Supply Chain Management: The Next Great Profession

Well it's finally here...........I think we have officially entered the Supply Chain Management era.

As with most shifts in thinking in the business world, our profession started out as a new "buzz word" that people began to throw around, not really understanding what is was or what it meant. What is Supply Chain Management any way?

Well, like most new concepts, it meant different things to different people. When it became apparent that this terminology might be just the thing to differentiate a group of professionals in the marketplace, the race was on. The purchasing people used Supply Chain Management as a term to replace old titles such as Purchasing, or Procurement. The logistics folks talked about Supply Chain Management really being all about logistics, and so the story goes.

In fact, it has only been recently that the term Supply Chain Management is getting regular use in publications, and even then there was still mass confusion as to what the term actually meant.

Our profession, of course, refers to all of the activities required to bring a product from one end of the value chain to the other......from the supplier's supplier to the customer's customer. It is about looking at the overall strategic relationship between the individual pieces, and not just within the individual pieces themselves.

Although until recently, I have often seen this terminology used in the wrong context, I am starting to see a shift in awareness, and there is a definate momentum building towards what Supply Chain Management is, and why it is so critical to an organizaiton's effectiveness.

For many years, the Purchasing and Logistics people have had a difficult time being heard, and getting their rightful place in the boardroom. They were often seen as a tactical contributor, who reported into Finance, or Operations, and the strategic value of their contribution was not recognized. My sense is that this is starting to change, and our profession is picking up rapid momentum.

Organizations are starting to realize, similar to the manufacturing revolution that has happened in the Lean/Continuous Improvement world, that there is more to be gained by analyzing and maximizing how the interdependent parts work with each other, as opposed to looking at point improvements within each interdependent part. They are simultaneously starting to understand the major impact that these activities have on the bottom line.

It seems likley that the Supply Chain Management profession will get increased attention over the coming months and years, and that we may in fact have finally arrived at an era where we will gain access to our rightful place around the boardroom table. As more and more companies begin to realize what they have to gain, and start to share SCM success stories, Supply Chain Management Professionals will become more and more highly sought in the marketplace.

Lean Thinking vs. Supply Chain Management

Supply Chain Management is becoming talked about more and more, and has become the common language of our profession. We once talked more with terminology such as Purchasing or Logistics, but the shift to Supply Chain terminology is becoming more apparent with the passage of time. I have even heard it referred to as "the next great Profession" by some colleagues. It would certainly seem that today's Supply Chain professionals are in the "right place at the right time", so to speak.

When I look back on my career, I describe it to people as "very unorthodox". Like many in the Supply Chain profession, I did not dream at a younger age of becoming a Purchasing, Logistics, or Operations expert. After all, the Mick Jaggers, Paul McCartneys, and Bobby Orrs of the world didn't know much about such topics, and then seemed to be making out OK.

Like many others, I went through the academic ranks, and afterwards found myself in the manufacturing world. I spent about 15 years or so in various operational positions in the manufacturing sector, and then one day I was asked to move into the world of materials management, then purchasing, then distribution, and on and on. When the profession of Supply Chain Management began to gain steam, it looked like this "unorthodox" career path had actually put me in an enviable position to succeed in this "next great Profession".

During my years in Operations, I spend a significant amount of time in the pursuit of productivity, efficiency, effectiveness, continuous improvement, and Lean manufacturing. Since that time, I have often seen people present on the topic of Lean Purchasing, Lean Supply Chain, and other similarly branded topics of expertise. This has made me reflect on these two seemingly different worlds, and why I was seeing more and more discussion of how the two could be somehow combined to leverage opportunities for the organization.

So what really is the difference between these two professions, and how can they be combined in some meaningful way to take advantage of opportunities for the organization?

In the Lean world, we are on a constant journey/war against waste. We talk about taking a "systems view", or "holistic approach" to this war on waste, looking at all processes, both inside and outside of our organizations, that do not add value for the end consumer. The key points being the "systems view" and "value for the end consumer". Once we have made major gains within the organization, we often look towards our supplier base, or to delivery to the customer, to try to help them reduce their costs (or increase service, flexibility, etc) so that the entire value stream benefits. It is all about increasing the value for the end consumer.

