Preparing For The 21st Century Supply Chain
Jack Symon C.P.M. CFPIM CIRM
Jack Symon C.P.M. CFPIM CIRM, Senior Manager, Whittman-Hart, Florham Park, N.J. 07932, (973) 410-8032, firstname.lastname@example.org
85th Annual International Conference Proceedings - 2000
"Resistance is Futile....You will be assimilated!!!" This ominous quote should be familiar to avid Star-Trek Generation fans that remember the episode with the dreaded Borg sweeping into our solar system on an unprepared Federation of Planets and almost annihilating Star Fleet. In preparation for the next millennium most concerns have been focused upon the "Y2K" problem, however, most experts believe that the Supply Chain movement will have greater impact and we are as unprepared as a Star Fleet Academy cadet. Will you have a supply chain that "survives and thrives" in the new millennium? This presentation will introduce a compelling rationale and justification for entry into the 21st Century Supply Chain. One will also learn how companies of all sizes must prepare for entry and what tools and information are available to facilitate that entry.
What is Supply Chain Management? As defined by the "APICS 9th Edition Dictionary", "Supply Chain Management is the planning, organizing, and controlling of the processes from the initial raw materials to the ultimate consumption of the finished product linking across supplier-user companies. The supply chain includes the functions inside and outside a company that enable the value chain to make products and provide services to the customer". Fred A. Kuglin, in his book "Customer Centered Supply Chain Management", defines Supply Chain Management as "the manufacturer and its suppliers, vendors, and customers-that is, all links in the extended enterprise-working together to provide a common product and service to the marketplace that the customer desires and is willing to pay for throughout the life cycle of the product and service. This multi-company group, functioning as one extended enterprise, makes optimum use of shared resources (people, processes, technology, and performance measurements) to achieve operating synergy. The result is a product or service that is high quality, low-cost, delivered quickly to the marketplace, and achieves customer satisfaction".
Why Embrace Supply Chain Management? The Supply Chain Management movement may appear as another insurmountable mountain to climb for businesses that just struggled with the Y2K cliff, or for growing businesses that consider themselves too small to be bothered yet. But like the Internet, the Supply Chain Management movement is going to become a pervasive force for businesses of all shapes and sizes. Even if you choose not to actively join the Supply Chain Management movement yourself, most likely many of your suppliers or clients will choose to do so, and as a part of their supply chain, "You will be assimilated!!!" To remain competitive and ahead of the curve, one will need to "see the light" and inevitably prepare to join the movement in order to "survive and thrive" in the 21st century.
A business can no longer stick to the paradigms that worked in the 20th century. For a company to "survive and thrive" in a more competitive and demanding global marketplace, it can no longer cling to a narrow and limited business model. We have entered the "Have it Your Way" era. This era may also be called the "Age of the Customer" or the era of "Customer Intimacy". Treacy & Wiersema in their article "Customer Intimacy and Other Value Disciplines", define "Customer Intimacy" as utilizing the intimate knowledge of your customer needs and requirements to provide the right product at the right time & place, for the right price & quality. To thrive in this century, businesses must continue to evolve to meet these "Customer Intimacy" requirements on a consistent basis.
Achieving this level of "Customer Intimacy" requires the continuous integration and exchange of information between your business, its customers and suppliers throughout the supply chain. As a result, initiatives are underway to create solutions dedicated to enhancing and controlling the various stages of the supply chain process from both the demand and supply sides. Such Supply Chain Management solutions are the new wave of information technology applications emanating from the Enterprise Resources Planning (ERP) packages of the 20th century. In the 20th century, the complexity and investment involved in installing such solutions limited their usefulness and return on investment. However, with the prevalence of the Internet and the introduction of lower-cost, entry-level Supply Chain Management solutions, businesses of all sizes from global organizations to small businesses can begin to join the Supply Chain Management movement.
Businesses that have just fought the Y2K battle and growing businesses that considered themselves yet too small to join the battle may prefer to pass on the Supply Chain Management movement right now. But, as we said earlier, even if you choose not to actively implement a Supply Chain Management solution yourself, most likely many of your suppliers or clients will choose to do so, and as a part of their supply chain, "You will be assimilated!!!"
For example, although a local grocery or convenience store may not be looking to implement its own Supply Chain Management solution, the retailer's milk provider may already be going the supply chain route. As part of that process, the retailer may be required daily to input milk orders via the Internet or a point-of-sale system. Once received, that order is electronically transmitted to the dairy, which fills and loads the exact amount of the order into a milk delivery truck. The store is replenished daily with exactly the amount of milk it needs. The customer gets the opportunity for fresh product daily and the milk truck doesn't waste space carrying excess inventory. That's what the Supply Chain Management movement and "Customer Intimacy" are all about: delivering the right products at the right time & place, for the right price & quality to the right customer.
