10 — BLUEPRINTS OCT/NOV/DEC 2005
By Brian Gibson, Ph.D.
t tarting an argument these days is easy — just ask a group
of managers to define supply chain management, or
SCM. The responses will range from narrow, func-
tionally based perspectives to broad, encompassing
descriptions that equate supply chain management
with business. Then, there are issues of supply chain
management as a strategy versus an activity, internal versus
external supply chains and the inclusion or exclusion of specific pro-
cesses in SCM. It is enough to make the most seasoned executives
scratch their heads.
At the risk of starting a firestorm, this article will take on the def-
inition challenge and more. Key questions regarding the fundamen-
tal issues of supply chain management will be addressed, including:
• What is supply chain management?
• Why should my organization focus on supply
chain management?
• How can my organization adopt a supply
chain perspective?
Drawing upon a wealth of research, expert perceptions and com-
pany experiences, the nuts and bolts of supply chain management
have been assembled in this article. Read on, and you will gain valu-
able insights into the purpose, processes and benefits of supply
chain management as it applies to the fresh produce industry.
Depending on the article, the term supply chain managementwas coined in the early 1980s by either Thomas Stallkamp of
Chrysler Corp. or consultants Keith Oliver and Michael Webber of
Booz-Allen & Hamilton. These initiators spawned an ongoing
effort to define supply chain management that continues today. A
basic Google search for “supply chain management definitions” pro-
duced 522 responses from industry associations, consultants,
What is “Supply Chain Management”?
Discover why and how your organization should focus on supply chain management.
Feature - Front 9/9/05 1:55 PM Page 10
www.bluebookprco.com
researchers and other pundits.
A supply chain is a network of facili-
ties and transportation linkages that
performs the functions of procurement
of materials; transformation of these
materials into intermediate and finished
products; and distribution of these
finished products to customers. In the fresh produce industry, the
supply chain extends from the field to the shopping cart. Figure 1
on the following page provides a common depiction of a supply
chain, its key flows and primary participants.
Supply chain management, in turn, focuses on the collaborative
coordination and control of the supply chain. This involves the cre-
ation of a synchronized two-way flow of materials as well as infor-
mation, finances, equipment and manpower resources within and
among organizations. The ultimate goals of supply chain manage-
ment are to create visibility across the network and to ensure effi-
cient, fast delivery of goods and services to end customers.
As the definition implies, supply chain management entails both
strategy and key processes. These interrelated components include:
1. Plan: creation of an overall strategy for synchronizing supply
with demand in your supply chains. This involves developing
plans for managing resources, flows and relationships for opti-
mal cost and service across the supply chain.
2. Source: procurement of the key inputs that your organization
needs to create products and services. This involves supplier
selection, transaction term or contract development, delivery
receipt and verification, payment and performance control.
3. Make: conversion of the procured
inputs into products and/or services.
This may involve processing raw
materials, manufacturing components
or assembling finished goods. These
execution processes produce, test and
prepare outputs for delivery.
4. Deliver: fulfillment of customer demand for your
products and services. Key logistics processes involving
inventory management, distribution and transportation are
developed and executed to ensure the timely, low-cost flow of
products to customers.
5. Return: disposition and reverse flow of customer returns of
defective, outdated, recyclable, or otherwise unneeded goods.
Returns-management processes focus on minimizing the num-
ber of items that need to enter the return flow and controlling
the flow through well-organized reverse logistics processes.
These individual components are common to nearly every orga-
nization. So what is the key to transforming them into an integrated
supply chain that can be managed for competitive advantage?
“Supply chain success requires a commitment to change and to
integrate critical activities and processes,” states Dr. John Langley,
professor of supply chain management at Georgia Institute of
Technology, Atlanta, GA. “Also essential is an ability to
structure effective supply chain relationships with both customers
and suppliers.”
As Langley indicates, the five components must not be managed
independently. Narrowly focusing on individual activities will lead
OCT/NOV/DEC 2005 BLUEPRINTS — 11
Feature - Front 9/9/05 1:55 PM Page 11
to localized decision making and suboptimal
results. Instead, integrated internal manage-
ment of the five components will produce
consistent strategies, common goals and
effective business processes. Greater results
will be accomplished by focusing on the
sum rather than the parts.
Second, extensive relationships must be
established between organizations to build
a true supply chain. Direct, ongoing
involvement with suppliers and customers
provides access to end user demand data and
promotes inventory visibility and awareness
of critical events. Such knowledge helps
organizations develop credible responses to
supply chain challenges.