So what is it that the Supply Chain profession does? Is it not that we take a "systems view", a "holistic approach" to the Supply Chain? When we talk supply chain, we talk about looking both inside and outside of our organizations, looking both upstream and downstream, and looking at how the entire system interacts with one another. We are, in fact, looking through the same lens at the Lean practitioner, and attempting to find opportunities to eliminate cost, or improve service that adds value for the end consumer. In other words, we are looking to find the expenditure of resources that are wasteful, in an effort to try to eliminate them. Sound familiar?

The conclusion that I have come to is that the goals and objectives, as well as the approach taken by these two professions, is very much the same thing. We are all on the same team, trying to accomplish the same thing. Just as the Lean practitioner often looks outside of the "operations group", what many would consider to be their main area of focus, downstream to the distribution side of the business, or upstream to the supply side, we in the Supply Chain Management profession look outside of what many would believe to be our normal areas of focus, to either upstream or downstream to find opportunity for the end consumer.

So, when I sit and listen to people talking about "Lean Supply Chain", "Lean Purchasing", or "Lean Logistics", I wonder how new or special the topic actually is. Maybe it is simply putting more of a "marketing slant" on the topic, branding this new "concept", when in reality, it may be nothing more than leveraging opportunities in the day-to-day world of Strategic Supply Chain Management.

Definately something to think about....................

Is China Losing Ground?

Over the past couple of decades, China has been extremely successful in becoming a major economic force globally, and has in effect long since established themselves as the "world's manufacturers". In fact, it often seems difficult to find products in retail stores throughout North America and the rest of the world that is not Made In China.

For those of you who may have had the pleasure of travelling to China over the past decade or so, you can't help but notice the overwhelming changes in the country. These changes are obvious when looking at the vast infrastructure improvements, the number of cars, and the increase in the standard of living of many of the China's residents.

Are these changes a cause for concern for the business community in China?

History has shown many examples of countries who have eventually lost their global competitiveness through increased labour costs related to increased standard of living for the country's workforce.

In my time travelling to China, I have seen hotel costs escalate from the $70 - $80 USD level, to well in excess of $200 per night for the 5 star North America branded hotels. Similar price escalation can be seen in many other products. Is this a sign that China is pricing themselves out of the global manufacturing marketplace?

I have been posing these questions to my network of vendors throughout China for some time now, and they all feel that China will never price themselves out of the market. I can't help but think, however, that other countries that were once much more competitive thought the same thing.

Whether or not China is on the path to playing a less significant role in the world's supply chain remains to be seen. One thing is clear, however. Like other areas of business such as research and development, product innovation, and consumer purchasing trends, those who have the foresight or "vision" of where the global sourcing community will end up, will be the "first in" to new sourcing markets, and will be the big winners from a competitive advantage in the marketplace point of view.

The question is, "Is it time for companies to change their strategic sourcing focus", and if so, "Who will be the next China"?

Happy days are here again

The summer has come to an abrupt end as the fall weather turns a little to the cold side here in Atlantic Canada. In fact, I saw a few snow flakes yesterday, which makes me feel that the summer weather that we are all to quick to criticize maybe wasn't that bad after all. If nothing else, it makes it easier to get our heads back into work, and away from wanting to spend more time enjoying the summer weather.

So back to business it is. On the economic front, things certainly seem to be heating up again, especially in Canada. The glut of houses "for sale" on the market vanished before our eyes, and prices that had softened in the Spring quickly rebounded to their pre-meltdown price levels.

As Supply Chain specialists, there is a real danger in settling back into "the norm", and not being quite as eager to have some immediate impact on the organization's bottom line. Don't get me wrong, its not that we are not always trying to do a great job and bring real savings to the organization, but nothing focuses a person as much as being forced into "crisis mode". And not only that, but the normal struggle to take our rightful place at the boardroom table, and to be able to speak with some volume and actually be heard, is in danger of passing us by as the business leaders back off from hitting the panic button and start refocusing on longer term strategic issues for the business.

It is my hope that all of you were able to have some immediate impact during the troubling times earlier in the year, and that you have gained some well deserved credibility with the business leaders that will have a lasting impact.