Supply Chain Management Entry Rationale. As stated previously we have entered the "Have it Your Way" era or the age of "Customer Intimacy". We must be innovative enough to adapt to market changes in order to preserve profitability, "to survive and thrive". Consumer buying patterns are constantly varying, with increased number of SKU's and alternative shopping formats such as the web and e-commerce has to offer. Since we now all reside in a global economy we must face evolving trade and channel complexities. Some huge potential markets are still isolated and chaotic and will require much micro managing and marketing in order to sprout and bear profitable fruit. We have seen shifts in the balance of power within retailing. Consumers changing brand and store loyalties and the large, dominant retailers exerting greater influence on suppliers to secure those loyalties. In turn those suppliers are exerting influence in their supply chain to secure brand loyalties. It has become a highly competitive and constantly evolving process. To be competitive within this process, however, requires the players to have certain core competencies.
Certain baseline service requirements are now mandatory if one is to remain a player in this century. Throughout today's supply chains speed and responsiveness are key. On-line book resellers receive an order today and delivery tomorrow. Customers enjoy the simplicity and convenience of Christmas shopping via the computer from the comfort of home. No mall traffic, no lines. Tied to the core competencies of speed and responsiveness, according to experts, are quality, accuracy, and cost. Customers expect to receive what they ordered at the right quality and for a good price. Anything less could result in a shift in brand or store loyalty. There are also constant competitive cost pressures resulting in the squeezing of margins. "Give five to stay alive" is a familiar saying to those in the automotive industry supply chain. The industry leaders and larger businesses have begun to pour capital into creating and fine-tuning the supply chains that they are a part of. But what about "the small guy" or those who have yet to even conceptualize what a supply chain is or how it affects them? The 21st century supply chain calls for one to dramatically lower inventory levels and reduce working capital. One must deal with improving customer service, better forecasting, lower costs of finished goods and raw materials, reduced lead-times, and make optimized decisions to deal with an increasingly complex world. Can one face the competitive global environment alone? Can they afford the technology to compete? Where does one begin?
Supply Chain Management Entry Preparation. In the late 90's most businesses were completing the installation of ERP systems in order to meet Y2K deadlines. Some of the larger businesses also ventured into installing Supply Chain Management systems. These companies were the pioneers. In the year 2000, these companies will continue to tweak and fine-tune their supply chain to further strive for "Customer Intimacy" and world-class satisfaction. By 2001, most expect to really reap the benefits of supply chain integration and execution. The key objectives of this being to maximize the responsiveness to customers through flexibility and on time delivery. Another objective is to minimize total supply chain costs. That is analyzing and reducing the cost of procurement, manufacturing, transportation, and administration. Lastly is the optimization of assets such as raw material, work-in-process, and finished goods. How does one have virtual inventory, be responsive "7 by 24", and have no geographical boundaries? What does a business need to do to prepare for entry, to define and meet its key supply chain objectives, and to begin to reap the benefits of integration and execution?
An excellent way for any company about to foray into a new supply chain relationship is to look at the analysis and tactics as performed by their own customers, their own suppliers, or the competition if feasible. What level of supply chain integration and execution did they achieve? Did they meet their expectations of "Customer Intimacy"?
Before one begins, the first step must be to define the expectations for "Customer Intimacy". What does "Have It Your Way" and "The Customer is Always right" mean to your organization? According to experts, the supply chains that "survives & thrives" by being built upon customer loyalty have implemented the following credo:
- Align your objectives to be in sync with your customers and suppliers. What brings value to all participants?
- Look beyond just products to process improvement potentials to create a "value chain" and not just a supply chain.
- What are the financial impacts to all participants of product offerings & changes and, of course, process changes?
- Understand customer desires with respect to around-the-clock service, responsiveness, and new product or customized offerings.
- Develop a shared vision upon which the supply chain will operate.
- Develop a joint planning effort and execution synchronization.
- Share information instantaneously.
- Develop shared common systems and processes.
- Develop common effective performance measures and a feedback mechanism.
- Strive for continuous improvement to maintain value in the supply chain.
So after the first step of defining "Customer Intimacy", a business must evaluate the following steps for entry preparation, according to experts:
- Re-evaluate all your internal / external processes and relationships as to what impact your newly defined definition of "Customer Intimacy" will have and what course it will steer you to with regards to a supply chain methodology. How will your business infrastructure be affected and how will your culture be altered?
- Be prepared to throw out your old business model. Evaluate and adjust the model with respect to customers, suppliers, the market, and, of course, the Internet Age.
- Establish the common vision for the supply chain so as to drive value for all participants.
