Efficiency and agility outside the 4 walls
No organisation – neither a production company, nor a service, nor a non-profit organisation – operates isolated. There are always ‘customers’ and ‘suppliers’; and usually also other external stakeholders, even though these are not always considered.
The efficiency and agility of an organisation does not only depend on its internal operations; it is also determined by the interaction with its environment, more likely its customers, suppliers and other stakeholders.
Interaction with suppliers
The automotive industry is well-known for its deep integration with suppliers within the Supply Chain. Indeed, manufacturers of parts are often located in the neighbourhood of their customer (assembly company); sometimes even on the assembly site itself. Especially when the supplier delivers just-in-time, with little or even no stock, this helps to avoid transport risks. It speaks for itself that the business processes of such partners should be harmonized, in order to work as efficiently as possible outside the 4 walls as well. Hence, the knowledge of each other’s business processes is obviously very important.
Other forms of alignment
Notice that interaction isn’t always only related with time and efficiency. Toyota, e.g. publishes its “Green Purchasing Guidelines”, and suppliers should best be aware of these, if these want to be or to stay a loyal partner. Needless to mention that such guidelines have a considerable impact on the business processes of suppliers. Suppliers who consider their clients as partners will also pro-actively participate in the development of products or services for their customers. Of course, the mutual knowledge of each others business processes will be essential for this.
Interaction with customers
Also the knowledge of the buying behaviour of customers is primordial. The better you can predict what and when it will be bought, the more efficient you can organize the work.
The Bullwhip effect
If you have experienced the “Beer distribution game“, you will know what the Bullwhip effect includes: a small fluctuation at the customer or market demand will be reinforced across the Supply Chain, resulting in significant inefficiencies in the production. As a consequence, the producer has to foresee large stocks to respond to the inaccurate demand in time. If not, it will lose customers to competitors who can deliver in time.
The more parties operate in the Supply Chain, the stronger this effect will be. Below scheme illustrates the growing “distortion” while the “distance” between the respective party and the final customer – or the market – increases. Hence, the parts manufacturer, which is the party that is furthest from the market, is the most exposed to distorted information about the demand for its products.
Direct information exchange can be a solution for this: the faster all the parties, the parts manufacturer included, are aware of fluctuations in the market, the more efficient everybody will be able to work. The blue arrow, in below figure, illustrates how the Bullwhip effect could be reduced by (nearly) real-time information from the market to the parts manufacturer.
Companies with an integrated Supply Chain already apply this principle successfully for quite a long time. People of the Supply Chain Management department of Zara know e.g. pretty fast which articles are sold in the many shops, so that inventories become superfluous. Such an integrated Supply Chain can also exist between companies or organisations; provided that the business processes of those are optimally aligned. And for this purpose, the knowledge of each others business processes, down-to a certain level of detail, is very important. Another reason for well knowing, modelling and documenting your own business processes.
Customer Journey Modelling
Very customer-oriented organisations assess the customer experience and take this into account in their own process design; so to reach the highest possible customer satisfaction. They use e.g. ‘Customer Journey Modelling’. Undoubtedly a subject in itself for a future blog.
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