INDUSTRY IS LOOKING FOR AN ANSWER. What is the question? Simply, it is "How do we keep our customers happy, grow our business, and increase profitability?"

The answer to this question has been "supply chain management." For 15 years, supply chain management (SCM) has tried to be the panacea for poor customer service, poor communication, and poor relationships. Yet, despite all of our SCM efforts, we are still losing ground. This is not due to neglect of the supply chain. Organizations know well the importance of the supply chain: According to a 1998 Deloitte and Touche survey, 90 percent of the companies surveyed planned supply chain improvements in 1999, but only 2 percent believed their supply chain used best practices.

The supply chain is important; that has not changed. However, I believe that, due to our lack of success with SCM, it is now time to move beyond SCM. The fact is that SCM has lacked scientific underpinning. SCM is about optimizing individual links, and this is no longer sufficient. Competition today is not about my link versus your link; the competition today is my chain versus your chain, and a link optimization approach is now inadequate.

To deliver maximum value, customization, and satisfaction to the ultimate customer—while at the same time reducing inventory, trimming leadtimes, and reducing costs—the supply chain must become one entity, the goal of which is to satisfy the ultimate customer. To become one entity, the supply chain must be synthesized. The result is supply chain synthesis (SCS).

Supply chain synthesis is a holistic, continuous improvement process of ensuring customer satisfaction from the original raw-material provider to the ultimate, finished-product consumer. In other words, it is doing business with no boundaries. It is holistic because it is concerned with a complete chain, rather than one link. It is a continuous improvement process that is infinite; it never stops. SCS melts the links in the supply chain into a smooth, continuous flow. Visualize a river, properly banked and channeled, that is flowing toward a goal and you are also visualizing SCS. A river has no links, and although thousands of separate natural forces comprise it, it is seen as one entity.

"Without banks the river is just a puddle."—Mark Twain

A river must have banks, or as Mark Twain says, it will be a puddle. The SCS riverbanks are integration and change. Without them, SCS is nothing but a puddle, with no force or destination. The breadth of integration and the rate of change are creating movement and force, yet there seems to be a lack of understanding of the effect each has on SCS. If you gain a solid understanding of integration and change, then it will provide you with a set of requirements in tomorrow's business climate.

In the 1980s, integrating within processes was the integration focus. Then, in the 1990s, the opportunity to integrate between processes became apparent, and with this new integration focus, SCM was born. The thrust was to integrate manufacturing and distribution to create an integrated supply chain via SCM. Supply chain management was viewed as the ultimate integration, and many companies and business gurus still agree. It is easy to understand why: Integration may be viewed at different levels, depending on the vantage point. If you are hovering six feet above the ground in a hot air balloon, then the worker in the workstation looks like integration. As your balloon goes up, you see integration as man/workstation/equipment, then as materials-handling systems, then as manufacturing systems, and then as SCM. You are now a mile above the ground, and your balloonist may tell you there is no need to go any higher or that there are greater risks at a higher point. But if you insist and he complies, then you reach the vantage point where integration is at its highest level: supply chain synthesis.

So, from an integration perspective, we see that there is a progressively expanding concept of what SCS means and how it functions. A company's leadership must ride that balloon as high as it can go to have the broadest perspective and ensure its access. Part of that larger view includes the second riverbank—change.

There are two primary drivers of change. They are people and technology. Take some time to think about these facts:

• In 1860, one billion people populated the planet. In 1999, that number reached six billion.
• Eighty percent of technological advances have occurred since 1900.
• Available information doubles every five years.

People are driving change because there are so many of us now. We went from one billion people in 1860, to two billion in 1935, to four billion in 1975, to six billion in 1999. Not only is the world growing, but it also is growing at an increasingly rapid rate. If we graph the "people" variables (length of life, income, transport speed, population) in the history of change, there is a flat line, then a slight curve, and then a sharp curve. Today we are living in the sharp curve.

This ever-expanding population is living longer and becoming more demanding. In the days before automobiles, if a family that wanted to take a trip on a stagecoach was told, "Sorry, but the last stagecoach has already left. You've got to wait a week," they'd say, "No problem. It's only a week." Now, if we miss a section in a revolving door, we get upset. If we are caught by a red light, we start banging on the steering wheel and yelling, "I've got to go." Few people drive the speed limit anymore. The time it takes for us to log onto our e-mail server seems to be forever, and we complain about how slow it is, when, in reality, it only takes about eight seconds.

