Supply Chain Frontiers issue #2. Read all articles in this issue
No prizes for guessing which major companies tend to be associated with excellent supply chains. But there are lesser known innovators such as the pizza chain Domino's which offers a 30-minute guarantee that is a model for high-speed, build-to-order delivery services. Supply chain excellence is highly subjective and those enterprises that achieve it come in many shapes and sizes.
Domino's is a winner on one popular measure of supply chain excellence: speed. Korean steel maker Posco also scores highly on this attribute: the company delivers product to China in half the time of Chinese producers.
Both companies were cited by the Supply Chain 2020 Project's Industry Advisory Council, the "guidepost" group of more than 20 companies that is advising the futuristic project. The Council met for the first time on May 24, 2004, to discuss the future of supply chains including the issue of what constitutes excellence in the field.
The preoccupation with speed is not confined to quick-moving operations. "In retail, excellent supply chains figure out how to deal, in a scientific way, with aberrant slow movers," said a Council member.
Another member company uses a so-called 3-V model: Velocity of Visibility to manage Variability. How long it takes for a change in demand to propagate through the organization is deemed to be particularly important. Enterprises that make the grade on the triad of Vs are judged to have excellent supply chains.
But for some organizations speed and velocity are not the highest priorities. A company that salts the roads in winter, for example, sees the key criterion for supply chain excellence as where vehicles and distribution centers are positioned to deliver rock salt efficiently.
"We look at total cost of ownership," when assessing supply chains, said a Council participant. The organization estimates supply chain spend as much as 5-10 % of revenue. "That lets you identify the best in class and lets you compare HP to Dell in total spend as a percentage of revenue," he said.
An intangible quality that makes for excellence is customer intimacy. IBM's conversion from a vertical, siloed organization has moved Big Blue closer to its customers.
A lesser known champion on this measure is medical/surgical supplies distributor Owens & Minor. The company has a deep understanding of how medical devices are used, and shares this knowledge with the surgeons who are its customers. The strategy has enabled the distributor to excel at a time when many former competitors have been disintermediated.
The search for excellence can take a company outside its home territory. The Automobile Association, a British automotive services organization, wanted to deploy its fleet of service vehicles more efficiently and turned to its telecoms provider. The telecoms company had spent 10 years building a superb fleet management system for its field repair engineers.
Technology products company Seagate Technologies Inc. looked to its suppliers to help it survive a brutal period of deflation and product obsolescence. As disk drive prices plummeted from $100 to three dollars per unit the company kept supply chain costs low through the careful management of its supplier network.
But before an organization sets its sights on excellence it has to decide which service and product features make it distinctive, and which areas it needs to target in order to meet its strategic objectives.
According to one Council member, companies have three supply chains: one for fulfillment, one for product development and one that provides the capabilities to support the other two. The emphasis on each differs with the organization.
Energy company BP, for example, regards the fulfillment supply chain that delivers crude oil to refineries and ultimately fuel to gas stations as relatively straightforward. BP's development supply chain, designed to develop oil fields, is seen as more challenging, however.
Supply chain excellence is a target that moves with the strategic goals of the enterprise. "Identify the business imperatives" and how they are being met, advised one participant. That could involve areas as diverse as product lifecycle management and industry standards for minimum services levels. "Those business imperatives must feed into the supply chain design," he said.
The next meeting of the Supply Chain 2020 Advisory Council is scheduled for 15 September, 2004. A PDF of the first meeting's proceedings can be downloaded from the Supply Chain 2020 project website listed below. As members of the Supply Chain 2020 research community, organizations can become participants and receive regular updates. For community membership please email your name, job title and company name to research director Larry Lapide at llapide@mit.edu, or sign on at the Supply Chain 2020 web site:
http://ctl.mit.edu/research/sc2020