While global supply chains are growing increasingly complex, many companies still lag in measuring supply chain performance and balancing costs and service levels. Experts note the major trends creating complexity and stress for supply chains. They emphasize the importance of understanding customer needs and measuring the right metrics to evaluate supply chain strategy and maximize value. Coordination and collaboration between partners can help companies operate more profitably. Managing risks like disruptions also requires understanding potential issues and building flexibility into supply chains. Implementing enterprise systems successfully requires clarity on needs and expectations regarding technology solutions.
Mit Benchmarking zu standardisierten IT ServicesWerner Feld
Benchmarking von Outsourcing Verträgen erlaubt die Aufdeckung von Ineffizienzen, die typischerweise auf marktunüblichen IT Serviceanforderungen des Kunden beruhen.
Mit Benchmarking zu standardisierten IT ServicesWerner Feld
Benchmarking von Outsourcing Verträgen erlaubt die Aufdeckung von Ineffizienzen, die typischerweise auf marktunüblichen IT Serviceanforderungen des Kunden beruhen.
Preserving Supply Base Integrity During an Economic Downturn (15 Page Article)
Are Your Organization’s Current Policies and Practices a Threat to Your Supply Base?
Do your suppliers perceive your current e-procurement strategy as a threat or a benefit to their organization? While it is a simple question, the answer is one that will ultimately determine the success or failure of your e-procurement initiative, and in these challenging financial times even your business itself.
This article will examine how the e-LYNXX methodology accomplishes this seemingly paradoxical, and some would suggest contradictory outcome from the perspective of both the buyers and sellers of specification-defined goods and services. In the end, the information within this article will enable you to ultimately be the judge as to how effective the solution is in achieving the elusive win-win result outcome.
As a result of increased globalization, shifts in costs along with other fundamental operations are taking place at a quick pace that conventional design techniques and supply chain strategies need to be updated. With the enhanced scope of globalization, there is a primary concern to integrate the activities and processes between and across the organization. This is based on evidences and documentation that the base of every challenge lies in fragmented configurations of supply chain.
Referring to the topic of “Globalization of the Supplier Base”, this research paper will focus on identifying the key challenges faced by supplier base as a result of increased globalization. Improvement of the overall base of supply and the achievement of increased value is crucial for the value proposition of supply. Effectiveness in the management of supplier, in comparison with the competitors make a contribution of competitive edge in terms of innovation, technology, responsiveness or delivery, quality and cost
Presenting this set of slides with name - Predictive Sourcing Powerpoint Presentation Slides. This presentation comprises a total of twentyfour slides. Each slide focuses on one of the aspects of Predictive Sourcing Powerpoint Presentation Slides with content extensively researched by our business research team. Our team of PPT designers used the best of professional PowerPoint templates, images, icons and layouts. Also included are impressive, editable data visualization tools like charts, graphs and tables. When you download this presentation by clicking the Download button, you get the presentation in both standard and widescreen format. All slides are fully customizable. Change the colors, font, size, add and remove things as per your need and present before your audience.
How Pharma Can Fully Digitize Interactions with Healthcare ProfessionalsCognizant
By building end-to-end IT ecosystems and understanding preferred communications channels, pharmaceuticals companies can create more engaging and fruitful digital relationships with healthcare professionals.
Giles, from his immense experience in areas of procurement has learned that traditional forms of buyer-seller relationship management have run their course and are no longer delivering value that should be expected. Check this presentation, which is brought to you by the FMCG Confext team. Visit www.fmcgconfex.com to know more on the event.
Preventing and Managing Supply Chain DisruptionsThomas Tanel
Supply chains worldwide have been battling various risks and challenges for some time. Each challenge not only threatens to disrupt operations, but also may have a negative financial impact on business performance and prevent an organization from meeting the demands from stakeholders, customers, shareholders, and regulators.
Supply Chain Council members have reported that less than half of enterprises have established metrics and procedures for assessing and managing supply risks and organizations lack sufficient market intelligence, process, and information systems to effectively predict and mitigate supply chain risks. Does this sound like your organization?
f so, supply chain disruptions can be extremely costly. A disruption in your supply chain can cost millions of dollars in lost time, energy and resources. Their effects are both direct (e.g. halting production altogether) and indirect (e.g. on stock values). Taking steps to help reduce supply chain disruption is the only way to avoid these costs.
Proactive discovery and visibility of risks is the key to the prevention and management of supply chain disruptions.
Procurement fraud, bribery, and corruption have moved beyond a perceived risk and become a real issue for many organizations. This paper highlights the need for organizations to put the necessary processes in place to protect against procurement fraud. It also serves as a warning that the absence of any visible instances of bribery, fraud, and corruption should be no cause for complacency as instances of successful perpetration may remain hidden for long periods of time.
Rachael Colley - Transformation of Procurement in the Changing NHS Landscape.Innovation Agency
Presentation by Rachael Colley, Head of Procurement Solutions and Innovation, NHS Shared Business Services on The Transformation of Procurement in the Changing NHS Landscape on Thursday 20 September at Northwich Memorial Court.
Internet banking, customer perceived value and loyalty the role of switching ...Samar Rahi
This study aims to examine the relationship between internet banking, customer perceived value,
switching cost and customer loyalty. Furthermore, this study also examines if switching cost moderates the
relationship between internet banking, Customer perceived value and customer loyalty.
Resilient Supply Chains: How to Dynamically Manage Risk, Opportunity, and Bus...IHS
Supply chain disruptions are occurring at an alarming rate. An unrelenting barrage of man-made risk and natural disasters has made a profound and highly-visible impact on many global operations. Despite immediate attention on short term recovery, companies affected experience sustained, long-term impacts to share price, shareholder value, and operating performance.
Companies can no longer afford to be unprepared for the inevitability of disruption. As simple players within large, globally-integrated supply chains, they must become resilient to the volatile factors threatening sustained performance. And, resilience will only be achieved when companies master the ability to sense and respond to changes -- before they occur.
Join this 1-hour webcast where IHS experts will discuss supply chain risk and outline the importance of becoming resilient:
Who is at risk from supply chain disruption?
What does it mean to be resilient?
Where do traditional approaches to risk fail?
Why are leaders re-tooling their super-lean supply chains?
How can your organization sense and respond to change?
A recording of this presentation can be viewed here: http://www.slideshare.net/ihs_supplychain/resilient-supply-chains-how-to-dynamically-manage-risk-opportunity-and-business-continuity-25924392
33 experts share tips on supply chain managementmaziarforoudian1
Supply chain management is an essential component of any business, and disruptions can have far-reaching consequences for operations and profitability.
Supply chain disruptions continue to impact businesses of all sizes, but numerous polls show that small businesses are particularly affected by them. The ongoing conflict between Russia and Ukraine, as well as the recent COVID-19 lockdowns in China, have exacerbated the situation in the global supply chain.
In this week’s Let’s Talk, we asked industry experts to share their perspectives and best practices for dealing with supply chain disruptions.
Our experts discussed various effective techniques for overcoming supply chain challenges and keeping your business running smoothly, from forecasting and inventory management to collaboration and transparency.
Let’s Talk.
Preserving Supply Base Integrity During an Economic Downturn (15 Page Article)
Are Your Organization’s Current Policies and Practices a Threat to Your Supply Base?
Do your suppliers perceive your current e-procurement strategy as a threat or a benefit to their organization? While it is a simple question, the answer is one that will ultimately determine the success or failure of your e-procurement initiative, and in these challenging financial times even your business itself.
This article will examine how the e-LYNXX methodology accomplishes this seemingly paradoxical, and some would suggest contradictory outcome from the perspective of both the buyers and sellers of specification-defined goods and services. In the end, the information within this article will enable you to ultimately be the judge as to how effective the solution is in achieving the elusive win-win result outcome.
As a result of increased globalization, shifts in costs along with other fundamental operations are taking place at a quick pace that conventional design techniques and supply chain strategies need to be updated. With the enhanced scope of globalization, there is a primary concern to integrate the activities and processes between and across the organization. This is based on evidences and documentation that the base of every challenge lies in fragmented configurations of supply chain.
Referring to the topic of “Globalization of the Supplier Base”, this research paper will focus on identifying the key challenges faced by supplier base as a result of increased globalization. Improvement of the overall base of supply and the achievement of increased value is crucial for the value proposition of supply. Effectiveness in the management of supplier, in comparison with the competitors make a contribution of competitive edge in terms of innovation, technology, responsiveness or delivery, quality and cost
Presenting this set of slides with name - Predictive Sourcing Powerpoint Presentation Slides. This presentation comprises a total of twentyfour slides. Each slide focuses on one of the aspects of Predictive Sourcing Powerpoint Presentation Slides with content extensively researched by our business research team. Our team of PPT designers used the best of professional PowerPoint templates, images, icons and layouts. Also included are impressive, editable data visualization tools like charts, graphs and tables. When you download this presentation by clicking the Download button, you get the presentation in both standard and widescreen format. All slides are fully customizable. Change the colors, font, size, add and remove things as per your need and present before your audience.
How Pharma Can Fully Digitize Interactions with Healthcare ProfessionalsCognizant
By building end-to-end IT ecosystems and understanding preferred communications channels, pharmaceuticals companies can create more engaging and fruitful digital relationships with healthcare professionals.
Giles, from his immense experience in areas of procurement has learned that traditional forms of buyer-seller relationship management have run their course and are no longer delivering value that should be expected. Check this presentation, which is brought to you by the FMCG Confext team. Visit www.fmcgconfex.com to know more on the event.
