Supply Chain Management
Six Issues That Impact Its Effectiveness

A Publication of Round Table Group
August, 1998

By THOMAS CRAIG
President LTD Management
www.ltdmgmt.com
Supply chain management is the paradigm that is changing business and business relationships. It reflects the realization that the product pipeline for a business extends from the vendor right through to delivery to the customer. This makes managing such a supply chain a joint effort of suppliers and customers to develop and exploit the savings, service and benefits of SCM.

SCM success just doesn't happen. Six issues must be recognized for maximizing supply chain management. These are--

  • Logistics skill
  • International sourcing and sales
  • Vendor penetration
  • Tailored versus standard practices
  • Accounting silos
  • Organization silos

  • Logistics skill. Since it is a supply chain, logistics is the keystone to SCM success. It is not about shipping or warehousing; it is logistics. The logistics focus is--
  • the movement of product. This is more than transportation of goods. The modes and carriers selected must complement the supply chain strategy and must be responsive to the needs of customers and the entire chain.
  • movement of information. Information technology is key to being responsive. It must be both internal--the enterprise--and external, with customers and suppliers.
  • cost. This is the cost of the entire supply chain, both operating and capital. It is not the cost of discrete cost factors such as freight or warehousing.
  • time/service. Supply chain management is tailored to and responsive to each customer. To gain a competitive advantage, service and time compression is vital to keep customers replenished and inventories under control.
  • integration. The integration of systems and people, teamwork, must be both internal and external. If it is not, then there are gaps, potential for delays and errors, and failures in the supply chain process.

  • International sourcing and sales. Customers, competitors and suppliers are worldwide. The challenge with international is that it significantly extends the supply pipeline and requires that the logistics skills be in place. Differences in international must be recognized in designing and managing the supply chain. Ships do not sail every day. Factors such as customs clearance and document preparation and handling and their possible delays on product movement must be recognized in the supply chain planning. Information technology and its applications may not be as advanced in some countries. The concept of supply chain management and logistics may not be practiced.

  • Vendor penetration. For there to be real savings in the supply chain, the program must go beyond the first tier of vendors. It must involve the vendors' vendors, and so on back through the manufacturing process. The challenge is making the concept understood as you penetrate deeper into the supply chain. If the first vendor does not adequately understand the concept, then his vendors will not. It also pushes the information technology envelope beyond the immediate enterprise and its suppliers and customers.

  • Tailored versus standard practices. Each customer has different supply chain requirements; there is no universal way of doing supply chain management. This means that vendors must respond to each customer if he is to be a viable supply chain participant. A specific way of handling each customer, his orders, his shipments, his invoices, and more, must be developed and customized to that customer. This creates challenges within organizations who look at how to efficiently perform a task, such as order entry or shipping. They must instead be flexible and agile.

  • Accounting silos. Some cost elements of supply chain management appear on the P&L. Some appear on the balance sheet. And some do not appear on either. Traditional accounting concepts, formed around Generally Accepted Accounting Principles, cannot identify and measure the real cost and savings of SCM. They do not track the process, instead they track individual cost elements. The difficulty in identifying supply chain benefits can create internal confusion. Activity-based costing is an alternative to better measure SCM.

  • Organization silos. Supply chain management requires internal teamwork. The priority is the customer and meeting his requirements. This is a flat organizational view recognizing the SCM process with its flow of information and product. Organizations however are hierarchical and create functional silos which make internal integration difficult.

    Supply chain management can provide competitive advantage to those who practice and participate in it. Companies must recognize the issues which can impact its effectiveness.

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