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TRIMILLENNIUM
MANAGEMENT Integrated Supply Chain Management A Key to Effective Manufacturing in the next Millennium By Satyabir Bhattacharya Abstract As we enter the twenty-first century, there is a pressing need for clear strategies. Unless companies have a clear vision about how they are going to be distinctly different and unique, offering something different from their rivals to some different group of customers, they are going to get eaten alive by the intensity of competition. Organisations everywhere have been rushing to implement the latest ideas on management, sometimes to the point of overuse. They have all been struggling to fit all the pieces together : TQM, TPM, Reengineering, Time-based Competition, Benchmarking, Restructuring, Downsizing, Cost Reduction, ERP Implementation and so on. All these improvements are necessary just to stay in the game. But staying in the game is not sufficient because if everybody is competing on the same set of variables, then the standard gets higher but no company gets ahead. And getting ahead-and then staying ahead is the basis of future competitive strategy: creating a distinctive competitive advantage. Its not just a matter of being better at what one does but a matter of being different at what one does. In this article I briefly attempt to look at some pitfalls in contemporary strategic thinking, the business imperatives for the next millenium, how supply chain for manufacturing companies need to be managed in order to enable them to respond to these imperatives, where is Indian business today and what are the key challenges ahead of Indian manufacturing companies. Introduction Before we look into how companies need to manage their supply chains in the next millenium, let me explain certain pitfalls in the contemporary strategic thinking. According to Michael Porter, one of the great mistakes that has been made over and over again by companies around the world is the attempt to apply a universal strategy. This thinking leads companies into a trap. The first trap was that companies thought they had to have the largest market share to be ahead of competition. What makes matters worse is that if all companies are trying to grab the largest market share, a destructive battle ensues which is hard for any company to win. The second trap is the idea that all companies should reduce their cycle times and speed up their time to market. Again, as a universal truth, this is not true. In some markets it is better to take more time to get it right, rather than introduce new products with short development cycles. If all companies reduce their cycle times, then what results is a time race that nobody can win. In fact everybody loses, because faster time to market eventually starts to drive costs up or reduce revenue leading to dissipation of profit. A good strategy is concerned with the structural evolution of the industry as well as with the company's own unique position within that industry. Increasingly, the companies that will be true leaders will be those that don't just optimise within an industry, but that actually reshape and redefine their industry. The second important point is that a good strategy makes the company unique in terms of delivering a particular mix of value to some array of customers which represents a subset of the industry. Third, its not good enough to be just different. Companies got to be different in ways that involve trade-offs with other ways of being different. If not, the position is easy to imitate or replicate. Companies also need to be flexible to change fast enough to respond to changing customer and market requirements. What is important in thinking about change is to make the distinction between improving one's operational effectiveness - or just the quality of management- and shifting one's competitive position. In other words rapid change has to be addressed squarely in the area of improving operational effectiveness. No company can afford to be 2 years behind in terms of service delivery process. We have to employ the latest methods, techniques and ideas. Also many businesses have started focussing beyond just delivering a product to the customer. Manufacturers will have to increasingly think in terms of delivering value to customers/end-users, and this will require a require a complete rethinking in the way a company would need to operate it's supply chain in the coming years. Competitive price and consistent quality are the price of entry into the market today. The following diagram depicts the differentiating factors amongst competitors in the past and the expectations in the future. In the future, companies shall strive to add value through innovation, R&D and structural changes Supply Chain Management in the Recent Past During the last decade lots of companies have invested large sums and years of effort to improve, streamline, reengineer and re-configure their supply chains since supply chain performance impacts both the top line(increased revenue) and the bottom line(increased margins due to reduced cost and improved asset management). However, the returns may not have been to the desired levels. The reasons for this are:
As a result initiatives that begun with great intentions of enhancing competitive advantage have often been reduced to struggles to comply with customer demands, financial objectives and/or regulatory requirements. Excessive focus on cost cutting may have also adversely impacted customer service and profitability. Supply Chain Management in the Future As business environment is moving towards greater unpredictability, pressures are coming from all directions - both internal and external. New products, new markets, new customers, new channels, new competitors, and new service delivery challenges are all straining the existing supply chain capabilities. Global expansion, alliances and partnerships, mergers and acquisitions, divestitures are also exerting considerable pressure. One thing is clear that today's capabilities and performance levels will not effectively meet the challenges of tomorrow. Given the importance of supply chain performance in delivering customer, consumer and shareholder value, it is believed that how effectively a company manages it's supply chain would become a major source of competitive differentiation. Emerging winners are taking an integrated view of their supply chain with a clear understanding that connecting and synchronising the supply chain from end-to-end and beyond - can not only create immediate financial benefits but significantly improve relationships with the trading partners. This includes leveraging on the opportunities created through the emergence of eCommerce. The following graph depicts that almost US $1 trillion worth of business is projected to be electronically transacted in another five years timeframe through Internet. This trend is already manifested in eProcurement, Collaborative Planning Forecasting and Replenishment, Consumer Direct Shopping - all fostering the growth of the extended supply chain. Some companies are discovering by linking these solutions with key internal business systems, that they can create the eSynchronised Supply Chain for competitive