Mobilizing for Global Excellence
By Richard L. Dawe -- Supply Chain Management Review, 3/1/1998
In response to the now-familiar refrain of "more for less," companies are setting stretch goals for their global supply chain operations that often call for 10 times more service at half the cost. Goals that would have seemed ludicrous in the 1980s, today are routinely demanded. Achieving these targets is not easy. It requires the kind of broad best-practice expertise that many companies seek, but only few have achieved.
This discussion outlines the three levels through which organizations must proceed to achieve the supply chain excellence being demanded today—and suggests an approach to mobilizing global resources to facilitate that progression. The accompanying illustration depicts those levels, indicating the approximate percentage of companies that fall into each.
Companies at Level 1 are attempting to upgrade basic functional operations such as sourcing, conversion, logistics, and after-sales service. They are making the initial attempts to integrate and assess trade-off opportunities that will produce a value proposition. These organizations are only beginning to remove internal barriers instead of reinforcing them. And they're starting to fight the real enemies (non-value added, working capital, inventories, customer service, competition, and so on) instead of each other, focusing on tactical solutions for short-term gains. Though striving to improve, Level 1 companies still fall below industry averages when it comes to service, cost, and flexibility.
At Level 2, which is global enterprise integration and what might be considered internal supply chain management, many of the functional barriers have been successfully removed and firms are fighting to sustain the momentum. Sourcing, conversion, logistics, and after-sales services are being integrated worldwide, combining the best of in-house entrepreneurship with shared or outsourced resources for transportation, facilities, equipment, systems, and personnel. Strategic planning and a formal value proposition tied to the enterprise's financial goals are in evidence. Within the organization, titles like supply chain vice president, director, and manager now appear.
Companies at Level 2 have reached intermediate sophistication. Their cost, service, and flexibility performance ranges one standard deviation on either side of the industry average. Although operating well above the basic level, these companies are performing well below the leaders at the next level.
Level 3 is market channel integration. Enterprises at this most advanced stage extend their internal supply chain process upstream all the way to raw materials suppliers and downstream straight through to the ultimate consumers. The market channel becomes a virtual enterprise with common goals, systems, organizations, and facilities as well as shared management. Companies work with suppliers and customers in matrix project teams and make joint investments with these partners. These virtual relationships can vary according to the particular suppliers, providers, and retailers involved in the different products and regional markets. Level 3 companies outperform those at the first two levels on the order of half the cost, twice the speed, and five times the response flexibility.
A small subset of Level 3—possibly no more than 5 percent—eventually will achieve world-class standing across all dimensions of global supply chain management. Currently, no enterprise has yet demonstrated such universal competence. Some, however, have achieved selected best practices. These include leaders like Procter & Gamble/Wal-Mart in vendor-managed inventory, Intel in conversion, Dell Computer in distribution, and Xerox and Hewlett-Packard in after-sales services.
Three Dimensions of ExcellenceAdvancing from Level 1 to world-class status is not possible without gaining the core competencies associated with each stage. It is possible, though difficult, to acquire these competencies concurrently through business process reengineering (BPR). Although characterized by lofty goal predictions (and highly visible failures), BPR is theoretically sound when applied to global supply chain management. Within this context, the concept holds that organizations attain supply chain excellence by coordinating planning for a common value proposition and by mobilizing resources across three dimensions: process, systems and technology, and organization.
The process dimension concentrates on doing the right things. A process assessment identifies non—value-added activities, redundancies, trade-off opportunities, coordination problems, joint facility leveraging possibilities, and customer service goals. This dimension forms the operating plan that allows the enterprise to optimize its total performance by coordinating efforts across the entire market channel. Key supply chain activities are assigned to the appropriate functional areas. Some of these activities may require suboptimization to improve overall supply chain performance. An example could be the elimination of long production runs in favor of short, flexible runs.
The systems and technology dimension enables the right things to be done right—that is, faster, cheaper, and automatically. Unfortunately, this dimension has been over-hyped, giving companies the false impression that they can realize global supply chain mobilization from software that comes in a box labeled enterprise resource planning (ERP). The reality is that ERP systems do not have immediate, widespread functionality. A substantial amount of preparatory work is required.
The third and last dimension to mobilizing global resources for supply chain excellence is organization. All too often, this is considered after processes are improved and systems installed. The net result is that performance does not improve. In fact, it may deteriorate because people are upset, confused, stressed, intimidated, and generally non-cooperative. Experts have cited the lack of concurrent development of the organizational component as a major reason why some reengineering efforts fail. In fact, reengineering guru Michael Hammer issued a public apology for this in The Wall Street Journal, lamenting BPR's mistaken overemphasis on technology and insufficient attention to people. It is now clear that people are just as important as process and technology in mobilizing for global operating excellence.
The task of mobilizing the internal supply chain is tough enough. When extended to the global market channel, it rivals rocket science in its detail and complexity. Because of the magnitude of the task, companies need to rely on expensive systems tools and significant process realignment. The biggest barrier to global mobilization, though, remains the legacy of the organization and its resistance to change. A related concern is the impact of this evolution on future careers and on the development of management talent.
The coming years will be exciting ones for researchers and professional organizations that document best practices and chart the supply chain's evolution. The Fritz Institute, for its part, plans to honor firms annually that demonstrate innovative best practices in international supply chain management. The Institute also has initiated a study to identify and measure the impact of supply chain excellence both in terms of cost reduction and revenue enhancement. The preliminary findings are revealing, though not entirely unexpected. They show that the strategic revenue impact of supply chain excellence is significant—often marking the difference between profit and loss.
| Author Information |
| Dr. Richard L. Dawe is executive coordinator of the Fritz Institute of Global Logistics in San Francisco. |
View All Blogs
