Supply Chain Review - What's in a Policy?
Many organisations do not have well-defined, broadly circulated and regularly reviewed supply chain policies, writes Adam Kidd.
We really shouldn’t be having this conversation, however it is often the simple things that are neglected or taken for granted. Let’s start with a few questions and see if any of the following situations sound familiar:
- It is unclear who owns, adjusts and approves the forecast within your organisation, and what this forecast should reflect
- There is confusion about which customers to prioritise over others and operational staff don’t know where to refer or how to make these decisions
- There is a lack of consistency and transparency surrounding the new item introduction process
- Many informal meetings need to be held to make decisions outside of the usual IBP cycle
Many mature, well performing organisations have a robust policy setting framework which drives adherence to organisational values and forms the foundation on which supply chain processes and capability operate.
As the name suggests, supply chain management involves the synchronisation of several elements of an organisation and its customer and supplier network. However, the complexity of these networks can make integration difficult to achieve, and it is often not clear what is required or what rules to follow.
An integrated business planning process can be a powerful tool, however without a strong policy foundation, the power of the process can be negated. For example, demand review meetings may be ineffective if there is a lack of clarity surrounding which forecast horizons are owned by sales and which are owned by marketing.
The Value of Good Policy
In a best-in-class environment, policies should cover the whole scope of the integrated planning process – from procurement through planning and manufacturing to execution and customer order fulfilment. Together, policies should expressly state what should be executed by the organisation in its current state, and as such, help manage trade-offs and decisions that drive optimal outcomes based on your organisation’s supply chain strategy.
Policies also function as a tool providing clarity and enabling team-members to focus on value-adding activities, rather than having to individually navigate confusing circumstances. For example, is your strategy to be a low-cost provider or a customer-service focused supplier? Is this cascaded to and understood by your customer service staff when they are dealing with a customer order requires expediting? How do they go about making this call? Staff should not be going through the decision-making process every time such a circumstance arises, not only because of varied outcomes possible, but also because it wastes time. Drive consistency and efficiency by communicating organisational principles in your policies.
Implementation Approach & Common Issues
Begin by agreeing on all the policies your business requires – regardless of whether they currently exist or not. These may span procurement and sourcing through inventory management to customer service, as relevant to your organisation.
If faced with tackling a large suite of potential policies, it may be pragmatic to prioritise those that address your pain points. For example, if forecast accuracy is an issue, look to establish policies around forecast ownership and forecast generation. If inconsistent customer service is a problem, develop policies which establish customer priorities.
It may also be worthwhile to focus on foundational policies which convey organisational and supply chain strategy. With these guidelines established, the content of subsequent policies will fall into place more easily. Whatever your strategy, you need it to be lived and breathed throughout the organisation.
Do you hear complaints of one hand not talking to the other? This may be symptom of a lack of coherent policies. Too often strategic planning and various business units are run in isolation of each other, when a consistent, coherent approach is required. Facilitate the cascading of current organisational strategy throughout the organisation by utilising appropriate policies.
It is also important to recognise the policy management process is a journey. Just as the organisational strategy and operating environment changes and planning maturity evolves, so too should an organisation’s policies. While policies may take into account the five-year strategic plan, they should also consider current capability. There is no point having a policy which cannot be executed to or is seen as irrelevant - this will just erode confidence in the policy process.
Another common resistance to defining and using policies is that they will prevent employees ‘getting on with the job’. Should you discover that your policies slow down or confuse the decision making process, this would suggest an issue with the policies themselves. Well-constructed policies are tools which focus on action, make administration easier and, as already stated, drive the right results.
Policy Maturity Framework:
Cutting Edge Supply Chains
Consider two FMCG organisations – ABC Ltd and XYC Ltd. Both have predicted a shortage of inventory for a key product.
At ABC, where policies are inadequate, the replenishment planner does not know how to proceed, so decides to discuss the issue with key stakeholders. The account manager for customer 1 advises the planner to transfer stock from a warehouse in another location, even though this may result in cutting orders for customer 3. The account manager for customer 2 advises the planner to source stock from an alternate supplier, even if this will cost more. Meanwhile, the inventory manager says it’s best to do nothing and wait for the situation to resolve itself, as this is the most cost-optimal decision, and anyway, the customer forecasts were wrong in the first place. The resulting situation is one in which there are many informal meetings, much agitation and time-wasting and ultimately, inconsistent outcomes.
Alternatively, at XYC, a conscious effort has been made to establish comprehensive, relevant policies. Here, when the replenishment planner becomes aware of the predicted shortage, they consult their relevant policies on customer segmentation and managing exceptions. As this situation falls within the thresholds established in these policies, the planner is able to make the decision to source stock from the alternative supplier – in a quick, non-disruptive manner that is consistent with organisational priorities.
In our experience, policies in best-practice organisations are not static documents that sit nicely packaged on a book-shelf, but are instead regularly used, actively discussed, dynamic documents found throughout the organisation.
The policies resulting from this approach drive accountability, ownership, consistency and clarity – essential characteristics of a mature integrated business planning process.
Good Elements of good policy
- We advocate restricting documents to one page. This allows sufficient space to clearly state requirements and priorities without providing an overkill of detail. Where the “one-page” rule may be compromised, more detailed or supporting documentation may be necessary – but try to maintain a one page summary for quick reference.
- Policy Name & Reference Number: while it may seem obvious, ensure the policy name and number is referenced in a consistent manner throughout the organisation.
- Purpose: establish what the policy is addressing or clarifying, and if possible, a brief statement of the effects or benefits following this policy will have.
- Description & principles: this will most likely be the bulk of the policy document, as it should clearly establish organisation guidelines and courses of action required.
- Responsibilities & owners: using your own organisational terminology, this section should establish ownership & accountabilities
- Refresh timeline and circumstances: It is recommended the regular review period is at least annually - and in addition, which circumstances trigger an exceptional review.
- Associated Documents – as policies should not describe specific process steps, the documentation may refer to related processes, procedures as well as other policies for this information.
- Related KPIs or performance metrics –to understand or indicate compliance.
- Policy history and changes – to track the evolution of the policy and related decisions over time.
- Considerations for implementation – such as contingencies, requirements or capabilities.
Adam Kidd is a Consultant at GRA, an expert consulting firm specialising in supply chain strategy, planning and execution.
Read the entire article here http://www.gra.net.au/Article_Whats_in_a_Policy.htm
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