Sometimes emphasizing efficiency in a supply chain can lead a company too weak performance
A recent visit with a medium-sized, but very fast-growing manufacturing firm in its industry has confirmed some earlier suspicions about some of the effects of the recession on how a company is managed. This particular company has built its incredible start-up success from several strategic miscalculations that have been made by a few of the larger suppliers in its market.
Those larger firms have experienced a high number of top management changes recently as a byproduct of the recession. In addition to being new to their companies, most are also new to this particular industry and with this newness, they bring some new approaches to managing the supply chain.
Should a Supply Chain be Efficient or Responsive?
With their arrival, there appears to be emerging a new vision of what effective supply chain management looks like now at these larger firms. The management of the company visited though does not share this vision, and therein lies the difference in its performance and the key to the success this company is experiencing.
To be effective, some supply chains have to be characterized by their efficiency. Companies in any make-to-stock business are good examples of this characteristic. The continuing challenge here is to wean out any and all inefficiencies from this supply chain. The Toyota manufacturing system is a good example of a success story using this model.
On the other extreme are supply chains that are characterized by their need for responsiveness. Fire departments are probably the extreme example of this type of organization, but farther down the scale is the make-to-order company. Promotional products supplier and distributor organizations are good examples of this model.
The Hidden Cost of Efficiency
In this supply chain consulting article, the continuing challenge is to make the entire chain even more responsive with ever-shortening lead times and ever-growing abilities to respond to last-minute changes.
So what has happened in the industry this firm is competing in, in the past few years? It appears these new managers with efficient supply chain backgrounds and a very different picture of “what good looks like” are having an unexpected effect. With that efficiency frame of mind, evils like the inventories and staffing levels that contribute to responsiveness are drastically reduced and the new language is about efficiencies and how much is being produced with these significantly reduced inventories and staff.
Just like by eating the seed corn, it is possible to appear well-nourished and effective over the short term with this approach. The danger is down the road when those seeds are needed for the future of the enterprise.
The firm covered in this visit did not consume its seed corn though. With its higher than the “new normal” inventories and staffing levels, it is building its market share steadily and it is accomplishing this by high levels of responsiveness to a market prone to many last-minute orders and changes to those orders.