In the United States, another change being driven by people is where we work. For example, in 1900, 85 percent of the population worked in agriculture, 10 percent in production, and five percent in service. Today, about one percent of the U.S. population works on the farm, 13 percent in production, and 86 percent in service. Yet, we are producing more wealth in agriculture today than we have ever produced in the history of our country. In manufacturing, we produce 24.8 percent of our gross domestic product in the factory. We are as strong in manufacturing as we have been at any time since the statistics were first kept in 1947. We have an agricultural-manufacturing—based economy, and 86 percent of us service it because it takes fewer people to farm and manufacture.

Does that 86 percent make us a service society? No, it does not. If we are not a service society, then why are so many of us working in service? What has changed? The answer to that is fairly simple. Our economy is no longer driven by capital; instead it is driven by knowledge.

Like the population, technology is driving change because it is exploding. The most dramatic explosion in technology is the Internet. Business transactions on the Internet are increasing exponentially. Amazing predictions are being made:

1. More than half of America's mainstream companies will be selling their products and services online by the end of the year 2000.¹
2. By the year 2000, more than 200 million users will be connected to the Internet.²
3. By the year 2002, Internet commerce in the United States will generate revenue of over $1.1 trillion.³
4. The Internet doubles in traffic every 100 days; nothing else in the world, other than bacteria, grows that fast.⁴

What is most amazing about these statements is that they may err on the side of caution. The Internet and e-business are growing and moving so quickly that it is difficult to predict the future.

I read a Putnam Investment ad that said, "You think you understand the situation, but what you don't understand is that the situation just changed." As soon as you know something, everything changes. In 1900, it was predicted that by 1919, everyone in America would be working in the fields and there would be a land shortage. These seers missed the point on two issues: productivity and yield. As productivity and yield have grown, not only is there enough food for everyone to eat, but there is enough to export. By the 1950s, many agricultural workers had left the farm and gone to the factory. So then the seers predicted that by 1970, everyone would be in the factory producing goods. They believed that, as the standard of living improved, people would try to acquire more things, thereby creating a need for more workers to produce them. These seers had learned nothing from the agriculture revolution and once again, they did not take change into account. Now, as we start a new century, we see that the number of people required to produce all those things they were imagining in the 1950s was 13 percent.

Seers who believed they had a handle on the Internet revolution have already begun to miss the boat when addressing the impact it is having on business. Many pundits believed that e-business would be "incredibly efficient clusters of computer programmers who used subcontractors to handle such dreary tasks as keeping inventory, filling orders, and handling customer-service issues." These pundits discounted people in their prophecy. The Internet, because it connects people and information quicker, easier, and at minimal cost, allows people to make better decisions. Buyers can easily compare products, prices, and services, as well as communicate with far more people than they have in the past. New relationships are forged daily, and, when they are vendor-customer relationships, the playing field is leveled, reducing the value of branding and accelerating margin pressures. The importance of providing quality service and high levels of customer satisfaction becomes paramount.

Like all seers, past and present, if you attempt to look at anything without understanding the impact of change, you will fall on your face. Your business will not work. Yet, many are doing exactly that with SCM. Supply chain management focuses on the optimization of a static environment. SCS understands that the only way to handle change and the dynamic environment that is the result of change is by using a continuous improvement process that addresses changing requirements as they occur.

Many people think that approaches are the way to harness change. It is much easier to grasp an approach than it is to understand and implement a process. An approach focus, rather than a process focus, creates what I call management by fad (MBF). When what they are doing isn't working, people often reach out and grab first one thing and then another. First they do it, then they redo it, then they are beyond redoing it. They engineer, reengineer, re-reengineer, and then they are beyond engineering. They try on a new technique and insist that it fits until the seams finally burst. They then go in search of the next style and size. Many wait for an expert to arrive and explain the next technique so that they may print a slogan on a coffee mug and feel better.

