Supply chain and processing first steps

Supply chain and processing are usually tightly linked because in order to fulfill the promises you make, you need to be able to get the raw material required and turn it into the finished goods you provide. I say "material" and "goods" here because it is common usage, but what I am really talking about is broader than that. Whatever you promise in exchange for whatever you are promised, has to be produced in order to fulfill your promises, and hopefully, the same goes for the other entities and people you work with.

Most early stage companies who have never done this before or have not yet reached the repeatable level operate in an ad-hoc manner. They notion that they can get what they need to fulfil their promises and get it when they need it. But even at the earliest stages, this is problematic because without planning you are likely to miss things, and the worst thing you can do for your reputation is to fail to deliver on your promises to others.

Supply chain

Here is a list indicating the levels of maturity and performance associated with supply chain, the bottom level (listed first) being the lowest maturity and the bottom one the highest. Most entities run by folks who have never done this before start at the bottom (the first one listed) and work their way up.

• No fulfillment supply chain is in place.
  This will be the case until you actually fulfill and actual promise to completion, at which point you will have had some supply chain in place or you would not have completed the fulfillment.
• A fulfillment supply chain is in place for immediate needs.
  You did it once so you should be able to do it again... unless you are unable to do so because you have exhausted some resource along the way.
• The current fulfillment supply chain meets current pricing and volume requirements.
  Some folks imaging that they have reached this level because they have no orders, so can fulfill, but really this is just about companies that are regularly (or at least sporadically) fulfilling orders. Meeting these requirements usually involves having something left at the end, but in the case of companies using loss leaders to gain market share or bring in customers for the longer term, it may also apply.
• The current fulfillment supply chain has select redundancy where critical and meets current pricing and volume requirements.
  Now we are getting into the "What if" scenarios because things fall apart and if you are going to succeed you will need to compensate for it with redundant supply to assure you can continue to operate regardless of single points of failure.
• A redundant supply chain for fulfillment meets current and anticipated volume and pricing requirements.
  This is the case when the entire supply chain is redundant and flexible for increases and decreases in volumes required for promises being met. It is really hard to get rid of the last non-redundant supply of everything including people, facilities, parts, labor, training, and all the other things required to meet all promises, and it is rarely achieved.

The basis for proving you have accomplished the identified level of maturity includes providing, as and if appropriate to the level achieved:

• historical, current, and projected demands for fulfillment, including supply chain and demand chain levels and performance requirements;
• things required and available over time (past, present, future) to perform on all such fulfillment requirements;
• and adaptations to fulfillment requirements (past, present, and planned);

• supporting documents including related contracts and performance measurement of such contracts;
• analytical working papers used to generate past, present, and future projections and their adaptations over time;
• information on entities and mechanisms and their capacity to fulfill;
• sources of supplies and supply exhaustion issues, redundancy and resiliency issues;
• quality control and assurance measurement, and changes to these over time;
• purchasing, shipping and delivery documents, late and inadequate fulfillment records and how company was eventually satisfied (or not),

Processing capacity

Here is a list indicating the levels of maturity and performance associated with processing capacity, the last one listed being the highest maturity and the first one the lowest. Just like supply chain, most entities run by folks who have never done this before start at the bottom (first level) and work their way up (down the list).

• Fulfillment is non-existent or ad-hoc.
  Until you did it once you haven't done it, and the first time it is pretty much ad-hoc for most folks. As you repeat the process you reach a level where you have found most of the kinks and worked them out.
• Fulfillment can be processed at current capacity.
  Once you work out all the kinks and can do the same fulfillment in pretty much the same way each time with few if any surprises, you have gotten to this level. But growth requires more than this, and even this is not really reliable enough to grow.
• Fulfillment can be processed at current and reasonable overage capacity.
  Once you are able to handle overages and changes in volume, etc. you have the potential for growth, but importantly, you should also have the potential for sustainability unless you are losing money in the process. But if you haven't reached economy of scale here you are likely soon to be in trouble unless you can grow your way out of it.
• Fulfillment can be processed at current and anticipated capacity over time to meet a manageable range of anticipated demand at acceptable cost and performance.
  This is the level of most entities once they are reasonably mature. To get here you need enough margin or financing to support a flexible approach to allow for scale-up to all reasonably anticipated sizes.
• Fulfillment can be processed at current and all anticipated (increased and decreased) capacity in time to meet the full range of anticipated demand at close to current cost and performance.
  At this level, you should be able to rapidly scale up and down to meet changing needs associated with external disruptions as well as having strong cost controls even in the face of these disruptions.

The basis for proving you have accomplished these results, depending on the level at which you are operating, include:

• historical, current, and projected capacity for fulfillment, including internal performance requirements;
• people and things required (past, present, future) to perform internally on all requirements;
• and adaptations to meet changing requirements (past, present, and planned);

• supporting documents including related internal performance measurement;
• analytical working papers used to generate projections and their adaptations over time;
• information on available internal expertise and capacity to fulfill;
• capacity saturation issues and impacts on quality and performance, redundancy and resiliency issues;
• training, performance measurement, and changes to these over time;
• order processing and tracking documents, late and inadequate processing records and processing was eventually completed (or not), waste and shrinkage documents,

First steps for early stages

In early stages, the typical path forward is to identify the most important and urgent improvements from your current situation and take those steps. But it is also a very good idea to spend a little bit of time figuring the rest of these things out. The use of back-of-the-envelope calculations, simple analytics, some market studies, pricing, and so forth provide a great deal of insight into supply chain and fulfillment flexibility and availability. These are part of the due diligence process required when you start a company to determine the realistic availability of paths forward.

One of the biggest mistakes we see that ends companies, even when well financed, is that they did not spend the relatively small amount of time and effort figuring these things out before they start moving down a path that is destined for failure.

The way this is addressed is by modeling, analysis, and fact gathering. The facts are necessary in order to understand the time frames, costs, and availability of supply and fulfillment capacity, including most particularly the expertise of those who have performed the associated tasks or sufficiently similar ones before in similar situations. Given the facts, modeling can be used to produce results of scaling, time delays, levels of effort, and so forth, and these results can be compared to the available resources and their costs by analysis. Most attempts come quickly to identify failure modes that change the parameters, force seeking new facts, new modeling, and new analysis. Every once in a while, you will come across one that works in the sense of being able to mature over time and make sense from a standpoint of a successful business potential.

In context

However, that is just the beginning of the overall challenge. For each relatively sensible potential fulfillment strategy, set of tactics, and supply chain availability and cost analysis, the rest of the business has to be taken into account. How are you going to sell it and and still have enough left to operate the management and other aspects of the company? How does it scale and what are the limits of each thing you need for supplies and each thing you need to do to fulfill? How will you assure quality when you have multiple suppliers and fulfillment mechanisms for the same resulting product or service? Are the components really readily replaceable?

Step by step

Every step up the ladder of supply chain and fulfillment chain takes increasing effort to attain and sustain for complex businesses, but for simple entities they can be very straight forward. For example, software as a service companies have lots of options today for suppliers for essentially everything they need, but if you are in the submarine business you will find a far smaller set of suppliers, and of you make custom shoes in volume, you will likely end up making some of your own equipment and have a more complex supply chain. Similarly, fulfillment of some items takes seconds and can be fully automated, while other items take months to years to complete and involve many complex processes involving many steps with different expertise involved.

Conclusions

Supply chain and fulfillment maturation is key to long-term success of companies, and many failures are the direct result of inadequate planning and inability to mature in these critical areas.

More information?

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In summary

Plan for supply chain issues and map them into fulfillment requirements at least one step ahead of your current efforts to have any hope at success.