How Does Your Supply Chain Stack Up?

March 13, 2008
Companies across many diverse industries are leveraging their supply chain to drive financial breakthroughs.

How close is your supply chain to the best in class? This question is critical to more and more companies as they realize that their supply chain is critical to driving the bottom-line financial performance for their firm. To help companies answer this question and identify best practices for application in their own firms, the Department of Marketing and Logistics at the University of Tennessee began offering supply chain assessments in 2006.

Over the past 20 months, eight supply chain audits have been done, including:

  • A major automotive manufacturer
  • A major defense contractor
  • A leading cosmetics firm
  • An automotive parts manufacturer
  • A pet suppliers maker
  • A large tire producer
  • An industrial pump supplier

The product lines manufactured by these firms run the gamut literally from lipstick to jet planes! Company size ranges from $100 million in annual sales to over $30 billion. Although the firms audited thus far are tremendously diverse, the greatest surprise of all is that they all face exactly the same supply chain problems!

What Common Supply Chain Problems Do Firms Face?
This amazing similarity of supply chain problems means that companies can learn from each other despite the industry in which they compete. Even companies as diverse as manufacturers and retailers face the same issues, creating a rich benchmarking opportunity. Companies can see best practices in a totally different industry and apply them in their own business. Some of the supply chain issues faced by firms today are noted below:

Too Much Product Complexity
All firms admit they carry too many models and further concede that they do not have a good process to eliminate underperforming products.

Too Much Slow-Moving and Obsolete Inventory
Companies struggle with stepping up to the problem of disposing of obsolete product in a timely manner. The sales function of course does not want to reduce price because they are normally measured on the margin they generate. Unfortunately, this product never gets more valuable. It sits there month after month, consuming cash and incurring inventory-holding costs until it is finally scrapped or sold at a steep discount, sometimes years afterward.

Supply Chain Considerations Not Part of the Product Design Process
When product design engineers develop a new product, they rarely consider inventory, transportation, or warehousing issues. Sometimes, small changes in a product configuration can yield big logistics savings.

No Supply Chain Strategy
It is surprising that few firms have a documented supply chain strategy. Such a strategy starts with assessing what are the needs their customers will face in the future. The process then determines the company?s future supply chain capabilities to meet its customers? needs. Eventually, specific initiatives are chartered to deliver these capabilities. Unfortunately most supply chain organizations are so consumed with the daily battles of cutting cost, managing inventory, and delivering good customer service that that they don?t plan properly for the future, sometimes with disastrous results.

Ineffective Matching of Supply with Demand
This problem stems from the classic struggle among functional roles in most companies. On an overly simplistic basis, the sales function is driven by revenue generation, while the operations function strives to cut cost. Often these goals conflict with each other. Leading firms address this issue by establishing a sales and operations planning process to align the various corporate functions around a plan that matches supply capabilities with demand requirements. Most firms attempt to do this, but all would acknowledge that they have a long way to go.

Physical Network Problems
Where should warehouses be placed in this era of rapidly rising transportation costs? This question is a very prominent topic today. The rapid rise in the cost of transportation, driven by the cost of fuel and driver shortages, has changed the game. The old answers don?t work anymore. All firms now should question their physical network configuration.

Global Issues and Outsourcing Problems
Most companies are globalizing but struggle to create a truly integrated global corporation. Most agree that they have regional operations around the world that are not properly coordinated for the good of the global corporation. Outsourcing decisions are made every day, and the transfer of production to Asia is becoming increasingly common. Yet, few firms consider the total cost of an outsourcing decision, and even fewer incorporate the additional risk of a global source in their analysis.

Since almost all firms face some combination of these seven issues, a rich database of best practices is emerging that can be transferred across highly diverse industries. It is critical that all firms engage in outreach activities such as forum participation and benchmarking to make sure they understand these best practices. Once they see how other firms address these issues; they need to develop an urgent action plan to implement the changes they need to make. More and more companies recognize that supply chain is the next big frontier of competition. Only by aggressively addressing challenges such as those listed above can they effectively compete in an increasingly intense global environment.

So What?
Recognizing and addressing issues such as those presented above can mean big savings. For example, companies who are members of the Supply Chain Strategy and Management Forum at the University of Tennessee are finding ways to achieve cost and cash-flow breakthroughs. One hard goods manufacturer noted that its supply chain controlled a huge amount assets. The company applied supply chain expertise to improving cash flow and delivered $600 million in cash-flow improvement. In another case, a major boat manufacturer found that its distribution network needed to be re-structured. The company found a $5-10 million savings in this area. An office supplies retailer suffered from transportation costs increasing faster than any cost area except healthcare. The company aggressively found a way to take out $8 million in cost. These and many other examples exist to verify that companies across many diverse industries are leveraging their supply chain to drive financial breakthroughs.

J. Paul Dittmann is Director of Corporate Partnerships at The University of Tennessee's College of Business Administration. In his current role at the university, he is managing director of the Demand and Supply Integration Forums. He held positions in Fortune 150 companies such as vice president, logistics for North America; vice president global logistics systems; and most recently served as vice president, supply chain strategy, projects, and systems for the Whirlpool Corp. He has consulted for numerous firms such as Office Max, Sony, Keller Group, GlaxoSmithKline, Cooper Tire, Lowes, Navistar, GAF Corp., Fiskars, Edison Schools, U.S. Air Force, F.E. Myers, General Signal, National City Corp. and Grupo Cysda. 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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