Preventing and Managing Supply Chain DisruptionsThomas Tanel
Supply chains worldwide have been battling various risks and challenges for some time. Each challenge not only threatens to disrupt operations, but also may have a negative financial impact on business performance and prevent an organization from meeting the demands from stakeholders, customers, shareholders, and regulators.
Supply Chain Council members have reported that less than half of enterprises have established metrics and procedures for assessing and managing supply risks and organizations lack sufficient market intelligence, process, and information systems to effectively predict and mitigate supply chain risks. Does this sound like your organization?
f so, supply chain disruptions can be extremely costly. A disruption in your supply chain can cost millions of dollars in lost time, energy and resources. Their effects are both direct (e.g. halting production altogether) and indirect (e.g. on stock values). Taking steps to help reduce supply chain disruption is the only way to avoid these costs.
Proactive discovery and visibility of risks is the key to the prevention and management of supply chain disruptions.
Procurement fraud, bribery, and corruption have moved beyond a perceived risk and become a real issue for many organizations. This paper highlights the need for organizations to put the necessary processes in place to protect against procurement fraud. It also serves as a warning that the absence of any visible instances of bribery, fraud, and corruption should be no cause for complacency as instances of successful perpetration may remain hidden for long periods of time.
Rachael Colley - Transformation of Procurement in the Changing NHS Landscape.Innovation Agency
Presentation by Rachael Colley, Head of Procurement Solutions and Innovation, NHS Shared Business Services on The Transformation of Procurement in the Changing NHS Landscape on Thursday 20 September at Northwich Memorial Court.
Internet banking, customer perceived value and loyalty the role of switching ...Samar Rahi
This study aims to examine the relationship between internet banking, customer perceived value,
switching cost and customer loyalty. Furthermore, this study also examines if switching cost moderates the
relationship between internet banking, Customer perceived value and customer loyalty.
Resilient Supply Chains: How to Dynamically Manage Risk, Opportunity, and Bus...IHS
Supply chain disruptions are occurring at an alarming rate. An unrelenting barrage of man-made risk and natural disasters has made a profound and highly-visible impact on many global operations. Despite immediate attention on short term recovery, companies affected experience sustained, long-term impacts to share price, shareholder value, and operating performance.
Companies can no longer afford to be unprepared for the inevitability of disruption. As simple players within large, globally-integrated supply chains, they must become resilient to the volatile factors threatening sustained performance. And, resilience will only be achieved when companies master the ability to sense and respond to changes -- before they occur.
Join this 1-hour webcast where IHS experts will discuss supply chain risk and outline the importance of becoming resilient:
Who is at risk from supply chain disruption?
What does it mean to be resilient?
Where do traditional approaches to risk fail?
Why are leaders re-tooling their super-lean supply chains?
How can your organization sense and respond to change?
A recording of this presentation can be viewed here: http://www.slideshare.net/ihs_supplychain/resilient-supply-chains-how-to-dynamically-manage-risk-opportunity-and-business-continuity-25924392
33 experts share tips on supply chain managementmaziarforoudian1
Supply chain management is an essential component of any business, and disruptions can have far-reaching consequences for operations and profitability.
Supply chain disruptions continue to impact businesses of all sizes, but numerous polls show that small businesses are particularly affected by them. The ongoing conflict between Russia and Ukraine, as well as the recent COVID-19 lockdowns in China, have exacerbated the situation in the global supply chain.
In this week’s Let’s Talk, we asked industry experts to share their perspectives and best practices for dealing with supply chain disruptions.
Our experts discussed various effective techniques for overcoming supply chain challenges and keeping your business running smoothly, from forecasting and inventory management to collaboration and transparency.
Let’s Talk.
Understand the relationship between supply chain management (SCM) and organisational business objectives
Explain the importance of effective supply chain management in achieving organisational objectives
Explain the link between supply chain management and business functions in an organisation
Discuss the key drivers for achieving an integrated supply chain strategy in an organisation
Be able to use information technology to optimize supplier relationships in an organisation
Evaluate the effectiveness of strategies used by an organisation to maintain supplier relationships
Task 2.2: Use information technology to create strategies to develop an organisation’s relationship with its suppliers
Develop systems to maintain an organisation’s relationship with its suppliers
Case Study of a maintaining organization’s relationship with suppliers:
Understand the role of information technology in supply chain management
Assess how information technology could assist integration of different parts of the supply chain of an organisation
Task 3.2: Evaluate how information technology has contributed to the management of the supply chain of an organisation
Assess the effectiveness of information technology in managing the supply chain of an organisation
Understand the role of logistics and procurement in supply chain management
Explain the role of logistics in supply chain management in an organisation
Making Analytics Actionable for Financial Institutions (Part I of III)Cognizant
To maximize ROI from their analytics platforms, financial institutions must build solutions that explicitly, visibly and sustainably enable real-time translation of data into meaningful and continuous improvements in their products, services, operating models and supporting infrastructures.
Customer Focused Supply Chain_ Embracing the Future of Business..pdfTQSLogistics
As the business landscape evolves, the words of Peter Drucker resonate louder than ever: "The purpose of any business is to create a customer." Recognizing this, businesses are redirecting their focus from suppliers to buyers, acknowledging the imperative need for a Customer Focused Supply Chain or Outside-In supply chain model. This paradigm shift is becoming increasingly vital for success in the marketplace.
Companies that want to turn excellent customer experience into growth need to master Customer Journeys. Customer Journeys (the set of interactions a customer has with a brand to complete a task) and less moments of truth are what matter for a customer. Companies that master not only see an improvement in customer experience, loyalty, and operational productivity; they also see above-market growth.
A Word About Dynamic Supply Chains Delivering value through people.docxmehek4
A Word About Dynamic Supply Chains: Delivering value through people
By
John Gattorna
The key to successful supply chain management is recognising that it’s people who really drive the living supply chains that are at the heart of businesses. In this article, Dr. John Gattorna, author of
Dynamic Supply Chains: delivering Value Through People, 2nd edn, FT Prentice Hall, Harlow, 2010
, gives an overview of what he calls Dynamic Alignment: the principle of matching changing customer needs and desires with different supply chain strategies.
Opening comments
One thing is for sure. We are going to have to radically change our ideas about the design and operation of enterprise supply chains if we are to break the shackles and get to the next level of operational and financial performance in the immediate year ahead. This is not an option; it is mandatory. In essence, the world has changed so much over the last 15 years that conventional methods are no longer sufficient. The world of markets has become much more volatile, and under such conditions the old assumptions no longer stand up to scrutiny.
The way forward is there for all to see. We must cast off all the denial and come to terms, finally, with the notion that it is people (and their behaviour) that drives supply chains. All others are just enablers. So it is necessary to look at the problem of designing and operating tomorrow’s supply chains by examining three areas of human activity along typical enterprise supply chains, and all enterprises have supply chains.
“We must re-interpret the marketplace, and look for ways to understand and codify what customers (and consumers) are telling us when they set out to buy products and services.”
1. We must re-interpret the marketplace, and look for ways to understand and codify what customers (and consumers) are telling us when they set out to buy products and services;
2. We must do likewise at the supply end of the channel, and look for new ways to understand the underlying capabilities and expectations of the suppliers we draw on for raw materials, components, sub-assemblies, and packaging;
3. And finally, we must learn much more about the internal cultural capability in our businesses, represented by the employees, management, and leadership.
If we are able to ‘align’ all three of the above described components of the supply chain, we will achieve a quantum improvement in bottom-line results through improved service levels and satisfaction at both ends of the supply chain, and lower cost-to-serve through improved internal configurations.
This article attempts to give you some idea of how all this can be achieved by drawing on various excerpts from the book itself. If you want more detail you will have to read the whole book, from cover to cover.
Customer Conversations
1
The clear message is that customers, and customers alone, are the ultimate frame of reference when you are designing and operating enterprise supply chains. To convert the rhetor.
2015 MHI Annual Industry Report – Supply chain innovation – Making the imposs...Leon Eymael
This year’s annual MHI Industry Report, developed in collaboration with Deloitte, delves more deeply into supply chain challenges with a specific lens on how technology innovation can help illuminate the path to the supply chain of the future.
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[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
LA HUG - Video Testimonials with Chynna Morgan - June 2024Lital Barkan
Have you ever heard that user-generated content or video testimonials can take your brand to the next level? We will explore how you can effectively use video testimonials to leverage and boost your sales, content strategy, and increase your CRM data.🤯
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Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
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What might I learn?
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Creating the optimal supply chain www.mobilemoviesite.com
1. Creating the Optimal Supply Chain
As global competition and advancing technology render borders irrelevant and link
companies more closely, supply chains — the network of suppliers, plants, distributors,
retailers and others that participate in the sale, delivery and production of goods and
services — are growing increasingly complex. No longer simply the domain of the
warehouse manager or logistics director, supply chain management is viewed by most
companies as a mission-critical element. In this special report, experts from Wharton
and Boston Consulting Group (BCG) discuss strategies for maximizing the value of
supply chains, avoiding inefficiencies, managing the omnipresent risk of disruption, and
evaluating the pros and cons of supply chain enterprise systems.
‘You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value 1
Low-cost country sourcing, outsourcing, customization, globalization and more are adding tremendous
complexity to
supply chains across the globe. But even as companies are rapidly adopting supply chain management
strategies in an
effort to keep up, experts from Wharton and BCG report that many still lag when it comes to measuring
how well they
are doing, and balancing the trade-offs involved in keeping service levels high and costs low.
