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Smart Supply Chains                        Supply chain management is a key differentiator                        for corp...
Nevin cites Hewlett-Packard as an excellent                                                           example of the value...
planning, and customer operations. Braitberg serves          “Company after company used supply chain                     ...
“A crisis in a distant region can now spreadvery quickly across the world economy,creating tremendous turbulence.”optimiza...
Helping Firms Hone                                                                                    Their SCM Expertise ...
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Supply Chain Management

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  1. 1. Smart Supply Chains Supply chain management is a key differentiator for corporations around the globe—and there’s a whole new world of possibilities By Bill Shepard S ince its origins in the 1980s, the field of by forecast demand, is being replaced by a ‘pull’ supply chain management has emerged as a view where customers initiate supply chain decisions, strategic game-changer for enterprises around configuring products and initiating orders that pull the world. Now, experts say, it’s poised to play product through the chain,” says Professor John (Jack) an even bigger role. Nevin, executive director of the Grainger Center for Supply chain management encompasses a broad Supply Chain Management at the Wisconsin School range of fundamental interactive processes in product of Business. “In a pull-oriented supply chain, demand design, procurement, production, distribution, and signals are collaboratively shared with key supply demand management. chain partners.” The promise of supply chain management is Nevin says supply chain management responds equally wide ranging: to deliver the right product to demand as it occurs, as opposed to responding in the right quantity at the right price to the right to delayed orders or forecasts: “It integrates demand customer at the right time at the lowest-possible supply signals throughout the supply chain,” he says. chain cost. In its early days, a “push” model of supply chain “A ‘push’ view of supply chains, where product management was “divided into distinct silos—product and materials move toward the final market, driven development, procurement, production, logistics,8 ❖ UPDATE Spring/Summer 2010
  2. 2. Nevin cites Hewlett-Packard as an excellent example of the value chain in action, noting that HP redesigned its products and processes to reduce costs and add value. “They’ve condensed all of their sourcing, reduced the number of motors and other parts in their printers, and redesigned them so that there is a base unit module that can be further assembled andsales, and marketing,” explains Verda Blythe, director customized in distribution centers around the world,”of the Grainger Center. By the 1990s, a new supplychain management model had broken down the silo Nevin explains. “They started at the design stage, and established outright how products would be sourced, Paybackwalls, she says, enabling customer-focused information produced, assembled, and distributed.” What’s the impact of skilledto be shared among the distinct functional areas of Lean thinking and process improvement also play supply chain management?companies to meet customer demand. key roles in the value chain, notes Scott Converse, According to benchmarking In recent years, businesses using supply chain director of technology programs in the business data from AMR Research, amanagement gradually have shed the linear model school’s Executive Education unit, and program global authority on supplyof pushing raw materials and labor into one end of director of its supply chain management certificate chain management, thethe chain in order to produce finished products at the series. most-advanced “demand-other end. “At every step, you identify whether it involves sensing” companies enjoy Imagine three overlapping circles representing an activity that the customer would be willing to pay these advantages:supply, demand, and products/services. These three for,” says Converse. “So you’re identifying re-work, ►► 10 percent more revenuedomains are interconnected through demand-driven excess movement of goods and services, excess ►► 5 to 7 percent betternetworks encompassing customers, employees, and transportation, idle time and wait time, and reducing profit marginssuppliers. The networks share real-time information those types of things to add value to the product or ►► 15 percent less inventoryabout everything from customer orders, to parts and service.”labor, to inventory levels and distribution channels, Focusing on customer needs and feedback isto customer requests for product improvements and integral to all successful value chains.innovation. In short, these networks efficiently respond “It is the supply-demand balance being achievedto customer demand signals, whether they relate to up and down the chain, from the consumer back toproducing existing products or innovating new ones. the source, and value is created at every transaction “Supply chain management enables us to along the way,” says Kevin O’Marah, group vicenegotiate the best pricing in the industry,” says Evan president, supply chain research at AMR Research,Smestad, MBA ’04, strategic procurement manager who serves on the Executive Advisory Board of theat Hewlett-Packard. “You’re not following the market, Grainger Center. “So, when you buy a Happy Mealyou’re setting the market. And that gives you a greater from McDonald’s, the value provided in reverse is theadvantage over your competitors.” customer knowledge provided to McDonald’s from its Happy Meal data—for example, that drinks shouldValue chains: focusing on be smaller, or that different plastic toys should bethe end customer included. Value is created in the transaction, and thatThese days, companies are adopting the “value always is a two-way street.”chain” concept, coined by competitive strategy expert At Cisco, Inc., Customer Value Teams (CVTs) reflectMichael Porter, as part of their overall supply chain an intense customer focus. “CVTs are made up ofmanagement operations and strategy. In essence, this dedicated value chain experts focused exclusively onmeans building value into every step of planning, proactively connecting Cisco value chain capabilitiessourcing, making, and delivering products and with our largest customers and partners,” says Karlservices. Braitberg, vice president of demand management, UPDATE Spring/Summer 2010 ❖ 9
