SUPPLY CHAIN MANAGEMENT EXECUTIVE BRIEFING

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Broad School MBA ranked 29th by Business Week

Business Week recently ranked the Broad School’s MBA program 29th, among the “Best B-Schools of 2006.” The Broad School was ranked 21st on intellectual capital, and 2nd on time to pay back on attending a program. The BW article also reported that “Students praise outstanding career services center and faculty.”
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APRIL 2008 Volume 2, Issue 2

BROAD SUPPLY CHAIN MANAGEMENT EXECUTIVE BRIEFING

Broad Graduate School MBA Class Identifies Top Performing Supply Chain Companies

The Study:

In a course related project, Professor Morgan Swink and his MBA students (Class of 2009 enrolled in MBA 821– Supply Chain Management) studied companies in twenty different industry segments in order to identify leading companies along with cutting edge strategies associated with supply chain excellence. A single student team (5-6 students) analyzed each assigned industry segment, using the following steps:


  1. The students identified companies that scored in the top 25% of their industry for each of the following financial metrics, for 2005 and for 2006 respectively: 1) return on assets, 2) gross margin, 3) inventory turns, 4) cash-to-cash cycle, and 5) sales growth.


  2. From this initial list of top companies, students picked the 6-8 companies that were in the top 25% most frequently, for the most metrics, across the two year period. The excluded any companies that had recently restructured or were in the process of restructuring. They also excluded “holding” companies that have many divisions and less than 25% sales in the targeted industry sector (NAICS).


  3. For the 6-8 candidate companies, the students researched other indicators of supply chain management excellence from articles, web based resources, or industry specific information. In most cases, they interviewed representatives of the companies, investigating their supply chain structure, practices, policies, and other factors.


  4. From this analysis, the students picked and reported upon 2-4 leading companies in each respective industry segment.


The Results:

Table 1 provides a summary of the companies, financial data, and comments on observed best practices. The following is a summary of some of the major trends and findings of the study.


Concentrated Purchases Provide Volume Leverage

Concentration of purchases plays a key role in developing supply chain excellence. It is a powerful tool leading to unit and transaction cost reductions directly, while at the same time enabling programs and initiatives that extend the cost benefits and facilitate firm level strategic objectives. Nearly every leading firm identified has recently concentrated its purchases. Best Buy and Circuit City each concentrate nearly fifty percent of their spend with the top five suppliers. This gives volume leverage sufficient to enable them to bypass distributors and source directly from the factory. Anheuser-Busch’s consolidation of the transportation purchases has resulted in better pricing and greater control over shipping lanes. This has been a critical step in realizing their strategic objective to have the freshest beer in the market. VeraSun’s use of ‘unit trains’ has lead to a per shipment cost reduction of $100,000.

Strategically Driven IT Investments Drive Performance Gains

IT and decision support systems are pervasive, but it is not their presence that is a performance differentiator. Rather it is the degree to which the IT/IS infrastructure supports the strategic objectives of the firm, and the degree to which the firm is committed to maintaining state-of-the-art status. The students found numerous examples.

  • Dick’s Sporting Goods links its merchandising information system to inventory management systems to ensure high levels of product availability, thereby minimizing lost sales from stock outs.

  • ExxonMobil uses decision support systems (DSS) to create better information about locations and sizes of oil reservoirs. The result is a significant increase in the percentage of productive wells from the exploration process and increasing reserves. These reserves mitigate the impacts of geopolitical vagaries of the petroleum business.

  • Quicksilver, an apparel manufacturer subject to highly unpredictable demand, has employed transportation management software to enable demand responsiveness to the point of substantial competitive advantage and market share gains.

  • Overstock.com links real time inventory levels to catalogue pages.

  • Family Dollar has an integrated IT system that allows suppliers to see how much of what SKU is needed where and by when. This gives suppliers the ability to take action to minimize supply disruptions without having to wait for intervention by Family Dollar.

  • Vermont Pure Holdings secures real time demand data from customers, provides real time finished goods inventory data, monitors plant capacity in real time, and uses all of this information to schedule production across different plants to maximize order fill rate.

  • Avery-Dennison provides real time visibility of inventory levels and order status to key customers to enhance relationships.


Supply and Demand Chain Integration Enable Greater Responsiveness and Efficiencies

Integration and customer relationships receive a strong focus by firms that have achieved supply chain excellence. The drive to better know the customer and become a valuable resource produces many supply chain efficiencies. As part of ATMI’s strategic objective to build relationships with customers over the long term, it offers technical support to the process development initiatives of its customers. Williams Controls has drawn closer to customers by reducing prototyping from 6 weeks to 48 hours. Quannex builds relationships through active engagement in the product development process of its customers by matching its offerings to the exact needs of the customers creating products that are a better fit for both companies. Rayonier goes as far as to integrate customers all the way to the production level. If a customer changes the product specifications, this change is automatically brought to the production system with the result that the customer receives properly specified product at the right time. Paccar, focusing on supplier relationships, provides six sigma training for suppliers and has over 600 active improvement projects with suppliers. The result is better integration and lower materials cost.

Great Supply Chain Companies have the Entire Package

Concentration of purchases, combined with strong relationships and real time visibility of inventory and demand, enable the successful deployment of pull based fulfillment strategies which in turn lead to improved inventory utilization. Nucor’s ability to understand demand, inventory, and production capacity in real time allows it to use a demand based production schedule rather than stock thereby enabling the strategic objective to realize the lowest manufacturing cost in the industry. Sealy uses pull base production as does Select Comfort to match production to demand resulting in significantly better use of assets than peers.

Leading companies have focused their supply base, thus enabling relationship building and the justification of IT integration. A similar focus on the needs of the customer is critical and is reflected in the degree of integration and the type of information made available. Another critical element is the investment in the portions of the business that matter most. Supply chain management investments should support the overarching strategic objectives of the organization. Those firms that have embraced these principles and effectively executed integration strategies to realize them have become examples of supply chain excellence.


Table 1: Leading Supply Chain Management Companies by Industry Segment