Unlike science
and technology which keep getting enriched continuously with new developments,
management of organizations, by its very nature, has little to show in terms of
continuous original developments over the years. Yet, in an effort to stay relevant,
management tries to reinvent itself or its functions through new nomenclature,
and its processes through new jargon. At a very gross level (of course, in a subtly
misused manner) management has carved out a new space of leadership. As
contrasted with the earlier days when leadership is all about the one and the
only one at the helm, today scores of managers are allowed to call themselves
leaders. At a more detailed level, old functions are renamed; long range
planning as corporate planning, business planning or strategy, time and motion
study as industrial engineering, productivity management or operational
excellence, and personnel as human resources management and people management,
for example. Some core functions like manufacturing, quality, sales and
marketing or research and development, in contrast, could see no semantic innovation,
mercifully.
There has,
however, been one discipline that seemed in the 1990s to revolutionize the
field of operations management which comprised multiple functions such as sourcing,
purchase or procurement, production, production planning and inventory control (PPIC),
scheduling, warehouse management, supply, distribution, logistics and delivery
under one umbrella concept called supply chain management. This has been
evolutionary, in that initially purchase, PPIC, and warehousing got clubbed
under materials management. Amalgamation of inward-oriented materials
management with outward-oriented distribution, logistics and delivery led to a
broader concept of supply chain, which promised to bring hitherto unseen connectivity
and efficiency to management of firms. The concept became so fashionable, as
with many a managerial nomenclature, that some companies began to include even
manufacturing as a part of the supply chain organization in the 2000s. Yet, a
full two decade plus later, supply chain in most organizations remains only an
outbound function; ie., from one plant to the other or from a plant to the
warehouse and a warehouse to the customer.
Connected disconnect
The concept of identifying
and procuring the entire bill of materials of a product and manufacturing the
finished product through in-house or outsourced facilities and delivering to
the customer in the most efficient manner, all of it supported by optimized inventory
management is clearly a well-merited concept to optimize an important part of a
business’s value chain. The Japanese have recognized inventory and planning as
the key drivers of such integration regardless of whether supply chain is
christened as a department. Pull-type demand cum production planning and
just-in-time (JIT) inventory had, for long, been, integrated in their
production and sales systems. The Western management model which seeks a clear
structure and process for everything, existing or new, had embraced supply
chain as an integrating or connecting concept. Again, as is the wont with the
Western models huge expectations preceded the evolution and
institutionalization of the supply chain concept. As a result, and also due to
certain specific factors discussed below, an integrated, monolithic supply
chain organization continues to be more an exception than a rule in
contemporary organizations.
Three factors
that took shape in the 1990s and 2000s have, in fact, created some dampeners
for an integrated supply chain function. The first is the rapid emergence of the
globally dispersed organization with multiple sourcing, manufacturing and
marketing locations across the nations with establishing local organizations
becoming one of greater priority. The second is the emergence of information
technology, more specifically enterprise resource planning (ERP) systems, as a
connector or integrator of all functions, even globally. The third is the unpreparedness
of the educational and career systems to develop competencies that integrate the
specializations as varied as purchase, production, distribution, quality etc. These
factors ensured that heads of operational management continued to operate with
functional specializations rather than with a broader function that
corresponded with a logical value chain. Given that the first two factors are
now an established reality, it remains to address the competency based dampener
in greater detail.
Function is
business
The important aspect
of supply chain management that the function as a whole (or in its competent
parts) deals with external businesses on a wide range of techno-commercial
parameters. Several of the functions have hues that are deeper and broader than
the traditional ones. For example, sourcing is not just scanning a supplier
directory and choosing someone who offers a material or component at the
desired price. Sourcing is truly vendor development, which develops the
material or component supplier’s capabilities in a holistic manner. Similarly,
distribution is not merely choosing a delivery trucking operator for the least
cost. Distribution is the science of operations research at one level and the
discipline of good transportation practice at another level, both of which
require enlightened business management on the part of distribution provider.
Even the seemingly number oriented functions like PPIC cannot be effective
unless they understand the nuances of product-market segments (and not merely
the SKUs) and the subtleties of manufacturing processes (not merely processing
times). While every function in an organization needs to have a business
perspective, the functions in the broad group of supply chain need to have the techno-commercial
perspectives of their stakeholders’ businesses as well.
