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http://slidepdf.com/reader/full/updatescmarticle 1/58 ❖ UPDATE Spring/Summer 2010

By Bill Shepard

S

ince its origins in the 1980s, the eld o

supply chain management has emerged as a

strategic game-changer or enterprises around

the world. Now, experts say, it’s poised to play

an even bigger role.Supply chain management encompasses a broad

range o undamental interactive processes in product

design, procurement, production, distribution, and

demand management.

The promise o supply chain management is

equally wide ranging: to deliver the right product

in the right quantity at the right price to the right

customer at the right time at the lowest-possible supply

chain cost.

“A ‘push’ view o supply chains, where product

and materials move toward the nal market, driven

Smrt Suppl ChinsSupply chain management is a key differentiator for corporations around the globe—and there’s

a whole new world of possibilities

by orecast demand, is being replaced by a ‘pull’

view where customers initiate supply chain decisions,

conguring products and initiating orders that pull

product through the chain,” says Proessor John (Jack)

Nevin, executive director o the Grainger Center orSupply Chain Management at the Wisconsin School

o Business. “In a pull-oriented supply chain, demand

signals are collaboratively shared with key supply

chain partners.”

Nevin says supply chain management responds

to demand as it occurs, as opposed to responding

to delayed orders or orecasts: “It integrates demand

signals throughout the supply chain,” he says.

In its early days, a “push” model o supply chain

management was “divided into distinct silos—product

development, procurement, production, logistics,


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UPDATE Spring/Summer 2010 ❖ 9

sales, and marketing,” explains Verda Blythe, director

o the Grainger Center. By the 1990s, a new supply

chain management model had broken down the silo

walls, she says, enabling customer-ocused inormation

to be shared among the distinct unctional areas o companies to meet customer demand.

In recent years, businesses using supply chain

management gradually have shed the linear model

o pushing raw materials and labor into one end o

the chain in order to produce nished products at the

other end.

Imagine three overlapping circles representing

supply, demand, and products/services. These three

domains are interconnected through demand-driven

networks encompassing customers, employees, and

suppliers. The networks share real-time inormation

about everything rom customer orders, to parts andlabor, to inventory levels and distribution channels,

to customer requests or product improvements and

innovation. In short, these networks eciently respond

to customer demand signals, whether they relate to

producing existing products or innovating new ones.

“Supply chain management enables us to

negotiate the best pricing in the industry,” says Evan

Smestad, MBA ’04, strategic procurement manager

at Hewlett-Packard. “You’re not ollowing the market,

you’re setting the market. And that gives you a greater

advantage over your competitors.”

Value chains: focusing on

the end customer

These days, companies are adopting the “value

chain” concept, coined by competitive strategy expert

Michael Porter, as part o their overall supply chain

management operations and strategy. In essence, this

means building value into every step o planning,

sourcing, making, and delivering products and

services.

Nevin cites Hewlett-Packard as an excellentexample o the value chain in action, noting that HP

redesigned its products and processes to reduce costs

and add value.

“They’ve condensed all o their sourcing,

reduced the number o motors and other parts in

their printers, and redesigned them so that there is a

base unit module that can be urther assembled and

customized in distribution centers around the world,”

Nevin explains. “They started at the design stage, and

established outright how products would be sourced,

produced, assembled, and distributed.”

Lean thinking and process improvement also playkey roles in the value chain, notes Scott Converse,

director o technology programs in the business

school’s Executive Education unit, and program

director o its supply chain management certicate

series.

“At every step, you identiy whether it involves

an activity that the customer would be willing to pay

or,” says Converse. “So you’re identiying re-work,

excess movement o goods and services, excess

transportation, idle time and wait time, and reducing

those types o things to add value to the product or

service.”Focusing on customer needs and eedback is

integral to all successul value chains.

“It is the supply-demand balance being achieved

up and down the chain, rom the consumer back to

the source, and value is created at every transaction

along the way,” says Kevin O’Marah, group vice

president, supply chain research at AMR Research,

who serves on the Executive Advisory Board o the

Grainger Center. “So, when you buy a Happy Meal

rom McDonald’s, the value provided in reverse is the

customer knowledge provided to McDonald’s rom

its Happy Meal data—or example, that drinks should

be smaller, or that dierent plastic toys should be

included. Value is created in the transaction, and that

always is a two-way street.”

At Cisco, Inc., Customer Value Teams (CVTs) refect

an intense customer ocus. “CVTs are made up o

dedicated value chain experts ocused exclusively on

proactively connecting Cisco value chain capabilities

with our largest customers and partners,” says Karl

Braitberg, vice president o demand management,

PaybaCkWhat’s the impact o skilled

supply chain management?According to benchmarking

data rom AMR Research, a

global authority on supply

chain management, the

most-advanced “demand-

sensing” companies enjoy

these advantages:

► 10 percent more revenue

► 5 to 7 percent betterproit margins

►

15 percent less inventory



10 ❖ UPDATE Spring/Summer 2010

planning, and customer operations. Braitberg serveson the Grainger Center’s Executive Advisory Board.

