Supply Chain Perspectives from the Business Press
Introduction
The business technique known as Supply Chain Management has forever changed the way in which companies move their goods to market. It has impacted every stage of the supply chain process - from the initial sourcing of raw materials to the final point of sale. And as the potential of the Internet and other advanced technologies expands, the advantages of integrated supply chain management promise only to intensify.The evolution of this management concept has been rapid and remarkable. From virtual anonymity a scant decade ago, supply chain management has soared into prominence today as a core competitive differentiator. Few observers have had a better vantage point to view its ascent than the business journalists who cover the subject every day.
This article brings together three of those journalists from the Cahners Supply Chain/OEM Group of magazines. They are the chief editors of Supply Chain Management Review, Purchasing, and Logistics Management & Distribution Report.
In separate articles below, these veteran industry observers offer their perspectives on what the future holds for supply chain management overall and for the key functional areas within an organization that make SCM an operating reality.
Collaborating in an E-Enabled Future
By Francis J. Quinn,
Supply Chain Management Review
At its very essence, Supply Chain Management is as much about collaboration as it is about the physical movement of goods. How effectively you move product from the raw materials stage to final point-of-sale really depends on how well you work with others. These include the various functional entities within your organization as well as your key customers and suppliers. They also include the providers of logistics services who help create a seamless distribution network. (The accompanying graphic, developed by AMR Research, shows the scope of collaborative opportunities within the supply chain.)
Collaboration entails sharing of data, operating plans, and even certain financial information. For many, particularly those that have usually treated suppliers like indentured servants and customers as merely necessary evils, this notion of collaboration represents radical change. Yet change is no longer an option. Its a competitive necessity.
Supply chain collaboration today is being enabled and facilitated by information technology. The Internet, for example, is allowing supply chain partners to communicate information instantly and accurately to take excess inventory, activity, and cost out of the pipeline. Innovations like hub-based trading communities, Internet-enabled purchasing webs, and collaborative business communities are leading to efficiencies never before imagined.
Supply-chain related technology is creating a powerful impact, too. There is Transportation Management Systems (TMS) software for streamlining and integrating your transportation operations. Warehouse Management Systems (WMS) let you run your distribution centers and warehouses more efficiently and profitably. And Advanced Planning and Scheduling (APS) technology helps you match procurement and production activities more closely to actual customer demand. Advanced software now lets companies share this critical data with their supply chain partners - regardless of the information systems in place.
The industry pacesetters are aggressively applying advanced technologies like CPFR (Collaborative Planning, Forecasting, and Replenishment) to build mutually beneficial alliances with their supply chain partners. The advantages of close collaboration have been demonstrated convincingly by leaders like Dell Computer, Procter & Gamble, and Wal-Mart. A recent study by Accenture only underscores the point. The firms in-depth survey of the food and consumer products industry found that the retailers with the highest profit margins were far more likely to collaborate on new products and services than the lower profitability retailers.
If the technology is in place and the benefits so evident, why have so few companies aggressively developed their extended supply chain capabilities? The leading consulting firms and business gurus like Michael Hammer suggest that only a small fraction of the Fortune 1000 fully understand the power of supply chain management - and have implemented programs that reflect that understanding. The percentage of believers among mid-size and smaller companies is even less.
Part of the problem centers on an inability to get people to work toward common objectives. At first glance, persuading the internal functional areas to cooperate in moving product to market might seem a fairly straightforward exercise. After all, were part of the same organization, right? But, remember, that Purchasing, Production Planning, Inventory Management, Transportation, Warehousing, and Customer Service historically have sought to optimize the performance of their particular area - as often as not, at the expense of some other. Exacerbating the problem is the fact that the managers in these departments continue to be compensated on that basis.
The supply chain partners, both internal and external, need to be convinced of the real benefits of collaboration. Traditionally, quantifying those benefits has not been an easy proposition. But increasingly, the bottom-line case for supply chain efficiency is being made - both in industry-wide studies and within individual organizations.
The most recent research documenting the supply chain-profitability connection comes from the Performance Measurement Group, a subsidiary of PRTM consulting. The firms Supply Chain Benchmarking Survey examined best practices across a range of high-tech and consumer-packaged goods companies in North America, Europe, and Asia.
The survey established a clear relationship between supply chain performance and profitability. It found that the market leaders have reduced their supply chain costs to 4-5 percent of sales. Overall, they spend 5 to 6 percent less on supply chain management as a percent of sales than the average performers. Is this cost advantage a big deal? As the study authors point out, for a company with $500 million in sales, it translates to a $25-30 million cost advantage every year.
Studies like this paint a broad picture of SCMs quantitative benefits. More specific examples of individual company initiatives are instructive as well. A recent Supply Chain Management Review article described a series of collaborative supply chain initiatives at Procter & Gamble designed to integrate and simplify the interfaces along P&Gs extensive supply chain. The results of this ongoing effort have been nothing short of remarkable. Finished product inventory has been cut by 10 percent over the last three years; average return on equity has risen dramatically; and net profit has increased from 6.4% to close to 10%.
The broad industry research and company case studies underscore a message that bears repeating: the benefits of effective supply chain management are quantifiable. SCM does exert a powerful, positive impact on key performance metrics like profitability. Collaboration is the key to realizing those benefits, and technology is the key to successful collaboration.
A Lead Role for the Purchasing Professional
By Kevin R. Fitzgerald,
Purchasing Magazine
Twenty years ago the job responsibilities of a purchasing professional were clear and basic: Get quotes from suppliers of the products and services, accept the lowest bid, and process purchasing orders until the next contract is due. Purchasing departments were largely isolated from engineering and other technical functions. In fact, the purchasing department was often the place that corporate management would put deserving veteran employees "out to pasture" until they reached retirement.