As they say, sometimes dark clouds have a silver lining, and we need to take away some positives from the challenges of 2009. With any luck, it has provided us all with an opportunity to rethink our current business practices, and has afforded us the chance to become a little leaner, more agile, and more responsive to our customers.

Best of Luck for the remainder of the year.

Economic Meltdown

Well, it's been a while now since panic first set in with our current economic crisis. Although the panic has somewhat subsided in favour of some more rational thought, we are far from the end of this slowdown, although we do seem to have bottomed out.
Although these downturns are indeed somewhat nerve-wracking, it certainly does impact the supply chain management field in a bit of a different way...........usually we are in a profession where we have to fight to obtain our rightful place at the boardroom table, but not these days.
Quite often in times of economic trouble, we are suddenly "a hot commodity", the people who may be able to play a large role in "righting the ship".
It's not that I am enjoying these challenges, especially with my investments in the market, but it is times like these where our role on cost reduction, strategic sourcing, and our impact on the bottom line becomes much more apparent.
There is no question that not only does our role contribute on a day to day basis for business, but in times like these, it is definately a buyer's market. As a result, it becomes easier to lead a successful negotiation and add to our company's bottom line.
It is important to remember that we have to be careful not to take advantage of our suppliers. If we operate in a truly strategic nature, we have carefully selected our supply chain to work as "partners" with us for the long-term, and have realized the value they add with their individual brand of expertise. We also need to remember that they, and their organizations, are also facing challenges, and we need to be cautious that we do not add to their load.
After all, they won't add much value for us if they are in Chapter 11.
Food for thought

The "Nearshoring" New Years Resolution

Happy New Year to all, and I hope you are as excited about the possibilities for success that await us all in 2009 as I am. Best of luck with your New Year's resolutions.

Over the past several months, the term "nearshoring" has been getting a lot of attention in the media. The panic ensued by rising gas prices has launched this terminology into the "buzzword stratosphere" which if history is any indication, should make us all a little nervous.

So what's the big deal about nearshoring?

Well, here is North America, we tend to have a predisposition about products and services that are not "from here". I have commented on this predisposition in previous postings. This predisposition results in us looking at everything to do with imports and offshoring through a flawed lens, looking for facts to support our predispositions that imports are bad, that they don't make sense, that when you look at things "holistically" we are better off with sources of supply within our own communities, countries, or continent.

Although as I have previously stated, doing business offshore in "far away lands" is not the magic pill that resolves all of our business issues in all situations. It definately can play a critical role in an organization's success, but in some cases, it is contrary to what we are trying to accomplish from a strategic point of view in our businesses.

So what's all the hoopla about nearshoring? The argument goes that there are many reasons that doing business close to home makes more sense from a total business perspective. Whether the argument is to reduce our carbon footprint, to bolster our local economy, or most recently to find a way to deal with escalating fuel and freight costs, nearshoring is a solution that is being escalated to an elite status....the "be all and end all" of great solutions to an ever-increasing cost escalation problem.

Although I agree that in some cases, the fuel crisis has indeed eroded the cost savings with moving sources of supply offshore, this is not the case in most situations. Why? Well, there are a few reasons.

For starters, when companies make the decision to move sources of supply offshore, it is a decision that is most often very carefully thought out as there are not only cost and other benefits, but inherent risks involved in doing so. These risks range from longer lead times, higher inventory carrying costs, and other such factors that are often a natural consequence of moving your source of supply farther from your market.

As a result of these inherent risks, most organizations are very hesitant to make such a move unless the potential gains (such as cost reductions) are substantial. In other words, we do not make these decisions to save one or two percent on our spend.... we make them to save twenty or thirty percent. As a result, it would take an absolutely huge shift in transportation costs to errode these gains.

Well, what we experienced over the last several months can undoubtedly be argued as a substantial shift in the cost of fuel, right? Well, yes it can, although it is doubtful that this could continue for any prolonged length of time, and we are already seeing evidence that it can't. But lets assume for a minute that increased fuel costs are substantial and are sustained for some longer period of time. There are still other factors that we need to consider.

