Building Value Into Your Supply Chain

Collaboration is the key to transforming the traditional supply chain from a product- and efficiency-centric model into an innovative, customer-centric model.

Is the supply chain a process, technology or business philosophy? Actually, it supply chain management (SCM) includes all three elements and more. The purpose of a supply chain is to add value for customers by improving quality and reducing delivery time, and to add value for the enterprise by increasing efficiency and minimizing non-value-added costs.

Today's information technology tools — such as Internet-enabled communications and enterprise software — make it easy to deliver, at very fast speeds, a higher and more personalized level of value. However, companies now realize that value is created not just by the manufacturing company itself, but also by its entire network of suppliers, distributors and business partners.

Where once buying decisions were made on product quality and price, today's customer also demands a high level of service, agility and flexibility, attributes which the traditional supply chain was not designed to deliver. The traditional supply chain model is linear and task-oriented, an internal command and control mechanism with cost-cutting and bottom-line efficiency as its goal. The new value chain model is complex, parallel, and relationship-oriented. Its goals include bottom-line efficiency combined with top-line growth and optimal customer service.



Collaboration is Key
A value-based supply chain is held together by a process of collaboration between trading partners to redeploy and redistribute costs, risks and profits throughout the chain. Thinking cooperatively rather than competitively does not come easily to most businesses. With no legacy model to draw upon, managers need to rethink business processes from the ground up and may be challenged by internal and external fears and negative mindsets as they attempt to create a new and frictionless environment of open communications.

To create value within the supply chain, companies must build a collaborative environment that is flexible and adaptable to changing customer needs. In the new e-business economy, the value chain transcends traditional enterprise ownership boundaries. Today, manufacturers must venture beyond their own four walls to form collaborative partnerships with trading partners, and even customers. This is their best hope for coping with market and customer volatility. With traditional boundaries broken down and the costs associated with maintaining these boundaries eliminated, the enterprise and its business partners can finally focus on what's truly important — getting products to customers, how, when and where they want them.

Thus, the heart of a value-based supply chain is neither information nor process technology. It is the sharing of key information in a parallel fashion to speed up the cycle time from customer order to delivery. One of the first steps to achieve this is redefining relationships with the supply and distribution base. Coercive negotiations must be replaced with collaborative agreements. Adversarial relationships must give way to trusting partnerships.

In this new paradigm, companies will no longer pit suppliers against each other based solely on price. Fixation on price will give way to an emphasis on total costs and other collaborative goals. To create real value for customers and the enterprise, supply chain members must work as a team — sharing costs, risks and profits — and focus on serving the customer.



The Business Side of the Equation
In a true value chain, processes that do not add value must be eliminated in order to hasten product delivery and reduce costs. In a network of trusted partners, significant time and costs can be saved by eliminating redundancy and streamlining time-consuming tasks such as purchase orders, RFQs and other partner/manufacturer paperwork. You can also deploy time-saving tactics such as Internet-enabled networks, Vendor Managed Inventories, and automatic stock replenishment.

Many companies experience problems with forecasting and demand planning, often falling short in estimating what customers will want and when. By streamlining the demand cycle, manufacturers can gain the flexibility and agility to handle market volatility. The key to a responsive value chain is to do things so much faster and more efficiently that the need for forecasting as a key business imperative is significantly diminished.

To that end, some companies have adopted a demand or flow manufacturing mode in which supply chain resources are deployed to tap into each member's core competencies. For example, they have suppliers who take over packaging responsibilities, and others who execute the entire logistics process, from warehousing and transportation to shipping and invoicing. The secret is to leverage the capabilities of each team member to maximize value.



Technology as Enabler, Not Driver
Information technology alone is not a solution — it's what you do with information that counts. A company implementing an APS or ERP system may think it is creating a value chain, but that's an illusion. In fact, even when demand information is made available to trading partners, if that information is not used strategically to shave time and costs off the delivery process, then nothing has been gained. Value chain is not about data — it's about relationships.

Lack of supply chain integration is one reason so many ERP implementations have gone down in flames and many more have grossly underdelivered. These failures can usually be tracked to lack of visibility between the back and front office or lack of timely communication between the enterprise and its business partners. It's not the technology that failed, but the relationship between key elements.

It's important to remember that building a value chain is a business challenge, not a technology challenge. As with any business challenge, the best approach is to analyze the company's needs and goals, find out what customers want, focus firmly on business return, build and build a cross-functional team and viable business case. Only then should you evaluate technology solutions to help you reach your goals.



Serving Customers Better
A long-term benefit of building a value chain is the dramatic improvement it makes in customer service levels. With a collaborative network, when something happens on the production line or with a customer, everyone involved is instantly aware and can act responsively to handle it. Better customer service leads to top-line value stemming from increased customer retention, greater market share and increased revenues.

One of the traditional supply chain's biggest flaws is that it forced companies to focus on the mechanics of production to deliver quality and price—when what customers really wanted was more personalized service and on-time delivery. In any business, customer service is whatever the customers perceive it to be. To remain competitive, a company needs to know what its customers value most. The key to getting close to customers is to extract their definition of value and implement processes and technology that can help you organize, analyze, distill and disseminate customer information in the form of strategic business intelligence. Companies that do this well experience not only higher customer retention, but also more effective demand chain management and e-business enablement. To sum up, building value into your supply chain involves changing the way the company does business, streamlining processes involved in delivering product, and applying technology solutions where they make good business sense. The successful companies of tomorrow will be agile and flexible enough to keep customers happy, while building bridges with the supply and distribution base to deliver value in whatever form their customers define it. b3 _______


Frank Wilhelm is Director of Supply Chain Management for WaveBend Solutions, a leading business and technology consultancy to growing organizations and high-growth divisions of Fortune 1000 companies. Wilhelm oversees the company's supply chain and inventory optimization practice.