February 1998 • Volume 8 • Number 2
The Purpose of the Supply Chain
By Dennis Brewer
Last month this column presented the 3-P Supply Chain Model, whose elements include purpose, partnership and process. In this model, purpose defines the selection of partners and the needs of the partners in the marketplace drive the processes used to integrate the supply chain. This month we'll discuss how to formulate the purpose and develop its enabling strategies. We'll build our discussion around examples from two diverse industries.
Purpose defines the overall intent of the parties, similar to the mission statement of a single enterprise. The key difference is that the purpose can be thought of as an interenterprise mission. For example, a medical products supply chain might adopt the following purpose, capturing its shared vision:
Provide superior value to consumers by ensuring continuous product availability while maintaining the lowest possible inventory levels and eliminating all redundant costs.
In this case, supply chain participants identify the critical nature of availability of their products to consumers as key to both the customer experience and their market position. They recognize the tremendous costs and redundancies in their current systems for inventory management, procurement and regulatory documentation. The stated purpose of the partners causes them to look for superior ways to balance the sometimes competing elements of purpose — i.e., reliable product availability, the lowest possible inventory levels and elimination of redundant costs along the supply chain.
Achieving the shared purpose is not always easy, but is a crucial step on the path to success of supply chain initiatives. The key questions partners must answer in developing the purpose are:
- Who are our supply chain's consumers of products and services?
- What does superior value look like to our consumers?
- What constrains our ability to deliver the best value product or service?
Answering these questions helps participants define the purpose. The next step is for the partners to collaborate and develop strategies that support the purpose. Too often, enterprises define supply chain strategies that meet their interests. Unfortunately, this methodology overlooks the most important aspect of the successful enterprise — customer satisfaction.
The best approach is for all partners to set aside their individual interests and take a holistic view of the supply chain, driving down to the consumers experience using that as the building block for supply chain strategies. Once this has been accomplished, the roles of the various partners can be defined, redundancies can be eliminated, and a highly responsive supply chain that meets the needs of all will be defined, designed and successful.
Supply chain strategies are developed to facilitate realization of the defined purpose and to capture value that would otherwise be lost to redundant labor costs, freight bills and sales of competitor's products, to name a few. Depending upon your industry and competitive situation, these strategies may deliver value to supply chain partners by improvements or breakthroughs in product position, time to market, order fulfillment, cost redundancy, or avoided or rationalized capital investment. A case in point is one of the nation's leading consumer software companies.
This company was formed by the consolidation of five major education and entertainment software firms. In 1996, the consolidated company moved aggressively to leverage market recognition of its individual brand names under a single strong structure and create even greater sales opportunities. The company's original supply chain structure can be seen in Figure 1.
By combining operations, the company realized the economies of scale and consolidation. This provided the sales volume needed to justify offering its retail partners, such as Wal-Mart and Computer City, the kinds of services provided by major trading partners — something few of their competitors could do. The company worked with its retail partners to achieve the shared purpose of increasing available product in the retail stores, reducing costs and enhancing revenue and market share.
Since the firm's large retail partners have well-established strategies and programs for maximizing supply chain value, management made a business decision to develop strategies to align with the company's partners, making key investments throughout its business in systems, technologies, marketing and personnel to support this plan. These strategies included:
In executing these strategies as its part in the overall supply chain initiative (see Figure 2), the company is garnering greater market share, improving returns, reducing operating costs, and increasing the effectiveness of joint product promotions. Most importantly, they are dramatically improving the customer's experience by ensuring that the right product is in the right place at the right time.
As supply chain management evolves, new partners and technologies emerge, and the relative power of chain partners changes. This evolution naturally brings about changes in the focus and direction of supply chain partnerships. Without periodic reassessments, the partnership can lose its relevance, immediacy and benefits. In this age of super-charged global competition, someone will embrace the new opportunity or technology and capitalize on it — it may as well be you.
Next month we'll review partnering, development of effective tactics, and alignment of resources across the supply chain.
Dennis Brewer is senior manager with CNA Consulting & Engineering in Bellevue, Wash. CNA is a source of integrated services for improving supply chain operations in manufacturing, distribution and logistics environments. Brewer can be reached at (425) 889-3364, or via e-mail at [email protected]