Is Your Company A Supply Chain Leader?

March 28, 2007
A dominant supply chain leader may use its position of power to force change to occur across the supply chain.

Supply Chain Management (SCM) has captured the attention of managers seeking a way to improve the performance of their organizations and enhance service levels offered to customers. Better collaboration, tighter process integration, information sharing and proactive demand management all have been suggested as techniques available for driving that improvement. Adoption of these and other techniques requires the cooperation of many organizations -- but who's to say which initiatives should be implemented, and in what order?

This type of strategic decision requires a company in the supply chain to assume a leadership role, and this role will fall to the company capable of exerting greater influence over other supply chain organizations. Although leadership is generally thought of as an individual characteristic, in a supply chain context, leadership can be considered at the organizational level.

Yielding The Power Of A Dominant Supply Chain

A dominant supply chain leader may use its position of power to force change to occur across the supply chain. Wal-Mart has played this role in the thousands of supply chains that feed its stores. The company has invested heavily in information technology and has "encouraged" its supply chain partners to replenish stock based on real-time sales data and to track inventory using RFID.

Dell provides another example of a dominant company. The company is famous for its two-hour MRP cycle that has driven suppliers to locate across the street from its assembly facilities. Its knowledge of upstream-parts availability has created what is arguably the most agile supply chain in the world.

Although Wal-Mart and Dell represent the "800-pound gorillas" in their respective supply chains, economic power should not be considered a necessary prerequisite for supply chain leadership. A supply chain leader may emerge solely on the basis of its skills and behaviors. These behaviors may take the form of procedures, announcements, and contractual requirements and be facilitated by systems and the interactions of boundary-spanning managers. Whether through size, power, or compelling behaviors, supply chain leadership is granted to the company capable of exerting the greatest influence over other organizations in a given supply chain.

Behaviors Behind Leadership

Four organizational behaviors can be used to define supply chain leadership: vision creation and articulation, goal-based relationship development, identifiability and influence. The ability to develop and project a vision is a key behavior of supply chain leaders. Often this vision is developed from a need to create change in the supply chain. Yesterday's competitive advantage may be eroded or overtaken in the face of new competitors, new technology,and evolving customer demands. The vision serves as a rallying point for the all supply chain organizations and provides motivation across many supply chain members by conveying the importance of change for the long-term welfare of all partners.

Supply chain leaders cannot exist without the allegiance of supply chain follower organizations. While the term follower holds a negative connotation for many, an effective supply chain follower organization is not passive and understands how to contribute to overall supply chain success without constant oversight from the leader. Effective followers champion the need for change, look for ways to improve supply chain processes, and willingly take on additional tasks for the benefit of the entire supply chain. Over time, effective supply chain leaders and followers develop relationships based on mutual respect, trust, and a shared set of goals. Agreement on supply chain goals requires the leader to incorporate the needs of follower organizations in the ultimate goal set.

The supply chain leader should be clearly identifiable on the basis of its interactions with followers. Likewise, the leader's influence flows from the behaviors that it consistently exhibits. Leader behaviors may be classified as tending to be more transactional or more transformational. The transactional supply chain leader reflects a more traditional view of a dominant organization; it sets the rules supply chain members are expected to follow and dictates the terms of engagement. A transactional supply chain leader has a more short-term vision with the leader intent on optimizing its own performance. The transformational supply chain leader is more focused on driving success across the entire supply chain. This requires a long-term orientation and a desire to establish closer working relationships with multiple follower organizations.

The Automotive Supply Chain

The worldwide automotive industry provides an example of each type of supply chain leader. Although its market share has declined, General Motors (GM) has maintained the largest share of global auto sales over the past 20 years. As other automakers began taking share from GM, the company focused on driving down costs and increasing the quality of output in its supply base. These competing demands were contractually mandated (i.e., short-term oriented) and placed the responsibility for supply chain success (defined as optimizing the leader's performance) squarely on the backs of suppliers. The result has been a steady decrease in market share and the failure of hundreds of GM's suppliers.

Toyota provides as different example of leadership. Toyota has driven its success by producing a superior quality product with the help of its suppliers. The company openly works with its key suppliers to implement and upgrade their performance. It shares the secrets of the Toyota Production System with suppliers in order to help them achieve quality and cost performance that benefits all supply chain members. Toyota has grown at a rapid pace during this period and recently became the third largest automaker in the world.

The bulk of research suggests transformational leaders (the Toyotas of the world) will outperform transactional leaders (the GMs) in most cases. The auto industry example demonstrates this over an extended timeframe.

Supply chain managers may wish to evaluate their own organizations and determine the type of leadership, and followership, presently occurring and make their long-term relational plans accordingly.

For over 50 years, University of Tennessee (UT) faculty have played a major role in the supply chain/logistics arena -- conducting innovative research, publishing leading-edge findings, writing industry-standard textbooks, and creating benchmarks for successful corporate supply chain management. Programming is top-ranked in Supply Chain Management Review, U.S. News & World Report, and Journal of Business Logistics. Certification is available.

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