Supply Chain the new competition

Peter Barbut (CMILT)

Today, the way you manage the supply chain can make or break your company. Some of the most spectacular business successes over the past 20-years have come from finding more effective ways to deliver products to consumers, but there have been some major wrecks along this same road.

It's a high stakes game, and you don't have a lot of choice about playing; if your company touches a physical product, it's part of the supply chain.

Why? Because the nature of competition is shifting away the classic struggle between companies. The new competition of supply chain versus supply chain.

Some of the noteworthy success stories in this new competition are shared below for the purpose of understanding how critical is this new game for managements in companies.

Siemens CT of Forchheim, Germany manufactures Computed tomography X-Ray machines for hospitals and diagnostic labs all over the world.

The machines cost about half a million dollars a piece and they are custom built for each customer.

Four years ago, Siemens CT found itself faced with rising costs and price erosion that threatened its position in this lucrative market. The group's response to completely reinvent the way they provision, assemble and deliver their products to the customers.

They cut out two layers of middle management, switched the entire company to team structures, aligned incentives with supply chain success, and let creativity run rampant.

Among other changes, the teams tightened the links with suppliers, eliminated all interim warehousing, adopted just-in-time production techniques, and switched to airfreight deliveries for customers outside of Europe.

Today, Siemens CT has an award-winning supply chain that sets a new standard for best practices in its industry. Lead time for their custom-built machines is down from 22-weeks to just two weeks. The rate of on-time deliveries has gone from 60 percent to 99.3 percent, these gains in performance were accompanied by a 40 percent, reduction in inventory, a 50 percent reduction in factory floor space, a 76 percent reduction in assembly time and a 30% reduction in the total costs. The company also managed to double its output to 1,250 machines a year without increasing its head count.

Siemens' stunning success would be hard to match, but the company is not alone its willingness to reinvent the supply chain.

More global companies has also followed the Siemens strategy and has been able to gain success in their ventures, to name a few below:-

* Gillette slashed $400 million of inventory.

* Chrysler reinvented its chain in 1990

* Apple reduced inventory by 94 percent.

* The supply chain made Amazon profitable.

* Dell transformed the computer industry, Dell's success rest in it supply chain.

There are several manifested success stories what supply chain integration has made such an impact to today's manufacturing and business successes. It may take several more articles to cover all such stories.

However, the process of supply chains can be described as the last untapped vein in the business anatomy. Supply chains are as old as commerce, but the opportunity they now present are without precedent. Modern manufacturing has driven so much time and cost out of the production process that there is only one place left to turn to for competitive advantage.

As business- engineering guru Michael Hammer recently put in his new book 'The Agenda' the supply chain is the last untapped vein of the business gold, but no one knows just how much gold is in there because the real potential of supply chain is just now being discovered.

Today supply chain management is far more important that manufacturing as a core competence; so much so that it's possible , Nike and Cisco Systems have amply demonstrated, to dominate the market for a product without owning so much as single factory.

The future of supply chain looks brighter.

It also must be mentioned, cutting-edge supply chains are doubled-edged swords. Wielded with skill, they can slice open new markets. But if improperly handled, they can lead to deep, self-infected wounds.

For all the advantages that can come from getting the supply chain right, getting it wrong can be catastrophic.

Today, very few companies are prepared to handle the new market pressures being placed on their supply chains. A recent survey of executives in manufacturing companies in the US, found that 91 percent of them ranked supply chain as either 'very important' or 'critical' to the success of their companies. Yet most acknowledged they had problems with their chains, and only 2 percent regarded their chains as excellent. When asked about their strategies to improve their chains 59 percent reported that their company had no strategy at all.

Think about this situation for a moment: By their own reports, these managers realize that getting the supply chain right was so essential, and they know they haven't done it yet, but most haven't even formulated a strategy for attacking the problem.

In the build of a 'supply chain strategy' one has to make sure that all the stakeholders in its process must ensure their respective roles are performed with the highest level of conviction and commitment towards the process to achieve what we call today as - dynamic Supply Chain Solutions'.