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    Supply Chain Management Best Practices


    内容提示: S U P P L Y C H A I NM A N A G E M E N TB E S T P R A C T I C E SDAVID BLANCHARDJOHN WILEY & SONS, INC.|ffirs. qxp 9/18/06 8: 52 AM Page i ffirs. qxp 9/18/06 8: 52 AM Page iv S U P P L Y C H A I NM A N A G E M E N TB E S T P R A C T I C E SDAVID BLANCHARDJOHN WILEY & SONS, INC.|ffirs. qxp 9/18/06 8: 52 AM Page i This book is printed on acid-free paper.  ∞Copyright © 2007 by David Blanchard. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultane...

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    S U P P L Y C H A I NM A N A G E M E N TB E S T P R A C T I C E SDAVID BLANCHARDJOHN WILEY & SONS, INC.|ffirs. qxp 9/18/06 8: 52 AM Page i ffirs. qxp 9/18/06 8: 52 AM Page iv S U P P L Y C H A I NM A N A G E M E N TB E S T P R A C T I C E SDAVID BLANCHARDJOHN WILEY & SONS, INC.|ffirs. qxp 9/18/06 8: 52 AM Page i This book is printed on acid-free paper.  ∞Copyright © 2007 by David Blanchard. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part ofthis publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, orotherwise, except as permitted under Section 107 or 108 ofthe 1976 United States CopyrightAct, without either the prior written permission ofthe Publisher, or authorization throughpayment ofthe appropriate per-copy fee to the Copyright Clearance Center, Inc., 222Rosewood Drive, Danvers, MA 01923, 978–750–8400, fax 978–646–8600, or on the Web atwww.copyright.com. Requests to the Publisher for permission should be addressed to thePermissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,201–748–6011, fax 201–748–6008, or online at http://www.wiley.com/go/permissions.Limit ofLiability/Disclaimer ofWarranty: While the publisher and author have used their bestefforts in preparing this book, they make no representations or warranties with respect to theaccuracy or completeness ofthe contents ofthis book and specifically disclaim any impliedwarranties ofmerchantability or fitness for a particular purpose. No warranty may be createdor extended by sales representatives or written sales materials. The advice and strategiescontained herein may not be suitable for your situation. You should consult with a professionalwhere appropriate. Neither the publisher nor author shall be liable for any loss ofprofit or anyother commercial damages, including but not limited to special, incidental, consequential, orother damages.For general information on our other products and services, or technical support, pleasecontact our Customer Care Department within the United States at 800–762–2974, outsidethe United States at 317–572–3993 or fax 317–572–4002.Wiley also publishes its books in a variety ofelectronic formats. Some content that appears inprint may not be available in electronic books.For more information about Wiley products, visit our Web site at http://www.wiley.com.Library of Congress Cataloging-in-Publication Data:Blanchard, David, 1958-Supply chain management : best practices / David Blanchard.p. cm.Includes bibliographical references and index.ISBN-13: 978-0-471-78141-7 (cloth : alk. paper)ISBN-10: 0-471-78141-X (cloth : alk. paper)1. Business logistics.I. Title.HD38.5.B476 2007658.5—dc222006017526Printed in the United States ofAmerica10987654321ffirs. qxp 9/18/06 8: 52 AM Page ii T o Nancy, Julia, and Graceffirs. qxp 9/18/06 8: 52 AM Page iii ffirs. qxp 9/18/06 8: 52 AM Page iv ContentsPref aceAcknowledgmentsxixvPART IINTRODUCTION TO SUPPLYCHAIN MANAGEMENT1. IfSupply Chain Is the Answer, Then What’s the Question?Y ou Knew This Job W as Dangerous T ook It3The Big Picture6The Supply Chain’s Back StoryRoadblocks on the Supply Chain PathSeparating the Good from the Best2. Anatomy ofa Supply ChainAutomotive: Building Customer Loyalty for theLong T erm18Chemicals: Finding the Right Supply Chain Formula20Consumer Packaged Goods:The Moment ofT ruth22Food and Beverage: Cutting Out the Middleman24High-T ech/Electronics: Zero LatencyPharmaceuticals: Fighting Counterfeiters with RFID28Retail: Optimizing the Inventory3. Supply Chain Metrics: Measuring Up to High StandardsHow to Prevent a Supply Chain Heart Attack34What Makes a Supply Chain Leader?Learn the SCOR443When Y ou811131726303336vftoc. qxp 9/18/06 9: 02 AM Page v PART IITRADITIONAL CORE PROCESSESOF SUPPLY CHAIN MANAGEMENT4. Planning and Forecasting: Headed for the FutureA Bias against Good PlansFrom Soup to S&OPNo Time Like the Real The T ruth Plays OutEnd-to-End IntegrationThe First Shall Be FirstA Happy Ending685. Procurement: Go Right to the SourceGiving Procurement Its DueManaging the ChangesKeep Y our Friends Close and Closer73Looking Backward to See ForwardW