Today's challenges cannot be resolved by shellacking a layer of fad over them. We must ride that balloon to the highest level and look at the panorama that it creates, using our framework of integration and change. SCS will power us to that level and let us see not just today's challenges but also challenges that we can't even imagine at this point. ...

Because integration and change are the riverbanks of this whitewater, the SCS foundation for the future allows us to grasp them both. The foundation is divided neatly in half, with six parts that are a result of grasping integration (total integration, blurred boundaries, consolidation, reliability, maintainability, and economic progressiveness) and six parts that are the requirements for grasping change (flexibility, modularity, upgradeability, adaptability, selective operability, and automation supportability). These elements are all relevant to where we are headed. And a significant understanding of these concepts, along with the impact of e-business, results in a foundation upon which an understanding of supply chain synthesis may be based.

Total Integration

Total integration is an ultimate focus where material flow is designed from the top of the SCS perspective. In other words, it is the integration of material and information flow in a true, top-down progression that begins with the customer. For example, a company that makes fiber, another company that makes fabric, yet another that dyes fabric, and one that makes dresses should all be thinking of the person planning to buy a dress.

When the ultimate customer is not the focus, then the end result could be like that of the fiber manufacturer that asked Tompkins to study their supply chain and help them understand it. When asked why they wanted a study of the supply chain, they said that a special fiber that had done really well in the early market produced a dress that was returned by customers after the purchase. The fiber manufacturer, the fabric maker, the dye house, the dress house, and the retailer all lost money. A Tompkins Associates analysis showed that the dress was returned because it had static cling. Had all these companies focused on the fact that customers don't like static cling and planned accordingly, this story might have had a different conclusion.

Total integration is both broad and holistic. Individual relationships are not part of this perspective because customer satisfaction is only achieved from a synthesis of the whole supply chain. Therefore, business systems are integrated. Products are not being delayed on the dock because no one knows what is in the container. No one is re-entering information that has already been entered by the shipping company. Instead, automatically received advance shipping notices (ASNs) are being used, cross-docking is being considered, and inventory is being discussed with vendor management. There are no surprises because SCS is truly focused on the integration of the process for the total good: the satisfaction of the ultimate customer. A foundation for the future with SCS, therefore, includes total integration. (The sidebar on Page 78 describes how Brother International successfully integrated operations at one plant.)

Blurred Boundaries

By its very nature, integration shifts traditional customer/supplier and manufacturing/warehousing boundaries in the processes of simplifying, adding value, and being responsive. In the SCS foundation for the future, where there is total integration, these boundaries are blurred. The relationships between order entry, service, manufacturing, distribution, and other facets of a company are less defined. This blurring of boundaries is not limited to within a company, but also applies to external relationships.

In a 1998 Harvard Business Review interview, Michael Dell said " ... you're basically stitching together a business with partners that are treated as if they are inside the company. You're sharing information in real time." He described an example of traditional supplier communications as: "Well, every two weeks deliver 5,000 to this warehouse, and we'll put them on the shelf, and then we'll take them off the shelf." He explained that Dell told its suppliers the daily production requirements: "Tomorrow morning we need 8,562 [units] and deliver them to door number seven by 7 a.m." He then added, "You would deal with an internal supplier that way, and you can do so because you share information and plans very freely."

So, inside a company or out, siloism is no longer the answer. Silos were developed because they provide comfort, allowing us to say, "Well, I know my job. I am product director of this product; I am product manager on that. If I do these two things well, then I am going to be successful." Staying in a comfort zone with clearly defined boundaries is one of the quickest paths to failure. SCM will keep you in the comfort zone; SCS will get you out and lead you to customer satisfaction, increased growth, and increased profitability.

Consolidation

The word "consolidation" may bring to mind the client with 40 distribution centers that would like to bring that number down to two. However, that is only the tip of the iceberg. Industry consolidations are rising in number and speed. Financial institutions are merging globally, as are printing companies, publishing companies, telecommunications companies, and pharmaceutical companies. The results are fewer and stronger competitors, customers, and suppliers as well as consolidation layers such as site consolidations, company consolidations, and functional consolidations—all of which may take place at the same time.

