Building A Better Supply Chain

July 16, 2009
Superior supply chain execution helps drive operational excellence, but it's a difficult challenge to meet. Experts share their thoughts about who is achieving top performances, and more importantly, what criteria manufacturers should focus on to improve

Benchmark against the best and then set the bar high. It's what better manufacturers do to improve their own performances. When it comes to developing superior supply chain capabilities, however, finding that right performer to benchmark against can be tough to do. Because, of course, it raises questions: What constitutes great supply chain performance? Can any single manufacturing company excel across all the functions that comprise supply chain management? Does it pay to benchmark organizations outside of one's own industry?

What is easy to identify is the importance manufacturers place on top-performing supply chains. "We think that supply chain is a core capability and having a resilient supply chain is an obligation that Cisco treats as paramount to our customers and our shareholders," explains John O'Connor, director of global supply chain management for technology products and services provider Cisco Systems. And Procter & Gamble emphasized the need for a strong supplier network at the consumer goods manufacturer's first-ever supplier summit held last year. "Our suppliers are critical partners in helping us bring innovation to life, manage our costs and improve productivity," P&G Global Product Supply Officer Keith Harrison said. "With the current economic uncertainty, strong relationships with suppliers are more important than ever to achieving P&G's sustainability goals and supporting the company's growth today and going forward."

Both Procter & Gamble and Cisco Systems were among companies named to AMR Research's latest Supply Chain Top 25, which was announced in May. The ranking, according to AMR, "highlights companies that display superior supply chain performance, capabilities and leadership." Of P&G, which ranked No. 3 and has been among the top five performers for five years, AMR commented, "P&G remains a leader in demand-driven concepts, now using this advantage to vault into emerging markets." About Cisco, ranked No. 5, the research firm noted that the company "combines a far-reaching supply chain vision, strong execution and deep collaboration with customers and suppliers." Other manufacturers on the list include Apple and Dell among high-tech firms, PepsiCo and Toyota Motor, as well as Johnson & Johnson.

AMR's annual list does offer one method for determining superior supply chains. The research firm chooses its list via a methodology that includes polling of a peer opinion panel, an AMR Research opinion and three financial metrics (three-year weighted average for return on assets and revenue growth, as well as inventory turns). What metrics to use is always a source of continuing discussions, said Kevin O'Marah, AMR's chief strategy officer, during a recent podcast.

Supply Chain Defined

Where does it begin and where does it end? These definitions may help:

The Supply Chain Council definition: Plan, Source, Make, Deliver, Return
The down-and-dirty definition: The sequence of events and processes that extend from your suppliers' suppliers to your customers' customers
The Council of Supply Chain Management Professionals definition:
Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities, including coordinating and collaborating with channel partners, including suppliers, intermediaries, third parties and customers.

Pockets of Excellence

The University of Tennessee's J. Paul Dittmann suggests that the complexity of supply chain management makes it difficult to name a manufacturer that excels across all supply chain aspects. It may be more appropriate to identify "pockets of excellence" or supply chain aspects in which certain manufacturers excel, says Dittmann, who is the director of the Office of Corporate Partnership in the Department of Marketing and Logistics at the university.

For example, Dittmann, a former Whirlpool supply chain executive, believes Honeywell may be among the best in the sales and operations planning (S&OP) process. It's a process that requires a lot of cross-functional coordination, which is difficult for many firms to manage. Companies with cross-functional clashes can suffer from too many SKUs, or stock-keeping units (they are nearly impossible to reduce because the task requires cross-functional effort, he says), slow-moving inventory and problematic forecasting.

Manufacturers have an edge in supply chain excellence when they've mastered the art of internal and external collaboration, but "precious few" have developed a method to make it work, the educator says. Dittmann notes that it's much easier to manage if all aspects are under one's control, but "it's exponentially more difficult when things aren't in your control."

Successful supply chains, says Dittmann, demonstrate proficiency in these five pillars of excellence:

  • Talent -- They have the right people in place.
  • Technology -- They employ leading-edge technologies.
  • Internal collaboration.
  • External collaboration.
  • Change management -- Supply chain projects have more complexity than others and as a result have a tendency "to get off track," Dittmann says. That is why change management is so important, he says. "Are they getting the job done? Strategy is one thing; execution is another."

The Resilient Supply Chain

Robust supply chain management processes make a company resilient even in "times of turbulence," reports Steve Banker, service director, supply chain management, for ARC Advisory Group. Emerson gets a nod from him for its well-integrated strategic and supply chain planning processes that he says have historically helped it gain market share even when the economy is down.

Banker says Cisco Systems also is noteworthy for its attention to supply chain risk management. "They've done some detailed contingency planning and thought through 'If the worst were to happen, how do we respond,'" Banker says.

Indeed, Cisco's attention to risk management is comprehensive, says O'Connor, Cisco's director of global supply chain management. It needs to be, given that the company has almost 200 product families that require more than 35,000 component parts, and supply chain partners dispersed around the globe. "Cisco has had a commitment to a resilient supply chain as one of our DNA attributes. It's something that we've taken into consideration in our sourcing, in the development of our manufacturing network, in the development of our logistics network. That said, it was about three years ago that we stood up the supply chain risk management program as a discrete program," he says.

O'Connor explains that in the event of any type of disruption -- be it an earthquake in China, a supplier bankruptcy or a fire at a facility -- Cisco is able to identify in real time the parts or products that are coming out of that node "for every node in our supply chain."

The detail of that information is incredibly granular. "The other thing is that we have applied risk analytics, and we use the 'maximum revenue exposure' to understand the potential impact of a disruption," he says. "We want to use the maximum exposure so that we take the most conservative action possible. An example would be, if we understand that there is a probability of an event, the impact we attach is that there will be a total disruption of capability from that node. And that forces us to think about how do we recover in that worst-case scenario."

Based on this information, Cisco then develops mitigation plans and strategies so that were such an event to occur, "we know in a playbook manner, step by step, what we'll do to respond and mitigate the impact of that disruption," O'Connor says.

Supporting Cisco's risk management efforts is a set of largely home-grown technology tools. It includes, for example, a crisis dashboard, a business continuity dashboard that incorporates all the data Cisco collects from its supply chain partners on a semiannual basis, as well as something called a global component risk manager. This toolset, explains O'Connor, "looks at our component suppliers that may be single- or sole-sourced, what is the highest revenue exposure from a component perspective and what are the mitigation plans we're delivering with those component suppliers -- and even into the details of what are the milestones and what are the project plans for delivering that resiliency and making sure we maintain it."

On a final note, the University of Tennessee's Dittmann says it would be a mistake to look only within your own industry for examples of supply chain excellence. Both manufacturers and retailers contend with slow-moving inventory and too many SKUs, for example. "There are more similarities than differences," he says.

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