The above
indicated aspects of supply chain have found their early roots in the Japanese
automobile industry. The practice of concurrent engineering and collaborative planning
that knits together all the internal functions of automobile and ancillary
companies, amongst themselves and between themselves, has been a great enabler
for integrated supply chain management. Issues such as new product, material
and component technologies, material substitution, tool and die development,
facility upgrades, resource requirements are placed on the table to develop
feasible and viable solutions. This level of enlightened collaboration becomes
even more inevitable when proprietary product development is involved. This requires
the vendors to appreciate that their long term business is protected not by the
supply rate contract for materials or transportation but by the business
success of the end-product. Similarly the
end-product company would need to appreciate that procurement economics of the
materials, important as they are, need to be supplemented by the business
economics of the vendors. In fact, progressive vendor development is the core
of successful supply chain management.
Vendor development
Most organizations
tend to have multiple buyers but few vendor development executives; in fact, in
many organizations vendor development may not exist at all. This situation is
ironical because the work and challenge involved in vendor development is many
times over the work involved in negotiating a rate contract. Vendor development
ensures that the supplier becomes a micro-replica of the principal in terms of
having good R&D, manufacturing and quality capabilities, among others. The
principal by investing its own techno-commercial resources in the vendor may
add to its operating costs but would ensure longer term business
competitiveness. In some cases, the vendors tend to have good technical ideas
but lack the managerial will or financial resources to evaluate and upscale
their ideas. Under such situations, the principals could take on the role of
venture capitalists to take the ideas forward. Many Japanese automobile
companies take direct stakes or indirect stakes (through their trading or
investment conglomerates) in their component suppliers which meets the need for
such vendor support.
Vendor
development, even in those organizations that house such function or in supply
chain treatises, tends to be viewed as a functional activity and not as business
enabler. Typically, either a buyer or a designated vendor development executive
identifies potential vendors and selects the appropriate one through due
diligence studies by other functions such as quality and business development. This
process may identify a vendor (who will be transferred to, or assigned with, a
buyer) but will not make the vendor a fully competitive and sustainable vendor.
Vendor development in an organization needs to be handled by a fully
institutionalized team with multiple skills resident or deputed on a continuing
basis. Vendor development must cover not only suppliers of components and raw materials
but also providers of distribution and logistics service providers. Proactive and
objective vendor development ensures the most effective procurement
relationships, logically and automatically.
Re-positioning supply chain
The foregoing
discussion leads us to two important aspects of repositioning supply chain as the
effective enterprise connector. The first relates to developing the required
supply chain competencies through educational and career options. There is need
to develop supply chain educational stream on par with other established
streams such as financial management, operations management or marketing
management. It should also be developed as a multi-domain skill set with
blending together of technology and non-technology subjects, and quantitative
and behavioural subjects. Contract management and business development should
be part of the essential toolkit in the supply chain program. The second
relates to providing the appropriate career options, from foundational careers
to rotational careers across all the functions of supply chain such as sourcing,
vendor development, purchase, production, production planning and inventory
control (PPIC), scheduling, warehouse management, supply, distribution,
logistics and delivery, eventually leading on to the top job as the head of
supply chain, and even to higher positions thereafter.
The
re-positioned role of supply chain would be one of developing a total
organizational ecosystem of all the vendors and input providers who understand
and support the value chain of the organization with ownership and oneness so
that the firm and its stakeholders can participate in the combined prosperity.
The head of supply chain in this re-positioned supply chain function would be a
strategic leader who understands the techno-commercial needs of the firm but
also the various vendor firms who provide the inputs and deliver the outputs.
He or she would also be a leader of balance who understands the benefits of
scale economics but also recognizes the need for risk mitigation, both through demand
and supply assurance to and from the vendors. Though not much known in the
global strategy literature, the eco system of India’s leading commercial
vehicle manufacturers, Ashok Leyland and Tata Motors, with pervasive component
manufacturing and logistics groups such as TVS is a great proof of how
integrated supply chain is not merely a transient conceptual vision but a durable
practical accomplishment. It is time that management institutions and leading
corporations appreciate the need for re-positioning supply chain as a leading
new age integrative discipline.
Posted by Dr CB
Rao on November 16, 2014
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