The Digital Transformation: Technology and Beyond (page 4)
-- Supply Chain Management Review, 1/1/2005
Page 4 of 7
Using APS technology, the division implemented a demand/supply rationalization process that allows for weekly integrated planning across all 12 sites while setting capacity constraints for all products. The demand-allocation process enabled instantaneous inventory commitment and fast and accurate delivery. Among the operating improvements that the Microelectronics Division realized by using this interconnective technology are:
- 97 percent of high-volume parts committed through available to promise (ATP).
- Order response time reduced from four days to one, with over 65 percent of ATP orders committed in less than one day.
- On-time delivery to promised commit date increased from 93 percent to 97 percent.
- Delivery performance to customer request improved from 45 percent to 70 percent.
- Assets reduced by $80 million.
- Average inventory reduced by $20 million.
- Ability to implement Web-enabled business processes developed.
Operational Excellence
The third dimension of the digital business transformation is a commitment to achieve and sustain operational excellence. Senior leadership must drive this commitment, which must extend throughout the organization. This commitment is based on a candid—and sometimes even brutal—acknowledgment of what constitutes sustained superior service performance from the customer's perspective. We call this "customer centricity" because it clearly focuses channel-wide behavior on creating customer value.
The essence of operational excellence is to effectively and efficiently keep promises to customers. This requires operations to continuously adjust to changing customer needs. Perhaps the best and most comprehensive measurement of operational excellence is the perfect order. This metric means that every order is delivered complete, on time, damage free, and invoiced correctly. Because the perfect order represents the result of all operations, it also serves as an excellent measurement for supply chain analysis.
When it comes to serving customers, very few firms today come close to operational excellence. The reality is that most senior managers do not have even a remote idea of their existing operational performance in terms of a specific customer or product. The yardsticks used to measure performance are typically presented as averages. Yet while averages provide a general view of operational competency, they fail to identify specific service breakdowns. More importantly, they mask the root causes of service failures. This failure to view operations in terms of compliance to specific expectations and promises made to individual customers may be the greatest of all shortcomings in modern business leadership. Customer centricity demands that a firm commit to perfect-order execution. Equally important is a commitment to identify the root cause of any service breakdown that occurs, followed by corrective action each and every time an order fails to meet customer expectations.
In addition to focusing an organization on the customer, a commitment to operational excellence brings with it one other powerful advantage: It allows the enterprise to position supply chain operations to drive top-line revenue growth and help achieve its strategic business objectives.
Operational excellence yields huge dividends when it is extended externally to supply chain partners. In particular, leading-edge firms are beginning to use information technology to achieve new levels of effectiveness and efficiency by collaborating with their supply chain partners. This creates a new form of enterprise extension referred to as cross-enterprise collaboration.4 Such collaboration enables firms to establish long-term arrangements with customers as well as material and service suppliers in an effort to realize the benefits of integrated operations.
Enterprise extensions are designed to leverage capabilities and resources across the supply chain. Collaborating partners are positioned to focus on their unique competency and expertise to provide an integrated offering to customers. The objective of cross-enterprise collaboration is operational excellence that synergistically creates value. The example below highlights how GM did just this.
The 1990s found General Motors in serious financial trouble. One of the world's largest corporations, it was struggling with bloated and inflexible management, unexciting cars, constraining union contracts, and difficult supply chain relationships. These relationships ranged from unhappy suppliers that felt they had been squeezed to service providers that had to respond to unique component- or plant-related requirements. Supplier and sourcing decisions often were made independently by divisions and individual plants. For example, each assembly plant could select its own parts and service suppliers. As a result, similar parts were being purchased from different suppliers—sometimes by plants located in the same town. The results were lost opportunities to achieve economies of scale with suppliers and poor asset utilization for logistics service providers. Continued...
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