Logically Warren Hausman’s question should carry some weight in the boardrooms and executive meetings of New Zealand business. Given our geographic isolation and the tempo of ever-increasing global competition, companies must get their supply chains right to remain competitive. But to be honest, directors and management don’t look all that prepared for the battle.
Effective and efficient supply chain management is now central to competitive advantage. The practice has taken stronger hold on many New Zealand businesses, but some observers still believe that it is an insufficiently appreciated discipline, one that too many boards still fail to comprehend.
Peter Davies, CEO of the Supply Chain Association of New Zealand (SCANZ) and manager of TelstraClear’s supply group, is committed advocate of the competitive benefits that “smart” management of the supply chain brings. “Companies and products no longer compete out in the marketplace; it’s the supply chain that makes difference,” he enthuses.
Davies’ personal list of operational successes provides him with somewhat exalted status in the community of supply chain managers. He is, for instance, credited with reorganising key aspects of Clear Communications’ (now TelstraClear) supply chain operations, move that has saved the company hundreds of thousands of dollars through increased efficiencies and cost savings.
Headhunted by the telco in what he describes as “white paper exercise” in supply chain management, Davies credits most of his success to the installation of the Oracle e-procurement system (see case study 2 page 53).
He believes the savings delivered by the system have dramatically changed the role of TelstraClear’s purchasing managers. Where in the past they were tied up in processing endless invoices, they are now freed up to actively manage the relationships between the company’s suppliers and its customers; the outcome of which benefits everyone and saves money.
At the heart of Davies’ management approach is the transition to more open-book approach to doing business and developing the relationship between purchaser and supplier.
This change is staple feature of supply chain philosophy. It is an approach to doing business that raises the hackles of managers steeped in tradition and sometime more adversarial customer/supplier relationships. There is prevailing belief that this rather more traditional approach is still strongly entrenched in New Zealand. Back in 1998 Judy Maller, director of business performance improvement at KPMG, told Management: “New Zealand organisations are not good at involving the entire supply chain [in their business matters], including the contribution of suppliers and partners. We don’t do lot of outsourcing or let others get involved with our businesses.”
Tim Munro, chairman of Logistics New Zealand (LNZ), thinks things have changed in recent years, but not as much as he would like. Those at the forefront of supply chain management clearly see the benefits of having more open relationships between suppliers and purchasers, especially when the relationship is an influential or strategically important one.
A recent US study conducted jointly by Stanford University and Accenture (formerly Andersen Consulting) looked at 100 manufacturers and 100 retailers in the food and consumer products industry. The results were revealing; companies that reported higher than average profits were those engaged in higher levels of information sharing.
At TelstraClear, Davies believes the emphasis on working closely with key strategic suppliers delivered major benefits to both his company and the company’s suppliers.
“One of our suppliers recently approached us with price rise based on shifts in the exchange rate. It simply wasn’t going to happen. Instead we sat down together and worked through how we could do business together and we discovered that we were actually forcing costs into the equation. By cleaning up the process and altering the way we do business together we now buy one of their cables for half the old price and they are making eight percent more margin.”
By enabling the supplier to leverage off TelstraClear’s warehousing contract and by also putting them in touch with the telco’s international freight forwarders, the company gained access to lower freight and storage rates than it could negotiate on its own. The result was significant drop in the supplier’s overheads. The supplier now brings more product into the country, has increased its market share and, says Davies, TelstraClear spends more with them.
Amanda Wright, senior manager management solutions at Deloitte, agrees that companies must look for smarter solutions and, like Davies, believes they must aim for greater flexibility to meet customers’ ever-increasing needs.
Companies must provide products through customers’ preferred purchasing channels. The increased product choices available to customers by online ordering can impact both customer expectations (raised expectations, decreased supply lead-time) and the expectations for the supply chain (as increased options require more flexible manufacturing process). Organisations will need to deal with the impact of multiple channels and the variations that the supply chain will accommodate. “This leads to more sophisticated planning requirements and increased flexibility throughout the supply chain,” she says.
In short, if companies’ product offerings are to stay attractive to their customers, they’ll have to deliver an increasingly efficient supply process to customers, both in b2b and b2c transactions.
Dealing with disbelievers
If the benefits delivered by smarter supply chain management are so obvious, why is there so much dragging of organisational heels, both at top management and board level?
Michael Hurman, supply chain consultant, attributes the slow adoption to lack of understanding of where the opportunities lie because, perhaps, the supply chain is outside areas of business compliance.
“Everybody understands you must file set of tax returns. They also understand that without marketing and sales function you will not get product or service orders,” he adds. Management also understands that it must be able to deliver product to the customer “but it’s the quality of that [delivery] service that is complex issue and the level of expertise required to fully understand it is fairly rare right across the board”.
Supply chain managers also blame boards of directors for their lack of supply chain savvy. Some companies have recruited specialist chief logistics officers, but they are still relatively few and far between. “Every one of the top 50 companies in this country should have CLO on the executive team,” says Munro.
LNZ’ Munro sees the supply chain specialist as the glue between marketing, production and accounting departments; key agent in getting these departments working together rather than in individual silos. “Without someone who is very knowledgeable about how the supply chain and logistics of business function at senior level, there will inevitably be lack of understanding about how to use the supply chain. If you don’t have that person, and your competitors do, then they will end up delivering to the market faster and cheaper than you, even if you have got superior product.”
Supply chain managers also run up against the accounts department. Benefits from improvements to the supply chain take time to filter through, the costs however, are immediate. Quarterly reporting pressures can make investment in supply chain processes difficult to justify.
Last December Hurman told Management’s sister publication Marketing Magazine of case study involving major New Zealand exporter that had adopted an ambitious restructuring programme based on supply chain management principles and involving investment in superior technology.
The financial analysis demonstrated that the company could expect significant turnaround in sus
