Supply chain management takes center stage
Published: April 27, 2006
By Fred Bayles
Great supply chain management can make your business; a poor one can break it. Learn how and why supply chain management is becoming core to business strategy, and what you can do to improve yours.
In Summary:
| • | Global supply chain management (SCM) has become a chief component for judging your company, especially among investors and possible partners. |
| • | Success will depend on your ability to forge new client-vendor relationships. |
| • | Supply chain management (SCM) technology has become cheaper and more accessible, giving midsize companies many more options. |
| • | Beyond speed, your supply chain must also effectively handle the time and cost related to export and import duties and bureaucratic red tape. |
 | Venture capitalists interested in a firm now have us assess its supply chain. |  | | John Spain
Tompkins Associates | |
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In years past, those supply chain management managers had little in the way of prestige. Supply chain was shorthand for warehouses and forklifts, and the drudgery of inventory, invoices and paperwork. Such mundane duties occupied a minute place in a company's larger business plan.
That has all changed.
Supply chain managers have a new cachet. They are valued participants in the boardroom, and carry impressive titles, such as vice president for supply chain or chief architect of supply chain. These managers and executives are often the center of attention when the merger and acquisition folks come to call. What do the financial people want to know? How effectively your company can move materials and products between your suppliers, production lines and customers.
"Venture capitalists interested in a firm now have us assess its supply chain," says John Spain, a senior partner at Tompkins Associates Inc., a Raleigh, North Carolina-based consulting firm specializing in supply chain issues. "Everyone now recognizes that supply chain and logistics is a huge part of the business."
Consider the travails of candy and chocolate maker Hershey Foods, which holds the unpleasant distinction of creating one of 11 management disasters highlighted in the January 2006 issue of SupplyChain Digest. In Hershey's case, the crisis came in 1998, when its $100 million supply chain information system failed, resulting in products languishing on shipping docks because packing and shipping details were missing. The glitch cost Hershey $150 million in missed orders, a drop in profits for the next two quarters, and a stock downfall of 60 percent. According to SupplyChain Digest, Hershey executives spent the next few years trying to reassure stock analysts that the company's supply chain woes were over.
The speed of globalization
Supply chain management has moved center stage largely because of globalization. The rise in outsourcing and global suppliers—all in the name of lowering production and distribution costs—means that savvy supply chain coordination is paramount, says Bob Ferrari, director of supply chain strategies research at IDC Manufacturing Insights in Framingham, Massachusetts. The winning formula consists of bulletproof logistics, sophisticated event management, speed of processes and material movement, and accuracy of information.
"We have seen cases where a company goes out of business because it took three weeks to fulfill a customer's order while its competitor could do it in three or four days," says Beth Enslow, Toronto, Ontario-based senior vice president of enterprise research at Aberdeen Group.
Fostering new relationships
This need for speed has created an imperative for tighter relationships between businesses and their vendors. Gone are the days when a supplier would stock shelves with product and wait to ship while a customer reviewed its inventory. A growing number of vendors now link directly to customers' sales and inventory data, allowing them to ship product even before their customers know they need it.
Spain cites one of his clients, a major grocery chain, has a baked goods supplier monitor sales to see how its cookies are moving in different stores. The bakery's Web-based application (paid for in part by the grocery chain) accesses the point-of-sale information to analyze the ebb and flow of the cookies. The bakery then uses that information to determine how many cookies to bake and ship to each store. The result? The bakery's costs go down (since there is less wasted inventory and transportation expenses), which means the grocery can sell the cookies for less.
Those lower costs can add up to a lot of cookies. A similar arrangement between a company and its vendor resulted in 25 percent to 30 percent savings in inventory expenses for both companies, according to Enslow.
"We are seeing a lot of these win-win collaborations happening," she says, referring to vendor and supplier-managed inventory strategies. Supply chain success means fine-tuning all your supply chain relationships, so that all parties work with each other to help the consumer and boost everyone's profitability as a result. Adds Spain: "You can no longer develop a relationship with suppliers by simply saying, ‘sell me the cheapest cookie.'"
The growing market for SCM solutions
As supply chain management has become more sophisticated and multifaceted, so, too, has the marketplace for technology solutions. SCM systems have followed the evolutionary path of other information technology (IT) solutions. The systems began in the form of complex and expensive enterprise resource planning (ERP) systems, followed by more basic systems scaled down to meet small and midsize business needs. Today, the trend of on-demand, Web-based services is beginning to take over the market.
For instance, it is a relatively minor project to set up a Web page a vendor can access to track demand and process orders, versus spending millions of dollars on a proprietary solution that may have more features than you need or want.
"What we're seeing now are more affordable, Web-based solutions that make implementation a lot less difficult," Enslow says.
However, some companies are too eager to set up systems before analyzing processes and logistics, which is particularly tricky when your supply chain is global, warns Enrico Camerinelli, chief analyst and European director of the Supply Chain Council.
Prepare for global stumbling blocks, such as these, Camerinelli advises:
| • | Differing numerical standards (such as the metric system versus the U.S. customary units of weight and measurement), or differences in how countries express the date. |
| • | A supplier's offer of a cheaper product and quick delivery is not always clear-cut. Factors like import and export duties and lengthy customs processes (which differ by country) may have an impact on the touted benefits. |
Investing the time and resources into creating a more powerful, agile and global-ready supply chain is an endeavor worth taking despite the risks and demands you may face in competing with large multinational companies that have hundreds of employees managing their supply chains.
On your side? The wide array of more affordable, full-featured systems and Web-based integration technologies, which are leveling the playing field for integrated supply chains with rich analytical capabilities. There is no reason for midsize companies not to have their own "chief supply chain architects" sitting at the big table with the CEO, CFO and investors. Companies that recognize this trend—and empower their supply chain decision makers to innovate, communicate and manage the evolution from shipping and receiving to a center of global logistics innovation—are poised for success.
Fred Bayles is a Boston, Massachusetts-based freelance writer who writes about business technology issues, and is a journalism professor at BostonUniversity. He is also a former national correspondent for The Associated Press and USA TODAY.