One of these "other factors" that limits the negative effect that this situation can have on offshore opportunities is the fact that most of the goods and supplies sourced offshore are minimally freight sensitive. In other words, the items that are impacted greatly by freight costs (light, bulky, low cost goods) are rarely the goods we tend to source offshore. As a result, the impact of freight increases on offshore products (as a percentage of purchased cost) tends to be significantly less than the impact found on the goods we tend to source closer to home, even though the total cost to move a "unit of freight" is less domestically than internationally. When you also throw in the economics of supply and demand, and the tendency for prices to subside offshore to help prevent demand from sliding too far due to increased transporting cost, or for freight margins to go down due to excess carrier capacity, in many cases doing business offshore continues to provide us with reduced costs and increased competitive advantage.

In summary, we need to be careful not to take an "all or nothing" point of view when considering the decisions we make on a day-to-day basis in our businesses. Most often, the truth lies between the two extremes, and we need to remain aware of this and to not over emphasize the impact of changing trends in the global marketplace. A combination of offshoring, nearshoring, and domestic in-house production in most cases offers our organizations with a balanced solution resulting in mitigated risk and a much less volatile enviroment as we move into the future.

All the best for a great start to 2009!

Linking Execution to Strategy

As purchasing professionals, it is tempting to get caught up with our desire and goal of reducing the yearly spend by category for our organizations. In fact, it is often one of our most focused on objectives that are brought up during the dreaded "performance appraisal".

Sometimes, however, we need to reflect at a 50,000 foot view of where our organization is going, and what our corporate strategy is. This seems like a "no brainer", but it is surprising how often we forget this important attempt at ensuring we are on the right track.

If you think about it, how can we possibly work effectively on a day to day basis, at the tactical level, if we haven't first thought strategically about where we are and where we are supposed to be going? How can we actually get to where we want to go, if we are not sure where it is we are supposed to be going? It's kind of like hitting the TransCanada highway heading west, when we actually intend to end up in Boise Idaho. Is heading west enough?

The point is, all of our day to day activity needs to come from our organization's overall strategy. In other words, first you decide "what you want to be when you grow up", in the organizational sense, then develop the strategy that will get you there. Once you have this vision clearly in mind, you have the ability to ensure that the day to day activities are in line with getting you to the end result.

I do a significant amount of business dealing with importing products for domestic manufacturers from low cost labour countries. It is an activity that strategically has to happen for these domestic manufacturers to remain competitive. In other words, without the import strategy, they would lose customers to competitors.

Despite the fact that this is a major part of what my company does, potential customers are often taken aback when I tell them during our initial meeting that importing is not for everyone. I often hear comments like "What do you mean? Isn't that why you're here?". No that is not why I'm here. That would be a very short sighted view of business development. I am meeting with them to see if I can help them reach their goals, and to gain a competitive advantage to grow their business. Don't get me wrong, if I can retain them as a customer, that's great too, but the goal is to find customers that I can add value to....customers that I can make a difference with.....customers for life.

What I am of course referring to when I say importing is not for everyone, is the fact that it depends on what your corporate strategy is. If you are selling your products at premium "value added" prices, and the value that you are providing your customers is high flexibility, short lead times, industry leading service, it is difficult to do that when your supply base is on the other side of the world. I would guess that in most cases, importing is not in line with where you need to go.

On the other hand, if you are in a "down and dirty", highly competitive industry, where your value proposition is (unfortunately) being the low cost producer and therefore the lowest priced supplier, importing is probably one of the most critical strategies to your organization's potential success.

The point is, we need to start with where it is our organizations want to be in 10 years..........What does that mean for us with where we need to be 5 years from now, and then finally, what do we need to do over the next 1 to 3 years to at least get us on the right road? Once we do that, we can then choose our current activity plans that put us in the best position to succeed at making this 10 year vision a reality.

It's all about vision and strategy....................before execution.

It's about starting at the end, and working back to the beginning.

The Naked Truth about Product Quality

In this day and age of global sourcing, and the increased competitive battles in the marketplace, product quality seems to be getting its fair share of press. North Americans seem bent on perpetuating the belief that products made in other parts of the world, particularly in China, are of inferior quality, and are even putting our health and welfare at risk. What is particularly frustrating is the fact that the slightest issue of potential quality issues on imported product results in constant and unwaivering assaults on any and all products that are not from domestic sources, yet we seem to have such a high tolerance and forgiving attitudes (not to mention short term recollection) of much more serious incidents here at home.

