Global View of Supply Chain Management

8/8/2019 Global View of Supply Chain Management

1/7

Volume 10 No. 2

(c) Copyright 2008, The University of Auckland.

Permission to make digital or hard copies of all or part of this work for personal or classroomuse is granted without fee provided that copies are not made or distributed for profit or

A Global View of Supply

Chain Management

- Interview by Darilyn Kane


2/7

RESEARCH

30


3/7

31University o Auckland Business Review | Spring 2008 31University o Auckland Business Review | Spring 2008

DEBRIEF

UABR: Supply Chain is a amiliar phrase in business these days andyou have been involved in research in the area or more than een years .How would you describe Supply Chain Management?

DL:For us, Supply Chain Management (SCM) is an integrated businessmodel that takes a process-based view o how all o the business unctionsneed to work together and how a business relates to its suppliers andcustomers. Te ramework we have developed ocuses on nding theright level o partnership with customers and suppliers and creating cross-unctional teams that make decisions based on a holistic view o the business.However, there is quite a lot o conusion around the term supply chain.Many organisations use the term in job titles and organisation charts butthey are taking a much narrower view. It can be interpreted as narrowly asmaterials fow which is really better described as logistics. I think probablythe broadest view o supply chain management other than our ramework issome kind o combination o purchasing, operations and logistics. Tere may

be some economies in getting these areas to work together, and talk aboutthe importance o breaking down silos has become common. But in actwhat is happening is that they are just creating bigger silos. We need a wayo thinking horizontally across all o the unctions. From our perspectiveSCM requires the involvement o all o the business unctions. We stillneed the expertise that has been built up within the silos or unctions.

A Global View oSupply ChainManagement

Douglas Lambert, Director o the Global Supply Chain Forum,believes that successul Supply Chain Management is abouttaking a holistic view o the frm and looking beyond the usualboundaries to build relationships with customers and suppliers.

Interview byDarilyn Kane

Dr. Doglas M. Lambert (pictured) is the Director o the Global Supply Chain Forum (GSCF)

which researches opportunities or operational excellence in partnership with leading global

organisations. He recently visited the Centre or Supply Chain Management at the University

o Auckland Business School to co-teach a week-long course based on the GSCF Supply Chain

Management Framework. The GSCF is based at Ohio State University where Doug is also the

Raymond E. Mason Chair in Transportation and Logistics.


4/7

32

DEBRIEFDEBRIEF

I were going to own actories we need people who know how tooperate them, or i were buying rom logistics service providerswe still need some expertise within the business. It is importantnot to outsource the thinking even i you outsource some o theliing. Certainly there can be economies by having purchasing,operations and logistics working more closely together. But bynot including marketing, sales, nance and R and D we aresimply building a bigger silo. o make the best decisions or thebusiness, all unctions must be involved. In my view, individualsrom those unctions that are not involved will maliciously orinadvertently subvert the eort. Tey will subvert the eortto show that they should have been involved or because theydont know what the eort is. Heres a great example rom anorganisation we have worked with, a manuacturer o consumerdurables. Tey implemented a rapid delivery system that providedretailers with 24 to 48 hour deliveries. Tis was designed to keepthem lean on inventory, so there would be ewer mark-downsand resher product. I its managed right, everything the dealer

orders today has already been sold. Aer six years they had notrealised the expected reductions in retailer inventory. Te ideawas never sold to the sales and marketing people so they werestill oering deals on truckloads o appliances directly out othe actory, incentivising customers to buy large volumes. o

take a truly holistic view o a business, you also need to includecustomers and suppliers. In act, the supply chain starts withyour customer network and fows back through to your suppliernetwork, and all the unctions o the business need to be involvedin managing the combined network.

UABR:Your research has involved several well-known globalorganisations how has this come about?

DL: We started in 1992 and have built up a research centrecalled the Global Supply Chain Forum. Our research teamswork with executives rom 15 non-competing companies suchas 3M, the Coca-Cola Company, Cargill, Deence LogisticsAgency, HP, Halliburton and Shell. Te rst research projectthat we worked on was partnership. It didnt t anything Id previously done in my career but the rules o the game werethat the members determined the research agenda. So I got very interested in partnerships, because thats what they wereinterested in researching. I didnt realise when we started that

this research was going to be a key part o the SCM puzzle,but as our view o SCM developed we realised it is all aboutrelationship management. No company in the group hasimplemented the entire ramework its the combined wisdomo all o the executives and researchers, and that was the goal.