“Each team is ocused on delivering personalized,

high-touch, customer value chain solutions,” he says.

“These teams are accountable or driving customer-

specic metrics throughout the value chain.”

trends and challenges

Increasingly, businesses and organizations are

discovering the critical role that supply chain

management plays in responding to new challenges,

which are shaping new trends in the eld.

“Company ater company used supply chainmanagement to take huge costs out o the system

when the recession hit,” says Nevin. “Harley-

Davidson, or example, closed its distribution center

and outsourced it. It also placed its transportation

operations with third parties.”

Supply chain management has made companies

more resilient in tough times.

Quraish Baldiwala, MBA ‘01, is the commercial

director o strategic markets or Abbott Nutrition, a

Chicago-based division o Abbott Laboratories. He

lists several industry trends that developed over the

past two decades: “Globalization, ocus on emergingmarkets, and the decoupling o the supply chain

into a web o autonomous entities designed to work

together.” Other aspects o important trends he cites

are growing eorts by companies to oset higher

costs in developed countries, take advantage o a

growing middle class overseas, and developments

in transportation and inormation systems that have

allowed remote supply chains to unction.

“Through the economic crisis, not only have we

been able to ride it out, but supply chain management

has enabled us to continue our cost-saving initiatives

to provide top-line dollars to invest in other areas, likeR&D,” says Smestad. “In act, as we’ve grown over the

last ve years, it has tripled that ability, i not more.”

Other supply chain trends have stemmed rom

the challenges o political, economic, or other

vulnerabilities in overseas markets.

“In the last ew years, with escalating global risks,

the need to have eective risk-mitigation programs

is paramount,” says Braitberg. “A crisis in a distant

region can now spread very quickly across the world

economy, creating tremendous turbulence.”

In response, companies have diversied their

supply bases and located them throughout the world,

rather than basing them in one location, to spread risk.

“In order to reduce uel costs or product saety-

related risk stemming rom tainted or unsae products,

some U.S. companies have moved operations,

suppliers, or other parts o their supply chains rom

China to Mexico,” comments Blythe.

Jennier Schultz, MBA ’08, is in the Supply Chain

Leadership Development Program at Raytheon Co.

She points to another growing trend: supply chain

GrainGer Center for

SuPPly Chain ManaGeMent

The Wisconsin School o Business has one o the only endowed,

university-based centers specializing in supply chain management

in the United States—the Grainger Center or Supply Chain

Management.

The center supports an MBA career specialization in supply

chain management, an undergraduate specialization, and assists

aculty research in the eld.

Its MBA oering has earned particular acclaim in various

publications including U.S. News & World Report, Gartner/AMR

Research, and Supply Chain Management Review. Average starting

salaries o its graduates are consistently the highest among peer

schools, ranging rom $80,000 to $110,000.

The center is known or close ties to industry. Its Executive

Advisory Board comprises senior executives rom rms recognized

or excellence in supply chain management.

Verda Blythe, MS ’02, the director o the Grainger Center, is an

alumna o the program. According to Blythe, the center’s reputation

and the growing importance o supply chain management have

increased the demand or supply chain management educationand talent. Blythe says, “I eel condent telling prospective students

that i they want to become a leader in world-class supply chain

management, the Grainger Center is the place to start.”

To learn more about the Grainger Center or Supply Chain

Management and careers in supply chain management, visit

bus.wisc.edu/grainger.



UPDATE Spring/Summer 2010 ❖ 11

“A crisis in a distant region can now spread

very quickly across the world economy,

creating tremendous turbulence.”

optimization. Essentially, supply chain optimization

strives to maximize commodity technology, while at

the same time reducing the number o suppliers or

a commodity, giving highest priority to the highest-

perorming suppliers.

“Supply chain optimization is extremely important,

especially when it comes to global sourcing and

logistics,” says Schultz. “Who are my key strategic

suppliers, and what do they bring to the table? When

we concentrate on those issues, we’re going toenhance eciency in the supply chain.”

expanding into non-traditional areas

Supply chain management has grown in scope and

infuence largely within the realms o manuacturing

and related sectors. Increasingly, there are additional

areas where supply chain management is having an

impact, providing solutions, and driving prots—

especially in new markets.

Take IBM, which has successully applied supply

chain management principles and practices to provide

solutions in a host o non-traditional areas beyondmanuacturing.

“For IBM, our ocus is on the trend o ‘smart’

supply chains in support o ‘smarter planet’

solutions, which are rooted in the basic elements o

‘Instrumented,’ ‘Interconnected,’ and ‘Intelligent,’” says

Steve Loehr, vice president o operations and strategy,

value services.

