Supply chain professionals no doubt feel battered by a series of events that are unprecedented in modern history. From the unbelievable swing in the price of oil to the collapse of the economy, never have supply chain professionals been expected to deliver so much so fast. When they get together, they have a lot to talk about, and these discussions are indeed intense in such venues as the University of Tennessee's Supply Chain Forum.
The Tennessee Supply Chain Forum at the University of Tennessee started in 1995 under the direction of Dr. Thomas Mentzer. Today, membership has grown to 40 companies, with up to 100 business executives attending the meetings. The meetings offer the opportunity to explore a rich diversity of ideas. Attendees range across the breath of industry, from retailers to manufacturers to service providers to the U.S. military. The products manufactured by these firms literally range from lipstick to jet planes! The company sizes vary from $100 million in annual sales to over $300 billion. But across all of this diversity, there is a surprising and fascinating phenomenon. When this group assembles, they find that they all face many of the same supply chain problems!
What Common Topics Do Firms Want to Talk About in These Forums Today? Of course, the major subject front and center today focuses on what companies can do right now to take out cost. What are the quick hits--the "low hanging fruit?" There obviously are no easy answers. We often hear, "If it were easy, we would already have done it." Of course the first reaction is to stop anything new and cut everything. Budget reductions may be necessary, but they certainly shouldn't be spread evenly. Now is the time for careful surgical cuts that don't cripple a firm for the future. It's time for tough decisions on what really is important for the future.
Now is the time to make sure that the best employees feel valued. Even in the face of layoffs, the time will never be better to retain and hire talent for the future. As everyone else retrenches, there is an incredible opportunity to find the star performers for the next 20 years.
Now is the time to address those tough cross-functional issues that are nearly impossible to deal with in good times. It's time to finally cut SKUs and get rid of that obsolete inventory. It's time to really bring the supply chain folks into the planning of new products. And it's time to forget organizational politics and get rid of waste, such as an underperforming, but politically connected DC. Now is the time to rise above the sacred cows and make the organizational changes that need to be made. This is really an opportunity to get things right across the entire business. The Great Recession of 2008-09 is incredibly painful for most firms. It would be a shame to miss the window of opportunity that comes with it.
One of our Supply Chain Forum member firms told how in the early 1980s they were on the verge of bankruptcy. In desperation, they decided to really push decision-making down and eliminate the red tape. They gave their people a budget and goals, and that was about it. The corporate bureaucracy got out of the way and let people perform, and the results were spectacular. Unfortunately once they recovered, the controls went back into effect. Hopefully the breakthrough improvements made in today's crisis won't be undone when prosperity returns.
What Common Supply Chain Problems Do Firms Face Regardless of the Economic Situation? In spite of the intense short-term survival orientation apparent in many businesses today, everyone acknowledges that there will be a future. Indeed, most Forum members know that when others retrench, they have a unique opportunity to build competitive advantage. For example, they know that they can't tread water on developing their people, while their competitors maintain focus. They know the time will never be better to address the strategic issues they face.
Seven timeless strategic problems that should be addressed today are:
1. Too Much Product Complexity: All firms admit they carry too many SKUs and further concede that they don't have a good process to eliminate underperforming products. Yet some have broken the code on this intractable issue and have a disciplined process in place to manage SKU growth, proving that it is possible to manage SKU growth effectively.
2. Too Much Slow-Moving and Obsolete Inventory: Companies struggle with stepping up to the problem of disposing of obsolete product in a timely manner. There always is the resistance to reduce price. Unfortunately, this product never gets more valuable. It sits there month after month consuming cash and incurring inventory holding costs until it is finally scrapped or sold at a steep discount, sometimes literally years afterward. It's a classic case of pay me now.... or pay me more later.
3. Supply Chain Considerations Not Part of the Product Design Process: When product design engineers develop a new product, they rarely consider inventory, transportation, or warehousing issues. Sometimes small changes in a product configuration can yield big logistics savings. This applies to retailers as well as manufacturers. Retailers should not ignore the new product development process in their suppliers.
4. No Supply Chain Strategy: It is surprising that few firms have a documented supply chain strategy. Such a strategy starts with assessing the future needs of their customers. The strategy development process then determines the new supply chain capabilities the company will need in the future to meet its customers' needs. Eventually, specific initiatives need to be chartered to deliver these capabilities. Unfortunately, most supply chain organizations are so consumed with the daily battles of cutting cost, managing inventory, and delivering good customer service that that they don't plan properly for the future, sometimes with disastrous results.
5. Ineffective Matching of Supply with Demand: This problem stems from the classic struggle among functional silos in most companies. On an overly simplistic basis, sales are driven by revenue generation, while operations strive to cut cost. Often these goals conflict with each other. Leading firms address this issue by establishing a Sales and Operations Planning process to align the various corporate functions around a plan that matches supply capabilities with demand requirements. Most firms attempt to do this, but most would acknowledge that they still have a long way to go.
6. Physical Network Problems: Where should warehouses be placed in this era of incredibly volatile transportation costs? This question is a very prominent topic today. Just a few months ago, it seems, transportation costs were being driven up rapidly by the cost of fuel, driver shortages and other factors. Now everyone expects that situation to return, but who knows when? Logisticians are confused to say the least; and the old answers don't work anymore. One thing is certain however. All firms should question their physical network configuration under a wide range of future fuel prices.
7. Global Issues and Outsourcing Problems: The global arena offers an even more confusing picture. Many firms are re-thinking the mad rush to outsource outside the United States. The long supply lines, incredibly volatile fuel costs, exchange rates, the geopolitical risks have all come home to roust. Yet, few firms consider the total cost of an outsourcing decision, and even fewer incorporate the additional risk of a global source in their analysis.
Conclusion: Since almost all companies face some combination of these seven issues, a rich database of best practices exists that can be transferred across highly diverse industries. It is critical that all firms engage in outreach activities such as forum participation and benchmarking to make sure they understand these best practices. Once they see how other companies address these issues; they need to develop an urgent action plan to implement the essential changes. Supply chain is the frontier of competition. Only by aggressively addressing challenges like those listed above can firms effectively compete in the increasingly intense global environment of the future.
About the Author: Dr. J. Paul Dittmann is the Director of the Office of Corporate Partnership at the University of Tennessee. He is executive director of the Integrated Value Forums, teaches logistics courses in the college, and teaches in the executive education programs.
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