Avoiding the Cost of Inefficiency: Coordination and Collaboration in
Supply Chain Management 5
The process of getting the right product to the right place at the right time at the right price — the
traditional touchstones
of supply chain success — remains a challenging and often elusive goal. According to experts from BCG
and
Wharton, two key supply chain elements that are often taken for granted — coordination and
collaboration — can
mean the difference between the merely functioning and the profitable when it comes to procuring
goods and services
2. from vendors around the world and delivering them to global consumers as fast and inexpensively as
possible.
Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption 9
When it comes to global supply chains, the potential for disruption comes in many packages, from large-
scale natural
disasters and terrorist attacks to plant manufacturing fires, electrical blackouts, and operational
contingencies such
as shipping ports too small to handle the flow of goods coming into a country. Experts from BCG and
Wharton say that
managing supply chain disruptions revolves around two goals: first, to thoroughly understand the
potential of identified
risks; and second, to increase the capacity of the supply chain — within reasonable limits — to sustain
and absorb
disruption without serious impact.
Supply Chain Enterprise Systems: The Silver Bullet? 14
Supply Chain Enterprise Systems — information, communication and management technologies that
support supply
chain functions — have quickly become a central element of supply chain management strategy. But,
implementing
these systems is often a difficult undertaking with an uncertain outcome. For application of supply chain
technology
to be successful, experts from BCG and Wharton argue that certain elements need to be in place:
namely, a clearly
defined need based on supply chain strategy, as well as clear expectations about what such technologies
can and cannot do for a company. Creating the Optimal Supply Chain In the face of increasing
complexity in global supply chains, more companies are realizing that supply chain management (SCM)
is a mission-critical element, and no longer simply the domain of the warehouse manager or logistics
director. But even as companies adopt SCM strategies in an effort to keep up, experts from Wharton
and Boston Consulting Group (BCG) report that many still lag when it comes to measuring how well
they are doing, and balancing the trade-offs involved in keeping service levels high and costs low. “The
major trends in business right now — low-cost country sourcing, outsourcing, customization,
globalization and more — all create tremendous complexities in a supply chain,” says Steve Matthesen,
vice president and global leader for supply chain at BCG. “In most cases, however, companies have not
3. changed how they manage this critical part of the business.” According to Matthesen, that’s largely
because most company executives don’t have a supply chain background, and they tend to view the
supply chain function as “a black box” that they don’t understand or have limited visibility into. “CEOs
feel that their supply chain costs too much and doesn’t work very well. They’re quick to ask, ‘How hard
can it be to get the products to the right place at the right time?’ Well, it can be pretty hard,” he says,
citing three major factors that have dramatically increased the stress on supply chains:
• Fragmenting customer needs, resulting in a broader selection of SKUs (stock keeping units) aimed at
specific consumer segments, different price points, shorter product life-cycles, and less predictable
demand patterns;
• Increased cost pressures based on global competition and shareholder demands to reduce working
capital;
• A new level of complexity brought on by more complicated distribution models, increased
outsourcing, and “new technologies that promise efficiency but can increase complexity.” While supply
chains are getting more difficult to manage, the competitive environment means that most companies
need to further reduce costs. In such an environment, successful SCM “means getting better results with
the same, or fewer, resources,” according to Gerald P. Cachon, Wharton associate professor of
operations and information management. “It’s like squeezing more juice from a lemon, or maybe blood
from a stone.” Knowing What to Measure “You can’t manage what you can’t measure,” says Morris A.
Cohen, Wharton professor and Co- Director, Fishman-Davidson Center for Service and Operations
Management. “And that’s as true for supply chain management as it is for other parts of a business’
operations.” He says that many SCM metrics, like inventory turnover, are already built into a typical
accounting system. But some of the more sophisticated benchmarks, including measuring the level of
customer satisfaction, take some work to develop. And a key issue is simply knowing what to measure.
‘You Can’t Manage What You Can’t Measure’: Maximizing Supply Chain Value
“The major trends in business right now...all create tremendous complexities in a supply chain.” —Steve
Matthesen, vice president and global leader for supply chain, BCG Boston Consulting Group |
Knowledge@Wharton Special Report While the concept of understanding what performance level
customers want sounds simple, in practice it is not. Companies have two gaps, he says: a true
understanding of their current performance, and a deep understanding of what their customers need —
and are prepared to pay for. “Every company has metrics that track performance,” he says. “The key
question is whether these metrics really provide visibility to performance as viewed by the customer.
For example, one company measured itself by the percentage of orders received that day that were
successfully fulfilled on time. Their performance against this metric was very high (over 99%). However,
they didn’t track the time between a customer placing the order and receiving their goods. When
measured this way, the performance was much lower than expected. The reason was that often orders
were shipped from the wrong distribution center — resulting in longer delivery times and higher freight
costs.” Measuring customer needs is perhaps even trickier, he notes. “How do you know whether you
would lose business or gain business if you change your service level? In most cases, there isn’t much
4. hard data to work with. It’s also hard to ask your customers, since they are likely to respond that they
want higher service levels at lower costs. You need to dive more deeply into how your customers think
about your business and what role you play in their lives. [Companies] may also need to run some
experiments in the field to validate their assessments.” The Trade-offs Between Service and Costs If the
essence of supply chain management is to provide the right products in the right amounts to the right
place at the right time — all at the right cost — then a concept called the “efficient frontier” is a useful
way to gage capability. For any business function, an efficient frontier can be found by plotting points
along a trade-off curve between two or more performance metrics. Applied to supply chain
performance, “the efficient frontier is a twodimensional space, with service level and costs along the
two axes,” says Mark D. Lubkeman, a senior vice president in BCG’s Los Angeles office. “At one end, you
have terrific, wonderful service at a huge cost. Or you could have lower costs and slow delivery times.
The question is, where do you want to fall on the graph?” Matthesen agrees that the challenge is
measuring the right things. “Most operations groups track a ton of metrics. The issue is whether they
are tracking the metrics that will identify how they are meeting the strategic needs of the company and
what is relevant to their customers.” “When I asked a major car manufacturer if it considered customer
satisfaction levels, executives advised me that they measured their customer service by the fill rate of
the vehicles they sent to dealers,” relates Cohen. “Based on that, they said they had a high rate of
customer satisfaction. But when I asked them to survey the ultimate customer, the buying public, they
were shocked to find that consumers were not satisfied with the quality of the vehicles.” Cohen says,
however, that more companies are beginning to realize that they need end-toend visibility in their
supply chain management efforts. “SCM is about more than just sensing and responding,” he explains.
“Companies need to anticipate demand, since it takes time to respond to demand-side changes. They’re
learning, but there’s still plenty of room for improvement.” Matthesen notes there is an inherent trade-
off in meeting that demand: “How much service level can I give my customers before everyone screams
about what it costs?” he asks. “If I have a retail store, and I want to deliver every day instead of twice a
week, that will cost me more money. It’s all about service levels: how fast do I get you your product
compared to when you want it, when you ordered it, when you need it. And what will it cost?” But cost
is only one lens, Matthesen argues. “The goal is to maximize overall value. You want to have low costs,
but first you need to have a strategy that will let you win in the marketplace. Sometimes that strategy
requires spending more cost to get a much higher margin.” To determine this, Matthesen says
companies need to make sure they have a “crystal-clear view” of what their customer really wants —
what minimum service level is required to meet their needs, and what they will be willing to pay for
superior service. Service level here includes all attributes of the supply chain as experienced by
customers: in-stock rates, delivery time, product assortment, etc. In general, higher performance means
higher costs, Matthesen notes. “Your company needs to make sure those costs are justified.” Creating
the Optimal Supply Chain A company’s strategy should guide its supply chain design, he notes. In
addition, many companies need to further segment based on the specific markets and customers they
are addressing. As an example, Lubkeman points to appliance retailing stores. “Retailers who compete
from a broad SKU base have high levels of in-stock goods where the goal is ‘to walk in and get it right
there,’” he says. “But what about other appliance retail stores with narrower SKU mixes that don’t have
a lot in stock? They may provide service and attention, and will do what needs to be done to get
customers just what they want.” Those two businesses and the supply chains they require are very
5. different, notes Lubkeman. That means the efficient frontier for each is very different,
too. The goal of any company, then, is to maintain a
position on the efficient frontier that protects both
its own interests and acknowledges the interests
and needs of its customers.
“It’s dangerous for any company to say, ‘We have
one frontier,’” Lubkeman advises. “That doesn’t
make sense in any business, so why should it in a
supply chain?”
The key, he says, is really to “de-average” the
efficiency frontier, to take apart the average and
look at the individual customer segments. “For
most, the efficient frontier is the point on the curve
where you provide the service — no more, no less
— that makes the customer happy at minimal cost,”
he details. “That’s your frontier.”
Cachon and others note that the trend toward
supply chain product segmentation “generally
means more complexity, which makes getting to the
efficient frontier harder.”
Providing different levels of customization and
variety is tricky for supply chain management says
Cohen. How do you ration your resources and
prioritize when facing streams of demand from
different customers for the same item, customers
6. who have paid a different price and to whom you
have made different promises? “It is inefficient to
chop up the supply chain for different customers,
but exploiting those things keeps you on the
efficient frontier,” he counsels. “Keeping the supply
chain flexible is key.”