SalesPurchasing

Production

R&D

Finance

Logistics

INFORMATION FLOW

Tier 2Supplier

Tier 1Supplier

CustomerManufacturer Consumer/End-User

CUSTOMER RELATIONSHIP MANAGEMENT

SupplyChainManagementProcesses

SUPPLIER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT

PRODUCT FLOWPRODUCT FLOW PRODUCT FLOW PRODUCT FLOW

Figre 1 Spply Chain Management

Note: Process sponsorship and ownership must be established to drive the attainment o the supply chain vision and eliminate the unctional barriers

that artifcially separate the process ows.

Sorce: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Perormance, Third Edition, Sarasota, FL: Supply Chain

Management Institute, 2008, p. 8.


5/7

33University o Auckland Business Review | Spring 2008

DEBRIEF

As academics this is a great position to be in we are not justreporting the news, we are making it. Right now we are workingwith the companies to implement the ramework. For exampleat Imation, a 3M spin-o, there are process executive sponsorsand owners in place and they are implementing the processes allover the world.

Te results o this research have been published in articles and abook which we are updating regularly to refect our experience withimplementation. In the third edition, published in 2008, there areour new chapters. We have totally rewritten the customer servicemanagement and supplier relationship management chapters,bringing in examples based on how Gillette and other companies proactively manage customer service and how Coke segmentedsuppliers. We are getting a lot o interestrom outside o the North America now. Wedecided to team up with excellent universitiesoutside o the USA so we have been to San

Andrs in Buenos Aires, Craneld in theUK and this is the second session that Ihave taught with Alan Stenger here at TeUniversity o Auckland Business School. Tework that he has been doing with the Centreor Supply Chain Management within theUniversity is a great example o starting todevelop partnerships.

UABR: Tis approach seems like a major shi or manyorganisations, even those who have adopted the narrower ormso supply chain you mentioned earlier. What does a business

model based on Supply Chain Management look like?

DL: It can be a major change, particularly the move to a moreholistic view and nding a way to make decisions that areoptimal or the whole o the business. Our model identies eightkey business processes. Tese are cross-unctional and cross-rmand every unction needs to be involved in implementing them(see Figure 1). I youre a manuacturer like Fisher and Paykel you are in the middle o the chain, and it looks more like anuprooted tree. Te supplier network represents the roots andthe customer network the branches. Some roots are going to bethicker than others and more important to the success o thetree or the business, just as some suppliers are more important

to the success o the business. For example, the company that provides Wendys with chicken and bee is going to be moreimportant than the one that sells them straws and napkins. Andsome customers are going to be worth a lot more than others. Fora long time Coke was proud o treating all o its customers thesame way, but then they realised that doesnt make sense. Whenthey have customers like Wal-Mart and McDonalds they cantaord to treat all customers like these customers. And i theytreated Wal-Mart and McDonalds like they would have to inorder to treat all customers the same, they wouldnt keep themas customers. Tat doesnt mean they dont come up with a value

proposition or every customer, but each one has to meet protgoals. So this is way beyond trucks and trains.

UABR: How important is it to get to really know yoursuppliers and customers?

DL:Very important developing the right type o relationshipsis critical. I Colgate manages relationships better than Proctoror Unilever then theyre going to win more oen. Tey buy romthe same suppliers and sell to the same retailers, so its not supplychain against supply chain or the A eam playing the B eam. I Ihelp my suppliers and customers to do better, those relationshipsare going to grow in a way that they wont or my competitors.Tis also ties in with a new stream o thinking that is emerging

in marketing co-creation o value. Mosto the research on this has been done withconsumers. Sometimes this may be hard toconceptualize. o my way o thinking it is

like this: i I buy Colgate toothpaste to getreal value I have to brush oen enough andin the right way, and thats how I co-create value. But, I have no trouble at all seeingthat this is key in a business to businessrelationship. Coke and Cargill work closelytogether to co-create value or examplethey are jointly developing a new zero

calorie natural sweetener, making process improvements to getinventory out o the supply chain and evaluating transportationto reduce the carbon ootprint. Deep knowledge o the customerenables you to co-create value and the more cross-unctional the

involvement, the more opportunities that will be identied orvalue co-creation.