The SCS foundation for the future capitalizes on consolidations. During mergers and acquisitions, consolidation often is a natural result of an action. One company buys another and then eliminates clearly duplicated functions or sites. Consolidation, however, may also be the result of great effort and persistence. Efficient and effective transportation infrastructures and economies of scale that provide for higher throughput levels and customization also create consolidation. Redundancies become merely remnants or memories of the past. What allows these efficient, effective infrastructures; these higher throughput levels; and this customization? Supply chain synthesis.

Reliability

Robust systems, redundant systems, and fault-tolerant systems demand complete reliability—as do streamlined requirements, increased response time, and total inter-relatedness. The high levels of up time these factors create makes reliability even more critical. Inventory can no longer substitute for the down time caused by unreliable parts because it won't be around long enough to do so.

In turn, reliability can also cut production times and reduce failure rates. For example, an X-ray film processing manufacturer wanted to decrease the processor assembly time. The reliability of the connectors they chose for the manufacturing process eventually resulted in an assembly time of 1.5 hours instead of six. The failure rate decreased 28 percent.

Maintenance

To achieve the continuous reliability requirements that the future will demand, 24/7 (24-hours-a-day, seven-days-a-week) maintenance is also critical, even though there will be less time and fewer people to maintain equipment. Therefore, preventive maintenance and predictive maintenance will be key. Preventive maintenance is a continuous process, the objective of which is to minimize future maintenance problems. Predictive maintenance predicts potential problems by sensing the operations of a machine or system and must be used to perform system self-assessment and maintenance scheduling. SCS realizes that preventive and predictive maintenance are not only the highest levels of maintenance but are also key integration requirements.

Economic Progressiveness

In the SCS foundation for the future, progressive, forward-thinking decisions must be based upon the SCS perspective and not the economic justification of the individual link, plant, or department. Again, we'll look at this from Michael Dell's perspective. In the Harvard Business Review interview, he said, "Until you look inside and understand what's going on by business, by customer, by geography, you don't know anything." And he is absolutely right.

Evolution, growth, and change are constantly taking place. Therefore, all decisions we make must be based upon a very broad view of the future. We need to adopt innovative practices that integrate scattered information into a whole that can be used for decision making, such as deploying customer-direct strategies over the World Wide Web or exploiting the Internet to improve agility and produce cost savings. Any individual solution must be based on where we as a whole are going next; we cannot focus on a solution that is only for the here and now. Economics must be viewed progressively so that we can adapt over time.

Flexibility and Modularity

Flexibility is the first of the six requirements necessary for change in the SCS foundation for the future. Build-to-order (BTO), make-to-order, and engineer-to-order manufacturing is growing rapidly. It seems everyone is jumping on the BTO bandwagon, from PC makers to auto makers to seismic-enclosure makers. No longer does it make sense to build a stock and then configure the order. Instead, companies are receiving the order and then building the stock. And the only way to keep up with the demand is through flexibility and modularity.

Although flexibility and modularity are both necessary in the total integration and BTO environments, there is a difference between the two. Flexibility means being able to handle a variety of requirements without being altered. Flexible manufacturing systems, therefore, are those able to produce a variety of different products without altering the manufacturing operation. These systems must be "soft" and "friendly" rather than "hard" and "rigid" because they must be able to address the change in product variety, adjust to the rate of new-product introduction, and handle products that vary in size and features.

Modularity is the ability to expand or contract without altering the process. Modular manufacturing operations are those that can produce more or less of a product without changing the method. Products made to order must be made quickly when the orders are received, so systems must cooperate efficiently over a wide range of operating rates and they must also be able to adjust for different order volumes. (For more on the advantages of flexibility and modularity, see the accompanying sidebar on Coach.)

Upgradeability

The changing manufacturing environment, from "If we build it, they will come" to "They have come so we must build," also demands that systems and processes be upgradeable. Upgradeability is the ability, with a minimum amount of down time, to incorporate advances in equipment, systems, and technology gracefully. All sorts of products, from computer drives to battery re-chargers to dc converters are now featuring upgradeability. With the accelerated rate of change, it is not now—nor will it continue to be—economical to replace entire systems as we have in the past. Instead, the system should be able to move to the next level without stumbling or hiccuping and with little down time. Therefore, upgradeability is inherent in SCS.

