Managing the ‘4Rs’ As we move rapidly into the era of supply chain competition a number of principles emerge to guide the supply chain manager. These can be conveniently summarised as the ‘4Rs’ of responsiveness, reliability, resilience and relationships.
In today’s just-in-time world the ability to respond to customers’ requirements in ever-shorter time-frames has become critical. Not only do customers want shorter lead times, they are also looking for flexibility and increasingly customised solutions. In other words, the supplier has to be able to meet the precise needs of customers in less time than ever before. The key word in this changed environment is agility. Agility implies the ability to move quickly and to meet customer demand sooner. In a fast-changing marketplace agility is actually more important than long-term planning in its traditional form. Because future demand patterns are uncertain, by definition this makes planning more difficult and, in a sense, hazardous.
In the future, organisations must be much more demand-driven than forecastdriven. The means of making this transition will be through the achievement of agility, not just within the company but across the supply chain. Responsiveness also implies that the organisation is close to the customer, hearing the voice of the market and quick to interpret the demand signals it receives.
One of the main reasons why any company carries safety stock is because of uncertainty. It may be uncertainty about future demand or uncertainty about a supplier’s ability to meet a delivery promise, or about the quality of materials or components. Significant improvements in reliability can only be achieved through re-engineering the processes that impact performance. Manufacturing managers long ago discovered that the best way to improve product quality was not by quality control through inspection but rather to focus on process control. The same is true for logistics reliability.
One of the keys to improving supply chain reliability is through reducing process variability. In recent years there has been a considerable increase in the use of so-called ‘six sigma’ methodologies. The concept of six sigma will be discussed in more detail in Chapter 10 but in essence these tools are designed to enable variability in a process to be reduced and controlled. Thus, for example, if there is variability in order processing lead times then the causes of that variability can be identified and where necessary the process can be changed and brought under control through the use of six sigma tools and procedures.
Today’s marketplace is characterised by higher levels of turbulence and volatility. The wider business, economic and political environments are increasingly subjected to unexpected shocks and discontinuities. As a result, supply chains are vulnerable to disruption and, in consequence, the risk to business continuity is increased.
Whereas in the past the prime objective in supply chain design was probably cost minimisation or possibly service optimisation, the emphasis today has to be upon resilience. Resilience refers to the ability of the supply chain to cope with unexpected disturbances. There is evidence that the tendencies of many companies to seek out low-cost solutions because of pressure on margins may have led to leaner, but more vulnerable, supply chains.
Resilient supply chains may not be the lowest-cost supply chains but they are more capable of coping with the uncertain business environment. Resilient supply chains have a number of characteristics, of which the most important is a business-wide recognition of where the supply chain is at its most vulnerable. Managing the critical nodes and links of a supply chain, to be discussed further in Chapter 10, becomes a key priority. Sometimes these ‘critical paths’ may be where there is dependence on a single supplier, or a supplier with long replenishment lead times, or a bottleneck in a process.
Other characteristics of resilient supply chains are their recognition of the importance of strategic inventory and the selective use of spare capacity to cope with ‘surge’ effects.
The trend towards customers seeking to reduce their supplier base has already been commented upon. In many industries the practice of ‘partnership sourcing’ is widespread. It is usually suggested that the benefits of such practices include improved quality, innovation sharing, reduced costs and integrated scheduling of production and deliveries. Underlying all of this is the idea that buyer/supplier relationships should be based upon partnership. Increasingly companies are discovering the advantages that can be gained by seeking mutually beneficial, long-term relationships with suppliers. From the suppliers’ point of view, such partnerships can prove formidable barriers to entry for competitors. The more that processes are linked between the supplier and the customer the more the mutual dependencies increase and hence the more difficult it is for competitors to break in.
Supply chain management by definition is about the management of relationships across complex networks of companies that, whilst legally independent, are in reality interdependent. Successful supply chains will be those that are governed by a constant search for win-win solutions based upon mutuality and trust. This is not a model of relationships that has typically prevailed in the past. It is one that will have to prevail in the future as supply chain competition becomes the norm.
These four themes of responsiveness, reliability, resilience and relationships provide the basis for successful logistics and supply chain management. They are themes that will be explored in greater detail later in this book.