Avoiding the 7 Myths of Supply Chain Management

In the fast-paced business environment, people need to make decisions quickly, so many of them rely heavily on what they learn from the experiences of others.

This shortcut technique can be applied conveniently but the result is often not guaranteed.

This article will examine these logics, the 7 myths of supply chain management and explain why you should avoid them.

Background
While doing the research for the book ”Operations Rules: Delivering Customer Value Through Flexible Operations”, Professor David Simchi-Levi of MIT found that there are certain kind of barriers that prevent companies from achieving better performance.

These barriers are basic principles that make lots of sense but often yield less than desirable results.

These “myths” are presented on the infographic below and will be explained more in the following section.

Today’s Business Challenges
Operations and supply chain pundits have long emphasized the importance of strategies such as just-in-time, lean manufacturing, off-shoring, and frequent deliveries to retail outlets. However, with the recent changes in the global economy, rising labor costs in developing countries, and huge volatility in oil and other commodity prices, some of these strategies may imperil the firm’s supply chain and its ability to compete successfully.
Operations Rules Chapter 1: The Value of Operations, Dr. David Simchi-Levi

1) Reduce Costs at All Costs
There are 2 basic ways to increase revenue, increase sales or reduce cost. To increase sales, you need to create value to products or services but adding value is hard and require lots of knowledge. That is why cutting cost, which is a very intuitive way of thinking, is a very popular strategy anywhere in the world.

However, cutting cost can hurt both customers and companies. For example, when company like Toyota chose to cut cost during product design stage, the result is faulty car and the legendary JIT manufacturing can’t save them for this catastrophe.

2) Invest in Maximum Flexibility
Many companies create a manufacturing facility that can produce many different product families in hope that they can increase product mix and satisfy customer’s demand quickly. Is this strategy expensive? To answer real quick, yes, flexible plant is expensive due to higher set-up time required and lower machine utilization. Is there any other ways to increase flexibility without investing too much money?

3) Apply the Same Strategy Across the Board
Can Dell use “Built-to-Order” strategy to attract customer at retail stores? The answer is no because these customers need something cheaper that they can bring back home on the same day. This customer segment doesn’t see “product customization” as a value. That’s why now Dell develops different supply chain strategies for different customer segments.

4) Deploy the Latest, Greatest IT
In 2000, Nike invested $400 million for newest supply chain system. Anyway, there were lots of problems during implementation stage and the consequence was $100 million in lost sales.

5) Ignore IT, It’s Just Another Commodity
Professor Simchi-Levi explained further that, implementation of mature technology in conjunction with business process improvement always deliver better results. BTW, a bit mature technology is less expensive too!

6) Treat CSR as Charity
Corporate Social Responsibility is definitely not a charity but a solid strategy. For example, cosmetics company, The Body Shop, develops “Against Animal Testing” campaign to attract new customer and it works! Social and environmental issues are the new way supply chain practitioners can help company to create value.

7) Leave Operations to Functional Areas
Supply Chain Management can definitely create value. Considering how companies like Amazon and Walmart create value through operation strategies.

(MORE: Amazon on SC24/7)

Are there any other myths that should be discussed and debunked? Let us know your comments (below).

Source: SupplyChainOpz

In his book, Operations Rules, MIT’s Dr. David Simchi-Levi develops the science of systemic operations optimization using newly developed tools like the Risk Exposure IndexTM. He offers a set of scientifically and empirically based rules that management can follow to achieve a quantum leap in operations performance. Simchi-Levi’s rules—regarding such issues as channels, price, product characteristics, value-added service, procurement strategy, and information technology—transform operations and supply chain management from an undertaking based on gut feeling and anecdotes to a science. Download Operations Rules Chapter 1: The Value of Operations Now!