orking for Every PennyEnsuring a Healthy Supply ChainThe W ar on ComplexityIt Seemed Like a Good Idea at the An Online Car Wreck6. Manufacturing: Supply Chain on the MakeA Direct Line to Supply Chain SuccessBetter Decisions for the CustomerA Leaner Shade ofBlueLean, Mean Flying MachineLearning to Share93Lean Principles95Nearly Perfect97Collaborating on Product Designs7. Transportation: Logistics a la ModeRiding the Roads105Regulations and DeregulationFuel for Thought108A Capacity for ChangeKnow Thyself , and Thy Carrier, How to Achieve Sustainable SavingsCollaboration Is a T wo-W ay Street555859Time62646165697071Y our Suppliers 74767779Time81838587899192100103106109T oo111112114viContentsftoc. qxp 9/18/06 9: 02 AM Page vi A Carrier by Any Other NameAutomate to Consolidate8. Distribution and Warehousing: Going with the FlowVirtual Inventory123Cross-Docking, Compliance, and Collaboration125Where the Rubber Meets the LoadCan Y ou Hear Me Now?T urn, T urn, T urn131Half-Full or Half-Empty?How to Better Manage 9. Site Selection: Location, Location, LocationStriking the Proper BalanceA Site for Sore Eyes141Finding the Right PlaceA Look at Gillette’s Distribution NetworkCost versus Service146Match Y our Network to Strategy147How Much Is T oo Much?W eighing the IntangiblesQuality over Quantity10. Globalization: It’s a Not-So-Small WorldPlaying by Somebody Else’s RulesDevelop a Global VisionFriendly Nations160T ake a Look for Y ourself 162“Low Cost” Sometimes Means “Poor Service”164Living in a Flat W orldKeeping an Eye on ChinaThe Need for Supply Chain Unclogging W est Coast Congestion11. Customer Service: Keeping the Customer SatisfiedThe Perfect Order174The High Cost ofImperfectionOne Good Return Deserves Another116117121127129132W arehouseY our 134137139143145Y our Business 149150151155157158166167Visibility169171173176177Contentsviiftoc. qxp 9/18/06 9: 02 AM Page vii Supply Chain in ReverseManaging the RelationshipMoney in the BankSupply Chain at A Culture ofCustomer Satisf action179182184Y our Service186187PART III12. 3PLs: When You’d Rather Not Do It YourselfA Shift to the Supply Chain SideLetting Somebody Else Do ItSupply Chain Essentials and NonessentialsFinding Y our Core CompetencySquare Pegs and Round HolesThink StrategicallyThe Financial Impact ofOutsourcingStaying in T ouch204Going Beyond the 3PL ModelOutpacing the Competition13. Collaboration: Extending the EnterpriseMutually Beneficial RelationshipsWinning Small VictoriesA Better W ay to Sell MouthwashA Nine-Step Program for CPFRGreat Expectations, So-So ResultsMore Reliability and Better ServiceChallenges in Supplier ManagementHow to Get the Most Out ofa Relationship22314. Security: Seeking Shelter from Supply Chain Storms“It’ll Never Happen Here”Customs-T rade Partnership Against T errorism231Getting Countries to Sometimes Low-T ech Is as Good as High-T ech234T aking Responsibility for Chain235SUPPLY CHAIN STRATEGIES193194195197199201202203206208209211212213216217220222227228T alk to Each Other232Y our Supply viiiContentsftoc. qxp 9/18/06 9: 02 AM Page viii Securing the Supply ChainT aking Steps toward Effective ComplianceSupply Chains at Risk15. RFID: A Game ofTagsThe ABCs ofRFIDProactive ReplenishmentIn Search ofPaybackT agging Till the Cows Come HomeW ork the Bugs OutA Matter ofPrivacyNo Need to Be Passive16. The Supply Chain Profession: What Keeps You Up at Night?T alent Search263Hiring Problem SolversT raining the Next GenerationOptimizing the W orkforceWhat Keeps Y ou Up at Night?Gray Matters272The Secret to Supply Chain Success237239241245246248250251254255257261264266268270273NotesIndex277293Contentsixftoc. qxp 9/18/06 9: 02 AM Page ix ftoc. qxp 9/18/06 9: 02 AM Page x Pref aceWith a title like Supply Chain Management Best Practices,there’s not much mystery in what this book is about.Throughout its 16 chapters, this book will identify someof the best supply chains in the world, describe in detailwhat it means to have a “best-in-class” supply chain, andoffer suggestions—in the form of best practices—on howto build a world-class supply chain.This book is largely told through the experiences ofsupply chain practitioners and experts. The companies andthe people referred to in this book are real, as are theiraccomplishments (and, in some cases, their failures). Whatsets this book apart from other supply chain books is that Ihave taken a journalist’s approach to the subject, ratherthan an academic’s or a consultant’s. As the editor-in-chiefof Logistics T oday magazine (www.logisticstoday.com), theleading supply chain publication in the field, I had access tosupply chain professionals at companies of all sizes, indozens of different industries. So in writing