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Articles - Publication Date 7.1.2004
Forward, March!
Have you 'optimized' excess inventory and lowered costs in your supply chain? Great. But that's only the first step. Get ready to rally the troops for supply chain versus supply chain.
By John Teresko
Simplify, collaborate, adapt. Those steps to supply-chain optimization seem so natural and easy in the context of Dell, Procter & Gamble and Wal-Mart. Yet why is supply-chain optimization still the exception rather than the rule?
Why the optimization lag when common knowledge signals that competition today is supply chain versus supply chain? It's not that executives fear change; rather the issue is recognizing the magnitude of change -- constant change -- that success now requires, notes Boston-based Bob Ferrari, director of supply chain business development for software provider SAP AG.
The difficulty lies in the two primary change agents that threaten traditional modes of competition and business conduct, explains consultant David A. Taylor, author of "Supply Chains: A Manager's Guide" (Addison-Westley/Prentice Hall, 2003). Both change agents redirect the focus of competitive effort and both relentlessly reconfigure the business model, emphasizes Taylor.
One is directed toward the historic -- and successful -- preoccupation with optimizing the internal production processes of companies. In the past, winning meant just being able to make something better, faster and cheaper, he adds. The next step is to optimize beyond the four walls of the plant. His point: In the emerging business model, competition will be defined as companies working together to beat other companies working together. (The operating presumption is that the best manufacturers have already squeezed as much efficiency out of the factory floor as they're going to get.)
The second factor is the effect of classic vertical integration down at the retail level -- the big bucks retailers led by Wal-Mart. "It used to be that manufacturers controlled the supply chain. Today there is a sharp transition of control from production to the point of sale," Taylor says
With the consumer in the supply-chain driver's seat, companies such as P&G are transforming themselves. P&G's goal: Make supply-chain efficiency the core competence of the company. Its strategy is to pare inventory by 50%, reduce consumer-level out-of-stocks by half and achieve 20% savings in logistics costs. P&G estimates the strategy will also be able to reduce consumer stock replenishment time by half.
Meanwhile, Wal-Mart's strategy has vertically integrated everything from controlling the manufacturers through their dictates all the way down to how customers actually shop in their stores. Other companies, to compete, must either vertically integrate themselves or at the very least devise how to uniquely optimize their supply chains.
Clearly the search for supply-chain efficiency is reshaping business investments and strategies in consumer goods, but no sector is immune. Consider how supply-chain optimization needs redirected production equipment investments for the rededication of a Cleveland Ford Motor Co. engine plant. Its lesson: Assess all investment strategies in terms of how they impact supply-chain optimization.
At the plant, standalone CNC machines now dominate a production equipment layout that in the past would have been home to transfer lines. The quest for supply-chain efficiency redirected that equipment investment. Transfer lines are "hard" automation while the CNC machine tools give the flexibility needed to quickly meet customer preferences with new product configurations, explains Ford's Roman Krygier, group vice president of Global Manufacturing and Quality. The facility has begun producing the new Duratec V-6 for the 2005 Ford Five Hundred and Mercury Montego sedan and the Ford Freestyle.
The Weakest Link
Ignoring this emerging supply-chain imperative carries substantial, measurable penalties to companies, notes a research team from Georgia Institute of Technology's DuPree College of Management, Atlanta, and the University of Western Ontario.
Their research first revealed a link between the announcement of supply-chain failures and a 10% de
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"One reason supply-chain problems occur is because there isn't enough slack in the system. . . they take away slack because it's expensive."
-- Vinod Singhal, professor DuPree College of Management
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