First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  August 23, 2007  

Supply Chain Best Practice – The Book

Gilmore Says:
Holding individuals and functions accountable for their forecast accuracy, and rigorously tracking that, is certainly close to a best practice.

What do you say? Send us your comments here

Regular readers will recall the interesting discussion we had over the past few months on the topic of supply chain best practices, tackling such topics as:

  • What are supply chain best practices?
  • Are they real?
  • Can companies really take advantage of them, or are they mostly used by consultants to drive business?

The root of the argument, of course, has to do whether there can be any universal “best practices” in light of the unique strategies, industries, and operating variables each company brings to the table. If you missed them the first time, we think you will enjoy these discussions (see What is Supply Chain Management Best Practice?; Readers Respond – Supply Chain Best Practice; What is Supply Chain Best Practice? (Part 3)).

I haven’t actually even offered my concluding thoughts on this, so you can expect one more column in this series in a few weeks. But I promised awhile back to do a review and comment on the book by Dave Blanchard, editor of IndustryWeek magazine, titled Supply Chain Management Best Practices.

At the time, Dave wrote us and said: “Considering that I just wrote a book with the title, “Supply Chain Management Best Practices,” I guess I'd be among the group that says there most definitely are best practices for SCM (there are also worst practices, which I also mention in the book).”

I read the book awhile back, rescanned it this week, and come away with the following thoughts: it’s a good and interesting book, and has a place on every supply chain manager’s shelf, but I am not sure it really answers some of my questions about supply chain best practices.

For anyone developing a supply chain strategy, you could do worse than following these simple goals Blanchard identifies as being core to managing a successful supply chain:

  • Articulate what a company’s supply chain looks like and encompasses.
  • Identify the bottlenecks that are slowing down the movement of goods, information and services.
  • Put process in place to get the right products delivered at the right time and place [probably should add something about cost].
  • Empower the right people so that they can accomplish the above.

The book certainly provides many stories of companies that are running excellent supply chains, using innovative processes and technologies. Some examples include:

  • Korean automotive manufacturer Hyundai, which like many companies has developed a strong visibility system for the large volume of parts it moves to the US from Asia. The system monitors inventories, events and exceptions across each of the many legs of the route, and has helped Hyundai both improve service to its dealers, as well as reduce inventories. “You can run Lean if you have confidence in the Estimated Time of Arrival,” said George Kurth, director of supply chain and logistics there.
  • Chemical maker Dow Corning has also invested a lot in visibility, noting it is critical when 25-35% of your total inventories are in transit. In addition, the company implemented a self-service web ordering system that provides guaranteed delivery times for each product in the order. If a customer wants faster delivery, the portal shows them the options and any expedited costs. Reacting quickly to market changes, the prices for the chemicals are updated as often as several times per day.
  • Food manufacturer Land O’Lakes, interestingly, took back control of its transportation management process from a 3PL – cutting out the added cost of the service. It also participates in a few collaborative transportation networks, hoping to share capacity and get lower freight rates by finding complementary shippers. “We’re making logistics one of our core competencies,” said one logistics manager, noting the moves reduced total freight spend by 20%.
  • Network gear maker Lucent (now part of Alcatel Lucent after a merger) had to battle back a few years ago from an inventory crisis (way too much). It did so by shutting down most of its own factories in favor of contract manufacturers, cutting the number of suppliers it had in half, and implementing a multi-tiered visibility system, which combined to drive huge levels of inventory out of the network. It also established a goal of “zero latency” when responding to customer needs. When a request for quote comes in, a cross functional team is quickly applied to respond rapidly to the request, and much more of the company product is now made to order. The number of warehouses in the network dropped from 200 to 15, and the quote-to-cash cycle was reduced by 50%.
  • Companies like Campbell’s Soup and National Semiconductor (and many others) have improved supply chain performance and the results of the Sales & Operations Planning process by rigorously tracking forecast accuracy, and holding functions and individuals accountable for their numbers. Ultimately, this focus reduces the forecast bias that tends to creep in to many demand planning processes.
  • HP has been frequently cited for its use of sophisticated risk management tools in its procurement processes. This involves applying statistical modeling to its own potential volume requirements, as well as the variance of market price for components that can swing widely up and down in price over a given period of time. The result are agreements that often have price caps and floors in conjunction with ranges of volume commitments – contracts optimized as a result of the statistical analysis.

These are all good stories, and just a few of the several dozen in the book. There are lots of ideas for supply chain managers here.

Are they “best practices?” Again, I am not sure. My sense, for example, is that holding individuals and functions accountable for their forecast accuracy, and rigorously tracking that, is certainly close to a best practice. Not doing so is certainly a “bad practice.” Supply chain visibility is good, but is there a “best practice” around it? I am less sure of that. And certainly the Land O’Lakes example, while it worked for them, is just one of several logistics strategies that could be successfully employed, or be right for a given company.

I think I finally have my head around how to frame supply chain best practices, but that will have to wait for the next column on this in a few weeks.

Do you think the stories cited here represent “best practices?” Why or why not? Please let us know your thoughts at the Feedback button below. As always, we will keep your identity confidential upon request.

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