The Supply Chains Value-add

Dec. 21, 2004
Look for opportunity amid the ups and downs.

Have you ever tried to buy something that was extremely popular, only to find it out of stock? Had to wait--usually anywhere from two weeks to three months--to get a custom-ordered product? Had your foreign-built car sidelined in the shop, waiting for a part, and the mechanic or service person didnt know how long it would take to get it, nor whether it was "in stock" any place this side of Uranus? Despite all the talk, hoopla, and software "solutions" being offered to fix the supply chain, youd be smart not to hold your breath. Plenty of companies in recent years have been unable to get parts from their suppliers in time to meet orders, or stumbled trying to ship products to their customers or dealers while sales were hot. Companies that have struggled with these issues include Boeing Co., Apple Computer Inc., and Dell Computer Corp., to name only a few. General Motors Corp. output was impacted by a strike at a single plant that made a key component. Obviously, if your business cant handle the flow, or volume, of orders, youre going to get stung. Look at the experience of E-trade, the online brokerage, whose share price shed nearly half its value after the company incurred difficulties handling the high trading volumes during last Octobers stock-market plunge. And if your only connection with customers is choked off, look out. Witness what happened to online bookseller in January when the company had to shut down operations for 12 hours because of "technical problems" that went unexplained. For a company with a $1.4 billion market valuation and whose only sales are via the Internet, the sting of a technical failure can be painful, as learned when its stock price plunged more than 10% following the debacle. Thats the downside of supply-chain miscues. What about the upside? The good news is theres plenty of opportunity, especially when it comes to partnerships. Two or three companies working together can obtain more benefits than a single company operating selfishly in its own interest. "You can get cooperative advantage when what you are doing with your suppliers is better than what your competitors are doing," observes Roger Covey, CEO of System Software Associates Inc., a Chicago-based maker of enterprise-resource-planning systems. For example, a steel company could offer to guarantee early shipment of girders for a construction project. That way, the contractor could qualify for incentive payments for completing parts of the job on or ahead of schedule--as opposed to the often lengthy delays such projects incur when materials arrive late to the job site. Similarly, if an automaker could boost sales by 10% to 25% by being the only competitor to offer, say, Web-based order-to-delivery of vehicles in half the industrys average time, it would be worth it for both suppliers and the OEM to speed up deliveries to accelerate manufacturing. The automaker could offer incentives to suppliers to get them to play ball. And lest we forget, no supply chain is a static organism. Frequent changes in the business have the potential to wreak havoc on demand. A case in point is Safeway Inc. The big West Coast-based grocery chain instituted a new method of product discounting designed to replace the old monthly coupon books. The supermarkets issue Safeway Club cards that automatically deduct discounts on sale items from the customers tab. While the old paper coupons could be used only once, the discount card limits the number of sale items that can be purchased only to each visit. Thus, bargain hunters return and buy more of the sale items than in the past, causing some Safeway shelves that should have sale items in stock to look like Mother Hubbards cupboard. Are supply-chain problems likely to go away anytime soon? Not likely. In a 1997 survey of IS executives by Computer Sciences Corp., the supply chain was the fifth most important issue, up from 16th just three years ago. The moral of these tales is easy. If youre a supplier, find a way to help your customer compete. And if youre an OEM, find a way to make your customer happier.

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