What Is the Goal
of the Supply Chain?

Part 3 – Testing for Sufficiency

one trip.jpg After fortifying our goal, we now have:

“The goal of supply chain management is to improve organizational knowledge and effectiveness to increase the operating cash generated, now and in the future.”

Is that a sufficient goal? Perhaps?

What do we mean by sufficient?

sufficient |s?'fi sh ?nt| adjective

Enough; adequate. There is enough savings to justify the effort. The explanation is adequate to make the decision. We have sufficient proof.

Is our goal sufficient? Not quite. I don’t think so. Something is missing.

Does the supply chain of an enterprise exist only within the boundaries of the enterprise? NO! There are other entities in the supply chain. Other entities provide the supply, transportation, warehousing, banking, communications, and management to the supply chain. I would go as far to say that the typical end-to-end supply chain touches at least 10 different entities. The scope is potentially huge, spanning the globe.

Global supply chain managers have to work with a network of suppliers, service providers, customers, and consumers around the world. Consider that retailers can work with over 500 suppliers; manufacturers can have over 5,000 suppliers and customers. The scope is huge.

Considering that huge scope, which entity are we concerned with when we talk about “organizational knowledge and effectiveness” and “increasing the cash generated”? Clearly, the managers’ first responsibility is to the company the managers work for. Can there be a secondary priority?

No?

Could you make the argument that the supply chain manager must be concerned with the knowledge and effectiveness of the entire network? Could you make the same argument about “increase the cash generated” for the trading partners?

Perhaps?

Let’s first think downstream, to the enterprise’s customers. If the enterprise is going to thrive and grow, it must take care of the customers. Improving supply chain operations with the customer to remove friction that increases costs requires coordination, education, and knowledge creation that improves effectiveness. Improving supply chain effectiveness with a customer is a market differentiator, one that justifies a higher margin or greater customer loyalty in exchange for superior service. An effective supply chain allows the customer to sell more (or use more) of the enterprise’s products, improving revenue. Increasing revenue increases the cash generated now, and in the future for both the enterprise and the customer. Strong customer loyalty assures the future cash generation.

Can we agree to this statement? It is in the best interest of the enterprise to extend the scope of the goal externally downstream to include the customer, and all of the links between.

Now think upstream, to the suppliers. If the enterprise is going to thrive and grow, it must develop ways to remove friction and waste from the supply lines that feed it. That requires coordination, education, and knowledge creation that improves supply chain effectiveness. Improving supply chain effectiveness with the supplier removes waste for both the enterprise and the supplier, lowering costs. A superior supply chain removes the friction from the relationship with the supplier, encouraging the supplier to be more likely to think of the enterprise as a natural place to introduce innovative products, to test new processes, and to develop superior ways to do business together. The likelihood of the enterprise doing more business with the supplier increases, making the enterprise more profitable, and increasing the revenue the supplier makes with the enterprise. That increases the cash generated now, and in the future, for both the enterprise and the supplier.

Can we agree on this statement? It is in the best interest of the enterprise to extend the scope of the goal externally upstream to the suppliers, and all the links between them.

Missing from our goal are the relationships up and down the supply chain. The enterprise is just one link in many supply chains. For the health of the enterprise, the entire chain must be healthy.

This is the reason for supply chain collaboration. Let's make this change to our goal.

“The goal of supply chain management is to improve the knowledge and effectiveness of the entire supply chain network, increasing the operating cash generated, now and in the future, for all the links in the supply chain.”

What do you think? Do we now have a sufficient goal? Does this goal reflect the mission of the modern supply chain? Does it contain all of the necessary ingredients?

Let’s test our new goal by looking through the lens of Management by Objectives by using the five key criteria that we derived from Peter Drucker’s teaching.

To be effective:

Goals must align upward to the prime goal of the enterprise. YES! We do that with the prime directive—increase the operating cash generated, now and in the future.”
Managers must define their goals by the contribution they can make to the prime directive. YES! We are giving managers a clear vision of what they must include in their definition of their goals. The goal specifies the expected actions to improve knowledge and effectiveness. It also frames the scope for the goal to the entire network – all the links of the supply chain.
Managers must assume genuine responsibility. YES! With a clearly stated goal, a manager has the opportunity to assume a genuine responsibility since the key points are clear and unambiguous.
The managers’ professional growth must align with and reflect the objective needs of the enterprise through a positive assent to the enterprise goals. YES! The needs as expressed in our goal are objective, and the manager can meet his intrinsic career needs by fulfilling the objectives defined in the goal. This goal leaves little room for personal bias, but huge space for professional growth and development.
Managers must understand the ultimate business goals, what is expected of the manager, and how the manager will be measured. YES! This goal is objective and measurable. “Increase the operating cash generated” is clearly measurable. “Now and in the future” defines a continuous growth expectation, not a one-time deal. A trained manager can calculate the improvement in OCF. The goal to extend the knowledge and effectiveness throughout the chain is a clear direction to actions the managers must take to deliver the goal.