‘V’ words describe the strategic role of supply chains

Roger OakdenSupply Chains & Supply NetworksLeave a Comment

Trends from the crystal ball

What are the 3Vs?

In the late 1990s, the functions that are now viewed as the Supply Chains group – Procurement, Operations Planning and Logistics, had their major objective as cost reduction. But some argued this was a short term approach and a more strategic view of the disciplines and the role of supply chains was required.

To emphasise the importance of taking a more strategic view of the elements required to be understood and managed, the research organisation Gartner promoted the 3Vs of supply chains. These are:

Variability: understand and respond to the uneven patterns of re-ordering to meet demand and supply requirements and SKU replenishment times (that is latency) at customer and supplier locations. This has buffers of inventory and capacity in the supply chains to be managed. Also, for improved planning, identify the items that can be standardized against those that must be unique.

Velocity: the speed at which a supply chain operates. This is reflected in the Inventory Velocity, which equates to the measure of inventory turns (and working capital utilization) at each link in a supply chain. Excess inventory slows the velocity of SKUs through their supply chains, and influencing bottlenecks of capacity, labour, and warehouse space, which increases cycle times and impacts margins.

Visibility: view what is happening through the core and extended supply chains in more granular detail and in potentially in real-time

The order of importance for each category depends on where a company is positioned in a supply chain, the distance between supplier and buyer and the size and weight of the SKUs. Importantly, the events of the past years and expected changes to the design of supply chains places these elements as competitive differentiators within an organisation’s Supply Chains group .

Are the 3Vs sufficient?

Before considering this question, answer a question about the Aim of the Supply Chains group. Without the required product at the customers location, delivered in full and on time, with accuracy of ‘paperwork’, then the combined efforts of Marketing in product design and positioning and Sales to have the customer place the order, are in vain.

The piece that the Supply Chains group provides to the puzzle is providing Availability – able to satisfy customer needs. This requires: the time-related positioning of internal and external resources to provide goods and services for customers at the lowest total cost. Availability applies across two areas:

  1. availability of physical items (in terms of place, time and quantity)
  2. availability of operational support and infrastructure (the maintainability and supportability of products, facilities and equipment)

Availability is the calculated from the probability of an organisation to deliver items and associated services In Full, On Time with Accuracy (DIFOTA), to meet customer requirements. These requirements for Availability flow from the process established within the Sales & Operations Plan (S&OP).

Availability is influenced and affected by Uncertainty in supply markets, at suppliers and contractors and within customers and their markets; at end users and internally. To better understand Uncertainty requires the Supply Chains group to evaluate, analyse and rank Uncertainties, to structure them as Risks within the Supply Chains Network Risk Management process.

However, ‘speed-to-market’ for new and revised products continues, ‘long tails’ of SKUs and their inventory does not show signs of diminishing, so situations where about half of SKUs provide about four percent of sales could increase. The ‘speed to market’, demand variability for low sales SKUs and inventory holding costs in terms of warehouse space and administration, will place pressure on the Supply Chains group to improve their performance; but in what areas?

There is likely to be a continuing drive for improved Visibility through supply chains, that enables participants to have a clearer understanding of events and their risks. To reduce Variability in supply and improve the Velocity of delivery, there is an increasing movement by companies located in developed countries towards a more regional approach to the supply for some input items (purchased or contract produced). The preference ranges across near-shoring, ‘friend’ country-shoring and on (or re)-shoring (for high automation content items).

These changes will be encouraged by the increased labour costs in Asia. For companies with already established business relationships in Asia there is a move to share in the growth of intra-country trade within the region, so rather than a single supply source, there could be a ‘plus 1 or 2’ policy, especially for labour intensive supply items. Of course, initiatives to improve the workings of supply chains does not automatically result in them becoming less complex!

Are additional Vs required?

While it appears that the 3Vs remain relevant, the situation in the 2020s does require two additional Vs. The first is the level of Vulnerability that your organisation is willing to incur to potential risks in supply markets. An audit is required to identify for an item, where in the supply chain the business may be vulnerable, the level of response to a disruption in the supply chain and alternative sourcing strategies and other resilience measures to reduce Vulnerability.

The other is Volatility, which refers to the speed of change in an industry, a market or the world. Events can be unexpected, the pattern is unstable, with the duration unknown. Where possible, volatility is addressed through building a resilient and Agile supply chain that delivers the same cost, quality and customer service, irrespective of demand and supply volatility and timing

The benefit of using the Vs is as a handle, to position supply chains as a strategic and integral part of your organisation and not as a cost centre with limited roles and responsibilities.

Share This Page

About the Author

Roger Oakden

LinkedIn X Facebook

With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

Leave a Reply

Your email address will not be published. Required fields are marked *