(1) Supply chain efficiency focuses on internal processes and minimizing costs, while effectiveness considers external impacts on customers, stakeholders, and the supply chain as a whole. (2) A supply chain can be efficient but not effective if it optimizes internal functions at the expense of external needs. (3) Boeing's outsourcing strategy for the 787 Dreamliner improved efficiency but hurt effectiveness by causing major delays and cost overruns that negatively impacted customers.
Supply Chain Efficiency vs Effectiveness: Internal vs External Focus
1. Post Link: Supply Chain Efficiency vs. Effectiveness
Supply Chain Efficiency vs. Effectiveness
Supply chain managers at wholesale distribution and manufacturing companies might think that
if a process is efficient, it is also effective. In fact, that may not always be the case.
But how can a supply chain be efficient, yet not effective? It can happen when a company is
more concerned with internal process improvements than the needs of its customers,
stakeholders, or the supply chain as a whole.
It can also happen because of the relationship between the two concepts. Efficiency and
effectiveness are interrelated, yet independent. A supply chain therefore could be efficient and
effective, neither efficient nor effective, efficient but not effective, or effective but not efficient.
Confused? Let’s take a closer look at these concepts.
What is supply chain efficiency?
According to a white paper released by Industrial Marketing and Purchasing (IMP) Group,
organizational efficiency is defined as an internal standard of performance. Supply chain
efficiency is related to whether a company’s processes are harnessing resources in the best
way possible, whether those resources are financial, human, technological or physical.
2. Notice that the definition of efficiency says nothing about improving customer service. You
might have a very efficient supply chain that minimizes costs for materials and packaging but
leaves your customers fuming when the product they receive is not up to their specifications.
The term efficiency is also a very abstract one. People have different definitions, and
again…what may be deemed “efficient” in one part of your supply chain may adversely affect
another area of your business.
What is supply chain effectiveness?
The definition of effectiveness, on the other hand, is more externally focused on results.
Organizational effectiveness is defined by IMP group as an external standard of how well an
organization is meeting the demands of the various groups and organizations that are
concerned with its activities. These groups might include customers, partners, suppliers and
vendors.
So, to measure your supply chain effectiveness, take a look at not just what is going on within
the walls of your own company, but how this is ultimately impacting customers and the supply
chain as a whole.
Supply Chain Efficiency vs. Effectiveness
When considering the efficiency or effectiveness of a supply chain, we’re evaluating each from
different perspectives. When thinking about supply chain efficiency, we’re considering what
happens within the supply chain system. The supply chain is efficient when we are able to get
products at the lowest cost. We also might be looking at how well we are able to coordinate with
others in our supply chain for extended manufacturing processes.
When a supply chain is effective, we’re looking from outside the company. Customers are
looking at whether they got the right product in the right timeframe to meet their needs.
Stakeholders might be looking at how much revenue was generated relative to the cost.
Vendors and other business partners might also be looking at how well we were able to solve
problems.
Why are supply chains sometimes efficient but not
effective?
Lora Cecere of Supply Chain Insights wrote in a recent Forbes article that while many
companies believe supply chain efficiency and supply chain effectiveness to be one and the
same, it is her firm belief after three years of research that, “the most efficient supply chain is
not effective.”
While she believes that improvements in supply chain technology have resulted in many
process efficiencies for companies, they have not resulted in an overall reduction in costs to
customers or improvements in margins for companies themselves.