UABR: You mentioned dierent value propositions ordierent customers. What determines what the relationshipswith each customer or supplier should be?

DL:Tere needs to be a link to corporate and marketing strategy.Tinking about which customers are key to success now and inthe uture tells us what business we are in, what technologieswe have to be good at and what the key inputs are. We mightdecide a specic segment is important, but all customers inthat segment wont be the same. So we use two or three levels

o segmentation to determine the importance o the customeror supplier and that helps us determine the type o relationship we want to establish. Suppliers can be scored on multipleattributes. For example Wendys have developed a matrix basedon complexity and volume, the result has strategic commoditiesin the top right hand corner bee, chicken, promotional sauces- and things like straws in the bottom le hand corner. Coke alsouses a matrix but with a whole list o criteria on each axis. Teyhave developed detailed descriptions o how each area should bemanaged who will be invited to participate in a one and one-hal day session using our partnership model, who gets senior

Developing the right type

o relationships is critical.

I Colgate managesrelationships better than

Proctor or Unilever then

theyre going to win

more oten.


6/7

34

DEBRIEF

executive or management involvement. Not all relationships wil lbe partnerships most organisations will have many arms lengthrelationships which meet the needs o both parties. Te goal isnot to have more partnering it is to have the right amount opartnering and get the best results or the least eort.

You dont just need to know who to build partnerships with, youalso need to gure out how to structure the relationship. Oenwe say we want to have a partnership but never explain what wethink that means. Its like i someone says do you want to buy aboat I might be thinking o a sail boat but you are thinkingo a shing boat. We have to decide what the important thingsare beore we start working together. Coke and Cargill spent aday and a hal with twenty executives rom each company. Tey went through their reasons or wanting a closer relationship.Tey had complete disclosure so they could build a clear pictureo the partnership. Te SCM partnership model separates outour major aspects o a relationship. Te rst two determine

the potential or partnership: the drivers are the compellingreasons to commit to creating the partnership. Tings l ike asset/

cost eciencies, customer service improvements, marketingadvantage or stability in prot growth. Te acilitators are thecharacteristics o the two rms that make it easy or dicult todevelop a close relationship, such as similar corporate culturesand management techniques. Te components are the activities which managers in the two rms carry out to implement the

partnership - they include planning, joint operating controls,risk and rewards sharing. Tey are the way mangers build andsustain the relationship. Finally, the outcomes measure theextent to which the drivers o each company are achieved andthe extent to which perormance is improved or both parties.

UABR: You mentioned cross-unctional teams and makingdecisions that are optimal or the whole business. How docompanies make these work eectively?

DL: Its challenging. Everybody is stretched to the limitthese days and were not hiring more people to work on cross-unctional teams. Its something you have to put a lot o eort

into because i any unction dominates in decision makingthen you will sub-optimise. Tere are some guidelines about

