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18, 2004 |
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Dan Gilmore
Editor-in-Chief |
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The trigger
for asking this question is a fresh report from AMR
Research that lists what the Boston-based research
firm identifies as the world’s top 25 supply chains.
Their criteria? A combination of three key financial
metrics (return on assets, inventory turns, and top
line revenue growth), plus the input of their own analysts
based on which companies were most aligned with its
view of creating “demand-driven supply networks.”
At the top, the leaders were mostly the usual suspects,
with the top five as follows (the full list is available
at the link above):
1. Dell
2. Nokia
3. Procter & Gamble
4. IBM
5. Wal-Mart
Which got me thinking about how to define a great supply
chain - and how you should really know if you’ve
got one.
To help me with that question, I decided to ask a few
expert friends in the industry. Ralph Drayer, former
chief logistics officer at Procter & Gamble, agreed
with AMR’s perspective that measuring perfect
order performance is a key place to start. “The
perfect order is really the best forensic we have to
understand the supply chain,” Ralph said, “because
it looks at performance from a customer perspective.
You focus on that, then drive efficiencies back into
the supply chain to enable the company to satisfy the
customer at the lowest possible cost.” He believed
that key metrics to consider include return on assets,
total delivered costs, cycle time, and cash-to-cash
cycle.
Dr. Jim Tompkins, of Tompkins Associates, focused on
two dimensions of supply chain greatness: process and
results. He suggests that process “health”
is defined by such attributes as forecast accuracy,
the level of visibility (minimizing surprises), having
a truly global perspective, and continuous operational
improvement. Key results or outputs include measures
of customer satisfaction, increased return on assets,
increased speed (increased responsiveness and reduced
lead times), and increased profits (reduced costs).
Finally, I talked to Gene Tyndall, current partner at
the consulting firm Supply Chain Executive Advisors
and also a monthly SCDigest columnist. Gene believes
the number one characteristic that defines a great supply
chain is “the degree to which the supply chains
are aligned with, and enable, the overall business strategies.
When, for example, the executive agenda includes Profitable
Growth, or penetration into new markets, or launching
new products, etc., ... then the question must be how
well the supply chains are enabling the attainment of
these goals.” He adds that “While [various
supply chain metrics] measure supply chain performance
via processes, as AMR points out, there are other measures
more intangible yet equally important, such as talent,
innovation, and culture. Being "great" is
more than metrics, it involves and translates into industry
leadership, sometimes dominance, and above all, great
places to work!” (Click
here to see Gene Tyndall’s complete comments
on this topic.)
Good thoughts from all. I do think that, as all three
of our experts suggested to me, in addition to the traditional
supply chain measures cited by AMR, a great supply chain
has to be defined by customer satisfaction (for which
perfect order is a useful but incomplete proxy), and
the level of continuous improvement. We talked about
the difference between customer service and true customer
satisfaction on these pages a few weeks ago, (Click
here for SCDigest archive) and as every supply chain
has different structures and objectives that can make
cross company comparisons difficult (for example, in
general moving to an offshore model will reduce unit
costs and hopefully total supply chain costs but decrease
inventory turns), perhaps the best measure of a great
supply chain is the level of improvement it can drive
year after year. That’s one thing that certainly
defines companies such as Dell and P&G.
What do you believe defines a great supply chain? What
are the key metrics? What companies do you think should
be on a “top 25” list? Let
us know your thoughts.
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RFID
in Manufacturing |
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Guest: John Hill, ESYNC |
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 By
Ned Blinick, Vice President
Blinco Systems
Global
Commerce Management (GCM) manages both Asset and
Non-Asset based manufacturing and distribution
across international boundaries to meet the demand
and financial requirements of the organization.
GCM requires the ability to manage complex supply
chain networks across multiple geographies, multiple
locations and multiple manufacturing, distribution
and logistics moves.
Effective GCM requires that organizations support
people, process, and constraints - imposed by
disparate supplier companies, cultural barriers,
time zones, extended physical locations, customs
and security concerns, currencies, modes of transportation
- in a highly integrated and synchronized information
environment. Mismanaging any of the processes
or constraints impairs the organization’s
financial objectives and its returns to its stakeholders
...
