Governing Principles of Effective Supply Chains

Today's Topic: Supply Chain Essentials
Cited Rferences:
Ten Guiding Principles for High‐Impact SCM, Fawcett & Magnan, 2004.
Best Value Supply Chains: A Key Competitive Weapon for the 21st Century, Ketchen et al., 2008
Triple‐A Supply Chain, Hau L. Lee, 2004.

The landscape of business is in continual flux. Business practices and methodologies that have been effective in the past, may lead to economic ruin in the future. One area of business that is experiencing such a transition is the arena of supply chain management. In recent years, most businesses have focused on leveraging resources and materials to maximize speed and cost-effectiveness. However, in order for companies to attain competitive dominance, a more encompassing approach needs to be implemented.
The three readings provided in class have presented several key themes and messages aimed at improving supply chain management. For example, each article articulated the fact that best value supply chains all possess similar qualities that ensures success. First, great supply chains “align objectives and share resources across the company to deliver greater value” to customers. (Fawcett, 04) In addition to simply providing alignment across the company, the most effective supply chains are able to “align the interests of all the firms within the supply network so that companies optimize the chain’s performance when they maximize their interests.” (Lee, 04)
Effective supply chain alignment begins with the alignment of information. In order for companies to align their interests, they must first understand the needs and interests of each link in the supply chain-especially consumers. Open communication about forecasts, sales data and plans will expedite alignment in this area. Companies can use technology in order to “eliminate uncertainty, reduce inventory, and boost responsiveness to customers’ requests.” (Fawcett, 04)
Next, companies must align identities. This consists of employing relationship management tools to build value added bridges all along the supply chain. This also includes defining roles and responsibilities of each member of the chain to avoid conflicts. Third, companies need to align incentives to maximize supply chain performance. Saturn, Seven Eleven, and R.R. Donnelly are examples of companies that did a good job in this area. For example, whenever a supplier’s suggestion saved R.R. Donnelly money, the firm splits the savings with the supplier.
The articles also provided information of possible ways to implement this process. David Ketchen claims the key transition to the best value alignment of supply chain is that “Executives must view problems from the supply chain level of analysis rather than just the firm level”. By broadening the focus of management decisions to mainly focus on supply chain interactions, executives can add value and improve profits.
Another key theme from the readings is that best value supply chains are agile. Each author feels that it is critical for companies to have good capacity to react to change. Ketchen and Lee describe agility as being able to manage the cost of buffers. Fawcett, however, provides insight into agility by warning companies to beware role shifting. I think the key to being agile is explained very well in his paper. “Ultimately, leaders know that someone, somewhere, is working to make them obsolete. So they are meticulous scanners, always monitoring market and competitive conditions…This allows them to (1) grasp the ramifications of constantly changing consumer and supply environments, (2) recognize channel alternatives, (3) assess wide ranging tradeoffs, and (4) balance short-term and long-term company requirements.”
I especially liked the example of Dell Computers agile supply chains. In response to an earthquake, Dell changed the prices of PC configurations over-night. In contrast, competitors did not have established plans and therefore did nothing. While competitors scrambled to adapt, Dell was able to steer consumer demand away from products that required the chips delayed by the earthquake. This allowed Dell to gain market share in the aftermath of the earthquake.
Another theme I wish to mention is that effective supply chains are adaptable. Great supply chains are able to adapt to the changing demands and needs of customers by reacting to unexpected changes in supply and demand smoothly. They also are willing to change to take advantage of changes in technology, political change, and economic variability. The example of Lucent Technology was especially interesting to consider.
Perhaps the most overriding theme of these articles can be explained in the quote by Roger Blackman. “Competitive dominance will be achieved by the entire supply chain, with battle fought supply chain versus supply chain.” The old methods of lowering cost and speeding up delivery will no longer be applicable to the long-term success of corporations. In order to compete, executives must begin to pay increased attention to the science of supply chain management.