advantage. The figure below describes a typical extended supply chain for a manufacturing company.Specifically, the winners are addressing two key challenges to differentiate their supply chain capabilities from the competition's. These are: By taking an end-to-end view of the supply chain, leading organisations are continuously rethinking the roles and capabilities that are performed within the company and those performed by the trading partners( suppliers, distributors, third party logistics provider, transporters, etc). The winners are quickly identifying the gaps in existing performance to determine where and how to leverage new new structures, new technologies, and new capabilities to deliver the level of performance necessary to serve the marketplace. Many are effectively using recently-implemented ERP platforms as a key enabler Realising benefits quickly to boost profits, market share and shareholder value: Succesful implementation of such initiatives tend to become self-funding as the implementation of "Quick Wins" help deliver cost savings and/or revenue enhancements which fund subsequent work. What is essentially required is the development of a fast-paced action oriented plan that highlights what and how soon new capabilities are being created and what would be the company's new performance level. Key Questions to be Asked by Manufacturing Companies Most manufacturing companies must begin to ask the following key questions:
The answers to the above questions go beyond a traditional cost-centre, function or a deparment focus. Instead, they provide an accurate, customer-focussed assessment of current capabilities along with an integrated definition of " To Be" objectives. With a clear understanding of performance priorities and existing gaps, along with the corresponding value proposition, companies can set a path toward becoming an integrated enterprise by defining and then implementing a common vision, common platform and common approach. A Common Vision Identifies and focuses resources and management attention on the supply chain capabilities that offer the greatest performance improvement potential and which will accelerate the value delivery. Ensures that the organisation has aligned the supply chain strategy with the strategic intent of the organisation. A Common Platform Balances cost, capital and service objectives
by implementing the right assests and infrastucture to support the roles
to be played by internal and third party resources, to synchronise
operations across all elements of the supply chain( one of which is
manufacturing).
A Common Approach Creates and maintains efficient process execution capabilities which provides targeted performance levels and respond to changing market requirements for products, solutions and services. Creates and maintains an environment and organisation where people have the right skills to effectively integrate, synchronise and execute across the supply chain. Defining the Business Case for Change In order to compete in the next millenium, it is critical that manufacturing companies set an agenda for change. The benefits, however, would only be realised when all the initiatives identified as part of this agenda get fully implemented, new capabilities are created, performance is sustainable and the marketplace recognises and values the improvements. Winning companies are looking at multiple dimensions of performance (Balanced Scorecard) to define and measure improvement objectives. Creating Value through Integrated Supply Chain The relative importance of each dimension certainly would vary from company to company, but understanding, setting improvement objectives and then measuring performance along each dimension can help create focus, purpose, and linkage across all elements of the supply chain to drive dramatic results. Realising the Benefits Andersen Consulting has developed five " Value Accelerators " - a logically organised set of targeted solutions - to address specific elements of change and to enable us to create a program that delivers rapid benefits which have sustainable value. These are: Strategy Alignment : Setting and aligning supply chain strategy with the business strategy. The typical activities here would include
Organisation Capability : Creating the organisational and work environment that enables people to successfully orchestrate the change. The typical activities would include
Information Technology/Decision Enablement : Selecting and implementing technology required to develop specific capabilities. These could be
Asset/Infrastructure Leverage : Defining and implementing supply chain structuresthat effectively optimise assets/ capital investments by leveraging alliances, partnerships,sourcing strategiesto to fill specific roles, creating and exploiting scale resulting from mergers and acquisitions. These could include:
Process Efficiency : Designing and delivering the competencies, processes, and performance management techniques required to consistently and uniformly meet or exceed the targeted performance levels. This accelerator puts the spotlight on
Within each accelerator are methods and solutions that target specific outcomes and capabilities, allowing the organisation to focus and manage the change process. Whats happening in Indian Companies Many Indian companies have started to look at the competitive challenges by focussing on shop floor practices and the supply chain problems but certainly not with the sophistication of the Americans and the Japanese manufacturers. Primary focus is currently on reducing cycle times, improving productivity levels, improving quality of the product and the supporting design and the manufacturing processes. Again there are those companies who are only concentrating on cost reduction per se and not taking an integrated view of their supply chains. For these companies improving their bottom line is their top priority - and this is certainly a very short term approach. There is also a lack of appreciation of the urgency to put a company-wide change program in place. Wherever there is such a blueprint already developed, I have seen that there is lack of patience, resilience and determination to follow up the implementation on a periodic basis by a top management steering committee for a period of at least 2-3 years. As a result, many initiatives may have been conceptualised correctly, started of with full enthusiasm and support of top management but eventually may not have produced the desired results simply because of dilution of interest and support from senior mangement. There is a definite need to correct this situation in Indian companies. Off course there are pockets of excellence in many Indian companies which can be matched with the best run companies in the world in that industry. There are also success stories like Sundaram Fasteners who received the best supplier award by the global auto manufacturers, while Sundaram Clayton has been awarded the Deming Prize for its Brakes Division. But a lot remains to be achieved by truly integrating the supply chain based on the approach outlined in this article. By Satyabir Bhattacharyya, Senior Associate Partner, Andersen Consulting, Bombay
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