The efficient frontier is a helpful framework, but
BCG’s Matthesen is quick to point out that most
companies are not getting the full value from
their supply chain investments. “Your infrastructure
investments will have been made based on
a trade-off between service level and cost, but
in many cases, companies are actually off the
efficient frontier — meaning they are getting lower
performance and higher costs — because of how
they operate. For example, one of my clients
found that they often shipped from non-optimal
distribution centers based on a number of factors.
This meant that they incurred extra freight costs
as well as delivered a lower service level to their
customers. By addressing this problem they realized
improved performance at lower cost — the elusive
free lunch!”
Getting to the efficient frontier is not a simple task,
notes Cohen. “You may not be managing processes
7. correctly, not using the right technology; there are a
variety of reasons to explain why some companies
are not on it and others are.”
“If you give me a set of parameters, a particular
supply chain structure and an assumed forecast,
we can find the efficient frontier,” says Cachon.
“But no firm ever has all the information they need.
What are all the costs? What are the demand distributions?
What are the uncertainties in terms of
weather, union strikes, and fires?”
He adds that as supply chains become more
complex, they have more participants, more
locations, and are geographically more dispersed.
The amount of information needed to find the
efficient frontier appears to grow exponentially.
One important development, the burgeoning array
of technological tools and software applications,
can make it easier for companies to find their
efficient frontier.
“Making it to the efficient frontier involves the
application of optimization techniques which require
careful data collection and generally customization
to the firm’s particular environment,” said Cachon,
who studies how new technologies can improve
supply chains and consults for companies that
8. provide optimization solutions for retail customers.
High
Low
Low High
Cost
service level
“I have directly seen how the smart application of
optimization technology can improve a retailer’s
inventory performance, with higher service and
higher turns.”
Lubkeman believes that incorporating new efficient
frontier software programs can be a plus. “They
basically help you optimize transactional decisions,”
he said. But he adds a warning: “Unless you’ve got
the underlying understanding of the customers
and articulated the strategies you need to serve
those customers, you run the risk of having the
technology drive the strategy instead of the other
way around.”
Companies on the Frontier
Hal Sirkin, a BCG senior vice president in Chicago
and leader of its operations practice globally,
believes that most companies are operating below
the efficient frontier, and don’t realize how to make
the tradeoffs that are required to get to it.
9. “I don’t think they understand it,” he says. “I think
they want to improve their supply chain, but I don’t
think they know that there is an optimal operating
capability and an optimal way to operate their
business.”
To improve their position on the efficient frontier,
Sirkin suggests that companies take such steps as
reviewing out-of-date technology and substituting
more efficient programs that provide better data
and analysis; reviewing their warehouse locations
and designs and changing them as needed to gain
greater efficiencies; and reviewing their supply
chains for costs. He also says to consider staffing
requirements and to look at outsourcing as a way to
save money or increase service.
Matthesen adds, “While there are improvements
possible within the four walls of the supply chain
function, the bulk of the benefit comes when
you break down the functional silos and better
coordinate across the entire business, and your
suppliers and customers.” Key priorities are aligning
the supply chain with company strategy, aligning
incentives across functions and with external
parties, arming people with the right data “so they
can make holistic decisions,” and building flexibility
10. to quickly respond to demand, rather than relying
on forecasts.
“CEOs need to engage with their management
teams to understand how their supply chain works
today — how it supports the business and how it
prevents success. Together, they need to evolve
the strategy and supply chain to move the business
to a position where the supply chain supports and
enables a winning strategy. This cannot be accomplished
by the head of supply chain alone,” he says.
The pay-off is substantial. “A fully aligned supply
chain and strategy delivers a superior business
model,” Matthesen adds. “Given the difficulties of
achieving this, the benefits are often sustainable and
create real advantage. Your competitors are likely
to want to copy pieces of your strategy without
realizing how the entire strategy and supply chain
work together — and they will not be able to match
your performance.” 3
Boston Consulting Group | Knowledge@Wharton Special Report
Creating the Optimal Supply Chain
It’s no secret that supply chain
management has moved out of the shadows when
it comes to business strategy. Organizations that
once focused primarily on distribution networks,
11. profit differentiation and improved marketing for
their success have now embraced integrated supply
chain management as a pivotal strategy component
for growth and profitability in the global economy.
But the process of getting the right product to the
right place at the right time at the right price — the
traditional touchstones of supply chain success
— remains a challenging and often-times elusive
goal. Although supply chains have undoubtedly
become more sophisticated in the past few decades,
a recent study in the Harvard Business Review
found that improved performance hasn’t always
followed: “Despite the increased efficiency of
many companies’ supply chains, the percentage
of products that were marked down in the United
States rose from less than 10 percent in 1980 to
more than 30 percent in 2000, and surveys show
that consumer satisfaction with product availability
fell sharply during the same period.”
And over time, the real value of efficient supply
chains and the true costs of inefficient supply chain
management have been clearly documented. In a
paper titled “What Is the Right Supply Chain for Your
Product,” Marshall L. Fisher, professor of operations
and information management at Wharton and codirector
12. of the Fishman-Davidson Center for Service
and Operations Management, cited a study of the
U.S. food industry which estimated that “poor
coordination among supply chain partners was
wasting $30 billion annually. Supply chains in many
other industries suffer from an excess of products
and a shortage of others owing to an inability to
predict demand. One department store chain that
regularly had to resort to markdowns to clear
unwanted merchandise found in exit interviews
that one-quarter of its customers had left its stores
empty-handed because the specific items that they
had wanted to buy were out of stock.” A recent BCG
study about supply chain integration for merging
companies noted that “any weakness in the system
on day one of the new organization’s life can quickly
translate into excess inventory, stockouts, or even
lost customers. And the damage can be severe.
In some industries, a flawed integration can drive
inventory levels as much as 40 percent higher within
a few short months. It can have a similar or even a
greater impact on distribution costs, timeliness of
deliveries, and a variety of other metrics.”
Supply chain experts from Boston Consulting Group
(BCG) and Wharton agree that a careful coordination
13. of supply chain elements and a high level of collaboration
are among the primary criteria for creating
successful supply chain management. Indeed, in a
world of heavy competition, these two supply chain
elements — so often taken for granted — can mean
the difference between the merely functioning and
the profitable when it comes to procuring goods
and services from vendors around the world and
delivering them to global consumers as fast and
inexpensively as possible.
Avoiding the Cost of Inefficiency: Coordination and Collaboration in
Supply Chain Management
“The days when business was done
three doors down from the supply
room are over.”
—Steve Matthesen, vice president and
global leader for supply chain, BCG
Boston Consulting Group | Knowledge@Wharton Special Report
“The days when business was done three doors
down from the supply room are over,” said Steve
Matthesen, a vice president in BCG’s Los Angeles
office and a supply chain expert. “Everyone is
pushing for more demanding performances against
stronger competitors.… My clients are going to
broader ranges of SKUs [stock keeping units] in a
14. finer and finer segmentation of customer needs, in
order to meet the demands of a growing general
consumer trend that says, ‘I want what I want; I want
it cheaper; I want selection; and if you don’t have it,
I’ll go somewhere else to find it.’ The more of this
kind of complexity you have in a supply chain, the
more difficult it becomes for things to work.”
“A complex chain or network of resources has to
be managed so that when you go to squeeze your
toothpaste in the morning, it’s there,” said Morris
A. Cohen, professor of operations and information
management and systems engineering at Wharton
and co-director of the Fishman-Davidson Center for
Service and Operations Management. “The goal
is to match supply with demand at every stage, at
every value-added point, so that at the end of the
day there is a customer who has a demand and the
supply chain figures out how to get the product to
that customer at a time and place and a price that
they are willing to pay.”
The elements of coordination and collaboration
in supply chain management range from
the very basic concepts of communication to the
most sophisticated technology and electronic
data interchange available, as well as managing
15. or tracking everything from purchase orders to
physical logistics of inventory and tracking the flow
of funds among business partners.
‘A Huge Competitive Lever’
“The whole supply chain management job is not
an easy one,” said BCG’s Matthesen, noting that the
trend toward globalized outsourcing adds layers of
complicating factors. “I get calls from companies
who say, ‘I’ve moved my sourcing to China and my
supply chain is all screwed up’ — as though this is
a surprise. They may not know why, but they won’t
have the right product in the right place at the right
time. And they start yelling at their supply chain
guys — ‘Why are you doing this wrong?’ Usually,
the right product is in the wrong place, and too
much of the wrong product is everywhere.”
For instance, Matthesen said, a company may have
placed a similar number of ski parkas in both of its
Miami and Denver stores. The Denver store is likely
to sell out quickly, while the Miami store will sell
few. This forces the company either to dramatically
mark down the items in Miami or ship the parkas
to Denver. Either situation incurs substantial costs,
for no benefit. When a company factors in other
expenses — misplaced inventory taking up valuable
16. retail space for items that would sell, for example
— you have “a lot of waste built in when you make
an error in your supply chain. In many cases, the
underlying cause of the inefficiency lies in decisions
made outside the supply chain organization, but the
consequences tend to show up there.
“That said, if you have the right process,
procedures, knowledge and strategy there, you
can make it work. You might never get to nirvana,
but you can be smoothly functioning. And the part
to me that is very interesting is that if you get this
to work right, it is a huge competitive lever. Your
competitors will see that you have an advantage,
but it’s hard for them to replicate it. They will pick up
on a few things, but they simply won’t get there.”
