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PODCAST:Broad Expert Link: Steven Melnyk
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| Steven Melnyk |
This is not your father's supply chain
Steven Melnyk, Professor of Marketing & Supply Chain Management
In this monthly feature highlighting faculty expert knowledge relating to current business news, Melnyk shares new research on the changing face of the supply chain and how it will affect a company’s bottom line.
- Apple Computer brings the highly successful iPod ® to market fast and at low risk, and in the process creates for itself a sustainable competitive advantage. The key to this success: drawing on the skills of its supply chain partners and designing a product that requires standard components...
- LensCrafters revolutionizes the process of making glasses by bringing the lens factory into the store. By so doing, it has redesigned the supply chain to gain advantage over its competitors...
In these two stories, the key to success was the supply chain.
Consequently, supply chain management (SCM) has become a fact of business life. Firms now recognize that an effective and efficient supply chain (consisting of both the supplier and consumer elements) plays a critical role in developing and maintaining a significant advantage in the marketplace.
In studies previously carried out at MIT and the Broad School, it was found that not only are the leading-edge supply chain management systems outperforming the rest of the market, the gap between the two is now growing. Yet, one of the major problems with SCM is that it is being developed by managers working in firms such as Toyota, Wal-Mart, Nissan, Kellogg's, Rolls Royce, IBM, Whirlpool, Harley-Davidson and Nordstrom.
More importantly, supply chain management is undergoing a radical transformation. In the past, the focus of SCM was on ensuring the low cost delivery of products by drawing on the capabilities and capacities of suppliers. Now, leading managers are recognizing that just reducing costs is not enough to fully enhance value. These same managers see that it is important to align the capabilities and the performance metrics of their suppliers with those of their customers. The costs of failing to do so can be devastating to the firm.
Supply chain of the future
A Broad School study was recently completed that brought together leading firms and researchers in supply chain management for the purposes of identifying the "supply chain of the future" and the factors that would influence its development. We found that there's a fundamental transformation taking place in SCM. Today's supply chain is relatively simple and focused. At its heart, today’s supply chain can be viewed as essentially tactical in nature. It is a supply chain that is driven by concerns of cost reduction and on-time delivery. It's a supply chain that is concerned about disruptions since they directly affect both on-time delivery and cost.
Yet, a different picture emerges when dealing with the supply chain of the future. This is a far more complex system, where managers now have to deal with more issues and meet more demands. It is a supply chain where performance alignment, product design, environmental performance and power/influence are critical. It deals not only with execution, but also with supply chain and product design. It is global (i.e., it embraces and plans for the global dimension of sourcing and marketing); it is highly adaptive to changes in both supply and demand; it focuses on cost avoidance, not just on cost savings; it recognizes the presence of risk (and that risk is more than simply supply chain disruption); and it plans for and manages risk appropriately. It is a supply chain that is fundamentally strategic in nature.
Doing the right things
The goal of this future supply chain is not simply efficiency (doing things for less); it is effectiveness (doing the right things). It is a supply chain where managers recognize that SCM can be a core competency and where one of the goals is to develop a supply chain where its capabilities support current strategic objectives and enable the firm to better serve its critical customers.
Second, the ability of the supply chain to make the "jump" from the tactical to the strategic supply chain is being affected by six major factors:
Strategic visibility and alignment: There is still a lack of a strategic perspective of the supply chain in many organizations. Senior management does not yet fully understand the value of the field, and the benefits need to be better measured and communicated. A true global perspective is broadly needed.
Talent management and leadership: An insufficient supply of competent cross-functionally trained strategic-thinking supply chain professionals exists. Global business skills need to be developed since much of our commerce today expands across national borders. A better identification of the required body of knowledge at both the operational (undergraduate) and strategic (graduate) educational levels is needed.
Supply chain models including optimization, risk and cost: There are insufficient validated models for supply chain optimization, risk minimization and cost. Organizations are putting the pieces together, but more is needed in the way of defined supply chain models for evaluation and optimization of the entire chain.
Process orientation including measures, information and integration: Supply chain activities are still often functionally based. More of a process orientation is needed to fully extract the potential value of supply chain alignment. This requires measurements that cross functional boundaries and the information needed to adequately monitor performance and improvements.
Relationships and trust: An integral part of effective supply chain management is the personal relationships between people across processes and organizations. This requires an appropriate reward structure and top management support internally. Externally, goal congruency, trust, communication and integrated processes are all prerequisites.
Supply chain architecture and structure: Supply chains consist of multiple layers: product, process, core competency, information and financial being some of the major layers. Currently, attention has been focused on the product, process and information layers. More research is needed into the other layers, along with studies of how to physically organize the components of the supply chain.
From these issues and their associated factors, two sets of agendas emerged - one for knowledge dissemination and one for research. These agendas are now being acted on by the faculty in the Broad School's Department of Supply Chain Management. In acting on these agendas, the goal is simple - to keep the Broad School at the forefront of SCM education and research. You can only do that when you are looking to the future; not studying the past. After all, this is no longer your father’s supply chain.
For copies of the "SCM 2010 and Beyond: Mapping the Future Path of Supply Chain Management" report written by Melnyk, Eli Broad College of Business Hoagland-Metzler Endowed Professor of Practice in Supply Management Joe Sandor, Iowa State University Associate Professor of Operations and Supply Chain Management Rhonda Lummus and Texas A&M Professor of Operations Management Robert Vokurka, contact Melnyk at melnyk@msu.edu.