Deriving Value from Supply Chain Innovation in Troubled Economic Times

Dec. 8, 2009
To succeed in the future supply chain managers will need additional skills such as IT, international business, financial, cross-functional, interpersonal and cross-cultural.

Deriving value from supply chain innovation in troubled economic times was the topic of discussion at a recent conference of health and personal care manufacturers and their service providers. Speakers from leading firms and academia explored the potential benefits that may be derived from bringing SCM to the forefront, addressing key areas in which HPC firms have been able to utilize supply chain improvements to generate value for their organizations.

Environmental turbulence will continue to increase, ranging from uncertainty in the economic recovery, to changes in variables related to regulations and policy, competition risk, and global complexity. Logistics and supply chain professionals, however, are uniquely equipped within their organizations with a tested set of tools that can be leveraged for success in an increasingly turbulent world. Such tools include deep knowledge and experience in managing:

  • Internal Process Integration
  • External Process Integration
  • Relationships
  • Technology
  • Continuous Process Improvement - Lean/Six Sigma
  • Network Design/Redesign
  • Agility

Some highlights from the conference include:

Global Economic Trends

David Jacoby, president, Boston Strategies International predicted that credit defaults and unemployment will peak in the next two years, a significant chance for a second slide after a brief recovery exists, and there a significant chance of short-term inflation.

Strength in the global economy will be in emerging markets, especially Asia/China, and combined with a weak dollar, will significantly spark international trade and transportation. Global transportation capacity will be reduced to maintain carrier prices.

Supply chain management can only meet these challenges with cost rationalization, synchronization, customization, and innovation, requiring different skill sets from tomorrow's supply chain managers -- specifically, IT, international business, financial, cross-functional, interpersonal and cross-cultural skills.

Using Technology to Derive Value in the Supply Chain

Tim Sensenig, chairman and CEO, Gray Peaks, Inc., and Jeff Jagiela, director global logistics planning, Wyeth Pharmaceuticals discussed the need for improvement in 3PL services with emphasis on 3PL's IT capability and new 3PL configurations that can take advantage of emerging technologies.

Companies that take advantage of these trends will see annual cost savings through bid and rate management solutions, better shipment tracking, better trade compliance, and better logistics response times, by leveraging a strategic view of global supply chains, web-based solutions, performance measurement and sharing best practices.

A Decision Matrix to Guide Outsourcing

Steve Holic, Phillips, and David Ecklund, University of Tennessee Supply Chain Forum, presented A Decision Matrix to Guide Outsourcing. Holic stated, "Decide first what your business wants and needs to accomplish and whether outsourcing is for you," and then presented a seven step Outsourcing Methodology:

  1. Diagnose Enterprise Strategy
  2. Select Opportunity
  3. Establish Current State
  4. Develop Sourcing Strategy
  5. Negotiate and Contract
  6. Implement
  7. Operate and Maintain

Ecklund, drawing on his many years experience with Caterpillar, stated the top reasons outsourcing fails are not due to a bad supplier but rather a bad outsourcing process: companies fail to understand the "why, what and how" of outsourcing, many outsourcing projects are activity focused and fail to see the strategic opportunities and benefits, role/responsibilities/contractual obligations are poorly defined, communication is inconsistent and activity focused, and risks and rewards are not balanced.

Using Lead Logistics Providers in the Global Environment -- Successfully

Fernando Haddad, global logistics director, Dow Corning, and Randy Wilson, UTi, discussed Dow Corning's LLP selection criteria:

  1. Global reach/presence
  2. Knowledge
  3. Team focused to serve company
  4. IT capabilities
  5. Risk Mitigation
  6. Costs and value

UTi lessons learned were also presented: think like the client, set joint goals, learn to speak the same language, make certain the cultures fit, never rest/pursue continuous improvement, seek feedback and quick problem resolution, and have a dedicated team from the senior level to the desk level.

Note: The article is based in large part on the input from the speakers and participants at the conference, the HPCLC decided the theme for their April 12-14, 2010 Philadelphia conference will be, "Positioning HPC Supply Chains for Economic Recovery." The complete findings are offered in more detail on the HPCLC website (

Ted Stank, Ph.D., is an Associate Dean and Dove Professor in Logistics and Transportation at the University of Tennessee.

John T. Mentzer, Ph.D., holds the Chancellor's Professor and Bruce Chair of Excellence, Department of Marketing and Logistics, at the University of Tennessee.

For over 30 years, University of Tennessee (UT) has played a major role in the areas of supply chain/logistics; supply chain certification; lean; process improvement; executive education; and leadership development -- conducting innovative research, publishing leading-edge findings, writing industry-standard textbooks, and creating benchmarks. For more information, please visit

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