Matthesen pointed to Dell Computers and its supply
chain model of mass customization — a computer
isn’t made until there’s a custom order for it. “Dell’s
whole model is based on a supply chain advantage.
You have Hewlett Packard trying to keep up with
them, but it has a different model, and it’s hard to
catch up. For a number of legitimate reasons, HP
is not willing to do everything that Dell has done,
even though Dell’s particular supply chain requires
all the pieces to work together. If you just take a few
17. pieces, you end up not accomplishing a lot.”
Taking the Holistic View
The experts agreed that any supply chain has its
particular “pain points,” or stumbling blocks that
prevent the organization from realizing its financial
and growth goals. When a pain point is coordination
and collaboration, there are many different elements
that should come under scrutiny, cautions supply
chain authority Marin Gjaja, BCG’s vice president
and director in the firm’s Chicago office.
“The first hurdle to coordination and collaboration
is within the four walls of your company,” said
Gjaja. The basic principle behind supply chain organization,
namely, “getting the right product to the
right place at the right time at the lowest possible
cost, is not something that most companies are
organized to do well. You are cutting across organizational
boundaries, where individuals may be more
interested in local optimization than global supply
chain issues.”
Creating the Optimal Supply Chain
In fact, a recent report by Supply Chain Redesign
LLC in Raleigh, N.C., defines a lack of internal collaboration
and business intelligence as one of the top
supply chain pain points. The researchers note that,
18. typically, “Poor communication between business
units and disjointed legacy systems prevent coordination
and alignment of sourcing and logistics
strategies,” and, moreover, “internal business
performance plans are not aligned with external
customer demand requirements.”
To understand how these issues play out, Gjaja
suggested a quick review of the role of the customer
service center. “The main job of the customer
service center is to keep customers happy. They
take calls from customers who are irate, and their
job is to make sure the customer gets off the phone
satisfied. They will place an emergency order to
have something FedEx-ed to a customer, which
means you have a customer service officer who
makes the customers happy but is costing the
company a lot of money. I have clients who have
incurred millions of dollars in shipping and freight,
whose customer service departments should
perhaps be reminded that they shouldn’t ship a $3
item in a $20 package.”
To avoid this, Gjaja suggests that the business take
a more holistic view of its procedures, “We talk a lot
about holistic, end-to-end supply chains looking to
both meet demand and serve the customer. That is
19. as much an art as it is a science. Most organizations
are not managing the supply chain holistically, and
how you coordinate every day is a real challenge.
If you look at the customer service center example,
you have a mix of business rules, operating
processes and incentives that are set up as an
individual function, and [meeting those] optimums
will come at the expense of the company’s global
optimums. This is at the heart of a lot of internal
dysfunction in a supply chain, and it really comes
down to establishing cross-functional coordination
and collaboration.”
Wharton’s Cohen agreed. “I would argue, in fact, that
if you haven’t figured out the internal problems —
collaboration, coordination and information sharing
— you are probably out of businesses,” he said.
A second hurdle comes when a company
approaches this problem outside the company’s
walls. “You have fewer levers that you can pull from
an incentive standpoint when it comes to working
on collaboration and coordination with suppliers
and others outside the firm,” Gjaja noted. “What
is the coordination cost of trying to work with
someone outside the firm? With technology, we’ve
gotten better information. For instance, Wal-Mart
20. can provide information to Procter & Gamble about
their store because their incentives are aligned here
— P&G doesn’t want its products to be out of stock
any more than Wal-Mart does — but there is also a
level of trust. Wal-Mart is entrusting P&G with a fair
amount of operational information. Information is
one thing; trust is another. Information has facets
— data, understanding of intent, communication
around that, and many sub-dimensions. But
trust is fundamentally different. It is based on an
expectation that you need to fulfill your obligations
to me as my partner in this work. I think we forget
that collaboration and coordination require that.
And when you lose that trust, the friction and the
transaction costs go up, and you start to experience
more difficulty in working together.”
The ‘Right’ Supply Chain
For Wharton’s Fisher, the essence of supply chain
management problems boils down to “shortages
and failure to get the product, and having too
much of the product. Prevent that from happening
at a reasonable cost, and that’s supply chain
management. Having too much of any supply is
problematic. Think about apparel at the end of the
season, or cars at the end of the model year. You
21. can give back at lot of money at the end of the
season in order to reduce inventory and cut losses.”
As a supply chain consultant, Fisher has worked
with an internationally-known and prestigious
jewelry maker, whose single biggest issue was
total availability of product. “Everyone in the stores
told us, ‘Just give us the product. There’s too little
product. We can’t sell what we don’t have.’ And the
most popular items were frequently unavailable.”
The jewelry maker’s supply chain challenges?
Reliable, accurate forecasting; better understanding
of new product demand; and improved inventory
planning at individual store levels.
Fisher’s answer to coordination and collaboration
problems within supply chain management is to
make sure a company finds the right supply chain
for each product. “The root cause of the problems
plaguing many supply chains is a mismatch
between the type of product and the type of supply
chain,” Fisher wrote in “What Is the Right Supply
Chain for Your Product?” In the paper, he argued
that products fall into one of two categories:
primarily functional or primarily innovative.
According to Fisher, functional products, which
include products like milk and food that satisfy
22. basic needs and can be sold in a wide range of
retail outlets like grocery stores, are characterized
by: predictable demand and easily matched
supply and demand patterns; low profit margins;
an average stockout rate of 1% to 2%; virtually no
forced end-of-season markdown; and low product
variety. A functional product requires a supply chain
that delivers what Fisher calls a “physically efficient
process,” one designed to “supply predictable
demand efficiently at the lowest possible cost.”
But, said Fisher, innovative products like new
computer systems, video entertainment products
and some fashion trends (like jewelry) have unpredictable
demand; an increased risk of shortages
or excess supplies; a potential for higher profit
margins; high product variety; an average stockout
rate of 10% to 40%; and an average forced endof-
season markdown of 10% to 25%. Innovative
products require a “market-responsive process”
supply chain, designed to “respond quickly to unpredictable
demand in order to minimize stockouts,
forced markdowns and obsolete inventory.”
Using sophisticated mathematical analysis and
extensive data collection, Fisher helped create a
company called 4R Systems, Inc., an analytical
23. software business designed to improve supply chain
forecasts and help companies make better decisions
about their inventory dollars, particularly for short
life-cycle products. One of the company’s programs,
for instance, takes point-of-sale and inventory data
from retail venues in the home fashion industry
and converts that into information that enables the
company to optimize stock levels from its distribution
centers to client retail locations.
Cohen cautions, however, that coordination of
information doesn’t always solve supply chain
problems, particularly in certain industries where
“the information is always changing, due to the
nature of the beast when an industry supports so
much inherent uncertainty.” He cited a study he
worked on regarding the semi-conductor equipment
industry and its relationship with suppliers. “One
of the things we found is that due to their business
cycle, there is rapid obsolescence in the product,
no matter how much information coordination they
experience. If they don’t have enough capacity, it’s
very expensive, but if they have unused capacity, it’s
very difficult to balance, too. With the uncertainty so
great, they will never arrive at the best equilibrium
just by collaborating. In fact, it is difficult to see
24. equilibrium when everyone is acting in a collaborative
fashion.”
Which begs the question: Despite increasing
attention paid to supply chains, why are very few
firms successful at integrating processes and
aligning incentives?
Says BCG’s Gjaja: “My suspicion is that the
complexity of product-based companies where
supply chain is relevant is expanding at a faster
rate than information technology can keep up with.
By that, I mean that the number of products and
different options and customers is expanding — say
it’s 100 products times 100 customers times 100
different ways of getting there. You can see that you
get this multiplied effect of complexity. The tools
you have to deal with it can only evolve so quickly.
It will always be a very difficult challenge — it’s one
of those perennial issues in management, one of
those evergreen topics that you just have to stay
one step ahead of.”
And Fisher adds that no matter how “synchronized
and seamless you think your supply chains are, you
are left with the uncertainty of consumer demand.
People don’t like the fact that demand is unpredictable.
Even if you have maximum coordination and a
25. high degree of communication, the one person you
can’t coordinate with is the consumer…. With supply
chain management, you have to accept uncertainty.”
The optimum answer, according to BCG’s
Matthesen, is to “design a supply chain that is
based on a sound strategy, ensure all parts of
your supply chain — both internally and externally
— have access to good and consistent data, and
empower people to make decisions quickly. Build
a supply chain that is comfortable with uncertainty
and quick to react by taking down the barriers that
prevent success.” 3
Boston Consulting Group | Knowledge@Wharton Special Report
Creating the Optimal Supply Chain
When it comes to global supply chains,
the potential for disruption comes in many
packages, from large-scale natural disasters and
terrorist attacks to plant manufacturing fires, widespread
electrical blackouts, and operational contingencies
such as shipping ports too small to handle
the flow of goods coming into a country. Today’s
leaner, just-in-time globalized supply chains are
more vulnerable than ever before to natural and
man-made disasters — a reality that creates greater
demands on companies to keep supply chains
26. flexible and integrate disruption risk management
into every facet of supply chain operations.
“So many companies are trying to get their piece of
the global advantage that the operational risks and
possibilities of disruption are pretty high,” said Dave
Young, senior vice president in the Boston office of
the Boston Consulting Group (BCG). And one of the
biggest challenges in managing these disruption
risks “has to do with the fact that global supply
chains are in a state of continuous evolution.”