Let us not forget about some of the major events that have happened in our domestic business world, such as the Tylenol tamperings and most recently in Canada, the escape of unsafe meat products from some of our normally dependable production facilities. These events, I would argue, have had much more serious consequences to our health and welfare here in North America than anything that has come out of China. The fact is, that these situations will happen from time to time, and that is not intended to excuse the seriousness of such events.

One particular event that has occurred in recent times is the "lead paint on the toys" event that has gained so much publicity. What is particularly interesting is that even when the domestic company (who for the purposes of this article shall remain nameless) has publicly taken total responsibility, and has made efforts in the media to ensure that we are all aware that the blame should not be placed at the feet of their supply partners in China, we still tend to ignore this and harp about the "unsafe products" from "over there" that should be avoided at all costs.

Don't get me wrong, there have indeed been instances of substandard quality products coming from China and other low cost labour countries, but my point is there have been just as many instances of the same in Canada, the USA, and every other part of the globe that dares to manufacture products to feed our current over-inflated standard of living.

I am proud to say that in my business life dealing with importing of products from a variety of countries, I have been directly involved in hundreds if not thousands of containers of high quality goods making their way to the North American marketplace. And of those numerous containers, there have been virtually no quality issues to speak of, and of the issues that did arise, it was clear that the responsibility for the shortcoming predominantly rested on this side of the water, and not the other as recent media reports would suggest. In fact, I have been pleasantly surprised, time and time again, at the level of technical knowledge that I've witnessed in uncountable Chinese factories, and the well executed quality control systems that I have had the pleasure of seeing first hand.

I think society as a whole has a tendency to see what it wants to see, when it wants to see it. Maybe it's just human nature, but I think we should all come to recognize that the days of the significant quality gap between production in North America and the rest of the world are long gone.........whether we want to admit it publicly or not.

I remember as a young golfer of 10 or 11 years old (and trust me, that wasn't yesterday) we would pull out our Japanese golf balls that we had found in the woods (because we certainly wouldn't buy them despite our limited financial status) when we were hitting over the water holes. We would constantly argue that those same Japanese balls were probably the cause of us going in the water, more often than not.

How quickly times have changed, and the perception of the quality of production out of Japan. It is only a matter of time until we are faced to admit the same about China, Southeast Asia, India, and the rest of the business world.

Could it actually be the case that these countries are superior to us from a product quality standpoint? However unfathonable that may seem to us here at home, it is certainly a question worth pondering.

It's all about Relationships

Ah..............the good old days. The suppliers would come and visit, almost begging for our business. We, as purchasing professionals, would make them compete with each other, like it was the "procurement olympics", or some such significant event. Then, once we got the best price, despite the cries of misery from the successful candidate, we would proudly announce that it still wasn't good enough, and ask for a kidney, or maybe their first born, just to make them understand that we were in fact doing them a huge favour by even letting them compete, let alone awarding them the business......and we were proud of our accomplishment! We would shout from the roof tops, "I AM A NEGOTIATOR...........go ahead, make my day!"

As society has evolved, so too has our procurement profession, evolving into what we today call Supply Chain Management. We have finally come to realize, that suppliers can do much more for us than shave a couple of points off the purchase price. It is not that we can afford to have a source of supply today that is not competitive, but we are now focused on the big picture...... What can our suppliers do for us to help us be more and more competitive? How can we use their expertise in their specific industry or process, to help us improve our bottom line? What is the true "total cost of ownership", and not just the sticker price? How can they help us gain a competitive advantage and gain marketshare? What is the effect of their product on our operation? What is the effect of their "system" on our distribution network?

As this evolution has taken place, it has become increasingly evident that business is all about relationships. As the Lean gurus at Toyota would say, respect for our customers, respect for our suppliers, respect for our employees..... We want our suppliers to be our partners in business, to help us grow our top and bottom lines. As a result, we need to involve them in our process, to share information with them, and to not treat them like the enemy.