Adaptability

The fourth requirement of change, adaptability, provides a setting for flexibility, modularity, and upgradeability. We may have a beautiful strategic master plan, thinking we know everything will work. We use the process of SCS and everything seems perfect and on target. But what happens if a portion goes wrong or an external factor changes?

An adaptive environment allows us to take sudden changes in stride. Traditionally, emphasis has been placed on the control of operations to conform to system requirements at a "steady-state" level. Steady state no longer exists and averages are irrelevant. Systems now must be adaptive to respond to future system requirements.

Adaptability takes into consideration the implications of schedules, calendars, cycles, and peaks. It allows a system to work well at 9:15 a.m. on a Tuesday in the summer slow season and work well at 2:30 p.m. on a Friday during peak demand times. The design, from an operations perspective, must allow it to work for a one-hour time frame, a two-hour time frame, or a two-week time frame. Adaptability also recognizes that product demand in various industries is higher at some time than others and can adjust. If you build adaptability into your plans, processes, and systems, you will rarely be caught by surprise.

Selective Operability

The ability to operate selectively is key to a successful supply chain synthesis environment. Therefore, SCS elements must be able to operate in segments, allowing for implementation of one segment at a time without degradation of the overall SCS system. SCS also requires understanding of how each segment operates. Then, if something goes wrong, we can answer questions such as "How did this take place? What has this done to our level of customer satisfaction?"

Selective operability also allows us to put contingency plans in place. A company that locates its distribution center on the North Carolina coast must plan for hurricanes so that other sites are not affected when a power outage, flooding, or roof damage occurs. If the company has a site in Wisconsin, it must be prepared for blizzards so that they do not affect production in a West Coast manufacturing plant. This can be tricky because operating in segments implies the individual links inherent in SCM. But in reality, it is not, because it continues to view the chain as a whole entity. It is only by looking at the flow from start to finish that you can make contingency plans so that the flow does not come to a grinding halt in the middle.

Automation Supportability

The future promises more and more automation. Supply chain elements that are not automated now soon will be. Software that automates process planning, shop floor control, system management, capacity planning, material requirements planning, production scheduling, and bar coding is already available, and according to a November 1999 article in Industrial Distribution magazine, factory automation products are predicted to be among the biggest sellers in 2000.

Implementation will be piecemeal, and nonautomated elements must support that type of implementation. Therefore, it is imperative that all elements throughout the synthesized supply chain not only support neighboring elements but also integrate and interface with them. Integration is necessary for two automated processes, and interfacing is necessary for one process that is automated and one that is not.

"In five years, you will either be in the e-business world, or you'll be out of business." —Michael Capellas, CEO, Compaq

The SCS foundation for the future is not complete without "e-" because e- is affecting all elements of the supply chain. e- is being attached to commerce, procurement, marketplace, and business to signify the moving of supply chain processes to the Internet. e- is also a byproduct of change and must be part of integration.

Many firms have left verticality behind to become virtual enterprises. A virtual enterprise is one wherein enterprise activities are performed externally and not internally. The Internet is making more and more virtual enterprises a reality and these enterprises are relying on e-business to handle their activities.

SCS understands e-. In fact, companies moving their supply chains to the Internet are practicing e-Supply Chain Synthesis (e-SCS): They are replacing traditional supply chain interactions with Web-based interactions. This has been a trend that has been growing for several years, but recent announcements that such big companies as Ford and GM are making their supply chains available on the World Wide Web in the first part of 2000 indicate that e-business will be the norm.

e-SCS in most respects does not differ from SCS. It requires continuous improvement, breadth, holism, customer satisfaction, best practices, a global perspective, quality communications, nimbleness, speed, and a focus on the bottom line. These are all requirements of SCS. However, e-SCS requirements emphasize speed a little more strongly than SCS, because the speed of e- demands it. Any activity that functions at a speed slower than e- must be addressed because otherwise it will become a weak link in the overall supply chain.

The supply chain synthesis foundation for the future requires us to move beyond the supply chain management approach. To understand SCS, we must examine supply chain management to see why it isn't working and at the same time see how it can be used as a building block for the SCS process.