July 1996 € Volume 6 € Number 7

Managing In A New Era

Making the supply chain a value-adding network presents a new set of resource management challenges.

By David Ross, CFPIM

Perhaps one of the most important challenges before today's manufacturing and logistics manager is learning to activate the tremendous opportunities found in supply chain management (SCM). SCM can be defined as a continuously evolving management philosophy that seeks to unify the total productive resources of business functions within the enterprise and allied business partners along intersecting supply channels into a highly competitive, total supply system focused on developing innovative solutions and synchronizing the flow of marketplace products, services, and information to create unique, individualized customer value.

This value-enhancing competitiveness is marked by agile marketing and operations organizations that tirelessly search the marketplace -- as well as the entire supply channel -- to uncover new sources of innovation and customer enrichment. The goal is to enhance the capabilities found in each business system around the collective competencies of channel constituents to generate new sources of product and service value, new processes and technologies, and new forms of vertical integration and scale economies that will not only sustain survival, but also engineer continuous market system dominance.

SCM is a critical topic because it directly addresses the fundamental issues confronting today's enterprise. SCM enables whole supply channels to leverage the following spectrum of reciprocal developments that are radically transforming today's marketplace.

The explosion in information and communications technologies revolutionizing the very nature of products and how they are developed, marketed, sold, and transported.
The shift in the supply channel from a concern with pushing standardized, mass-produced products to a pull system able to quickly respond to customer requirements.
The development of business partner alliances and virtual organizations that are formed and then mutate to capitalize on unique opportunities.
The design of channel strategies that unify the material procurement, production processes, business operations, market distribution, and customer wants and needs performed up and down the supply channel.
The creation of new organizational structures that are positioned to leverage information and communications technologies, superior skills, productive capacities, and the expertise of people both within the enterprise and among allied channel partners in the pursuit of competitive advantage.

Over the past five years, managers have begun to migrate away from business paradigms centered around customer/supplier transaction management and toward methods of harnessing the competitive power found in these marketplace developments. Beginning with the Just-in-Time and total quality management concepts of preferred supplier and customer agreements, today's management team is increasingly concerned with the creation of extended enterprises based on the realization that their organization is part of a much larger matrix of intersecting business systems composed of intricate, mutually supportive webs of customers, products, and information played out on a global scale.

The ability to leverage the supply channel is centered around two critical dynamics. The first can be found in the engineering of cooperative marketing, product design and logistics processes. This activity enables the creation of customer-enriching, individualized combinations of products and services. The second dynamic is found in the creation of partnerships, joint ventures, and "virtual" organizations that provide for the coevolution of customer value across companies by merging similar capabilities and core competencies, engineering joint development of new processes and technologies, and structuring new forms of vertical integration and economies of scale.

Today's most creative companies, have learned how to continuously create customer value by leading channel coevolution. The role of their top management is to search and initiate centers of innovation, and then to orchestrate a network of supporting enterprises from which new forms of competition and new businesses can evolve. The expansion in the scope of leadership necessary to realize the potential of SCM is summarized in Table 1.

Effectively utilizing SCM means that managers must seek to merge the entire supply channel into an innovative, value-enhancing customer focused system. This involves understanding critical channel partner competencies, sources of innovative potential, and how well they are being realized. Finally, managers must continuously engineer new business relationships that leverage the capabilities of the very best companies and structure superlative channelwide product and delivery processes that provide continuous and unassailable customer value.

David Ross, CFPIM, is a product analyst with System Software Associates (SSA) in Chicago. He is the author of Distribution Planning and Control, (Chapman & Hall, New York, N.Y., 1996), available through the APICS Bookstore.

Table 1

Expansion of Leadership Scope
Full Potential of SCM
Strategic Management Scope	Traditional Focus	SCM Focus
Management Process	Products Sales Revenues	Interorganizational processes Extended processes Investment in channel innovation
Key Performance Targets	Departmental objectives Process and product specifications	Innovative and value-adding capabilities of the entire channel
Business Goals and Objectives	Consistency of performance Departmental alignement Key bechmark metrics	Alignement of channel objectives and goals Shared competitive channel vision
Business Relationships	Focus on internal structures and organizations values	Structured channel partnerships Coevolving processes and objectives
Business Process Improvements	Reductions in costs and defects Rate of Improvements in products and processes	Rate of progress of entire channel Rate of channel value creation and innovation

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