A dynamic new business environment - constantly being energized by advances in information technology - has radically altered that picture. Today, purchasing is integrated into virtually all aspects of corporate business, whether it be product design, inventory management, global supply negotiations, and even creation of long-term business strategies. Purchasing no longer is bound by the walls of the "functional silos" that existed for decades in corporate America. The managers working in this discipline now routinely make decisions that directly affect market competitiveness and the company's technological direction. In short, purchasing professionals no longer are focused solely on the "tactical" aspects of business. Their work is highly strategic as well. The decisions they make are critical to the profitability and future success of their organizations.
The strategic nature of their work promises only to intensify as supply chains become more global and as technology - particularly e-procurement - becomes more pervasive.
Specifically, purchasing professionals of the future will be deeply involved in implementing supply strategies, not with processing reams of transaction-based paperwork. Figure 1.0 shows, the trend toward widespread Internet use among purchasing professionals already is well under way. Purchasing executives will be held responsible for linking sourcing, purchasing, and the supply chain to the financial plan of their companies' businesses. They also will be responsible for staying on top of global supply issues that can affect sourcing and profitability.
A major challenge for tomorrow's purchasers will be how to best implement new technologies, especially Web-based e-procurement, so that it helps achieve strategic supply and business goals. E-procurement is the most powerful tool ever made available to purchasers. But every effort must be made to ensure that e-procurement systems actually increase value across the supply chain. Toward this end, purchasers must be very careful to re-engineer business processes to their most efficient before e-procurement systems are implemented. Otherwise, they'll simply be automating inefficient business processes.
Going forward into this new century, successful purchasing professionals increasingly will adapt a global perspective around supply. Trade barriers continue will continue to fall, and business growth will be strongest in markets that are still developing. Those organizations - and those purchasing professionals within the organization - that recognize the new global realities will prosper in the future; those that do not will be left behind.
Purchasing professionals of tomorrow will be faced with other supply chain challenges as well. They will be tasked with measuring costs through all links in the supply chain; developing and executing outsourcing strategies; managing onsite supplier representatives; and interacting more closely with the technical functions, both inside their own companies and with suppliers.
Ironically, there will be fewer purchasing professionals in the future, but they will be much more important to the success of their companies. Tomorrows purchasing professionals will be multi-skilled, with strong backgrounds not only in purchasing, but also in technology, finance, and management. They will, in essence, function more like executive-level business people than purchasing agents of old.
In reality, the purchasing agent of decades past is gone forever. And the purchasing manager who has a limited range of tactical responsibilities is fast disappearing. A new purchasing professional for a new century has emerged. This individual recognizes his or her strategic role in a global supply chain and stands ready to leverage new technologies in performing that role.
It's All About Logistics Execution
By Peter Bradley
Logistics Management & Distribution Report
In the supply chain, execution is what really counts. Back when I was in the newspaper business, we used to joke that we had available to us incredible resources: reporters around the world, million dollar presses, sophisticated advertising programs, and more. Yet at the end of the day, we counted on a core of 12-year old boys and girls on bicycles to reach our customers. I didn't know it at the time, but that was a crucial lesson in the role of logistics in supply chain success.
Among the reason businesses have focused on supply chain strategies is the imperative to compress the whole business cycle. Managers are under pressure to accelerate turn times and thus deliver more inventory turns, to reduce order-to-delivery times, to shrink the time it takes to turn a concept into a product, and to speed up the cash cycle and reduce working capital.
At the same time, businesses are becoming increasingly international in their sourcing, production, and distribution. SKUs are proliferating to meet the demands of customers that have more power than ever before. New channels are developing - electronic commerce is at the head of the list - and old channels are undergoing change. Product life cycles, particularly in the high-tech sector, grow shorter by the day, adding to the requirement for speed to market. Even in a robust and healthy economy, pricing flexibility is constrained. Thus costs, too, must be held in check, and profitability gains realized either by improved productivity and gains in market share.
All this has forced businesses to take what might be called a holistic look at their enterprises, including upstream suppliers and downstream customers. They need to carefully consider how all the parts contribute or detract from the entire supply chain process. Information technology has been a crucial enabler to allowing that process to occur. The idea that information can replace inventory has become almost a cliche. Inventory, warehouse, and transportation management systems have been key enablers of more efficient processes. What is sometimes overlooked in discussions of supply chain efficiency, however, is the crucial role of physical execution to supply chain success. From a supply chain perspective, this means effectively managing the movement and storage of goods from the beginning of the manufacturing process through final consumer fulfillment. A long-time manager for one of the world's largest transportation company put it succinctly when he said, "After you move the bytes, you have to move the boxes."
As many Internet retailers have quickly learned, sometimes to their chagrin, it is much easier to set up a Web page and offer products for sale on line than it is to fulfill those orders with the same efficiency and still make a profit. Some of the biggest Internet businesses - Amazon.com most notably - are investing millions of dollars to improve their distribution networks. That's a clear acknowledgement that logistics execution is imperative to their business success.
Providers of logistics services have made remarkable strides over the last 20 years to improve and enhance the services they provide. Carriers can provide information and flexibility considered impossible only a short time ago. They are critical partners in any supply chain execution strategy. The development of third-party logistics offers managers additional resources for managing the flow of goods.
The concept of a supply chain suggests a fairly linear process. Yet as any supply chain manager knows, the reality is far more complex - more like an intricate and ever-shifting web. At each intersection in any such web lies an interchange that demands a logistics solution. Perhaps it's overstating the case a bit to say that logistics, as much as information, holds the supply chain together. But it's not much of an overstatement. The critical importance of logistics to supply chain success is undeniable. Think about that when you head outside and pick up the morning paper.
