June 17, 2016
Look beyond supply chain software: Why alignment and measurement are critical factors for supply chain projects in steel
By: Dr. Andrew Zoryk

During the past 25 years, I have witnessed many successful and “less than successful” supply chain improvement projects by steel and mill products companies. Through this experience, one thing is abundantly clear—software package selection is not the most critical factor to achieve key supply chain improvements, such as on-time-in-full delivery performance or reduced inventory and order lead times.

Companies frequently assume that implementing a new software tool will produce the desired business results. Obviously, software plays an important role and must provide key functionality. But there are many other critical factors that can negatively impact a supply chain improvement program, including:

  • Inconsistent business rules and priorities across the company, such as misalignment between different time horizons and planning cycle times.

  • Inability to align the organization to drive effective supply chain management.

  • Poor measurement of metrics that track adherence to target policies and procedures.

These topics are difficult to address so they are often downplayed. As such, I’ve taken a closer look at the issues as outlined below and provided some insights from successful supply chain projects.

Process alignment: The drive to digitalize a steel company’s business processes is stressing the interdependence and impact of supply chain processes on other end-to-end business processes. Think order-to-cash, purchase-to-pay and plan-to-report—these processes need to be carefully determined and aligned. If these impacts are not properly addressed early on, it can be difficult to deliver sustainable supply chain improvement.

Organizational alignment: The future organization needs to be aligned with the new supply chain processes. In the Sales and Operations Planning (S&OP) process, for example, there is a commercial view and a supply view (as well as others). Ensuring that the new supply chain organization reflects the appropriate balance and influence of these organizations in the various decision-making processes is vital. Who decides, for instance, the production route for making a specific customer order? In many steel companies, the sales side has traditionally driven the decision, often at the expense of planning department objectives.

Across the broader supply chain organization, it is also essential to define the key roles, responsibilities and accountabilities that the sales team will have. How will communication be performed? How will sales representatives be measured—against their unconstrained sales forecast or against the final (constrained) sales quotas resulting from the S&OP planning process? And should they care about forecast accuracy?

Additional measurement indicators: Companies regularly use key performance indicators (KPIs) to measure the success of a supply chain project. However, other indicators should also be employed, namely key conformance indicators and plan quality indicators.

A challenge in any supply chain project is to confirm that the plans being proposed by the software tools are actually being used to drive the business. For example, do the manufacturing shop floor workers actually produce the planned orders resulting from the planning tool? (If not, why not?) To measure adherence to the plan, steel companies should define key conformance indicators for the project.

Steel companies also need to counteract the variability resulting from employees who are involved in the planning processes themselves. Returning to the example of scheduling, production schedules are often created by different people on different days or shifts. Since the employees performing these tasks typically have many years of experience, they may have their own subjective interpretation of what constitutes a “good schedule.” To ensure business process consistency, it is necessary to define plan quality indicators that allow the planners and business to objectively determine which of the alternative scenarios is best.

In conclusion, the successful delivery of a supply chain transformation in the rapidly changing digital world requires a clear focus on both business and technology. By failing to address the factors discussed above, steel companies may be unable to realize the full potential value of their supply chain—a risk no steel company can afford in today’s highly competitive environment.

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