Managing the supply chain process involves a series of constant changes, but many companies fail to manage these changes well. This is especially true where organizational structures reinforce cost control within segments of the supply chain – individual supply chain links – instead of across the complete cost chain.  In the words of the great golfer, Robert (Bobby) Jones, “It is nothing new or original to say that golf is played one stroke at a time. But it took me many years to realize it.” 

Many companies have yet to realize that a failure to evaluate supply chain changes in the context of the entire supply chain process will sub-optimize both total cost and service.
For instance, we continue to see organizations seeking to optimize their transportation spend without consideration of the impact on forward storage or handling costs.  The reverse is also true; some organizations evaluate storage or distribution alternatives solely on the handling or storage rates attainable.  Both approaches are myopic and will frequently inflate costs. 

A primary cause of a sub-optimized supply chain process is management silos.  When silos exist, either formally or informally, supply chain changes are typically evaluated in terms of individual supply chain links.   For example, when transportation services are procured separately from the product handling or warehousing purchase, there is a disconnect.  This disconnect can be amplified or reinforced by a bonus or incentive program that rewards managers for cost reductions for their fraction of the chain, often at the expense of another supply chain link. 

Cost is an important component of supply chain optimization but so are service and reputation.  Narrowly focusing on a portion of the supply chain process can also impact service levels and firm reputation.  In the instance of service, the lowest cost provider can sometimes gain business by under-estimating requirements, which results in a) poor service levels against KPIs, and/or b) added, unbudgeted costs via accessorial charges.  Poor service impacts rolling up from the end customers are hard to quantify but need to be measured as part of the evaluation of providers.  Impacts to reputation are even harder to estimate but can be lasting.  When your warehousing provider is shown to have a poor safety record or has engaged in illegal and abusive labor practices, all parties are tarred with the same brush.

When it comes to your supply chain, are you managing the chain or the link?  If it’s the latter, organizational structures and incentives are often the root of the problem.  

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