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Evaluation of Supply Chain Management

Supply chain management does not have a long history relative to other business disciplines such as accounting or economics. The term supply chain management was first introduced by Keith Oliver of Booz Allen Hamilton in 1982, but did not gain significant traction until the turn of the 21st century (Heckmann, Dermot, & Engel, 2003). However, concepts that underpin supply chain management have been in existence for many decades. For example, today’s supply chain strategies continue to draw upon the customer focus of early 20th century catalog retailers and the military’s logistics goal of “getting the right people and the appropriate supplies to the right place at the right time and in the proper condition” (U.S. Department of the Army, 1949).

From a business perspective, the origins of supply chain management lie in a wide variety of related but initially fragmented activities. As Figure 1-3 indicates, purchasing, inventory management, warehousing, order processing, transportation, and related functions were conducted independently. Each one had its own budget, processes, priorities, and key performance indicators, but this disaggregated approach was suboptimal and did not lead to lowest total costs.

Figure 1-3

Figure 1-3 The genesis of supply chain management

Eventually, company leaders came to realize the problems of fragmentation and began to integrate related activities. Inbound transportation, purchasing, and production related activities were coordinated in support of manufacturing. Inventory management, order processing, outbound transportation, and related activities comprised the physical distribution function.

Later, these two areas evolved into the logistics function or process that coordinates and integrates the inbound and outbound flows of the organization.

A true supply chain emerges when multiple organizations synchronize their respective processes and adopt a more holistic supply chain management philosophy that includes strategic consideration of related areas. This includes finance, marketing, planning, and technology.

Although the field of supply chain management has rapidly evolved over the last 30 years, many organizations are in the early stages of their supply chain development, and few have fully achieved their desired state of supply chain maturity. This developmental journey is highlighted in Figure 1-4.

Figure 1-4

Figure 1-4 The journey to supply chain management

Late adopters of supply chain management must deliberately replace functional silos and cost goals with aligned internal processes. This is often the most challenging aspect of evolving to supply chain management. LaLonde (1999) noted: “The obstacles to supply chain integration encountered within the organization are far more difficult to overcome than the external challenges.”

After an organization integrates its internal processes and adopts unified cost and service performance targets, focus shifts toward building external relationships and extending the enterprise. Collaboration with key suppliers and customers, robust capabilities, and advanced technologies help the organization drive cross-channel value.

The final step in the maturation process is the development of true network capabilities. A truly dynamic supply chain is needed to support the organizational responsiveness and network resiliency goals discussed earlier. Table 1-2 summarizes the strategic fit and executional capabilities of an organization at each stage of its supply chain development.

Table 1-2 Evolutionary Capabilities

 

Functional Excellence

Integrated SCM

Extended Enterprise

Dynamic SCM

← 1980s →

← 1990s →

← 2000s →

Onward→

Fit with business strategy

Role of supply chain

Meet internal commitments

Meet a customer commitment

Design and fulfill

Design, fulfill, and drive profit

Extent of influence

Departmental boundaries

Company boundaries

Selected partners

“Ecosystem”/networks

Financial focus

Cost

Cost and service

Drive value

Dynamically optimize trade-offs

Operational focus

Compliance

Interdependence

Collaboration

Agility

Order management philosophy

First come, first served

Available to promise

Capable to promise

Profitable to promise

Partner integration

Arm’s length

Tight integration

Rationalization (less is more)

Interchangeable

Ability to execute

Supply/demand balancing approach

Produce to a schedule

Fulfill aggregate demand

Forecasting and differentiated fulfillment

Sense, shape, and respond

Decisioning

Siloed

Team-based

Rapidly address the urgent

Rapidly address the important

Risk factoring

Afterthought

Buffers in the system

Contingencies and redundancies

Predictive and responsive

Event horizons

Months

Weeks

Days

Near real-time

Technology

Standalone applications

MRP/DRP

ERP and bolt-ons (“can plan”)

Adaptive layer

Talent

Job functional specialists

Multitasking: Expert in several areas

Career: SCM as a broad profession

Leadership: SCM as a business to be run

Source: Cudahy, G. C., George, M. O., Godfrey, G. R., & Rollman, M. J. 2012. Preparing for the unpredictable. Outlook: The Online Journal of High-Performance Business. Retrieved August 8, 2013, from http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2012-preparing-for-unpredictable.aspx.

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