David Simchi-Levi: “Operations management is often seen as too functional”

Supply Chain Magazine: “How did you come up with the title ‘Operations Rules’ for your new book?”

David Simchi-Levi: “The title of my book can be explained in two ways: Most companies concentrate on mergers, acquisitions, finance and customer value; operations management is often seen as too functional. But my book illustrates how operations management should be given equal status. I have also identified the rules that businesses should follow if they want to reach excellence.”

 SCM: “What does the position of Chief Operations Officer entail?”

“When a business has a COO, it doesn’t necessarily mean that supply chain management is high on management’s agenda. Lots of companies delegate these activities to lower management. Zara, Wal-Mart, Amazon and Dell each has its own, clear supply chain strategy. It’s not just a question of appointing a Chief Supply Chain Officer.”

 SCM: “What rules do you stick to when it comes to applying IT in the supply chain?”

“It is crucial to make the most of IT in the activities that fall within the supply chain: purchasing, production, distribution and services. Fashion retailer Zara works with a time to market system of two to five weeks with enough flexibility to be able to adapt quickly. They have had a bespoke IT system designed to suit their strategy and haven’t opted for a sophisticated ERP-system.”

 SCM: “Your book deals with the topic of flexibility at quite some depth. How can a business make its operations more flexible?”

“I define flexibility is the ability to respond to change. This can be implemented in terms of products, processes and system design. In order to improve your processes, you need to look at lean manufacturing. When it comes to system design, you need to look at your supply chain network and in general, you can create more flexibility by reducing lead times. A company that switches to faster container ships will reduce its lead times by at least twenty percent. But when you cannot make anymore changes here, it’s time to look at your network. Flexibility is essential but differs from company to company. A major kink in the chain like the volcano erupting in Iceland for example, puts a lot of pressure to be flexible on a lot of companies.”

SCM: “What are the new rules for supply chain management?”

“My new rule for flexibility is: invest now or pay the consequences later. Toyota spent too much time focussing on saving costs and is now faced with the enormous cost of calling back faulty products. In reality, flexibility doesn’t have to cost a lot, whilst the results can be considerable. Here is a list of don’ts when it comes to operational rules: don’t focus solely on reducing costs, don’t use the same supply chain for all your products, don’t invest in redundancies in order to create flexibility, and do not invest in the best IT system and ignore IT. These are all things you really shouldn’t do!”