Like Murphy’s Law, disruptions in supply chains seem
inevitable — a principle that Paul R. Kleindorfer,
Wharton professor of operations and information
management, argues “should be a high priority topic
for senior management and shareholders.”
“Disruption risk has received increasing attention
in the last few years,” Kleindorfer, co-director of
Wharton’s Risk Management & Decision Processes
Center, wrote in a recently published paper,
“Managing Disruption Risks in Supply Chains.” “The
reason is undoubtedly that, with longer paths and
shorter clock speeds, there are more opportunities
for disruption and a smaller margin for error if a
disruption takes place.”
Given the high stakes, experts from BCG and
27. Wharton generally agree that managing supply
chain disruptions revolves around two goals: first,
to thoroughly understand the potential of identified
risks; and second, to increase the capacity of the
supply chain — within reasonable limits — to sustain
and absorb disruption without serious impact.
Identifying the Risks
Kleindorfer has identified three main categories as
the primary sources of supply chain disruption risk:
operational contingencies, which include equipment
malfunctions and systemic failures, abrupt discontinuity
of supply (when a main supplier goes out of
business), bankruptcy, fraud, or labor strikes; natural
hazards such as earthquakes, hurricanes, storms;
and terrorism or political instability.
Which category would a company consider the most
threatening? “Companies generally focus on the
risks that they can see,” said Steve Matthesen, a vice
president in BCG’s Los Angeles office. “And, to be
honest, most of us focus on those risks that someone
would hold us accountable for. So when you get to
[a risk such as] political instability or terrorism, most
people don’t worry about it that much, or they worry
but they don’t focus on it. For instance, you generally
are not going to get fired for not having a plan if a
28. terrorist blows up your building.”
Flexibility in the Face of Disaster: Managing the Risk of Supply Chain Disruption
Disruptions in supply chains “should
be a high priority topic for senior
management and shareholders.”
—Paul Kleindorfer, professor of operations
and information management, Wharton
Boston Consulting Group | Knowledge@Wharton Special Report
10
In a report on “Risk Analysis and Risk Management
in an Uncertain World,” Howard Kunreuther, codirector
of Wharton’s Risk Management Center,
explains why. “When it comes to developing a
strategy to reduce the risks of future terrorist
activities,” Kunreuther argues, “we do not know who
the perpetrators are, their motivations, the nature
of their next attack and where it will be delivered.
Hence it is extraordinarily difficult to know what
protective actions to take.
“We know from behavior following natural
disasters, such as Hurricane Andrew or the
Northridge earthquake, as well as technological
accidents, such as the Bhopal chemical explosion or
the Chernobyl nuclear power plant meltdown, that
individuals and companies are not very concerned
29. about these events prior to their occurrence,” he
continues. “Only after the event when it is often too
late do they want to take protective action. Over
time this concern dissipates. Thus it is very common
for people to cancel their flood or earthquake
insurance policies if they have not experienced
losses from one of these events in several years.”
But it’s a different story when the supply chain
disruption is highly visible and forecast by worldwide
trends. For instance, what happens if a
company ships products into the ports of Los
Angeles, the entry point for almost half of the goods
coming into the United States, and gridlock hits just
before Christmas (as it did in 2004)? George Stalk,
Jr., a BCG senior vice president in Toronto, noted in
a recent BCG paper on volatile supply chains that
when this very real scenario played out at the Los
Angeles-Long Beach ports last winter, “nearly 100
cargo ships floated around cooling their keels and
waiting to be unloaded — a process that was taking
up to twice as long as normal.” In a case like this,
says Matthesen, “the CEO of a company might say,
‘This is your job, Supply Chain Person.’ And that
person would get flak.”
Discovering Vulnerabilities
30. Supply chain experts suggest that the key to first
mitigating and then managing disruption risks is
understanding a company’s vulnerabilities.
“Your turn the problem on its head,” says
Kleindorfer. Businesses determine and review the
consequences of various sources of disruption
to a global supply chain “through the process of
discovering vulnerabilities. Whatever the source of
those might be — hazards, strike, terrorists’ bombs
or some unforeseen event — the first thing you
do in the risk assessment process is to look at vulnerabilities
in general, and then you have to have
supply-chain-wide visibility of vulnerabilities.”
Experts note that vulnerabilities need to be analyzed
throughout the supply chain — from critical
processes and equipment to manufacturing and
warehousing sites, from technology and transportation
to distribution and management. Granted, this
is not always easy, Kleindorfer noted, because it
“requires information sharing across supply chain
participants.” Typically, a company with “special vulnerabilities
may have every incentive to hide these
from other supply chain participants.” While current
communication and information technologies such
as ERP (Enterprise Resource Planning) systems
31. and CPFR (Collaborative Planning, Forecasting
and Replenishment) methods allow for improved
information integration and supply chain visibility,
“vulnerabilities to disruption are, by their very
nature, more difficult to identify.”
At the Wharton Risk Management & Decision
Processes Center, supply chain experts and industry
leaders have over the last decade developed a multistep
approach to disruption risk management. It
addresses ways to help companies identify vulnerabilities,
and includes the following four initial steps:
• “Obtain senior management understanding
and approval, and set up organizational
responsibilities for managing the disruption risk
management process.
• Identify key processes that are likely to be
affected by disruptions and characterize the
facilities, assets and human populations that may
be affected. Key processes typically include new
product development, supply chain operations,
and manufacturing. Key assets include both
tangible assets (property and inventory) as
well as intangible assets (brand image, public
perceptions).
• Traditional risk management is then undertaken
32. for each key process to identify vulnerabilities,
triggers for these vulnerabilities, likelihood of
occurrence, and mitigation and risk transfer
activities. This is the heart of the traditional
industrial risk management process for
disruption risks.
• Reporting, periodic auditing, management and
legal reviews of implementation plans and ongoing
results (e.g., of near-miss management
and other disruption risks) complete the business
process for disruption risk management. The
audit process . . . is essential to providing onCreating
the Optimal Supply Chain
11
going feedback to management and supply chain
participants on the performance of their facilities
and their compliance with agreed, supply-chain
wide standards.”
By taking these four steps, Kleindorfer argued, a
company defines its own “risk architecture — which
is a way of looking at the world that allows you not
to be generally worried all the time.”
Contingency Planning and the ‘Triple-A’
Threat
What happens when a company that understands its
33. vulnerabilities as well as its overall risk architecture
confronts disaster? Consider the following example.
In March 2000, a Philips manufacturing facility in
Albuquerque, New Mexico, was destroyed by fire;
the facility supplied radio frequency chips (RFCs) for
cellular telephone giants Nokia and Ericsson, and
the way the two companies responded has become
a textbook case for the dos and don’ts of disruption
risk management, and a lesson in how the proper
approach can turn into a competitive advantage.
When the fire wiped out the plant, both companies
instantly lost a key link in their supply chains. As
reported in Business Week:
“Nokia’s response was two-fold. The company
immediately created an executive-led ‘strike team’
that pressured Philips to dedicate other plants
to making the RFCs that Nokia needed. Nokia
engineers also quickly re-designed the RFCs so
that the company’s other suppliers in Japan and
the United States could produce them.” The plan
worked: “Through quick action, Nokia was able
to meet its production goals, and even boost its
market share from 27% to 30% — a level more than
two times that of its nearest rival.”
“Ericsson, however, reacted much more slowly.
34. The company did not become aware of the supply
problems for weeks, by which time its ability
to meet customer demand had been seriously
compromised. And because Ericsson relied
exclusively on the Albuquerque plant for the
RFCs, Ericsson — unlike Nokia — found itself with
nowhere else to turn for these vital components. .
. . Ericsson posted a nearly $1.7 billion loss for the
year, and ultimately had to outsource its cellular
handset manufacturing business to another firm.”
Contingency planning — the act of knowing
secondary sources to turn to for supplies, manufacturing,
or transportation needs when primary
sources are interrupted — has recently received
a lot of attention and research from supply chain
experts. Highlighting the value of contingency
plans, the story of Nokia and Ericsson was incorporated
into a recent Harvard Business Review article
called “The Triple-A Supply Chain.” Arguing that
supply chains can no longer afford to be merely fast
and cost-effective, author Hau L. Lee argued that
“great companies create supply chains that respond
to sudden and unexpected changes” by building
“Triple-A” supply chains that are agile, adaptable
and aligned. Lee outlined objectives and methods
35. that companies should follow to achieve all three
Triple-A goals — a veritable blueprint for disruption
risk management through the pursuit of flexible
supply chains:
• Agile supply chains “respond quickly to sudden
changes in supply or demand.” What methods
can companies use to incorporate agility in
supply chains? “Continuously provide supply
chain partners with data on changes in supply
and demand so they can respond promptly;
collaborate with suppliers and customers to
redesign processes, components, and products
in ways that give you a head start over rivals;
finish products only when you have accurate
information on customer preferences; keep
a small inventory of inexpensive, non-bulky
product component to prevent manufacturing
delays.”
• Adaptable supply chains “adjust supply chain
design to accommodate market changes.”
Methods to use? “Track economic changes,
especially in developing countries; use intermediaries
to find reliable vendors in unfamiliar parts
of the world; create flexibility by ensuring that
different products use the same components and
36. production processes; create different supply
chains for different product lines, to optimize
capabilities for each.”