this book, Ihave set out to tell the story of supply chain managementthrough the eyes ofthe people who know it best.In the United States alone, companies spend morethan $1 trillion every year on transportation, warehousing,distribution, and associated inventory management. Theresponsibility for managing that spending falls squarely onthe shoulders ofsupply chain professionals. Their roles maydiffer from company to company, but their goals are gener-ally the same: develop and position their companies’ supplyxifpref. qxp 9/18/06 9: 02 AM Page xi chains so that they can compete and win in today’s globalmarketplace. Many ofthese professionals work for compa-nies that consider supply chain management and its manysubdivisions (e.g., planning, purchasing, logistics, trademanagement) as little more than necessary evils and costcenters. Yet it’s an inescapable fact that many ofthe biggestand best-run companies got to where they are thanks totheir adoption ofbest practices to manage their world-classsupply chains.This book, then, is designed to help you figure outhow you can get your own company on the “best prac-tices” track. It will explain why there is so much interest insupply chain management today by offering numerousexamples ofcompanies that have found success by focusingon specific processes within their supply chains. Throughanecdotes, interviews, case studies, research, and analysis,the book will explore the development of supply chainmanagement by looking at some of the people and thebusinesses largely responsible for its momentum.The book is organized into three sections. Part Iopens with a brief introduction to supply chain manage-ment (Chapter 1), looks at examples ofsome best-in-classsupply chains in a number ofdifferent industries (Chapter2), and discusses ways to measure the performance of asupply chain (Chapter 3). (For those readers who areinterested in an entire book devoted to supply chainbasics, I recommend Michael Hugos’ Essentials ofSupplyChain Management, Second Edition, also published by JohnWiley & Sons.)Part II presents the traditional core processes of supplychain management. Chapters 4 through 11 follow the pro-gression of “plan, source, make, deliver, and return” andrelated points in between, and discuss in detail the best prac-tices being followed by specific trendsetting companies.xiiPref acefpref. qxp 9/18/06 9: 02 AM Page xii Part III looks at best practices in strategic areas that havebecome increasingly important to supply chain manage-ment since the turn ofthe twentieth century: outsourcing(Chapter 12), collaboration (Chapter 13), security (Chap-ter 14), and radio frequency identification (Chapter 15).Finally, Chapter 16 focuses on the ultimate best practice:hiring and developing best-in-class supply chain personnel. Pref acexiiifpref. qxp 9/18/06 9: 02 AM Page xiii fpref. qxp 9/18/06 9: 02 AM Page xiv AcknowledgmentsThe genesis for writing this book came largely from a needto clean up my office. I’ve been writing about supply chainmanagement for a long time, dating back to the days whennobody even used the words “supply chain,” and being apack rat, I have several filing cabinets’ worth of notes,interview transcripts, research studies, surveys, press kits,and article clippings, as well as several shelves stuffed withreference books. One day, staring at my daunting collec-tion of supply chain stuff, the thought occurred to me:“Surely, there’s got to be a book somewhere in all ofthis.”And indeed there was, eventually.I mention this to dispel the myth that every bookemerges fully formed from the divinely inspired mind ofthe author. Nothing could be further from the case. Thisbook evolved by fits and starts from the writing and editingI’ve done over two decades, most particularly the yearsspent on the two supply chain magazines I helped launch:Supply Chain T echnology News (1999–2003) and LogisticsT oday (2003–2006), published by my employer, PentonMedia Inc. (Cleveland, Ohio).This book also references the reporting of many finejournalists who have worked with me and for me, andmany of the insights on the following pages originatedwith them (and are duly noted throughout the book). Inalphabetical order, I’d like to acknowledge and publiclythank Dan Jacobs, Jonathan Katz, Jennifer Kuhel, RogerMorton, Helen Richardson, Sarah Sphar, and PerryTrunick for their contributions.xvflast. qxp 9/18/06 8: 52 AM Page xv It’s always good to thank your bosses, so thanks toNewt Barrett, Dave Madonia, and my current boss, TeriMollison, for their dedication to publishing. And specialthanks to Bob Rosenbaum, not only because he had thegood sense to hire me, but because he showed me that itwas possible to write a