Supply Chain Frontiers issue #10. Read all articles in this issue
Best practices have served a purpose in the quest for supply chain excellence, but companies need to shift their focus to other measures if they are to meet the competitive challenge of changing markets. This is one of the main conclusions of research work carried out as part of the MIT Supply Chain 2020 (SC2020) Project. The first phase of this multi-year project was completed recently.
"After about a decade of successful adoption of integrated supply chain management (SCM) concepts the industry is now able to reap substantial benefits, providing that companies move beyond a fixation on best practices," said Larry Lapide, SC2020 Project Manager and Research Director at the MIT Center for Transportation & Logistics. Markets are undergoing rapid change and companies need process innovation based on sound underlying principles to stay ahead of their competitors, he said.
Phase I of the SC2020 initiative focused heavily on understanding what makes supply chains tick, and uncovering the underlying principles that top companies such as Dell, Wal-Mart, and Toyota are leveraging for competitive advantage. Twenty-one company supply chains in nine industries were looked at by MIT and Zaragoza Logistics Center researchers. The research delved into industry drivers and challenges, as well as supply chain responses. In addition, supply chains were profiled in an attempt to uncover the key linkages among competitive strategies, operating models, operational performance objectives, and business practices.
While excellence is a very subjective term, the researchers worked on the premise (developed in collaboration with the project's Industry Advisory Council) that an excellent supply chain must do four things:
- Support, enhance, and be an integral part of a company's competitive business strategy.
- Leverage a distinctive supply chain operating model to sustain competitiveness.
- Execute well against a balanced set of operational performance objectives.
- Focus on a limited number of business practices that reinforce each other to support the operating model and best achieve operational objectives.
These four characteristics may appear to be relatively straightforward but they are not easy to implement. As the research supports, it takes years to ensure that the elements work together and continue to evolve as the competitive landscape evolves. Dell's leading supply chain is the product of many years of work to develop into the leading low-cost provider of commoditized PC and other electronic components, via a focus on both operational efficiency and speed in a direct-to-customer operating model. Wal-Mart's successful supply chain helped it overtake Sears and others over several decades by providing cost-conscious retail shoppers with everyday low prices.
The elements of these excellent supply chain companies are well-known, so why can't competitors replicate the strategies, operating models and business practices and achieve the same success? Mainly because companies assumed, incorrectly, that it is possible to distill these experiences into a set of best practices that can be universally applied to achieve the same results. The fact is that these supply chains evolved to support the strategic objectives of these leaders, and no other organization. As such, the so-called best practices used are not "best" because they were designed exclusively for the parent organizations. They are not directly transferable to other enterprises.
However, there may be other measures of excellence that can be universally applied.
What was hypothesized and is supported by the research conducted in Phase I is that there are potentially a limited set of immutable principles that underlie these best practices. It is these principles that need to be leveraged over time and across industries to develop the innovative practices that companies need to focus on to support their competitive strategies, operating models, and operational objectives.
As a follow-up to Phase I of the SC2020 Project the research team is fleshing out some of these principles and associated practices. For example, segmentation is a business practice that involves aggregating customers, suppliers, or product flow, etc. into segments and managing each in a different way to foster greater efficiency and effectiveness. The LimitedBrands, for instance, does this by effectively managing two supply chains, flowing products efficiently for 'basic' and responsively for 'fashion' items. The success of this segmentation practice is a direct result of The LimitedBrands' ability to arrive at an optimal mix of inventory and cycle time by leveraging cycle time reduction opportunities for each type of item.
SC2020 has now moved into Phase II, and this involves identifying and researching the principles that can be leveraged in process innovation across industries. The 16 theses and working papers published by researchers during Phase I are providing a rich source of information from which to begin to glean these principles.
In addition, Phase II includes two other research initiatives: 1) developing an understanding of how supply chains might be shaped by various macro factors and 2) developing scenarios of what the world might look like in 2020, in terms of these macro factors. All three initiatives will help achieve the ultimate goal of the SC2020 Project - to help companies understand the forces that are changing supply chains so they can be better prepared for the future.
The Supply Chain 2020 Project's Industry Advisory Council has 30 members and its sister organization, the European Advisory Council, has 16 members. For the full list of members and details of Council meetings, as well as information on joining the project's research community, go here. Larry Lapide can be contacted at: llapide@mit.edu.