategic products? What are your savings? | ||
| 4. Do you have control over inbound transportation? What are the costs? | ||
| 5. Do you regularly provide your major suppliers with your business plans and demand projections? | ||
| 6. Do you really want to build partnerships that mutually benefit both parties? | ||
| 7. Are you willing to change rewards to support the partnerships? | ||
| Average | ||
| Transportation/Warehousing Systems | ||
| 1. Are you co-managing warehouses with either customers or suppliers? What are the savings from shared management? | ||
| 2. Do you postpone customization as close as possible to the customer? What are the savings from postponement? | ||
| 3. Do you use standard pallets across the system? What are the savings from standardization? | ||
| 4. Do you have detailed data on transportation costs by mode and by carrier? What are the costs from each location? | ||
| 5. Do you provide advance shipping notification to facilitate receipt of goods? | ||
| 6. Have you established a core carrier program? | ||
| 7. Do you ship only in full pallets or do you ship in small lots based on customer usage? | ||
| Average | ||
| Customer Service | (1–5) | |
| 1. Do you have inventory visibility across the entire supply chain? | ||
| 2. Do you have formal processes to communicate customer order changes? | ||
| 3. Do you regularly review and update sales forecasts? | ||
| 4. Are you shipping customer direct where appropriate? Do you know the costs of shipping direct? | ||
| 5. Do you conduct face-to-face meetings with key customers? | ||
| 6. Do you know your customer order leadtime from receipt to shipment? | ||
| 7. Is there variability in customer order-fulfillment cycle-time? Do you know the causes? | ||
| Average | ||
| Information Sharing | ||
| 1. Are your information systems focused on key supply processes vs. a functional or departmental focus? | ||
| 2. Are your information systems used to create speed? Is the element of information provided in real time? | ||
| 3. Do the information systems use integrated data? | ||
| 4. Is point-of-sale information used to provide early warning of rapid shifts in demand? | ||
| 5. Is your organization linked electronically with all of your major customers and suppliers? | ||
| 6. Do you have information on transportation cost by mode and carrier? | ||
| 7. Do you share cost data with your partners to identify non—value-added cost drivers? | ||
| Average | ||
| e-Business Readiness | (1–5) | |
| 1. Do you have an integrated Internet business strategy across all functions? | ||
| 2. Are your back-office transaction systems capable of connecting with external partners? | ||
| 3. Is your current internal infrastructure ready to operate in a Web-environment? | ||
| 4. Do you offer Internet-based self-service and information distribution? | ||
| 5. Can you support business-to-business Internet programs? | ||
| 6. Do you do collaborative planning, forecasting, and replenishment with your suppliers and customers? | ||
| 7. Can you fulfill orders from your customers via the Internet? | ||
| Average |
| Author Information |
| Rhonda R. Lummus is an associate professor in the Department of Logistics, Operations, and Information Systems at Iowa State University. Karen Alber is director of business solutions for The Quaker Oats Co. Robert J. Vokurka is an assistant professor in the Department of Engineering and Industrial Distribution at Texas A&M University. |
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