Loehr is another supply chain management

expert who serves on the Grainger Center’s Executive

Advisory Board. He cites IBM’s consulting work or

the Swedish National Road Association in Stockholm

and other cities around the world to reduce road

congestion and vehicle emissions.

“Think o cars on roads like one big distribution

network within a supply chain, or multiple

components moving along various assembly lines

inside a actory,” says Loehr. “By equipping roadways

with instrumentation to both track and charge or

usage, interconnecting the system to manage the

overall fow, and then applying analytics/intelligence

to both provide real-time eedback on usage as well

as insights on variability o demand throughout the

day, week, or month, overall supply and demand canbe managed better. Congestion can be controlled and

better planning can be developed or roadways and

public transportation usage.”

Not only can these smart solutions enhance

the world around us, but they’re also generating

considerable prots or IBM.

In act, supply chain management in

non-traditional areas like business consulting has

helped Big Blue transition rom a manuacturing-based

company into a knowledge-based enterprise.

“When I started at IBM years ago, the majority

o our prots came rom hardware,” says Loehr. In

contrast, he notes that hardware accounted or 15

percent o IBM’s gross revenues or the rst quarter

o 2010, whereas consulting and services generated

about 60 percent.

The IBM roadway example points to other

non-traditional elds where supply chain management

will likely have a signicant impact: social and

environmental responsibility.

“Supply chain management is going to be

responsible or managing initiatives related to broader

social issues,” says Nevin.

IBM, Hewlett-Packard, Timberland Co., Starbucks,

and many other companies are incorporating the goals

o sustainability and ethical labor practices into their

supply chain management strategies and practices,

demonstrating that it is possible to “do the right thing”

while delivering superior returns to shareholders.

“Whether you’re scoring suppliers based on their

carbon ootprints or energy usage, or reducing waste

in your own operations, supply chain management

makes it happen,” comments Converse.



12 ❖ UPDATE Spring/Summer 2010

Many companies have built recycling into dierent

parts o their supply chains. For example, Nike

reprocesses discarded athletic shoes to create rubber

or soccer elds, oam or playground suraces, and

abric or padding under basketball foors.

Another non-traditional sector where supply chain

management can make a signicant impact is the U.S.

health care system.

“In health care, there is a lot o waste in inventory

and sourcing,” says Blythe. “Typically, hospitals

and health care providers don’t buy directly rom

manuacturers—they buy rom distributors. So this

results in multiple layers o inventory.”

Blythe suggests that a rst step might entail

improving electronic communications between

hospitals and suppliers at the ront end o the supply

chain, thereby acilitating more direct and ecient

demand signals that will reduce response times and

inventories. Sourcing and inventory management

would be other signicant areas ripe or improvement

via supply chain management.

O’Marah agrees. “Patients don’t communicate their

demand inormation directly back into the system—

they communicate their needs back through the

insurance industry, which distorts the demand signal,”

he explains. “The insurance industry collects all that

demand data but distorts the demand signal with rules

about what it will and will not pay or.”O’Marah envisions a solution involving demand-

driven networks o retail health care suppliers that

would provide routine services, like physicals, directly

to consumers who would pay out o pocket. But, he

says, higher-risk procedures, like surgeries, would

remain covered by insurance companies.

Even when companies recognize the importance

o supply chain management, their eorts

to pursue SCM improvement or technology

solutions can all short. To help translate strategy

into successul practice, the business school’s

Executive Education unit oers one o the

nation’s broadest oerings o courses in supply

chain, purchasing, and transportation/logistics. A

sampling includes:

► Supply Chain Leadership ocuses on how to

identiy and minimize uncertainty in supplychains to improve customer satisaction and

lower costs.

► Strategic Global Sourcing provides insight

on the best mix o domestic, near-shore, and

ar-shore sourcing, and practical advice on

how to execute the mix eectively.

► Industrial Transportation Management oers

metrics, tools, and methods to integrate a

logistics and transportation network into the

overall supply chain or quicker response

and lower total costs.

Inormation on these courses, related oerings,

and earning a proessional development certicate

in supply chain management is available at exed.

wisc.edu or by calling 1-800-292-8964.

helPinG firMS hone

their SCM exPertiSe Another non-traditional sector where

supply chain management can make

a significant impact is the U.S. health

care system.

Whether supply chain management can

reorm America’s intractable problems with health

care remains to be seen.

But one thing is certain: supply chain

management is not a fashy ad that will ade

away. It already has transormed companiesaround the world, providing a strategic platorm

or meeting customer demand through value-rich

processes.

By oering solutions to environmental and

other problems, it may even make the world a

better place.

Bill Shepard is a Madison-area freelance writer.

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