Figre 2 Fnctional Involvement in the Spply Chain Management Processes

BuSINESS

PROCESSES

BuSINESS FuNCTIONS

Marketing SalesResearch &

developmentLogistics Prodction Prchasing Finance

Cstomer relationship

management

Marketing plan

and resources

Account

management

Technological

capabilities

Logistics

capabilities

Manuacturing

capabilities

Sourcing

capabilities

Customer

proftability

Spplier relationship

management

Capabilities

required or

competitivepositioning

Sales

growthopportunities

Material

specifcations

Inbound

material ow

Integrated

planning

Supplier

capabilities

Total delivered

cost

Cstomer service

management

Prioritization ocustomers

Knowledge o

customeroperations

Technical service

Alignment o

logisticsactivities

Coordinatedexecution

Priorityassessment

Cost-to-serve

Demand

management

Competitorsinitiatives

Competing

programs incustomer space

Processrequirements

ForecastingManuacturingcapabilities

Sourcingcapabilities

Trade oanalysis

Order lllment

Role o logistics

service inmarketing mix

Knowledge

o customerrequirements

Environmentalrequirements

Network design Made-to-orderMaterialconstraints

Distributioncost

Manactring

fow management

Dierentiation

opportunities

rommanuacturing

Knowledge

o customer

requirements

Design or

manuacturability

Prioritization

criteria

Production

planning

Integrated

supply

Manuacturing

cost

Prodct development

and commercialization

Product/servicegaps in market

Customeropportunities

Product designLogisticsrequirements

Processspecifcations

Materialspecifcations

R & d cost

Retrns managementKnowledgeo marketing

Customerknowledge

Product designReverse logisticscapabilities

Re-manuacturing

Materialspecifcations

Revenue & costs

Inormation architectre, data base strategy, inormation visibility

SuPPLIERS

CuSTOMERS

Note: Process sponsorship and ownership must be established to drive the attainment o the supply chain vision and eliminate the unctional

barriers that artifcially separate the process ows.

Sorce: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Perormance, Third Edition, Sarasota, FL:

Supply Chain Management Institute, 2008, p. 8.


7/7

35University o Auckland Business Review | Spring 2008

DEBRIEF

what each unction can contribute to each o the key processes(see Figure 2). At an operational level you actually need to putteams together with customers. So there might be a Wal-Martteam. But at the strategic level when Im trying to decide whichcustomers the business wants and how to segment withincustomer categories the process owner there would be the CEOand the other team members would be the Vice Presidents o theunctions. At that level were deciding howto customise product service agreementswith key customers. We need to hear romR & D, manuacturing, logistics etc. whatour capabilities are because we dont wantcustomer teams to be promising what wecant protably provide. Te strategic levelteams might get together every year andgo through that process. eams that areout meeting with customers might have amonthly review asking are we on target

with what were doing with the customer?and quarterly reviews with the customersteam. op management must make it clearthat this is the model. Reward systems needto be structured based on the work done inthe process teams, or example paying members o the customerteam based on the protability o the customer. Ten its notseen as an extracurricular activity and youve got a better chanceo making it work.

UABR:Te research you have talked about is withlarge global organisations. How does the Supply Chain

Management ramework apply to smaller organisations thatare more typical o New Zealand businesses?

DL: I think organisations in New Zealand are beginning tobecome aware o its importance, but are struggling with it.A lot is driven by being a trading nation and that can lead to a

ocus on the logistics side o things. It is important to viewSCM as a way o orchestrating the whole business. With smallercompanies oen everyone is in the same building, so there is agreater chance or interaction and they can implement changesrapidly. One o the cases we discussed on the programme is a NewZealand company that already operates with many aspects o ourguidelines. Tey realised intuitively that it was the right way to

go. Te SCM ramework gives them a nameor it and guidelines on where they need togo rom here. Its not really about the size oa business. Teres nothing in the book thatsrocket science. We have taken a number oconcepts that are out there and strung themtogether in a way that makes sense. I yourenot ormally segmenting your customer base,no matter how small that base is, then youremaking a mistake. I the company is smallenough the owners may have everything in

their head and know where the money iscoming rom. But they might be assumingthat revenue is equal to prot. Spending toomuch going aer the revenue can ultimatelydestroy prot. Good nancial inormation,

like revenue minus avoidable costs, will show you what a customeris really contributing to joint costs and prot. Likewise you mayhave CRM process working but i youre having trouble matchingdemand with your ability to supply, then you dont have thedemand management process right. I think cross-unctionalteams really help with smaller companies. Te person who isbuying transportation services or your company needs to be part

o key customer teams to understand what they need. Tat waybetter decisions can be made about how to transport productto these customers. But you still have to be selective because thescarce resource is your people, the business results must justiy theinvestment in time spent with customers. You have to ration theresource to the relationships where there will be a pay o.

Everybody is stretched to

the limit these days and

were not hiring more

people to work on cross-

unctional teams. Its

something you have to put

a lot o eort into because

i any unction dominates in

decision making then you

will sub-optimise.

Art in this issueDave Barker

City o Sails

Waitemata Harbour

October 2007

Documents

Global View of Supply Chain Management