To Manage Your Supply Chain, You Need One Version of the Truth
published: cw 41, 2006 in Global Trade & LogisticsThe advent of globalization has enabled companies to take their production facilities and distribute them in countries around the world. The rate at which this distributed production model has been adopted by businesses is staggering.
Consider for instance, that between 2000 and 2003, foreign firms, including European chemical companies, and United States industrial conglomerates, built 60,000 manufacturing plants in China. The impact of this globalized production model on a company?s supply chains has been equally dramatic.
?If the senior management of a company is not having weekly meetings discussing the status of their supply chains, its CEO should feel a cold chill running down his back,? says Karl Manrodt, Associate Professor and Co ? Director of the Southern Center for Logistics and Intermodal Transportation at Georgia Southern University.
In less than a decade, supply chain management has moved from the ground floor of a company?s headquarters to the executive suite, and according to Manrodt it is not uncommon now to find that CEOs of market leading companies increasing their time on supply chain issues.
?CEOs are really getting hit twice in this business environment,? Peter Moore, Vice President at Capgemini says. ?They now have to manage the vastly greater distances that their supply chains span and the business risk associated with that, which is a substantial issue by itself. But in the last year, with energy costs increasing at twice the rate of inflation, not getting a grip on logistics and transportation could be fatal for the business,? he says.
?How can you as a CEO stand before analysts and commit to margins and growth projections if your company cannot look at the status of your products, your suppliers, and your suppliers? suppliers and make sense of what is taking place in scores of different cities around the world that drive your company?s business plan?? Moore frequently asks at meetings with senior management. He also reminds them the advent of Sarbanes Oxley legislation makes projections without solid facts a hugely risky exercise for today?s managers.
The bottom-line impact is equally critical. ?Can you be certain that fuel surcharges, terrorism, or port congestion will not increase your costs by a significant amount and adversely impact the projections you have just made?? Manrodt asks. One CEO in a commodity market saw the price of goods purchased in China decrease nearly 20% in the thirty days it took the shipment to arrive in the States. This becomes one of the critical issues facing today?s global supply chain.
Large companies today are dependant on hundreds, and in some cases such as General Motors, on thousands of suppliers. The challenge of managing these relationships becomes even more difficult when one factors in the rate at which the business playing field can change in today?s fast moving interconnected world. ?You have to move at the speed of the market today to survive, and this means your supply chains have to be highly flexible and adaptive and you must be able to peer into them?make them visible?to be able to respond in time when something goes awry,? says Moore.
A soon to be released report compiled by Georgia Southern University, the University of Tennessee, and Capgemini (The Power of O3 ? Optimized Strategy, Planning, and Execution: Year 2006 Report on Trends and Issues in Logistics and Transportation) points out that in order to achieve the necessary level of visibility, supply chain partners must truly collaborate beyond their firm?s boundaries and work with others in the channel. This level of collaboration and the number of relationships that go into an outsourced supply chain result in the generation of an enormous amount of information that must be managed. And technology with vast data-warehouses and sophisticated transportation management software becomes critical to the job.
?Information is the key asset in our business today,? Moore says. ?You should never have a contract to buy an object or a service unless the product or service has an equal amount of specification for information that will accompany that object or service.? At meetings with purchasing agents, Moore raises quite a few eyebrows when he tells them, ?If your contracts do not have the words, ?This purchase is contingent on the supply of the associated information as specified below,? change your contracts. Even if your company does not yet have the data warehousing technology, get that information.?
But enhanced visibility brings up another set of issues. ?Facts? multiply and how to know which ?fact? to rely on to make decisions becomes a management issue. Cutting-edge software technology can help. Oracle Transportation Management, for instance, prides itself on the ability to identify one version of truth by tracking information entered by the supplier and preserving it for future action. ?Allowing a supplier to enter the ?facts? is the only way to collect information that decisions can be based on,? Moore says.
Manrodt once asked Len Schlessinger (Vice-Chairman and COO, Limited Brands) what he would say to a company president who admitted he did not understand supply chains. ?I would love to compete with you,? was Schlessinger?s quick response.
It is not hard to see why the previously arcane world of supply chains has become a Boardroom preoccupation.
Executive Action Plan
? How long would it take your company?s executive management to be alerted to a potential Sarbanes-Oxley exception resulting from a supply chain problem?
? Can your company?s senior management meet with potential partners and explain the company?s supply chain to leverage new supplier opportunities?
? Does your company?s purchasing officer specify that information to drive supply chain decisions must be part of each product or service?s delivery?
? Does your company?s strategic business plan identify competitors with their supply chain profiles? If not, how do you plan to use supply chain management as a strategic tool against the competition?
Source: CapGemini September 2006 Executive Current
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