Overview of the December 2003 SCRC Meeting by Rob Handfield

The SCRC meeting held last week on Thursday and Friday was a great success. A number of executives from different companies attended, and provided great feedback to the faculty and students. It was my observation that everyone felt the student presentations were excellent, and the breakout sessions helped to bring home a number of key points to people who participated.

The theme of the meeting focused on how companies can bring “Supply Chain Improvements to the Bottom Line.” Much of the discussion focused on why supply chain executives struggle to convince financial analysts and senior executives that resources are required that will have a payback on the investment? We know that these improvements are possible – but in most cases, the problem lies not in the economics, but in our ability to convert the improvements we know are possible, into supply chain metrics that can be translated into financial metrics – the only universal language known to senior management. In our recent CAPS survey, the number one trend that every manager identified was increasing cost pressure. This pressure is driving companies to adopt a new approach to competitive strategy, which involves adopting an end-to-end supply chain perspective of process improvement.

In several of the companies I have visited with this fall (American, Shell, Chevron, Milliken, and GSK), every manager was seeking to “cast the net” further, and extend approaches that were working well in procurement or logistics across a broader spectrum. The commonality of this theme in these different industries was notable. In every case, managers were seeking to find ways to move beyond simple cost reduction, to value creation for the end customer, in order to contribute to increasing market share, revenue, and profits. An entry point for deployment of this strategy begins with defining customer requirements, and understanding who our customers should be, and what is important to them. Specifically, we need to clearly define what “wins” orders in the market, and also what the impact of customer failures are in terms of “losing” orders. These orders winners and losers will fall into the category of price, quality, delivery, cycle time, and design flexibility. Note that this now begins to define the supply chain task of “what we have to do well to succeed”, and involves the integration of customer metrics into performance evaluation.

Instead of beginning with a menu of strategies that we can pursue in the supply chain, and picking off the ones that are the quickest and easiest to implement, the challenge is rather to begin with the variables that mean most to financial managers: those that comprise the fundamental equation of EVA. EVA is a driver for stock price, which in the end is what determines whether CEO’s succeed or fail. Once we understand the net impact of different “levers” of supply chain performance on the critical elements of revenue, COGS, Working Capital, and Assets, we can begin to map a strategic approach for pursuing different strategies, both in the short term as well as in the long term.

Of course, the biggest challenge is mapping the “soft” benefits of performance onto this framework. This requires that you adopt an innovative approach to creating metrics that matter…and also consider pursuing strategies that do not necessarily fall into your immediate governance. In other cases, you need to look for the “early wins” that can have an immediate effect, and generate confidence in your functional competence to bring home results.

These issues were discussed in both the student presentations, as well as the breakout groups on Thursday. Some of the key benefits associated with the five different strategies discussed in the breakout groups included the following:

Sales and Operations Planning
Reduced inventory and increased turns, Reduced material handling, obsolescence, and premium freight costs

Information Systems
Resources and access to information to make better decisions more efficiently

Supplier Performance Measurement
Lower total cost of ownership, More responsive supply base, Higher internal productivity

Total Cost
Better decision making and focused resources, Improved responsiveness

Supply Chain Design
Better marketing/demand information, Speed/urgency on new product in marketplace, Simplify offerings, Knowing when to lose a customer

In addition, several people made some valuable suggestions that we are looking into using next time:

Thank you once again to everyone who participated….we look forward to working with you on your student project ideas soon!

Best regards,
Rob Handfield