  3. 3. planning, and customer operations. Braitberg serves “Company after company used supply chain on the Grainger Center’s Executive Advisory Board. management to take huge costs out of the system “Each team is focused on delivering personalized, when the recession hit,” says Nevin. “Harley- high-touch, customer value chain solutions,” he says. Davidson, for example, closed its distribution center “These teams are accountable for driving customer- and outsourced it. It also placed its transportation specific metrics throughout the value chain.” operations with third parties.” Supply chain management has made companies Trends and challenges more resilient in tough times. Increasingly, businesses and organizations are Quraish Baldiwala, MBA ‘01, is the commercial discovering the critical role that supply chain director of strategic markets for Abbott Nutrition, a management plays in responding to new challenges, Chicago-based division of Abbott Laboratories. He which are shaping new trends in the field. lists several industry trends that developed over the past two decades: “Globalization, focus on emerging markets, and the decoupling of the supply chain into a web of autonomous entities designed to work Grainger Center for together.” Other aspects of important trends he cites Supply Chain Management are growing efforts by companies to offset higher costs in developed countries, take advantage of a The Wisconsin School of Business has one of the only endowed, growing middle class overseas, and developments university-based centers specializing in supply chain management in transportation and information systems that have in the United States—the Grainger Center for Supply Chain allowed remote supply chains to function. Management. “Through the economic crisis, not only have we The center supports an MBA career specialization in supply been able to ride it out, but supply chain management chain management, an undergraduate specialization, and assists has enabled us to continue our cost-saving initiatives faculty research in the field. to provide top-line dollars to invest in other areas, like Its MBA offering has earned particular acclaim in various RD,” says Smestad. “In fact, as we’ve grown over the publications including U.S. News World Report, Gartner/AMR last five years, it has tripled that ability, if not more.” Research, and Supply Chain Management Review. Average starting Other supply chain trends have stemmed from salaries of its graduates are consistently the highest among peer the challenges of political, economic, or other schools, ranging from $80,000 to $110,000. vulnerabilities in overseas markets. The center is known for close ties to industry. Its Executive “In the last few years, with escalating global risks, Advisory Board comprises senior executives from firms recognized the need to have effective risk-mitigation programs for excellence in supply chain management. is paramount,” says Braitberg. “A crisis in a distant Verda Blythe, MS ’02, the director of the Grainger Center, is an region can now spread very quickly across the world alumna of the program. According to Blythe, the center’s reputation economy, creating tremendous turbulence.” and the growing importance of supply chain management have In response, companies have diversified their increased the demand for supply chain management education supply bases and located them throughout the world, and talent. Blythe says, “I feel confident telling prospective students rather than basing them in one location, to spread risk. that if they want to become a leader in world-class supply chain “In order to reduce fuel costs or product safety- management, the Grainger Center is the place to start.” related risk stemming from tainted or unsafe products, To learn more about the Grainger Center for Supply Chain some U.S. companies have moved operations, Management and careers in supply chain management, visit suppliers, or other parts of their supply chains from China to Mexico,” comments Blythe. Jennifer Schultz, MBA ’08, is in the Supply Chain Leadership Development Program at Raytheon Co. She points to another growing trend: supply chain10 ❖ UPDATE Spring/Summer 2010
  4. 4. “A crisis in a distant region can now spreadvery quickly across the world economy,creating tremendous turbulence.”optimization. Essentially, supply chain optimizationstrives to maximize commodity technology, while atthe same time reducing the number of suppliers fora commodity, giving highest priority to the highest-performing suppliers. “Supply chain optimization is extremely important,especially when it comes to global sourcing andlogistics,” says Schultz. “Who are my key strategicsuppliers, and what do they bring to the table? When as insights on variability of demand throughout thewe concentrate on those issues, we’re going to day, week, or month, overall supply and demand canenhance efficiency in the supply chain.” be managed better. Congestion can be controlled and better planning can be developed for roadways andExpanding into non-traditional areas public transportation usage.”Supply chain management has grown in scope and Not only can these smart solutions enhanceinfluence largely within the realms of manufacturing the world around us, but they’re also generatingand related