• Aligned supply chains “establish incentives for
supply chain partners to improve performance
of the entire chain.” Methods to use? “Provide
all partners with equal access to forecasts, sales
data and plans; clarify partners’ roles and responsibilities
to avoid conflict; redefine partnership
terms to share risks, costs and rewards for
improving supply chain performance; align
incentives so that players maximize overall chain
performance while also maximizing their returns
from the partnership.”
Boston Consulting Group | Knowledge@Wharton Special Report
12
Redundancy and Other Strategies for
Flexibility
When it comes to maintaining flexible supply
chains that can respond to disruption, BCG’s Young
suggests that companies plan for the inevitable by
incorporating a few simple steps. “A lot of this is
good old-fashioned block and tackling, but it takes
discipline and segmentation,” he said.
First, companies should carefully segment their
37. products and product lines in order to understand
which ones are more time sensitive and critical than
others. “If I’m going to spend time thinking about
how I can bullet-proof the supply chain or make it
more resilient, I’m going to do it around products or
processes where time is most critical,” said Young.
Second, once these areas have been identified, “you
want to create a highly detailed assessment of all
elements of the supply chain. Identify along that
path the sources of greatest risk and look for ways
to manage that — hedging inventories, looking at
redundant carrier options, for instance. You want to
build in redundancy for these critical items.”
But, Young cautions, “you can only have time and
money to build in so much systems’ redundancy.”
Because building in redundancy isn’t cheap. In a
recently published newspaper article, BCG’s Stalk and
Young wrote that offshore operations often expect
and therefore plan for the unexpected by “building
redundancy into the system, and probably back home.
If such redundancy is included in the initial ‘costadvantage’
calculation, the company may find it will
take 2 to 21/2 years to recoup all the start-up costs
associated with offshore sourcing and manufacturing.”
BCG’s Matthesen notes that when planning for
38. redundancy, companies have to ask, “How much
protection can you take? It’s like insurance — only
some things are worth insuring against. It will
depend a lot on what your business margins are
and what the costs of failure are. For instance, I
work with a pharmaceutical company that maintains
two different plants. Either one would serve the
entire world of demand for their products. But one
plant is located in an earthquake zone; the other is
only 25 miles from an airport, and they worry that
an airplane could conceivably crash into it. So they
maintain both plants. In their case, they justify the
expense due to high margins and the human lives
at stake.”
When it comes to redundancy planning, transportation
options or redundant carrier options are often
high on a company’s list. To figure out why, look no
further than the shipping backlog in Los Angeles last
winter. But building in transportation redundancy
or shipping flexibility is tricky. “If your shipment is
on one of 50 ships waiting to unload, your choices
are a bit limited,” said Matthesen. Often, companies
can only hedge these risks by making sure their
shipments are last on and first off.
In anticipation of rail or trucking strikes, companies
39. often split their shipping business in order to build
transportation relationships with more than one
company. “People do this a lot. They offer 80 to
60 percent to one supplier, and 20 to 40 percent
with the other. But how important are they if they
are only doing 20 percent of their business with a
company? Do you really achieve anything? I have
one client who is a distributor, and we were looking
at the level of redundancy they had. We discussed
what would happen if you gave all of the business
to one carrier, and then that carrier had a strike?
Shouldn’t you keep two carriers? But the CEO said,
‘Our margins are low. It makes business sense to
sole source, and if we get into a strike situation,
well, that will have to be the cost of doing business.’
And I think that this was the right call in that
situation.”
Matthesen allows that the essence of risk
management boils down to adequately appreciating
the risks that a company is exposed to for different
areas of business; identifying the ‘choke points’
along the supply chain that would completely harm
a business if disruption occurred; and then taking
the right set of preventative measures to allow
for some protection, remembering to periodically
40. review your supply chain plans and risk assessment
priorities.
“But the real story is that you don’t have to run
faster than the bear; you just have to outrun the
folks you are with,” said Matthesen. “If you can
BCG’s Matthesen notes that when
planning for redundancy, companies
have to ask, “How much protection
can you take?…It will depend a lot
on what your business margins are and
what the costs of failure are.”
figure out that there has been a disruption faster
than others in your industry, you have a lot more
options. If you are the first person to come to a
Federal Express and say, ‘UPS is going to have a
problem and I need your help’ — you get a good
response. If you are the fifth guy to come over,
now they have a problem because their capacity
is full. This is the case with many disruptions, and
this is the part to me that’s most interesting about
the Nokia and Ericsson example. It’s not that Nokia
had all these backup plans, but that they identified
something was up and they acted on it before
anyone else identified the issue.”
The bottom line? “You can’t protect against every
41. risk,” said Matthesen. “But if you can be quick
to identify that there is a problem emerging and
you’ve thought about it a little bit in advance and
mobilized your options, that’s the essence of risk
management.” 3
Creating the Optimal Supply Chain
13
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Boston Consulting Group | Knowledge@Wharton Special Report
Supply Chain Enterprise Systems: The Silver Bullet?
Contemporary supply chains stretch
around the globe — a complicated matrix that
reflects the easing of international trade barriers,
an increase in global trade, and dramatic growth
in business outsourcing and offshoring to low-cost
suppliers. Needless to say, the trends toward globalization
have significantly increased the number of
players involved in bringing a product to a consumer.
“If you were looking down on planet Earth, you
would see a lot of ships moving from China to India,
from Europe to the United States, along with a huge
set of domestic activity with truck and rail and also
internationally with air and cargo to support the
sheer volume of international trade,” said Paul R.
Kleindorfer, Wharton professor of operations and
42. information management.
But, Kleindorfer acknowledges, there is something
“going on simultaneously with this huge set of
activity that you may not see.” Namely, an equally
dramatic, “absolute revolution” in information,
communication and management technologies
that support supply chain functions and are known
as supply chain enterprise systems. “The fabric
beneath this increased trade is a fantastic ability to
manage large volumes of data.”
Virtually nonexistent a decade and a half ago,
supply chain enterprise systems affect numerous
processes, ranging from scheduling orders,
managing production, controlling inventory and
purchasing to sales support and customer relations
management. These systems are represented by
a seemingly endless alphabet soup of technology
acronyms, such as ERP, SCM, CRM, and RFID.
Supply chain enterprise application vendors such as
SAP, Oracle, Sage Group and Microsoft, along with
supply chain support vendors like i2 Technologies,
4R Systems, Manugistics and MCA Solutions,
have worked to create technological and software
solutions that are designed to help improve not
only supply chain performance but also corporate
43. financial returns and customer satisfaction.
According to AMR Research, corporate investments
in enterprise systems totaled more than $38 billion
in 2001, with an expected increase of 9 percent by
the end of 2004.
While there’s no doubt that technology has
moved front-and-center in today’s supply chain,
the application of technology has emerged as a
leading “pain point” in the field of supply chain
management. According to supply chain experts
from the Boston Consulting Group (BCG) and
Wharton, applying enterprise systems technology
to supply chains is often a difficult undertaking
with an uncertain outcome; in reports and cases
cited by both BCG and Wharton, companies that
have implemented supply chain technologies often
fail to leverage the new systems for a competitive
advantage. A recent study from the Georgia Institute
of Technology analyzed the impact on corporate
performance of three commonly used technological
enterprise systems: Enterprise Resource Planning
(ERP) systems, which integrate data required to
While there’s no doubt that
technology has moved front-andcenter
in today’s supply chain,
44. the application of technology has
emerged as a leading “pain point” in
the field of supply chain management.
Creating the Optimal Supply Chain
15
manage a business and automate all of the transactions
needed to support an entire enterprise; Supply
Chain Management (SCM) systems, implemented
as “add-ons” to existing systems that “look beyond
enterprise transactions and out into the supply
chain to provide supply-chain-wide planning and
execution support;” and Customer Relationship
Management (CRM) systems, which “help track
and manage customer information and relationships
with the goal of increasing customer loyalty
and retention.” The authors found that with the
exception of SCM systems, the enterprise systems
simply do not “positively affect shareholder value
and operating performance.”
For application of supply chain technology to be
successful, the experts agree that certain elements
need to be in place: namely, a clearly defined need
based on supply chain strategy, as well as clear
expectations about what such technologies can
and cannot do for a company. When facing the
45. typically high cost of these systems, in many cases
the question is not which system to purchase,
but whether or not a company will benefit from
investing in one.
Though the questions are often clear, the answers
are not. “Once you get into technology,” admitted
Steve Matthesen, a vice president in BCG’s Los
Angeles office and a supply chain expert, “it is a
ridiculously huge space.”
Support for the ‘3Bs’
As international trade tops $8 trillion in imports
and exports, effective and efficient supply chain
management translates into improved return on
assets and a distinct competitive advantage. In
a chapter on global supply chains in a recently
published book called The Wharton-INSEAD Alliance
on Globalizing: Strategies for Building Successful
Global Businesses, by Cambridge University Press,
Kleindorfer identifies technology as one of the three
main pillars that support the burgeoning supply chain.
“A supply chain is essentially a network consisting
of suppliers, manufacturers, distributors, retailers
and customers,” wrote Kleindorfer. “The network
supports three types of flows that require careful
design and close coordination: 1) material flows,
46. which represent physical product flows from
suppliers to customers as well as reverse flows
for product returns, servicing and recycling; 2)
information flows, which represent order transmission
and order tracking, and which coordinate
the physical flows; and 3) financial flows, which
represent credit terms, payment schedules and
consignment arrangements. These flows are
sometimes referred to as the ‘3Bs’ of supply chain
management; boxes, bytes and bucks.”
