The throwaway line “any colour as long as it’s black” is remembered as bit of joke today. But the famous statement made about Henry Ford’s cars in the early 20th century reminds us of the power manufacturers had to control the supply and demand of products at the time.
In short, for most of the last century, manufacturers controlled the pace at which goods were made and delivered. Customers had to take what Ford produced – black cars (this was because black paint dried faster at that time). Those were the days when manufacturers ruled the supply chain – you got your goods when they were ready to give them to you. Customers had to stand in line.
As everyone knows – that tide has changed.Today customers call the shots. Manufacturers are scrambling to meet customers’ demands for options/styles/features, quick order fulfilment and fast delivery.
Today customers dictate how their orders and shipments will be handled. They want to drive out excess inventory and costs. They want their orders shipped complete, accurate, on time and in the manner they require.
Cost control
While customers may be the drivers of the search for better service, cost control is something that everyone’s looking for.
In this ongoing search for cost control and value creation, supply chain management is key differentiator in success. Add technology to the process, and supply chain management is powerful tool driving many business relationships.
Heating up supply chains
Supply chain management, or SCM as it’s known, is shaping up as hot topic of the year. Already there are number of trends that point to this:
? increasing supply chain projects being undertaken
? SCM features in company reports as key business initiative
? CEOs are publicly talking about SCM
? courses are now being taught at our universities
? new SCM conference is advertised almost every month
? more supply chain specific jobs are advertised and being positioned as ?key strategic roles’.
So how hot is SCM, and is it really strategic imperative or just some clever marketing hype created by software and consultant companies trying to put different spin on an old theme?
To begin, SCM is defined as the management of the flow of goods and/or services, all the way through the business to the end customer. While the definition is simple, doing something about it with all the real-world complexities, can be far from easy.
Strategic imperative?
What about the strategic imperative claim? If that’s true then it must have direct and significant impact on the shareholder value of business.
This means it must deliver against at least one, and preferably all three, of the most basic of financial indicators; revenue, profit and capital utilisation.
Those who have invested in SCM can point to real returns:
? five percent bottom-line advantage over their average competitor because of reductions made in SCM costs
? increased supply chain flexibility (one of the easiest ways to grow revenue) by 65 percent
? reduced cash-to cash cycle times by 18 percent.
Glory and disaster
Why does SCM mean glory for some and disaster for others?
Recent survey and case studies show that what separates winners from losers comes down to ?how you do it’.
Interestingly, sceptics often read the definition of SCM and make the comment that it’s nothing new, and that it’s just hyped-up version of existing logistics terminology they’ve been practising for years.
Indeed, proponents of SCM wouldn’t disagree because it does focus on the best practices of logistics management.
In fact when considering the traditional organisational structures of business; sales & marketing, purchasing, manufacturing, warehousing and dispatch, SCM crosses these areas.
But it goes further.
1. It captures the key elements from each part of the organisation and lays them side-by-side.
2. Then it compares the current stage against best practice (using one common language) to identify areas of opportunity.
3. Finally it allows the business to be measured in the same way, ie horizontally, from end to end, rather than by traditional top to bottom approach.
Key Success Factors
KSF No 1 Getting started – establishing single, manageable process
Identifying and setting up single methodology is big challenge because it goes across so many boundaries, and supply chains can be complex. The good news is you don’t have to start from scratch. In fact, it’s never been easier to get started.
Supply Chain Council
A lot of the work’s been done, and there are now easy-to-apply models to get you started. group of US-based companies got together in 1996 under the leadership of top research group AMR and consultant PRTM, and developed model called SCOR – the Supply Chain Operations Reference model.
A year later they founded the Supply Chain Council, which is global, not-for-profit trade association open to all companies interested in having supply chain efficiencies. Members now include some of the biggest corporates in the world, plus academic, government and consulting bodies.
The council continues to develop the SCOR model, and today it’s widely regarded as the global standard in supply chain modelling. Once company has paid few thousand dollars for global membership, the SCOR model is available free. good example is Pacific Brands Clothing, $750 million turnover company, supplying 130 million garments each year to the Australian and New Zealand markets.
They have used SCOR to align policies, processes, measures, tools and even roles with their SCM.
KSF No 2 – Lead from the top
The boards of current users realise that SCM is so critical to future success that it must be driven from the top. Their job is to create the vision and create the environment that embraces change. Consistent with that, they realise that restructuring is inevitable.
Directors of SCM have been appointed to guide the business to best practice. But these supply chain champions do much more. They fulfil change management role, developing collaboration between internal departments.
CEOs as champions
CEOs in SCM companies are quick to champion supply chain initiatives, not only within their business but also with their customers and suppliers alike. They realise that increasingly businesses are competing on the basis of their supply chains. That’s why companies like Hewlett Packard have stated that in order to simply survive, you have to be part of leading supply chain.
KSF No 3 – Define it and measure it
Can you describe your supply chain? Don’t worry if the answer is no – few companies can. Very seldom is map or schematic available to indicate where each entity in the supply chain is situated. And when your supply chain consists of number of suppliers, hundreds of products and numerous customers, where do you start?
Those companies succeeding with SCM clearly define and measure their supply chains, with reporting systems like Balanced Scorecard published on their own intranets. The old saying “if you can’t measure it, you can’t improve it”, never had more meaning than in an SCM environment.
The Dairy Board
Our largest exporter, the Dairy Board, is good example. Take its 1700 different products exported to over 115 countries. Then consider the processing of 12 billion litres of milk, supplied by three million cows across 13,000 farms. From cow to consumer is complicated supply chain in anybody’s books! But the board has already made progress in its adoption of the SCOR model, and it is focusing on custom-designed ?Supply Chain Dashboard.’
So the process of using SCOR takes the business from an analysis of its current state to an optimised future or ?to be’ state, highlighting the gaps and areas of opportuni
