Is Your Company Supporting Supply Chain Management? It Should.
Insight SCM is about taking the consumer’s needs and ensuring that each member in the supply chain adds value to them in order to justify their existence.
There are three aspects to supply chain management (SCM) that must be met for a company to claim it truly supports SCM: an external leadership focus aimed at satisfying consumer needs; market growth; and an understanding that the company is part of multiple supply chains.
While universities, colleges and professional associations around the world tend to agree, more or less, on a definition of SCM as “the strategic management of the flow of goods, services, finances and information from raw material supply to the end consumer,” there are few companies that truly view SCM in this way, primarily because it’s not within their scope of control.
"We each still have a responsibility to add value at the lowest cost, in the most efficient manner possible."
In most companies, the SC department is focused primarily on procurement and logistics. They manage relationships with their immediate suppliers, perhaps with some visibility to their vendors’ sources of supply, and they focus on improving efficiency for their immediate customers to improve their own bottom line, but very few companies step beyond their own touchpoints to view the supply chain as a whole.
In fact, most companies see internally-focused efforts as the major opportunity for SC improvement – optimizing the internal flow and helping suppliers to conform to cost reductions. The customers’ needs are generally considered as a means to increase revenue, but the customers themselves aren’t necessarily considered.
The ongoing shift to satisfying the omni-channel demand of consumers has led some companies to re-think what a SC strategy means to them. However, most remain focused on SC cost reduction projects as opposed to viewing SCM as an ongoing challenge to their way of doing business.
If SCM were implemented as required, the focus would be first on the needs of the consumer, and on eliminating waste through the supply chain by selecting partners who provide value from the consumer’s perspective at each stage, all the way back to the raw materials. If a company manufactures a consumer product or provides a service directly to customers, they are more likely to see the benefits of SCM. Unfortunately, as we move further upstream in the supply chain, fewer companies adopt this point of view.
For true SCM to exist, companies must be willing to focus on consumers’ needs and to work with partners both upstream and downstream to meet those needs in the best way possible, eliminating waste and inefficiency – even if it means their own role is reduced. Senior leaders may not be embracing this ideology, as they are responsible for ensuring improvements in shareholder investments.
For a company, reducing their role may be in the best interest of the SC, but it won’t result in revenue growth. It may, however, lead to a stronger long-term role in satisfying consumer needs, which is better for investors than becoming obsolete. This leads to the real role of SCM: the addition of value.
SCM is about taking the consumer’s needs and ensuring that each member in the supply chain adds value to them in order to justify their existence. Many channel partners see their value in one way while their suppliers and customers may see it entirely differently. Having an end consumer view of ‘value’ allows an objective definition of one’s role. If a channel partner adds value, whether through transportation, product storage, service, installation or some other quantifiable aspect that makes the consumer decide to purchase from that supply chain, then it is justified.
"The ability of SCM to contribute to revenue growth and not just cost-cutting is starting to receive acceptance in more industries."
We each still have a responsibility to add value at the lowest cost, in the most efficient manner possible. Unfortunately, chances are that the SCM for a manufacturing company is not being asked what value is being added by a specific raw material source or a particular retail channel.
A few companies have moved from general supply chain execution to a view of external supply chain planning and ‘what if’ planning/scenario analysis initiatives. As risk mitigation continues to become a stronger focus for today’s companies, this trend should gain more followers. Risk mitigation isn’t the only benefit, though. Revenue generation and market growth are the result of SCM working with marketing teams to develop new opportunities.
The ability of SCM to contribute to revenue growth and not just cost-cutting is starting to receive acceptance in more industries. New product development involving the SC team, and working with potential channel partners, can result in faster product launches at lower costs as the handling efficiencies of a good logistics network are incorporated into the planning. The pharmaceutical industry for one is starting to recognize the shareholder value, and is incorporating SCM earlier in their processes, sometimes as far back as the research phase.
Sales and Operations Planning offers a coordinated approach to balance supply capacity with demand management, controlling costs and improving revenue. This is the heart of the management side of SCM. When planning looks beyond the company’s internal operations to fully incorporate the SC, the result may be more satisfied consumers and market dominance.
Trends, such as near-shoring vs. off-shoring, big data and mobility are seen by some companies as very high priorities, but remain low to others; but in SCM, that’s just the reality. The supply chain for one company may not be the best approach for another, even a direct competitor, as the SC strategy must feed into a company’s mission statement, vision and values. In fact, even within a company, the SC for one product may be different from another.
Many companies don’t even realize that they are part of multiple supply chains, regardless of their role within them. There are points where the products or services converge for greater efficiency and points where they diverge for greater effectiveness (and vice versa).
SCM is about knowing where these touchpoints could or should be, and managing the information and the end vision to ensure the consumer finds the value that they add. Companies who embrace the idea that SCM is not a department within their realm working on partnership projects, but a way of doing business, will be poised for growth.
Measuring effectiveness in terms of risk mitigation, flexibility and resilience allows a company to attract long term investors while continuously improving market-pleasing metrics such as inventory turnover, ROIC, cycle time and operating margin.
It’s not easy, or even feasible, for all companies to embrace SCM, but even those who are internally focused are better positioned for sustainable growth than those who have not yet embarked on the journey.