Now I will be the first to admit, that several years ago when I would have sales people come to visit me, and tell me that they wanted to be my "partner"(the buzzword of the day), I wasn't overly enthused about the prospect. In fact, most suppliers at the time were only paying lip service, and what they really meant to say was "I would like to be your partner in business, when it is to my advantage, but would rather not have anything to do with you, when it is not to my advantage". No win-win thinking there..... (Now it is always possible that I may have been a little too sensitive to their comments, and that most of this was in my imagination, but it's my story, so we'll go with my perception of the world, if that's all right with you).

OK, that's enough of the dirty laundry. We as purchasers were not perfect, and neither were the sales people on the other side of the desk. Enough said.

Gladly, we have now evolved to a point where we are actively working at establishing relationships. Not the definition of relationships from twenty years ago, wine and dine to get a PO, but true "let's see what we can accomplish if we work together" kind of stuff. Situations like "I'll take on a little more work which will increase my costs, but it will allow you to save many times my cost, and we can share in the gains". And not only share in the gains between the supplier and the customer, but also share it with others in the supply chain, and reduce the price to the end consumer as well. What a concept!

And it's working. Just look at the price today we pay for many of the things we buy each and every day. There are numerous items that we buy today that have the same and often superior quality, at a fraction of what we once paid, not to mention the value of money then compared to now.

So what does all this mean?

It means that although it is good to challenge your supply chain partners, and to expect superior results and continuous improvement year after year, we need to view these relationships as long term commitments (assuming of course you have done the due diligence upfront and have chosen the right partners), and to do everything we can do as supply chain partners to compete in the marketplace.

Remember, competition today is often competition between supply chains, so choose your partners carefully, but once you have them, involve them, and work as a high performance unit to bring the utmost value to the end consumer, and you'll come out ahead every time.

How Critical is Culture?

Over the past number of years, the global nature of business, and in particular, doing business with China, has been a hot topic that has gained considerable coverage by the press. If one was to look at any large news source with a reasonable amount of business coverage, we would be hard pressed to search the business section and not find some coverage of China. It has indeed become a fact of life in the North American business world.

Equally popular over the past decade has been the prevalence of articles discussing the critical nature of "understanding specific cultural aspects" when doing business internationally, and that lack of this critical knowledge would make doing business in these countries all but impossible. But is this really the case?

Although most reports of our ineptitude in understanding and recognizing cultural difference as North Americans is not unfounded, I believe that culture is not nearly as substantial a roadblock as the media make it out to be. Although there is no doubt that recognizing these cultural differences and modifying our business practices to show respect to the diversity that exists in the business community makes us feel good, is the right thing to do, and is indeed a positive step towards developing solid business relationships, the explosion in the global nature of business today has led to an enhanced familiarity in the ways in which different countries do business. This familiarity has in turn helped cultivate a strong sense of acceptance with behaviours outside of our normal cultural business practices. In other words, we are more understanding of each others cultural practices, and as a result, are not as sensitive to violation of these practices, as maybe we once were.

In my experience doing business internationally, I have run in to many practices that I was once unaware of. Despite the fact that I do my best to follow the majority of these practices as a means of showing respect and attempting to establish strong and meaningful new business relationships, I inevitably find myself "falling from grace" from time to time, albeit unintentionally. Despite these occurences, I have never felt disadvantaged in my business dealings as a result of these occasional "faux pas'".

In the end, maybe the truth lies somewhere in between the two extremes. Maybe the concept of how critical cultural practices are, was once very much the case, but has simply become less and less critical as we have continued to evolve as global business citizens. Familiarity often leads us to becoming desensitized to our surroundings, so it is possible that our individual and unique cultural practices is yet simply another area that has become desensitized over time.

Does your organization have an import strategy?

In todays global economy of rising fuel costs, fluctuating exchange rates, labour shortages, and rapidly shrinking margins, organizations without an import strategy are finding it near impossible to compete. Global competition, and in particular competition from low cost labour countries, is resulting in lost customers and deteriorating profitability for many domestic manufacturers.


Despite these competitive pressures however, domestic manufacturers need to be careful before jumping head first into sourcing from overseas. Not that I dispute the enormous value that these low cost manufacturers can bring to the bottom line, but these initiatives need to be grounded in the organization's strategy, and not simply a knee-jerk reaction to shrinking product margins, or be undertaken as a "keep up with the Jones' " type of initiative.

