The Future of Supply-Chain Management
Robert C. Parker
Robert C. Parker, Parker Management Associates, Glen Ellyn, IL 60137; 708/469-2600
Michael F. Doyle
Michael F. Doyle, Doyle & Associates, Laingsburg, MI 48848; 517/651-2661
81st Annual International Conference Proceedings - 1996 - Chicago, IL
Peter Senge, author of The Fifth Discipline, said: "...organizations work the way they work, ultimately, because of how we think and how we interact. Only by changing how we think can we change deeply embedded policies and practices. Only by changing how we interact can shared visions, shared understandings, and new capacities for coordinated action be established."
Tom Peters, adds: "Being an excellent company is no longer sufficient -- success in the future will require that a firm be a valued member of a successful value chain".
Today's consumers have an expansive array of options. In making their buying decision they feed one supply chain at the expense of all others. At this level competition is a zero-sum game. This is where competitive strategy must be focused.
All the business links in a supply chain have an enlightened self interest in their OEM winning this sale. Therefore, all the businesses in a supply chain would benefit from a strategy of cooperation where they find a way to function as one organism creating added benefit for all members of that chain.
Now that U.S. industry has substantially closed the gap on Quality as perceived by the consumer, the next frontier is to reduce variability throughout the entire supply chain, -- Moving toward real-time decision making throughout the entire supply chain in order to further collapse new product development cycle times, --Finally getting at the real total cost drivers throughout the entire supply chain which represent the root causes of considerable competitive cost disadvantage, ÷ Improve the ability to arrive first in front of the consumer with technical innovations which lead to delighting that consumer who's decision feeds or starves all the members of your supply chain, -- And, do these things by finally utilizing the naturally-occurring synergy within the entire supply chain which has been too often denied to us by traditional adversarial customer/supplier relationships.
The future, however, will require value creating coordination an order of magnitude greater than most of us presently are capable of providing. Over the past two years, we have worked with many educational and business organizations to develop a clearer view of what this future state will look like and how large complex organizations can migrate into it.
Figure 1 is a model of this future vision -- The Extended Enterprise. (Figure 1 is not available in this text-only version of the Proceedings.)
In the near future our supply chains will be strategically designed and linked together in a real-time decision support and communication network. This real-time network will extend from the delighted customers to the raw material suppliers at tier "N".
This new approach to making supply chain decisions will not be structured using traditional purchasing methods. The days of three bids and a cloud of dust are over. Supplier selection is a strategic activity and must not be driven by processes that produce random results.
We believe that the nine strategic decision topics shown here will represent the key focus areas for real-time consensus decision making in successful supply chains. Those supply chains most successful at coordinating their decisions across these nine areas will bring lower cost, higher Quality, more desirable products to consumers first and will be highly rewarded for their efforts.
For example, consider how parallel activity driven by shared program plans and timing and integrated concurrent design activities throughout the supply chain, could bring a new product or feature to the marketplace more quickly. This level of cooperation requires that each member have input into decisions regarding chain membership.
Technology acquisition and development decisions will be better focused by joint opportunity scanning. And competency sharing will drive knowledge acquisition and development activities by identifying essential processes and skills not available within the current supply structure. This shared use of resources throughout the supply chain will maximize the leverage of both skilled people and capital investments.
The methods designed to measure these nine strategic decision topics must be focused on those benefits which are viewed by the consumer as important to their decision to buy or not to buy from your supply-chain.
How will it be possible for such a decentralized structure to tap into the energy and personal creativity of all its individual participants throughout the supply chain and use that energy and creativity to achieve world class performance?
There are three factors that must be present for any decentralized structure to outperform its centralized competitor. The three factors are:
- A common vision of a desirable future state
- A model of how to get there
- A common set of rules
We have offered you a vision of a desirable future state in the above graphic. A small number of far-sighted firms are currently developing a model of how to get there, and several pilot systems will be launched in 1996.
These firms have already identified 9 axioms which represent that common set of rules we just mentioned as the third factor required of a successful decentralized structure.
