By Gregory A. Farley

In the world of resource management, buzzwords are thrown around with reckless abandon, with zeal, and often with little understanding of the important processes and paradigms they (sometimes) represent.

While "supply chain management" has certainly reached buzzword status, it carries somewhat more cachet than most other acronym-ready concepts. APICS has incorporated the phrase in its newest CPIM (Certified in Production and Inventory Management) program module, Basics of Supply Chain Management. This new module is designed to provide a fundamental understanding of the planning and control of the flow of materials into, through and out of an enterprise.

But for many, supply chain management represents a substantial shift away from the traditional concepts that have governed the provision of goods and services. To explore the idea of supply chain management, APICS -- The Performance Advantage invited a handful of resource management professionals -- consultants, vendors and practitioners, to examine the concept in a roundtable discussion.

The participants were Martin Mirsky, Dow Chemical Corporation; Louis DiFrancesco, CPIM, Bowman Distribution; Dick Bourke, Bourke-Arnold Enterprises; David Roth, Manugistics; and Elaine Whittington, a retired materials manager and free-lance educator.

This focus group addressed the following specific questions:

• What exactly does the term "supply chain management" mean?
• Why supply chain management now? What forces are pushing us toward supply chain management?
• What major issues must be considered when developing and implementing a supply chain management strategy?
• What are the major features of an effective process built on supply chain management? How can the performance of such a system be measured?

What is SCM?
"Supply chain management" is really just changing the viewpoint from which you manage," said Mirsky. "You look at your current capabilities to deliver goods and services to your customer, while looking also at how you utilize your assets. Those assets now include your equipment, your outside suppliers and partnerships you've developed. To meet customer demand, you may decide that you have to reconfigure your supply chain, whereas in the past you just did the best with what you had."

Whittington offered that SCM is more than an evolution of purchasing strategy. Although enterprises over the decades have worked to close the gaps that separate them from suppliers (moving from teaming, to supplier certification, to partnering), and SCM promises to narrow those gaps even more, SCM's greatest potential lies in its ability to include customers. "Making customers and suppliers part of the same team charged with a product to its users is definitely a step in the right direction," she said.

By including customers in the management of the supply chain, an enterprise will be able to apply certain technology tools -- notably electronic data interchange and the Internet -- to develop forecasts and other mission-critical data in collaboration with its customers and suppliers, said Roth.

And that is especially important in today's market, said Mirsky. The truncated life cycles of many products (notably computers and electronic devices) is hastening product development. "With the connectivity of the Internet, we could see the development of an almost virtual system," he said. "Supply chain management is going to help us survive."


A different way of doing business
Bowman Distribution has adopted SCM in its fastener division with tremendous success, said DiFrancesco. The program began with purchasing but has been expanded to embrace marketing, product development and accounts payable. "What you try to do," he said, "is take away the boundaries that people worked within when they were in functional departments. Sure there are people who view themselves as the purchasing agent, or the buyer-planner, or the product development person, but the idea is to take away those boundaries so that other people can participate in the decision-making process."

The end result, he said, is that in some cases its difficult to say where Bowman stops and the supplier starts, DiFrancesco said. "Some of our suppliers are now dialing directly into our mainframe, using some of our systems to make decisions that we used to make and then communicate to them. We took those steps out of the process. The goal is to make that as seamless as possible.


Why SCM now?
While there are certainly aspects of SCM that share little with traditional production and inventory management practice, much of it is tried-and-true. "Two years ago," said Melnyk, "we wouldn't have had a discussion about supply chain management."

"But I suspect a lot of these people were doing it without realizing it had this wonderful new buzzword," said Bourke. "And I think we can thank the software industry for that, because it casts their products in a different light. I'm not so sure that we haven't been doing a lot of this stuff for some time already."

So what is it that has led the rest of the resource management industry to embrace these things that the best firms have been doing for years?

"It comes straight down to competition," said Roth. "Companies in every industry are in a battle for survival, and they're looking for every opportunity to more effectively and more efficiently manage their business."

"This is a U.S. phenomenon," said Mirsky. "We got a big wake-up call, and all of a sudden there is a third-world country with all sorts of new companies or branches of companies, and we're no longer competitive with those supply points.

"I would pick out Wal-Mart and Procter & Gamble," said Roth. "They've all-of-a-sudden pressured an entire industry into rethinking how to do business."

Roth pointed to Wal-Mart and to Kmart as two enterprises that have instituted supply chain management techniques in different ways with sound success. Kmart allows its suppliers to manage inventory. Wal-Mart has decided that it can manage its own inventory, but has pushed the envelope by collaborating with suppliers to forecast demand.

"The companies making this work are analyzing their supply chain to identify where the competitive advantage lies," said Mirsky.

DiFrancesco noted that supply chain best practices have been developed and are being shared across unrelated industries.


A new kind of corporate culture
"Five years ago, if we'd told people at Bowman that we were letting our suppliers dial into our mainframe, they would have flipped out," DiFrancesco said. "Now we're actually training supplier personnel on our system."

That change to corporate culture is one prerequisite to successful supply chain management. In that respect, the enabling members of the management staff are often generalists, familiar but not necessarily expert in the mission-critical functions of the enterprise. Whereas a purchasing or procurement specialist is unconsciously swayed by his or her expertise, a generalist is more likely to seek synergistic solutions, DiFrancesco said.

"Outsourcing is overwhelmingly accepted as a business concept," said Mirsky. "Companies are staffing up with respect to core competencies, and keeping everything else at a bare minimum. That's one major cultural change. The other is flexibility -- the ability to change. The processes and the people who are able to adapt will be the survivors."

"People do what they're incented to do," said Roth. "The question is, How do you incent your employees to be flexible? How do you incent a plant manager trained to achieve low-cost production to consider the ramifications of the plant's performance up and down the supply chain?

"The qualities important to supply chain management are so basic to an individual's personality, that it may be less a matter of developing supply chain managers than selecting them," suggested Bourke. "You have to have tremendous trust in other people and you have to be willing to risk yourself. This isn't a job for a control freak."

Whittington echoed the idea. "From the time they are born, we teach our children to be competitive, and all of a sudden the business world is telling them, 'No, no. Don't be competitive. We have to work together. We're a team now.'"

The fact that we're socialized to be competitive is the major cultural obstacle to supply chain management, Mirsky agreed. "The heart of the problem is that we don't understand where we belong in that process, or what process we belong to. Which team are we on?"


A matter of measurements
If supply chain management is perceived as a new paradigm, it stands to reason that measuring its success will require a different set of metrics. "We have to learn to allow ourselves to be creative, to learn that there is often more than one right answer," said Whittington. "We used to be able to judge our competitive position by looking at the bottom line, but now it's a matter of who is more creative, who brings a new set of rules to the game."

But there are concrete measures of success as well. "Inter-office envelopes is one metric that we never thought of at Bowman," said DiFrancesco, "but it illustrates some of the basic concepts of supply chain management as we've interpreted it." Management at Bowman set aside the fastener supply chain group in its own offices, and staffed it with members from different functional groups. Under the new arrangement, sound decisions are made more quickly and without the aid of inter-office mail.

"Before we adopted the supply chain model," DiFrancesco said, "there were never enough inter-office envelopes. Now we actually give them back to the mail room."

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