Supply Chain Value Mapping
Last week my 8-year-old daughter went to her primary care physician for her annual “wellness checkup.” If you are a parent, you realize the importance of frequently taking your children to the doctor to check their health. The fundamentals of this proactive approach hold true in the world of commerce as well.
Industries, corporations, and personal businesses alike should perform advanced screenings of the components that drive the health of their business model. Supply chain value mapping allows corporations to analyze processes from origin sourcing to end-user consumption. Business elements are poked, probed, analyzed, diagnosed, and maximized for unparalleled performance. The goal is simple: produce the highest quality goods or services at the lowest cost and differentiate the business model through customer satisfaction.
Put a stethoscope to your business
A supply chain value mapping analysis is somewhat dependent on the business model, but it commonly encompasses an analysis of manufacturing; origin sourcing; vendor compliance and standardization; transportation; and the financials that maximize economic profitability (i.e., capital and fixed asset utilization, day sales outstanding, days of inventory on hand, and the cash-to-cash conversion cycle). In other words, every critical business function and process should be analyzed.
Check your company’s vitals
There are two critical components of the value mapping process: the white board sessions required to talk through every component of the supply chain and begin to visualize how one process impacts another, and the involvement of executive decision makers within the organization.
According to Lee & Snyder (2010), “Visualization brings a deep understanding and major breakthroughs in productivity and other performance. It leads to consensus on systemic problems and remedies. While finished charts communicate information about a situation, the real value is the mapping itself. This is where insights grow, paradigms shift and consensus builds” (p. 123).
The whiteboard session should include cross-functional participation from key business units. Think of it in terms of a family doctor. The family doctor doesn’t have the skill-set to perform all medical treatments on their patients. That’s why doctors bring in specialists, and the same goes for a company’s supply chain.
Be diagnosed by a business specialist
White board value mapping participants should include high-level executives that understand the business model and can influence change. During the white board session, a Project Manager is assigned and acts as the “lead surgeon” that will set the agenda, define deliverables, coordinate timelines and oversee the process to completion. Other participatory executives should include:
- Finance – Finance will baseline key financial data that drives shareholder wealth and value. Changes to a supply chain should positively impact the cost of goods sold, purchases outstanding, day sales outstanding, inventory turnover and operating ratio, and ultimately a company’s economic profitability. Our corporate patient can’t survive without a thriving heartbeat of strong financials.
- Procurement – Procurement will have an impact on origin sourcing, purchasing, and contractual terms of corporate agreements. In short, their insight and participation is priceless. The value mapping session may, for instance, demonstrate a reduction in transportation cost if product is sourced from Asia as opposed to the current European model. Procurement personnel will have to determine the feasibility of a supplier change and the cost-to-value impact.
- Information and technology services – The value of the flow of information impacts every component of the supply chain and connectivity to the various channels of communication must be explored. For instance, one may be able to reduce their day payable outstanding by providing proactive ship notification and delivery confirmation to their end consumer. Getting paid faster is good because it impacts one’s working capital. After all, you’d rather have money sitting in your company’s account earning interest or investing in research and development than waiting to get paid.
- Supply Chain – Many organizations have created supply chain executives and their involvement and expertise is paramount to fostering change. In fact, if there is a supply chain division within the organization, the vice president of the department should be the value mapping project manager.
- Sustainability – More and more organizations are realizing the benefits of sustainability. It’s not only good for our environment but it can also work to reduce cost and prosper growth. As companies work to shrink their carbon footprint, savings can be realized and financial benefits can be obtained.
According to UPS CIO David Barnes, UPS used advanced diagnostics to determine the maximum time a delivery vehicle should idle and they measure the effectiveness of each driver daily using a process called “telematics.” Barnes states, “We’ve been able to reduce idling time by 15 minutes per driver per day. With 90,000 vehicles, that one feature is worth 1.4 million gallons of fuel a year“(Forbes). This one element reduced UPS’s cost to serve and had a positive impact on our environment. As your doctor will tell you, green is good.
- Operations – A total quality management approach to optimization calls for all organizations to analyze their operation as it pertains to their entire supply chain model and customer service experience. “Operations,” after all, is commonly the heart of the organization pulling and pushing parts, product, and servicing the customer.
- Vendors and Suppliers – In addition to internal participation, companies should include their top vendors and suppliers to participate in open discussion. This means knowing how recommendations, decisions, and possible changes will impact their suppliers and vendors. It does a company no good to recommend a solution that cannot be implemented by their source supplier.
Prescribe success for your business
Supply chain value mapping has the ability to influence change that will differentiate an organization from its competition, service a client base with a prosperous value proposition, reduce internal cost and ultimately drive economic profitability.
The recommendations derived from a white board session are often the easy part. The difficulty—as is often the case—is in the doing. Recommendations without real change are like a patient who is prescribed medicine to cure their illness but refuses to take it. It won’t do anything. So, my prescription for your company is to do a value mapping session, create real change agents and implement your plan to completion.
Lee, Q., & Snyder, B. (2010). Value stream & process mapping. Bellingham, WA: Enna Products Corporation.