sectors. Increasingly, there are additional considerable profits for IBM.areas where supply chain management is having an In fact, supply chain management inimpact, providing solutions, and driving profits— non-traditional areas like business consulting hasespecially in new markets. helped Big Blue transition from a manufacturing-based Take IBM, which has successfully applied supply company into a knowledge-based enterprise.chain management principles and practices to provide “When I started at IBM years ago, the majoritysolutions in a host of non-traditional areas beyond of our profits came from hardware,” says Loehr. Inmanufacturing. contrast, he notes that hardware accounted for 15 “For IBM, our focus is on the trend of ‘smart’ percent of IBM’s gross revenues for the first quartersupply chains in support of ‘smarter planet’ of 2010, whereas consulting and services generatedsolutions, which are rooted in the basic elements of about 60 percent.‘Instrumented,’ ‘Interconnected,’ and ‘Intelligent,’” says The IBM roadway example points to otherSteve Loehr, vice president of operations and strategy, non-traditional fields where supply chain managementvalue services. will likely have a significant impact: social and Loehr is another supply chain management environmental who serves on the Grainger Center’s Executive “Supply chain management is going to beAdvisory Board. He cites IBM’s consulting work for responsible for managing initiatives related to broaderthe Swedish National Road Association in Stockholm social issues,” says Nevin.and other cities around the world to reduce road IBM, Hewlett-Packard, Timberland Co., Starbucks,congestion and vehicle emissions. and many other companies are incorporating the goals “Think of cars on roads like one big distribution of sustainability and ethical labor practices into theirnetwork within a supply chain, or multiple supply chain management strategies and practices,components moving along various assembly lines demonstrating that it is possible to “do the right thing”inside a factory,” says Loehr. “By equipping roadways while delivering superior returns to shareholders.with instrumentation to both track and charge for “Whether you’re scoring suppliers based on theirusage, interconnecting the system to manage the carbon footprints or energy usage, or reducing wasteoverall flow, and then applying analytics/intelligence in your own operations, supply chain managementto both provide real-time feedback on usage as well makes it happen,” comments Converse. UPDATE Spring/Summer 2010 ❖ 11
  5. 5. Helping Firms Hone Their SCM Expertise Another non-traditional sector where Even when companies recognize the importance supply chain management can make of supply chain management, their efforts to pursue SCM improvement or technology a significant impact is the U.S. health solutions can fall short. To help translate strategy care system. into successful practice, the business school’s Executive Education unit offers one of the nation’s broadest offerings of courses in supply Many companies have built recycling into different chain, purchasing, and transportation/logistics. A parts of their supply chains. For example, Nike sampling includes: reprocesses discarded athletic shoes to create rubber ►► S upply Chain Leadership focuses on how to for soccer fields, foam for playground surfaces, and identify and minimize uncertainty in supply fabric for padding under basketball floors. chains to improve customer satisfaction and Another non-traditional sector where supply chain lower costs. management can make a significant impact is the U.S. ►► S trategic Global Sourcing provides insight health care system. on the best mix of domestic, near-shore, and “In health care, there is a lot of waste in inventory far-shore sourcing, and practical advice on and sourcing,” says Blythe. “Typically, hospitals how to execute the mix effectively. and health care providers don’t buy directly from ►► I ndustrial Transportation Management offers manufacturers—they buy from distributors. So this metrics, tools, and methods to integrate a results in multiple layers of inventory.” logistics and transportation network into the Blythe suggests that a first step might entail overall supply chain for quicker response improving electronic communications between and lower total costs. hospitals and suppliers at the front end of the supply chain, thereby facilitating more direct and efficient Information on these courses, related offerings, demand signals that will reduce response times and and earning a professional development certificate inventories. Sourcing and inventory management in supply chain management is available at exed. would be other significant areas ripe for improvement or by calling 1-800-292-8964. via supply chain management. O’Marah agrees. “Patients don’t communicate their demand information directly back into the system— Whether supply chain management can they communicate their needs back through the reform America’s intractable problems with health insurance industry, which distorts the demand signal,” care remains to be seen. he explains. “The insurance industry collects all that But one thing is certain: supply chain demand data but distorts the demand signal with rules management is not a flashy fad that will fade about what it will and will not pay for.” away. It already has transformed companies O’Marah envisions a solution involving demand- around the world, providing a strategic platform driven networks of retail health care suppliers that for meeting customer demand through value-rich would provide routine services, like physicals, directly processes. to consumers who would pay out of pocket. But, he By offering solutions to environmental and says, higher-risk procedures, like surgeries, would other problems, it may even make the world a remain covered by insurance companies. better place. Bill Shepard is a Madison-area freelance writer.12 ❖ UPDATE Spring/Summer 2010