supply chain book in the eveningsand on weekends without completely losing your mind.Not to single anybody out, but I also have to thankNick Lester, Dick Green, Craig Shutt, Andy Horn, SteveKane, and Paul Beard—just because.I’m especially indebted to all the supply chain profes-sionals who shared their experiences and insights with me.And of course, this book wouldn’t have been possiblewithout the good graces ofthe fine folks at John Wiley &Sons, particularly Tim Burgard.Finally, thanks to my friends and family, who supportedme enormously throughout the writing process andoffered endless encouragement. Special thanks go to myparents, Jack and Dottie Blanchard, for their lifelong sup-port; to my daughters, Julia and Grace, for being the great-est kids a dad could ever want, who never complainedabout seeing only the back ofmy head on some weekends,and who celebrated with me every time I’d finish anotherchapter; and most ofall, to Nancy, my wife and soulmate.WEATSIA!xviAcknowledgmentsflast. qxp 9/18/06 8: 52 AM Page xvi PART II NT RO D UC T I O N TO S UP P LY C H AI NMANAGE ME NTc01. qxp 9/18/06 8: 56 AM Page 1 c01. qxp 9/18/06 8: 56 AM Page 2 {1|IfSupply Chain Is the Answer, Then What’s the Question?3YOU KNEW THIS JOB WASDANGEROUS WHEN YOU TOOK ITImagine, if you will, a typical day in the life of a supplychain professional. Your boss comes into your office withone ofthose looks you’ve come to dread—furrowed brow,deep-set eyes, concerned scowl. He looks you straight inthe eye and asks you why it costs so much to transport yourcompany’s products to your customers. You can tell by theexpression on his face that he doesn’t want to hear aboutrising fuel costs, or driver shortages, or industry consolida-tion. It’s your job to worry about that stuff, not his. Andright now, even though your budget projections say you’llhave to spend at least 5 percent more on transportation thisyear than you did last year, your boss tells you in no uncer-tain terms that he expects you to keep the increase down to2 percent, or less. Preferably less.c01. qxp 9/18/06 8: 56 AM Page 3 At the water cooler, your director of sales gives you asheepish smile and asks if you can arrange for an extrathousand widgets to be made and shipped to a big cus-tomer by the end ofthe week. Actually, she doesn’t reallyask you so much as tell you, since she’s already promised the customer that it will happen. She leaves before you getthe chance to ask ifshe’s charging the customer double thenormal price since it’ll cost you at least twice normal ratesto source the parts used to make the widgets from your off-shore supplier, plus the cost ofexpedited delivery. On topof that, production will have to schedule an extra shift toget that many widgets made that quickly.Later in the morning, while you’re patting yourselfonthe back because you managed to find a domestic sourcefor most of the widget parts, your boss asks you to shep-herd your company’s radio frequency identification(RFID) initiative. The Department of Defense (DoD),another big customer, wants your company to put RFIDtags on every pallet and case of widgets that you ship tothem. It’s part ofthe DoD’s efforts to keep better track ofits inventory. That’s great for the military, but your bosswants you to figure out how RFID is going to help yourcompany, particularly since industry estimates say youcould end up with start-up costs ofmore than $1 million.Your boss waves off the list of questions that immediatelycome to your mind; he wants you to answer those ques-tions yourself, provide him with regular updates on yourprogress, and map out an implementation plan that resultsin a decent return on investment within a year.For all his many faults, though, your boss is a fair man,and recognizing the extra burdens he’s been laying on you,he invites you to lunch. Before your salad arrives, though,he’s already launched into a harangue about outsourcing.Your competitors have been getting to market faster andare spending less money to do it, and he’s convinced it’s4I F S U P P LY C H A I N I S T H E A N S W E Rc01. qxp 9/18/06 8: 56 AM Page 4 because they’ve contracted their distribution to third-partylogistics providers (3PLs). So when you get back to theoffice, he wants you to figure out which 3PL can do it bet-ter, faster, and cheaper for you. Your customer service lev-els, needless to say, cannot change in the slightest, unless ofcourse they actually improve.Oh, and one more thing, your boss adds as you get upto leave the restaurant: he wants you to schedule anothertrip to China (your seventh trip there in three years). It’stime, he says, to get serious about this globalization stuff,and you can start by lining up another