Click
Here to view the full column.
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While the manufacturing sector’s share of
U.S. GDP has remained relatively constant between
1950 and today (varying between 16 and 19% of
GDP), its share of employments has dropped dramatically.
Guess what the percent of manufacturing-related
workers was in 1950 and in 2002. Answer
below |
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Feedback
is coming in at a rate greater than we can publish
it – thanks for your response.
We received relatively moderate feedback on our
First Thoughts piece two weeks ago on “visibility”
(Does Your Supply Chain Need Glasses?”).
We were a little surprised the volume wasn’t
greater on this provocative subject. Below, you’ll
find our Feedback of the Week on supply chain
visibility from Dr. Mark Barratt of Arizona St.
University, as well as several other responses.
For
more complete comments from readers, click
here.
Keep
the dialog going! Give us your thoughts on this
week's Supply Chain topics.
feedback@scdigest.com |
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Fascinating article in
the Wall Street Journal about how retail electronics
giant Best Buy is adopting strategies based on research
by a Columbia Business School professor that focus the
merchant on catering to high profit customers –
and “firing” customers that lose it money.
The notion of analyzing custom profitability and adopting
strategies to either shed ones deemed unprofitable or
change pricing, services or policies to improve their
economics has been around for awhile – though
few companies have had the guts to actually execute
such strategies. Those that have, generally are manufacturers
or distributors, who in most cases can simply cut off
unprofitable customers/channels if they want. It’s
quite another thing for a retailer to do so, given retail
price transparency, generally homogeneous service policies,
and open door access to all customers.
And what is an unprofitable retail customer anyways?
Well, for Best Buy anyways, they are “devils”
– defined as customers who “buy products,
apply for rebates, return the purchases, then buy them
back at returned-merchandise discounts. They load up
on “loss leaders,” severely discounted merchandise
designed to boost store traffic, then flip the goods
at a profit on eBay. They slap down rock-bottom price
quotes on Web sites and demand that Best Buy make good
on its lowest-price pledge.”
Enter Best Buy CEO Brad Anderson, who was smitten by
the theories of Columbia professor Larry Selden, whose
research has shown unprofitable customers can wreak
havoc on a customer’s bottom line and stock price.
Despite resistance from his leadership team, CEO Anderson
has forced through changes that cater to the most profitable
customers and discourage the devils.
Five distinct highly profitable customer segments were
identified (e.g., upper income men, suburban women,
technology lovers), and pilot stores adopted specific
merchandising strategies and sales associate training
programs to cater to two of them, depending on the store’s
local demographics. Meanwhile, Best Buy also started
new restocking fees on returns, ended relationships
with many shopping Web, started selling returned merchandise
only over the web, not in the same store where it was
returned, policies all designed to thwart the devils.
It’s a high-risk strategy, given the possibility
for bad PR, loss of some chain-wide efficiencies, and
overhead costs that run 1-2% higher at pilot stores.
But, Best Buy is rolling out the strategy across the
entire chain.
I should have been a more aggressive buyer of that flat
screen TV last year.
As always, we can’t provide a direct link to Wall
Street Journal articles, but will be happy to send a
copy if you email us via the Feedback button below.
Is shedding unprofitable customers a winning strategy?
Does your company know what customers are profitable
or not, let alone do anything about it? What do you
think of Best Buy’s strategy? Let us know your
thoughts.
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View
Full Article >>
Article in this month’s Journal
of Supply Management on one of the Seven Principles
for Social Responsibility published by the Institute
for Supply Management earlier this year.
The article and the principle mostly focuses on common
sense and basic good business practices, but we found
a few observations and examples worth noting:
How many companies really have as simple but effective
visible metrics as an “above the line/below the
line” performance measurement system? Should more
companies care about the financial responsibility of
the suppliers? Let us know your thoughts.
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View
Full Article >>
Supply Chain Management Review and
Computer Sciences Corp. (CSC) just released its second
annual “Survey of Supply Chain Progress,”
based on responses from over 200 companies across the
globe.