- Develop a customer-focused culture. By partnering with customers and suppliers, begin to breakdown all departmental "silos" in all organizations.
- Evaluate the operation and effectiveness of your ERP/MRP system and supporting processes. Does it support operating and information needs of the newly shared vision? Can it be integrated to support the needs of customer and suppliers? How good are your supporting processes? What is the level of inventory accuracy? How accurate is your data? Bills of Material? Item Masters? Strive to "get your act together" prior to venturing into the supply chain realm with your customers and suppliers.
- Develop and implement a continuous improvement program that incorporates self-appraisal and, of course, feedback from customers and suppliers.
- Brainstorm with customers and suppliers to develop an execution plan for evolving to a supply chain environment.
- Establish an achievable pace. Learn to walk before you run. Start simple and then progress. How can we team with or learn from stronger channel partners?
Also, coinciding with these steps should be the development of internal Supply Chain Management expertise. This may be easier for larger businesses with more resources. Smaller firms may have to seek additional help (See Supply Chain Management Tools).
Supply Chain Management Tools. The "Supply Chain Management Market Forecast, 1998-2003", by AMR Research, puts the Supply Chain Management market at $2.6 billion and predicts growth to $18.6 billion by 2003. The study furthers goes on to discuss how the major software vendors will enhance and enlarge their product functionality. It is probably safe to say that more technological advances will start to appear shortly to aid in helping companies enter and "survive and thrive" in the Supply Chain Management arena. Some of the first significant supply chain software tools to arrive in the late 20th century were seen as enhancements to the traditional ERP/MRP software systems. These supply chain tools were deemed Advanced Planning & Scheduling (APS) software. These APS tools supported the development of "what if" scenarios and optimizations plans to fine-tune functions and events along the supply chain. The APS tool can allow for one to build and see a graphical representation of their supply chain; set the system parameters by which simulation and optimization events can occur; and allow for the selection and implementation of an optimized solution to drive supply chain events. By utilizing simulation and optimization software, a complex business can simulate supply versus demand across customer needs and supplier capabilities; level manufacturing loads across plants and suppliers; select the best facility to optimize customer service; and optimize in-bound and out-bound transportation needs.
Perhaps the most powerful toolset to develop and transform supply chains and to totally trash 20th century business ideologies is, of course, e-business or e-commerce. It is still mostly uncharted territory, but quickly becoming a dominant business force. According to Forrester Research, e-commerce between businesses, at $43 billion, is five times as much as consumer e-commerce. By 2003, Forrester Research estimates that number to jump to $1.3 trillion. It will be a 21st century necessity to either be in e-commerce or be on your way. But there is still time. According to a META Group survey, " most companies lack effective strategies for strategy use of the Internet and that investment in e-commerce overall is low". But that will change fast-that is an e-commerce strategy will become a necessary part of every business plan.
Lastly listed below are some other useful sources to aid in formulating and implementing a supply chain solution.
- The Supply Chain Council (www.supply-chain.org) has developed a model labeled "The Supply Chain Operations Reference Model (SCOR)" which incorporates aspects of business process reengineering, benchmarking, and process measurements into a "cross functional framework" to use as guide in developing and implementing a supply chain strategy.
- The National Initiative for Supply-Chain Integration (www.nisci.org) helps to establish supply chain standards by providing tools, education and training, and implementation guidance.
- The Electronic Commerce Resource Center (www.noecrc.ctc.com) makes people aware of e-commerce, Internet, and EDI technologies through education and training.
- E Commerce Research & Resources (www.wilsonweb.com) provides additional research and e-commerce resources.
- Electronic Commerce World (www.ecomworld.com) also provides additional research and e-commerce resources.
- The American Production & Inventory Society (APICS www.apics.org) has an extensive offering of publications dedicated to Supply Chain Management.
- The Procurement & Supply Chain Benchmarking Association (PASBA www.pasba.com) conducts benchmarking studies to identify practices that will improve the overall operations of the PASBA members.
- The Supply Chain Management Review (www.manufacturing.net/magazine/logistics/) is a magazine that provides strategic guidance on supply chain management.
- CIO ERP/Supply Chain Research Center (www.cio.com/forums/erp) is a research center for vendors and information of ERP and supply chain software.
Kuglin, Fred A. Customer Centered Supply Chain Management. New York City: AMACOM, 1998.
Journal or magazine articles:
"APICS 9th Edition Dictionary 1998"
The American Production & Inventory Control Society (APICS)
"APICS The Performance Advantage". November 1999, Page 15.
The American Production & Inventory Control Society (APICS)
Treacy, M. & Wiersema, "Customer Intimacy and Other Value Disciplines."
Harvard Business Review, January / February 1993