low-cost supplier foryour widget parts.Most of your afternoon is spent trying to mend somefences down in the information technology (IT) depart-ment. Your chiefinformation officer has made it clear thatabsolutely nobody is going home today until somebody canfigure out why the supply chain planning system still isn’tfully integrated with the inventory management system—andwhymanufacturingkeepsmaking12-inchwidgetswhenthe sales plan calls for 18-inch versions.As you finally shut down your computer and get readyto call it a day, your head of human resources pops herhead in your doorway and tells you she hasn’t had a bit ofluck yet finding a global trade expert, so it looks like you’llhave to keep filling in for a while longer. Hearing the tailend ofthat conversation, your boss walks with you out tothe parking lot and reminds you he still needs to see yourcontingency plan in the event of a work slowdown at amajor West Coast port. Oh, and a big storm is develop-ing in the South China Sea, and one ofyour key supplier’splants is right in the storm’s path. Fortunately, you’ll beable to monitor the situation from your home through-out the evening, thanks to modern technology and all the personal productivity gadgets your company has pur-chased for you.Y ou Knew This Job W as Dangerous When Y ou T ook It5c01. qxp 9/18/06 8: 56 AM Page 5 At the end of the day, after you’ve kissed your spousegoodnight and laid your head on your pillow, you drift offto sleep knowing you’re a mere beeper alert away fromcontact with your supply chain—and your next task.THE BIG PICTUREAdmittedly, the preceding example represents a ratherextreme and time-compressed scenario, but on any givenday, a supply chain manager has to deal with numerous sit-uations quite similar to those just described, with theexpectation that costs will be minimized, disruptions willbe avoided, and the profitability of the company will beenhanced. No pressure, right?Maybe we’re getting ahead of ourselves, though, solet’s start at the beginning: What exactly is a supply chain?There are plenty ofdefinitions for the term, and we’ll lookat a couple of them, but this question gets asked so oftenbecause the answer tends to change depending on who’sdoing the telling. It’s like that old fable about the blindmen who stumble on an elephant and try to tell each otherwhat the elephant is like: The man holding the elephant’sleg thinks the animal looks like a tree; the man holding the tail thinks an elephant resembles a rope; a third manwho grabbed a tusk thinks the whole animal must look like a spear. Each oftheir answers is partly right, but any-body who has actually seen an elephant smiles at the storybecause they know these blind men are missing the big picture.The funny thing is, those kinds of faulty assumptionsare made all the time about supply chains. Since computermaker Dell’s supply chain is based on a made-to-ordermodel, for instance, it has been suggested that Dell’s direct6I F S U P P LY C H A I N I S T H E A N S W E Rc01. qxp 9/18/06 8: 56 AM Page 6 model is the best model for all high-tech companies, or forthat matter, for any company in any industry. However, whilerival computer maker Hewlett-Packard’s sourcing pro-cesses might look a lot like Dell’s, on the distribution sideHP has a lot more in common with a consumer goodsmanufacturer like Campbell Soup, since they both sellthrough retail chains like Wal-Mart, whereas Dell eschewsthe retail channel entirely. So, the idea that “one supplychain strategy fits all” is as wrong-headed as thinking anelephant looks like a tree.A supply chain, boiled down to its basic elements, is thesequence of events and processes that take a product fromdirt to dirt, in some cases literally. It encompasses a series ofactivities that people have engaged in since the dawn ofcommerce. Consider the supply chain General Mills man-ages for every box of cornflakes it sells: A farmer plants acertain number of corn seeds, cultivates and harvests acrop, sells the corn to a processing facility, where it is bakedinto cornflakes, then is packaged, warehoused to a distrib-utor, transported to a retail store, put on a store shelf, soldto a consumer, and ultimately eaten. If the cornflakes arenot sold by the expiration date on the box, then they aredisposed of.A supply chain, in other words, extends from the ulti-mate supplier or source (the farmer and the seed) to theultimate customer (the consumer who eats the cornflakes).So whether you’re talking about an Intel semiconductorthat begins its life as a grain ofsand or a Ford Explorer thatends its life in a junkyard where its remaining usable com-ponents (tires, seat belts, bumpers) are sold as parts, every-thing