Tackling Suboptimization Head-On
Ultimately, the goal of forming strategic partnerships is to fully optimize end- to-end supply chains. Autry’s work with the FDC includes identifying how dealers and suppliers can achieve this optimization by streamlining the flow of raw materials, products, logistics, and data across the supply chain. As Autry points out, trust and collaboration are fundamental to establishing this kind of structure.
“Supply chain optimization essentially requires strategic partnerships, where companies collaborate on shared goals like cost reduction, resilience and customer service,” Autry says. “But no one wants to invest in the infrastructure for these to succeed unless they truly believe there is a long-term future with the partners such that economic gains can be fully realized.” The FDC’s exploration into
optimizing the distribution supply chain comes at just the right time, as the prospect of higher tariffs has primed companies to rethink their approach. This creates opportunities for dealers and suppliers to identify and remove inefficiencies and improve their supply chain practices. However, part of
“One way we see [suboptimization] occur far too often is when companies chase short-term financial metrics to an unhealthy degree. In doing so, they create systems that become a ‘new normal’ that can harm other financial or operational metrics in the longer term.”
— Chad Autry
Myers Distinguished Professor of Supply Chain Management University of Tennessee, Knoxville
the FDC’s work will be to examine how the transactional relationships discussed earlier are creating barriers to these improvements, leading to “suboptimization” in the supply chain. For example, transactional thinking may prompt a company to cut inventory expenses in the short term but cause costly stockouts downstream, impacting partners.
“One way we see this occur far too often is when companies chase short- term financial metrics to an unhealthy degree,” Autry explains. “In doing so, they create systems that become a ‘new normal’ that can harm other financial or operational metrics in the longer term.” For a real-world example of how suboptimization can weaken a business,
consider a company whose sourcing team made a compelling economic case for installing “green” lighting systems in its warehouse. Although the lower energy usage of those green systems would yield substantial financial savings after a 20-month breakeven point, achieving that benefit required a significant, upfront cash outlay. “Because the executives didn’t want financials to suffer in the near term — after all, their compensation was tied directly to hitting certain numbers quarterly — they decided to forego the opportunity to create long-term, permanent savings,” Autry recounts. “Everyone agreed that the green lighting systems were a cost-effective idea, but the company’s leaders didn’t
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