What is it that the organization is trying to accomplish? What are the critical to quality issues for your customers? What is it that they value most?

True, you may very well be in a market that is extremely price sensitive, and you may in fact be strategically placing yourself as a "low cost producer". If this is the case, it is clear the critical role that imports can have in your business. But what if you are not in that market, or are not trying to position yourself as the low cost producer? What if you are offering a value-added product offering? What if what your customer values the most is speed and flexibility? In such a situation, sourcing products overseas can be more of a detriment than an opportunity.

That is why it is important to begin with strategy. Where do you see your organization in 5 years, 10 years? What do you want to be when you grow up? Once you are able to answer these questions, you then can work back to develop the short to mid term plan to reach your objectives, and to ensure that you are providing value to your customers in order to build competitive advantage in the marketplace.

Like most things in life, it's all about balance. There is no question that in most organizations, using import sourcing as a strategy can definately play a role in gaining competitive advantage. It is critical, however, that you know what you are trying to accomplish with this strategy, and that it fits the overall organizational strategic plan.

Combining a solid import strategy, with the other areas of strength within your organization, is a sure recipe for success.

What is Supply Chain Management?

As the years go by, buzz words come and buzz words go. Some we tend to ignore in the hopes that they too will be washed away by the tide of time, never to be heard from again. From JIT, to Quality Circles, to MBO..............they come, and they go. Some disappear altogether, while others simply take on new names that refer to the same things.

So then, what exactly is "Supply Chain Management", and is it too just a fad to be washed away by the tide of time?

Well, it sounds like a pretty simple question, which would lead us to believe there would be a simple answer............. but that is not necessarily the case. For starters, nailing down a definition of supply chain management, for some, has seemed to be a daunting task. As a result, it seems that there is still little agreement on how it is defined.

In addition, in a race to "stake claim" on the profession, the various groups involved in components of supply chains (purchasing professionals, manufacturing operations professionals, distribution managers, transportation specialists, etc), are all bent on using the term "Supply Chain Experts", or some such moniker, in their bid to describe their unique and meaningful skill sets that they bring to the table. All of this only adds to the confusion. We are not here, however, to debate who is the rightful owner of such a title, but are here to try to shed some light on exactly what we mean when we talk about "supply chain management".

Manufacturing organizations, over the past few decades, have grown to realize that their traditional view of their environment, dividing tasks into small work units and analyzing them to death for efficiency improvements, may not be an optimal approach to getting results. Over time, they have become more and more focused on "the system", taking a holistic view of the interdependent work centers which they once viewed as independent units. In realigning their approach, they have started to look at processes, mapping the movement of information, product, and people throughout the system. They have begun to talk about value, streams, chains, interdependency, and as a result, the "chain theory" type of thinking was born. This same type of thinking is what has now evolved into the discipline we now refer to as "supply chain management".

In supply chain management approach, we look at the entire chain of activities involved at getting the raw product components through to the end consumer......from the "supplier's supplier", to the "customer's customer". In other words, we are looking at each and every activity and transaction that occurs in the entire chain, not just within the walls of our own organization, in order to identify and eliminate cost. By finding and eliminating the waste or excessive cost, we are creating value, for each and every chain member, up to and including the consumer. As a result, this approach is focused on a collaborative, holistic, view of the system, and by focusing on the entire system and on how it effects each and every member (and ultimately the end consumer), we are able to make the chain operate in a more efficient and optimal manner, to the benefit of all chain members. It is important to note that in this example, we are "assuming" a cost cutting focus, but this is not the case in all situations. Supply chain management is a strategic approach to managing the chain, and as a result, the goals of your actions are grounded in strategy, and therefore may not be focused on cutting costs, but other objectives such as increased flexibility, or reduced lead times, to name a few.

In summary, it is clear that the building and reinforcing of relationships between all members of the supply chain, with a trusting and collaborative approach, is key to establishing effective supply chains. Each of the different factions listed above, represent only a portion of the actual supply chain, and need to shift their focus to a more strategic and more holistic view of how they operate, each and every day, to be worthy of the name "supply chain manager", or some such title. The reality is that Supply Chain Managers will need to be focused on the entire chain, and we will find people who hold this title coming from a variety of the disciplines mentioned above, as opposed to from one or the other.