that happens in between those “dirt to dirt”milestones encompasses some aspect ofthe supply chain.The Supply Chain Council, an organization that devel-ops industry benchmarks and metrics, came up with a wayThe Big Picture7c01. qxp 9/18/06 8: 56 AM Page 7 to summarize the concept of supply chain management(SCM) in just five words: plan, source, make, deliver, andreturn. While it’s difficult to find a consensus in any field,let alone a field that intersects with so many disparate dis-ciplines, that five-word definition has been accepted as thebasic description of what a supply chain looks like andwhat its core functions are. (The Supply Chain OperationsReference, or SCOR, Model is discussed in Chapter 3.)For those who like a little sizzle with their steak,anotherindustry group, the Council ofSupply Chain Man-agement Professionals (CSCMP), is a bit more descriptivewith its definition: “Supply chain management encom-passes the planning and management of all activitiesinvolved in sourcing and procurement, conversion, and alllogistics management activities.” That includes coordin-ating and collaborating with channel partners, including suppliers, intermediaries, third parties, and customers. Inshort: “Supply chain management integrates supply anddemand management within and across companies.”1THE SUPPLY CHAIN’S BACK STORYAs noted, the concept ofworking with suppliers and cus-tomers is as old as commerce itself, but the modern idea ofa “supply chain” is fairly recent, probably dating back nofurther than the late 1950s to the pioneering research con-ducted by Jay Forrester and his colleagues at the Massachu-setts Institute ofTechnology (MIT). Nearly a halfcenturyago, Forrester began studying supply pipelines and channelinterrelationships between suppliers and customers, and heidentified a phenomenon that later came to be known asthe bullwhip effect.Forresternoticedthatinventories inacompany’s pipeline8I F S U P P LY C H A I N I S T H E A N S W E Rc01. qxp 9/18/06 8: 56 AM Page 8 (i.e., supply chain) tend to fluctuate the further they are fromthe ultimate end user.* The idea of the bullwhip effectremained largely a curiosity until the 1990s, when comput-ers were fast enough, powerful enough, and affordableenough that researchers could not only gain an understand-ing ofthe bullwhip effect, but also design software programsthat could circumvent it. Supply chain management as a dis-cipline basically evolved out of Forrester’s quest to under-stand and ultimately control these increases in demandfluctuations. Although he didn’t use the exact words “supplychain” to describe his findings, “Forrester and his groupshould really get the credit for supply chain management,”asserts Edward Marien, longtime director of supply chainmanagement programs at the University ofWisconsin.2At some point in the early 1980s, the concepts oftrans-portation, distribution, and materials management beganto merge into a single, all-encompassing term: supply chainmanagement. The term apparently first appeared in print in1982, and is attributed to Keith Oliver, a consultant withBooz Allen. In any event, in 1985, Harvard professorMichael Porter’s influential book, Competitive Advantage,illustrated how a company could become more profitableby strategically analyzing the five primary processes onwhich its supply chain†framework is built:1.Inbound logistics. These are the activities associatedwith receiving, storing, and disseminating inputs tothe product (material handling, warehousing,inventory control, transportation scheduling, andreturns to suppliers).The Supply Chain’s Back Story9*Forrester spells out many of his theories in the book Industrial Dynamics (Cambridge,MA: MIT Press, 1961).†Porter actually uses the term “value chain” rather than supply chain, but the difference ismainly one ofsemantics.c01. qxp 9/18/06 8: 56 AM Page 9 2.Operations. This refers to the activities associatedwith transforming inputs into the final productform (machining, packaging, assembly, equipmentmaintenance, testing, printing, and facility operations).3.Outbound logistics. These are the activities associatedwith collecting, storing, and physically distributingthe product to buyers (finished goods warehousing,material handling, freight delivery, order process-ing, and scheduling).4.Sales and marketing. Within a supply chain context,these are the activities that induce buyers to pur-chase a product and enable them to buy it (adver-tising, promotions, sales force, quoting, channelselection, channel relations, and pricing).5.Service. This refers to the activities associated withproviding service to enhance or maintain the valueofthe product (installation, repair, training, partssupply, and