Supply Chain Management
Six Issues That Impact Its Effectiveness
A Publication of
Round Table Group
By THOMAS CRAIG
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
- 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
- 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
- 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.