Keith Carruthers, July 14, 2008

ERP implementation is about process

Enterprise Resource Planning systems have exploded in popularity in recent years as organizations try to gain control over their businesses, realizing that to truly succeed, they need to view the business holistically, as an integrated system, focusing on the sum of the parts.

These systems bring with them obvious complexity, as the organization moves towards setting up one common database of data, to be drawn on by all areas of the business. Understandibly, this change in technology structure brings with it huge potential savings, including but not limited to:

- elimination of duplication of data storage, work tasks, etc

- everyone focusing and using one source of data

- improved security features

- Greater access to real time information, often not requiring the extra work to turn the data into information

Although these gains are significant, the greatest gains are often non-technology related, as the business streamlines it't business processes during project implementation.

This all sounds great and if so, what would keep companies from moving into the ERP generation?

If we set aside the staggering cost of these systems (which will naturally limit small companies from making this technology change), implementation failure rates are absolutely staggering. Some quote them to be in the 70% - 80% range. This not only results in wasted financial resources, but can effectively shut a business down, causing irreparable harm to the business' relationship with its customers.

So why then do companies so often fail at implementation? The biggest reason is their mistaken perception that these implementation projects are all about technology. They are not, they are about a change in the companies fundamental business processes, a process I like to refer to as a "corporate heart transplant". These companies are in effect changing most things about the way they conduct their business. As a result, there is often a large amount of new tasks to be done, tasks that are not often seen as a direct benefit to the person doing the extra work, but are absolutely essential when looking at the big picture for the organization. Therefore, change management becomes a critical success factor in the project, one that is often overlooked by the companies entering this huge change.

In summary, I think it is important to go into the ERP world with one's eyes wide opened. Despite the huge risk to the business by failing at ERP implementation, the potential benefits to the business are astronomical, and can often yield a quick competitive advantage once implementation is complete.

Keith Carruthers, May 21, 2007

Do stockless inventories save money?

During a recent academic class I was participating in, a discussion took place regarding differences between traditional manufacturing systems, just-in-time inventory systems, and stockless inventory systems. This discussion was focused on the idea that although companies can save money going from traditional manufacturing systems to just-in-time systems (basically by pushing the responsibility for storing materials back to the suppliers), they could actually achieve even more savings by moving to a stockless inventory system.

In a traditional manufacturing system, inventory exists at the suppier, in the manufacturer's raw material warehouse, and on the shop floor. Moving to a just-in-time system would reduce the amount of inventory at the manufacturer's warehouse, but simply push it back to the supplier. Under stockless inventory systems, it would reduce the manufacturers inventory even further by eliminating inventories to an even lower level throughout the manufacturers organization, again by pushing the inventory back to the supplier. These apparent savings, however, can be very misleading.

Lean manufacturing systems (which is basically what we are referring to when we discuss JIT and stockless inventory systems) are much more than simply "pushing inventory back on suppliers". Although if one takes a narrow view of their organization, they will "perceive" gains by saving required square footage to warehouse goods, and costs of carrying the inventory. (Although I believe the gains mentioned above are not real and only perceived, there are other associated benefits such as the reduced cycle times illustrated below, but this is only a fraction of the total gains available by looking at the entire supply chain on a more holistic level).










Why would these savings not be real and only percieved? The reason lies in the fact that the costs in question have not been eliminated, but simply pushed back to the supplier. This forces the supplier to build these costs into the price they are charging you.

The real benefits in these systems are to use lean technologies and world class supply chain management strategies to eliminate the need for these inventories altogether, thereby removing the cost from the entire supply chain. This will result in efficiencies for all supply chain members, reduce overall costs, and allow members of this supply chain to achieve a competitive advantage over others in the industry.

A great example of these types of gains are the supply chain management systems used by WalMart, in which generation of stock replenishment comes directly from the POP systems used at the cash register. This allows for real time accurate data, allowing for quicker more accurate decisions, which in turn reduces the amount of forecast uncertainty thereby reducing the amount of inventory required (by both Walmart and their suppliers) to meet the demands of the customers.

Keith Carruthers, May 5, 2007