product adjustment).3Like Forrester before him, Porter saw that companiescould significantly improve their operations by focusing oninterrelationships among business units. These interrela-tionships, he wrote, are “tangible opportunities to reducecosts or enhance differentiation in virtually any activity inthe value chain. Moreover, the pursuit ofinterrelationshipsby some competitors is compelling others to follow suit orrisklosingtheircompetitiveposition.” Asaresult, accordingto Porter, it is critically important forcompanies to focus onhorizontal strategy—a coordinated set ofgoals and policiesacross distinct but interrelated business units. This horizon-tal strategy, which is a succinct way of describing supplychain management, represents the essence of corporatestrategy.41 0I F S U P P LY C H A I N I S T H E A N S W E Rc01. qxp 9/18/06 8: 56 AM Page 10 Although their work was separated by more than twodecades, both Forrester and Porter saw that a vertical strategy—the idea of compartmentalizing every depart-ment and group into unconnected silos—was counterpro-ductive to a company’s long-term growth and health.Curiously, in 2006, two decades after Porter’s work, one ofthe popular buzzwords ofthe day—unsiloing—refers to theconcept of managers cooperating across departments andfunctions, sharing resources, and cross-selling products topromote the entire company’s bottom line.5The terms may change throughout the years, but theunderlying goal ofsupply chain management has remainedconstant:• Articulate exactly what a company’s supply chainlooks like and what it encompasses.• Identify specific bottlenecks that are slowing downthe movement ofinformation, goods, and services.• Put the right processes in place to get the right prod-ucts delivered to the right place on time.• Empower the right people so they can accomplish allofthe above.ROADBLOCKS ON THE SUPPLYCHAIN PATHAlthough the concept of supply chain managemententered the public consciousness more than 20 years ago, todate only a very small percentage of companies have fullyembraced the idea. Even though many ofthe best-knownmanufacturing and retail companies in the world are as cel-ebrated for their supply chains as they are for their brands,relatively few companies even attempt full-scale supplychain projects, and of those that do, many are stymied byRoadblocks on the Supply Chain Path1 1c01. qxp 9/18/06 8: 56 AM Page 11 various roadblocks that make them question whether theend result will be worth the aggravation.Consulting firm Accenture teamed up with StanfordUniversity and global business school INSEAD to try tofigure out why that should be.6Of the companies theystudied, it turns out that more than halfencountered unex-pected problems in the course oftheir supply chain trans-formations. Exacerbating the situation is the fact that theseproblems aren’t easily solved:• T echnology implementations didn’t work as promised. Thesupply chain movement faced a moment of crisiswhen the Internet bubble burst, taking many supplychain technology vendors (and even more vaporwarecompanies) with it. Companies that should haveknown better assumed that establishing a Web sitewas a ticket to instant riches, and they embraced theInternet with a giddy “gold rush” fervor. They spentmillions on ill-advised “end-to-end” projects thathad no timeline for deliverable payback, and they gotbadly burned in the process. To this day, many com-panies still remain extremely cautious about investingin any kind ofsupply chain solution.• Projects cost too much and never came close to meeting ser-vice targets. This problem predates the supply chain.The list ofunfinished and underimplemented enter-prise resource planning (ERP) projects is a lengthyone, and unfortunately there are plenty of similarlyout-of-control supply chain projects to add to thatlist. Many ofthese enterprise-wide initiatives end upbeing a bottomless money pit ofcosts with no end insight and no discernible benefits.• Supply chain projects were inconsistent with a company’scurrent business strategy. The unfortunate reality is that1 2I F S U P P LY C H A I N I S T H E A N S W E Rc01. qxp 9/18/06 8: 56 AM Page 12 many companies don’t have a well-defined businessstrategy. Trying to plug a supply chain initiative intoan uncertain and continually shifting corporate plancan wear out even the most patient project managers.• It was too difficult to manage change internally and exter-nally. For a supply chain project to succeed, employ-ees first need to be convinced that sharing productand transactional data between their own divisions isa good thing. Too often, companies will fa...


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