Beyond the management of physical inventories and information in the domain of logistics is the way that products are developed, marketed, and sold. Add in the relationships formed with suppliers and customers and you have supply chain management. When viewed in this light, supply chain management is clearly more than logistics. This integration of a company’s planning and execution functions represents not just a way to achieve efficiencies, but a holistic strategy for doing business.
While much talk has surrounded the concept of supply chain management, very few companies are seizing the potential found in broad-scale adoption. Why? First, the concept of supply chain management is not well understood. Much debate has surrounded the very meaning of the term, with a lack of consensus existing even today. Even the functions that belong in supply chain management have been debated. Another reason supply chain management is not widely practiced is that it is not easy to accomplish. As noted, it involves coordination of planning and operational activities throughout the company as well as coordination of activities with suppliers and customers.
Interestingly, it is often easier to achieve coordination with outside members of the supply chain than within the company. For that reason, companies are often inclined to start with suppliers because they can always tell them what to do! They might even have great success in bringing customers around to their way of thinking, but achieving collaboration among a multitude of functional areas within a firm – well, that is another animal entirely! However, to enjoy any big, sustainable gains from supply chain management, a company must first get its house in order. Supply chain management is about working the levers of a company and getting them in sync with the levers of trading partners in the supply chain. Manipulating the levers of the outside parties will only get you so far, and the gains may not be sustainable if you are unwilling or unable to work the levers within your own four walls. That is why the change must come from within the company first and then transcend to the up- and downstream parties. It is no coincidence that the leaders in supply chain management tend to be companies that have strong cultures that emphasize cohesive, coordinated action. They also tend to be companies that others, including their suppliers and customers, look toward for leadership, making it viable for integration to occur at the cross-enterprise level.
It is easy to say that a company must first get its own house in order, but, as suggested, this can be the most difficult aspect of supply chain integration. How can a company get on the same page without imploding? Not all companies are blessed with a culture that it driven from top to bottom and end to end by overall company performance. Rather, most companies are driven by functional performance – striving for excellence within each of the various areas, like manufacturing, procurement, customer service, finance, and logistics. Clearly, excellence must be achieved throughout the company in order to survive and thrive, but it is coordinated action toward a worthy objective that sets really great companies apart from everyone else.
This cross-enterprise level of integration has been met with much curiosity and skepticism. Some have even speculated that competition will extend beyond horizontal levels in the supply chain. For instance, we may no longer think of soft-drink giants like Coca-Cola and Pepsi competing against one another, but rather Coca-Cola’s supply chaincompeting against Pepsi’s supply chain. That proposition holds great bearing on the way in which companies structure relationships with suppliers and customers. While it’s unlikely that suppliers serving both beverage makers would choose to serve only one at the loss of the other, there are clearly opportunities to structure a closer, more fruitful relationship with one. A supplier may choose to develop customer-specific ingredients or engage in cooperative promotional efforts with the preferred customer. Therefore, even while inputs might be gathered from the same source, the final product can be differentiated and so can the services provided to that favored customer. When advantage is gained based on the way in which the companies interact, supply chain management is at work.
-An Excerpt Taken From the Book, Lean Six Sigma Logistics