The coordination of these three flows within the
supply chain, Kleindorfer argues, is supported by
three pillars: processes, organizational structures,
and “enabling technologies, encompassing both
process and information technologies.” When
applied correctly, technology has helped businesses
conquer what Kleindorfer calls “arguably the central
problem in supply chain management” — efficient
coordination of supply and demand.
And companies seem to recognize the potential of
technological tools in managing their supply chains:
According to AMR Research, the enterprise applications
market (especially ERP and SCM systems) will
continue to expand, from $20.7 billion in 1999 for
both ERP and SCM markets to nearly $42 billion in
47. 2004. And what do these systems promise to deliver?
A lot, judging by the following three examples:
• SAP, a leading supply chain management vendor,
allows that its supply chain management system
called “mySAP SCM” helps companies build
“adaptive supply chain networks” through
planning, execution, coordination, and collaboration.
The collaboration function alone promises to
enable companies to “share information and set
and achieve common supply chain goals through
collaborative planning, forecasting, and replenishment
(CPFR), support for vendor-managed
inventory (VMI), and support for suppliermanaged
inventory (SMI).”
• MCA Solutions, founded by Wharton operations
and information management professor Morris
A. Cohen, promotes its Service Planning and
Optimization (SPO) software as a product that
helps companies “determine the most profitable
and efficient supply chain design,” forecasting
“parts demand and determination of optimal
stocking lists and stocking levels” and providing
parts tactical planning “to meet service level
objectives at lowest possible order cost.”
• And then there’s 4R Systems, Inc., an analytical
48. software company designed to improve supply
and demand forecasts and help companies make
better decisions about their inventory dollars,
particularly for short life-cycle products. Created
by Marshall L. Fisher, Wharton professor of
operations and information management, 4R
promises that its products “take the guesswork
out of product forecasting, replenishment and
allocation.”
Boston Consulting Group | Knowledge@Wharton Special Report
16
Technology in the Future
When it comes to emerging supply chain technologies,
experts point to advanced technologies for
retailers, including hand-held scanners; products
that manage inventory and forecast demand while
communicating this information to the supply chain;
vendor-managed inventory or VMI, where a vendor
or supplier manages inventory for a retailer (one
successful example is Procter & Gamble, which
manages its inventory in Wal-Mart stores); and
improved technology for CPFR.
But perhaps the technology that’s getting the
biggest buzz along the supply chain right now is
RFID (Radio Frequency Identification), a method of
49. remotely storing and retrieving data using devices
called RFID tags. The new technology is being
touted as the ultimate positioning device (is the
item on the shelf or in the back room? On a truck or
inside a ship?), and one poised to replace bar codes
to measure the flow and location of goods.
To date, RFID has proved useful in tagging and
tracking large containers of goods. But so far, the
expense of the individual tags prohibits their use
on individual stock items, “and that’s where the
benefits and savings are, from knowing where
the item is on the shelf,” said Serguei Nettissine,
Wharton professor of operations and information
management. Wharton colleague Fisher agreed:
“The quality of data that retailers have on inventory
levels in their stores is far from perfect. And that’s
where RFID could come in.”
However, RFID illustrates a problem that is at
the crux of adopting such technology: BCG and
Wharton experts note that one of the real challenges
associated with RFID — in addition to the cost
— is actually using the information it produces,
and turning that information into a business
advantage. “The people promoting the technology
are talking about how valuable it is to know all of
50. this information and have it in real time,” Wharton’s
Cohen said. Just having better information is worth
something, he adds, but “figuring out what to do
with it should be worth even more.”
Garbage In, Garbage Out
For those companies that do know what they want
from their data, BCG’s Matthesen as well as Bostonbased
BCG vice president Massimo Russo both
cautioned that every technology system is only as
good as the data it has access to. “There is the issue
of garbage in, and garbage out,” said Russo.
Matthesen outlined this example, using a retail
supply chain that has access to forecasting and
demand planning technology. “Let’s say I have 800
stores and point-of-sales systems, so in theory I
have quite a bit of data to use, and I need IT help to
use that data and forecast with lead times of up to
six months out. But IT needs more input than just
raw data. I may look at the data for the prior season
and see that there is a big spike in a certain week of
sales. Is that due to the fact that I ran a sale? Or due
to the fact that we had a snowstorm and we sold
more snow shovels? Is that a normal seasonability
spike, or a Mother’s Day sale?
“You need a lot of human intervention for the
51. forecasting technology to work,” Matthesen
continued. “My experience is that companies put
a lot of money into IT systems and then need help
figuring out how to use them better. For instance,
how do you feed good data into the system? How
do you update the information, so the system can
recalculate the real math that is in there? A lot of
these systems are set up and not tuned up on a
regular basis, yet the software doesn’t know that.
Where you get into real problems is when it has
been years [since you updated the data], or if
several functions have since merged.”
And data intervention, he said, is dictated in part
by the operation. Pharmaceutical supply chains
— which exhibit “extremely high margins, and
people will die if you don’t deliver the product”
— are managed “differently, with second sourcing
and buffers. If you have a business with a vendor
base that is quite stable, it’s pretty simple. If you
have a business that specializes in fashion items
where vendor bases move around and there is a lot
of change in off-shore production, you may need to
be on this much more — maybe monthly would be
required. Otherwise, all hell breaks loose.”
Russo agreed that when it comes to data configurations,
52. it is important to “constantly refocus, but not
reconfigure. The more you get to real-time plans,
the more you have to update.”
Matthesen also notes that there are common
“mistakes people make in the IT space when
managing their supply chain. On one extreme, they
do everything manually with Excel spread sheets,
and it’s hard to have good, reliable data delivery
that way. The other extreme is that they put in too
much technology — and expect it to do too much. In
some cases, people have added layers of systems
— sometimes connected, sometimes not. If you
have 15 systems and they have to talk to each other
at once, the systems can get a little crazy.”
Even worse, he adds, “people don’t like to believe
the machine. Even when the system tells them to
buy 10 units, they say, ‘I don’t think I’m going to sell
10 units,’ and they over-ride the system with higher
or lower numbers. Even if you can see that the math
is right, people aren’t willing to listen to it. I’m not
sure of a single company who lets the system do its
thing. They are always tweaking.”
This tweaking can wreck havoc, particularly in
systems where the architecture doesn’t give you the
visibility to the math inside the proprietary model.
53. “You don’t know exactly what the software is
doing, what settings work better than others,” said
Matthesen, “so changing the variables can make
matters worse. If the outputs don’t seem right, it’s
important to identify why, and fix it, rather than just
changing the answer. If you set up the system right,
hopefully it is giving you better answers than you
can get on your own. Otherwise, why have it?”
Touchstone to Technology Success:
Know your Supply Chain and more
In answer to Matthesen’s question, Russo says
the first step in choosing the right supply chain
technology is to fully understand your own supply
chain and strategy.
“It should be the business that drives you to get
one of these tools; otherwise you could end up
with a stranded asset that you cannot use. Let’s
say you have a dependent demand supply chain:
I order a car and all the parts that go into that car,
and I can define all the demand that I need in that
supply chain. Then there is a service supply chain
for an airline, and I have to put inventories in the
field to use to service my airlines. Those are two
very different supply chains that require different
algorithms. How do I set my supply chain strategy?
54. Where should I have a warehouse? It’s less a tool
and more of a model that you need to understand.”
And before investing in new technology systems,
BCG and Wharton experts suggest that companies
review IT systems that are already in place. “If it
turns out that there is a big need, we always start
from looking at the data, and understanding how we
want to function,” said Matthesen. “If a lack of IT is
getting in the way, we look at how to address that.
It’s not rocket science, generally, but the standard
process of looking at what is in the market, the size
of the company and what IT they already have.”
Russo adds: “Rather than buying new technology
and new tools, I suggest that clients make better use
of the technology and the tools that they already
have, to digest and really build on the supply chain
network. There is a lot of discussion now about
‘shelf-ware,’ where companies only use a little of the
functionality that is available to them. I think there is
a lot of pent-up capability that needs to be tapped.”
For those in the market for new supply chain technologies,
Wharton’s Nettissine cautions that despite
vendor claims, it is “very hard to calculate how
much a particular technology helps.”
Consider ERP software, which a large company
55. would use to centralize its data management:
“This software offers an accounting system,
financial system, operational systems, some supply
chain management and production management
modules. It is expensive, and implementation takes
years. No one knows if they pay off or not.”
Implementation time for supply chain technology
is key, Nettissine notes. “As far as I know, supply
chain management software provides some
benefits because the software is much smaller,
more narrowly focused [than ERP systems], and the
implementation schedule is much shorter. With SCM
systems, it typically takes you about nine months to
a year to implement a system. After a year, you can
start to track benefits. But ERP may take two, three,
five years to implement. So it becomes much harder
not only to implement but to track any benefits.”
Some experts have suggested that as supply chain
technological applications get more complicated,
failing to deliver improved performance will result
in firms cutting back on technology and IT spending.
But Matthesen disagrees.
“I don’t see people cutting back on IT spending,”
he said. “They still look for the silver bullet. It’s part
IT, part supply chain. To do this right, you have to
56. get a lot of pieces to work cross-functionally. Let’s
say I spend a lot of money on IT in the shipping
department; that’s not fixing the IT problem in
other areas. But if you adjust all processes with
IT in mind, it is a beautiful thing. If you just buy
something off the shelf and expect it to fix all your
problems, you will be disappointed.” 3
Creating the Optimal Supply Chain
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