There’s not a lot of commentary or insight here,
mostly just the survey results. Here are some of the
most interesting data points:
The report summary concludes: “Perhaps the most
important insight from the survey is that the real business
benefit of advanced supply chain management remains
untapped.” Think that is hard to argue with, despite
great progress by many.
What percentage of supply chain projects do you think
are “highly successful?” Why is the percentage
so low? What does it take to well integrate supply chain
strategy with business strategy? Let us know your thoughts.
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I think you are absolutely spot on with your comment
that visibility is so often talked about and yet is
so little understood. To my way of thinking - visibility
is having knowledge of customer demand, inventory levels,
customer and supplier decisions and processes. Now I
don’t think that we will ever get complete visibility
because companies in the supply chain are worried about
their customer gaining visibility of their cost structures.
The focus here in academia has been almost exclusively
on how and whether visibility (from information sharing)
can overcome the "Bullwhip" or "Forrester"
effect (1957). What we seem to lack is an understanding
of how companies gain visibility and once they have
it how they use it to improve their own performance,
either in better service performance or cost reduction.
I believe that one route to visibility is through collaboration,
but this is obviously a concept that we still understand
so little about. Too often I hear executives talking
about a lack of trust and that is more apparent within
their own organizations.
So we have two major challenges in terms of benefiting
from visibility: (1) Information sharing is great and
needs to be encouraged, but can only happen when there
is collaboration and trust building; and (2) We need
to understand what information should/could be shared
- too often the information shared is not useable or
in a format that negates its benefit.
Dr. Mark Barratt, BA PhD
MILT
Department of Supply Chain Management
Arizona State University
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Interestingly, I was asked that question just this morning
by students in a supply chain introduction class at
the FedEx School of Supply Chain Management at the University
of Memphis.
I think you answered the larger question regarding definition
with your closing thoughts that I have refined as follows
and used in practice and teaching for several years
and responded to them as follows:
Visibility is all about providing actionable information
in a timely manner that enables both suppliers and users
of supply chains to make improved decisions for the
mutual benefit of the enterprise.
I went on to talk about the fact that, in actual practice
it is hugely more complex, but let’s at least
start with the simpler purpose or definition so we know
where we are going and track our progress to the goal.
James Nelson
Advanced Logistics Solutions
In response
to supply chain visibility and whether there are service
or ROI benefits...there can clearly be both, but only
if the visibility leads to improved forecasting and
shorter cycle times. This has a real
payoff in hard cash and improved service.
Imagine retailer, manufacturer, supplier, and 3PL provider
(warehouse and transportation) all working from the
same real time consumer and inventory data. As an analogy,
think about delays at traffic lights today. The light
turns green and one car at a time starts up and travels
through the intersection, waiting for the car in front
of them to start. Imagine if everyone saw the light
turn green at the same time, reacted to the information,
and slowly started their cars forward simultaneously.
The result would be a vast improvement in "throughput"
through the intersection ROI), with fewer frustrated
drivers (service).
Net, if consumer movement and total supply chain inventory
data were completely visible to all supply network partners,
and all partners acted upon the data...both ROI and
service improvements are possible.
Lamar Johnson
Director North America Customer/Services Logistics
P&G (Retired)
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Your list of ways to manage the transportation crunch
missed an important opportunity: to get more on the
trucks that are shipped. Simply put, lots of companies
are not filling up trucks. A recent analysis of some
very well run companies identified opportunities to
increase shipment sizes from 5% and 25%. These increases
were quickly realized on shipments from suppliers to
plants and plants to DC's. Customer shipments will ultimately
be increased as terms of sale are changed.
Of course, it becomes harder to load heavier shipments
and still get the axle weights right. And fitting more
cubic feet of product can be a complex jigsaw puzzle
-- sometimes hampered by poorly stacked mixed pallets.
Smart companies are looking to software to guide the
pickers and loaders to make loads legal, safe and damage
free.
Thomas A. Moore
Warehouse Optimization
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