It must be important. All kinds of executives say so. In a survey by the UK firm Softworld found 70% of responding executives saying that their supply chain management systems were crucial or important to their business. Deloitte Consulting found even greater unanimity among North American executives.
In their survey 91 percent of manufacturing executives ranked supply chain management as critical or very important to their company's success.
But what is it? We're told that supply chains go beyond the older functions of warehousing and logistics. While there doesn't seem to be a single, agreed-upon definition, here's a short one courtesy of Jim Kilpatrick, a senior manager in Deloitte Consulting's Supply Chain Results Practice:"· the management of materials, information and funds from the raw material supplier to the ultimate consumer."
That's good and simple. It says that "supply chain" involves many firms and functions. What's a "value chain," then? For all practical purposes, they're the same.
I know there are several consultants and writers out there who feel compelled to make the definitional angels dance on the head of a pin, but they sure look the same to me. In fact, it's like the old arguments about the difference between goals and objectives. In practical terms they pretty much meant the same thing. You just had to be sure to use the appropriate word for the group you were with, or be branded as an ignorant rube from the provinces.
So, whether it's supply chain or value, the other part of the definition is that it's a "chain." Chains are made up of links. And a chain is no stronger, or more effective than the weakest link. That's important because it means that you must pay attention to the strength and capability of the other partners in your chain.
That leads us to a couple of other issues with supply chains. Let's start with standards. There aren't any (or at least many) standards for how money or information are shared along the chain. In a study by Forrester Research found that 69% of their manufacturer respondents don't believe their current supply chain solutions can be extended outside their company and used by their trading partners.
If you can't extend supply chain solutions out to the other partners in the chain, you wind up with the three R's of electronic commerce -- Rip, Read, and Re-key. It's massive manual workarounds for systems that should be automatic.
There's some work being done here. In the high tech sector, 40 manufacturers, resellers, distributors and others have formed a coalition called RosettaNet to develop and promote global business processing standards. Standards are going to be key here.
Standards development and common practice are just in infancy. But you can expect major progress in the next few years. The stakes are far too high for anything else.
Supply Chain Issues
There are several issues to think about when you're planning supply chain initiatives for your company.
Communication -- Communication systems need to be compatible and automatic. If you're doing manual workarounds, look for ways to automate. In some industries this is easy because folks have been working on standards for years. In others standards are just starting to be developed.
Confidentiality -- Remember that your partners in any supply chain may also be partners with your competition. Unless you've got the clout and volume to demand an exclusive relationship, you'll have to address issues of what information you'll share your partners and what restrictions you'll put on them. In this world of extranets, you'll also have to decide what parts of your system you'll allow them to have access to.
Comprehensiveness -- Develop systems that are complete. That means they deal with all the parts of Kilpatrick's definition: materials, information and funds.
Trends in the Supply Chain
Beware of the search for the current Holy Grail -- a comprehensive, off-the-shelf Enterprise Resource Planning (ERP) system coordinated with supply chain technology. Some forecasters say we won't see that for a few years. I say we won't ever see it.
Watch for what we used to call logistics to become the coordinating point for many supply chain initiatives. Transportation and transportation planning has gotten far more sophisticated than it was just a few years ago. Carriers can provide shippers with electronic routing guides that help them manage delivery and in-transit times to keep inventory to a minimum.
Is that important? You bet. 3M has used this very technique to trim two to three days from its delivery cycle time. At the same time, they've increased reliability of delivery to their customers. Stripping inventory cost this way frees up resources to be used elsewhere.
Warehousing has gotten a lot more sophisticated as well. In the old days, warehouses just stored and shipped material. Today it's different. A recent study by the Warehouse Education and Research Council found that more than 50% of its responding warehouses are now performing functions like cross docking, vendor-managed inventory and custom labeling.
There are going to be developments in the coordination and planning programs, too. Folks are beginning to understand that even in a world of electronic commerce, stuff still has to be shipped and that the process of procuring, producing and shipping can be coordinated to produce spectacular savings and productivity gains.
This article originally appeared in Wally Bock's Briefing Memo newsletter in 1999.
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