As you review the axioms listed in Figure #2, test each one against your experience and see if you agree that they are so self evident at first sight that no process of reasoning or demonstration can make them plainer. You may wish to pause for several seconds to consider each axiom after you read each one.
Axiom number one: There is a shared specific focus on satisfying their common end consumer.
Recently Lescoa, Inc. an automotive plastics supplier in Grand Rapids, designed a new cup holder that can hold cups of different sizes ranging from a coffee cup to a big gulp. This is a great example of a lower tier supplier focused on the end consumer's needs.
Axiom number two: There is an alignment of vision. Unfortunately, all the good examples in this area seem to occur during times of particular stress -- Chrysler and Harley-Davidson in the early 1980s', and the entire north sea oil industry which had to cooperatively reduce the cost of lifting oil by 15% to stay in business.
Axiom number three: There is a fundamental level of cooperation and performance to commitment (trust).
In the Fall of 1988, we conducted a study that concluded there was a significant lack of trust between the Electronics Industry and the Auto Industry. Anecdotal evidence seems to indicate that some progress is being made, however, having held executive positions in both industries, we seriously question if the pace of progress in this area is sufficient.
Axiom number four: There is open and effective communication.
As you may know, Phil Condit led the Boeing 777 design development, part of which included a major joint effort with Mitsubishi. Establishing trust between these complex organizations was the most difficult aspect of building a working relationship with Mitsubishi. During the project Boeing developed five country boy rules for building trust.
- Rule number one, You have to communicate more often than you would ever expect to.
- Rule number two, You have to communicate at more levels than you would have ever thought.
- Rule number three, You have to communicate by meeting face to face over great distances, ÷ if its important, go there.
- Rule number four, You have to communicate, across all key functions and throughout the entire supply base. ÷
He said, "there is a rule number five, but it is so much less important than the first four I won't bother you with it."
Axiom number five: Decisions are made by maximizing the use of the competencies and knowledge within the supply chain.
Increasingly, customers and suppliers are co-locating their engineers to work together on important projects. The trend is expanding because it produces superior results.
Axiom number six: All stakeholders are committed to generate long-term mutual benefits.
According to published reports, Chrysler's SCORE program has reduced Chrysler's cost by over a billion dollars, while increasing the margins of participating suppliers by a like amount.
Axiom number seven: There is a common view of how success is measured.
Our present concept of performance measurement is way too parochial ÷ We must start measuring the overall performance of the entire supply chain rather than continue to cause sub-optimal performance through myopic measures focused within each link. This issue cries out for activity based costing systems throughout the extended enterprise.
Axiom number eight: All members are committed to continuous improvement and breakthrough advancements.
We need more cellular telephone examples ÷ They started out in a bag, now they're in your pocket, and soon will be on your wrist.
Axiom number nine: Whatever competitive pressures exist in the environment are allowed to exist within the extended enterprise.
Please understand, this vision is not about a free ride for anyone. Its about tough love and jointly responding to the unrelenting challenges of technology and competition in the real world.
Here you see the rules of the game we think are evolving within the most successful global supply chains -- the extended enterprise we have been discussing.
The emerging information age will soon generate profound changes in the processes used to conduct business. The "Mental Models" all of us have developed over the years about how business organizations interact are obsolete - - and to some extent counterproductive. The vast majority of firms are inadequately prepared for this increased pace of change. Pressures will only intensify as various implementation efforts accelerate and expensive lessons are learned about how to effectively share the pains and gains, within this new environment.
The future demands that we quickly learn new skills and develop new "Mental Models" about how to organize and optimize effective supply chains. Our new competitive reality will not tolerate a business-as-usual approach. Our challenge is clear, the task is enormous, and the time for action is now!
For more information about this work and these concepts contact:
Robert C. Parker
Parker Management Associates
551 Roosevelt Rd.
Glen Ellyn, IL 60137
Michael F. Doyle
Doyle & Associates
10301 S. Bay Dr.
Laingsburg, MI 48848