Finally, key performance indicators
(KPIs) must be established to monitor the
results of each component and the overall
impact of the supply chain. These KPIs
must focus on customer service effective-
ness, supply chain process efficiency and
financial results. Without the feedback of
internal and external metrics, it is nearly
impossible to determine how well the sup-
ply chain is performing or where to focus
improvement initiatives.
Ultimately, these integration efforts, rela-
tionships and metrics move supply chain
management from a mere concept or buzz
word to a concrete opportu-
nity. They create the
foundation for supply chain
management planning,
execution and performance.
According to a recent
Supply Chain ManagementReview article, Dr. Hau Lee,
a professor at Stanford
University says, “The success
of companies like Procter &
Gamble, Hewlett-Packard
Co., Dell Computer and
Wal-Mart is testimony that
a well-orchestrated, tightly
integrated supply chain is
crucial to the competitive-
ness of an enterprise.” (See
sidebar on page 16.)
Conventional wisdom
may say that supply chain
management is a great idea for Fortune 500
companies, but too difficult for small- to
medium-size enterprises. After all, it requires
a vastly different approach than the practices
that are traditionally used. Also, supply
chain management represents a significant
undertaking for organizations that are
already resource and time challenged.
However, it is shortsighted and very
risky to let such obstacles delay action.
As your customers, suppliers, and competi-
tors embrace supply chain management,
your organization will not be able to ignore
it. The problem lies in adopting a supply
chain management focus out of obligation
or fear. Neither will create momentum,
buy-in, or resource commitment from
organizational leadership.
Instead, focus on the benefits of supply
chain management, rather than fear, to drive
your organization toward a supply chain ori-
entation. These benefits include greater
effectiveness and efficiency of supply chain
transactions and relationships. Simply
stated, appropriately designed supply chain
capabilities help organizations serve their
customers better, faster, and cheaper. Also, a
more proactive, benefits-driven approach
generates stronger interest and support
throughout the organization.
12 — BLUEPRINTS OCT/NOV/DEC 2005
Carol-Ann ProducePackaging Corp.
444 Big Island Rd. • Goshen, NY 10924
All Size Consumer Packs
E-mail: [email protected]
Call Andrew Urbanskior Andrew Urbanski, Jr.
800 295-4601845 651-7915
Fax 845 651-1966
Why should my organization focus on supply chain management?
CO
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THE FRESH PRODUCE SUPPLY CHAIN
INFORMATION
COORDINATE / COLLABORATE / MEASURE
RETURNSPR
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Figure 1.
Feature - Front 9/9/05 1:55 PM Page 12
Enhanced effectiveness is a primary
driver of supply chain initiatives. The
relationship–building aspects of supply
chain management helps organizations
better understand the needs and expecta-
tions of their customer base. In turn, com-
panies can collaborate with their suppliers
and customers to develop processes capa-
ble of meeting these requirements. The
result will be higher quality service, with
less variability and waste, in the form of
• better product availability
• shorter order cycle times
• faster, more reliable transit times.
“There’s an old saying in the produce busi-
ness – you can’t sell from an empty wagon,”
says Mike Maxwell, president of Procacci
Brothers Sales Corp., a Philadelphia, PA-
based produce wholesale distributor.
“Without strong logistics capabilities, we can’t
get product from our suppliers to sell to our
customers.” Procacci Brothers takes a hands-
on approach, working closely with transporta-
tion providers and their drivers to ensure
needed capacity and maintain visibility of in-
transit product. The net result is timely, cost
effective deliveries – no small feat, given cus-
tomer trends toward appointment-based
receiving with narrow delivery windows and
penalties for noncompliance.
Of course, supply chain quality improve-
ment can be expensive if you do not simulta-
neously achieve efficiency. Supply chain
partners must work together to maximize
resource productivity, develop standardized
procedures and eliminate duplicate efforts.
Such steps will help minimize waste, drive out
costs and achieve tremendous efficiencies in
the supply chain without sacrificing customer
service. Supply chain efficiency initiatives can
lead to the following benefits:
• Faster inventory turnover
• Rationalized product handling
and inspection
• Greater equipment and facility
utilization
Ballantine Produce, a major producer and
marketer of tree fruits and grapes located in
Sanger, PA, recognizes the importance of sup-
ply chain efficiency. Given its goal of deliver-
ing a fresher product to the retailer, the
company needs to turn product faster and
more efficiently. In response, Ballantine
has implemented a warehouse management
system to more effectively manage inventory
levels in its supply chain. “In the past, we
never really had any visibility of how much
inventory we had on hand and the associated
costs. Now we do,” says David Silva, director
of information systems. In one application,
Ballantine is working to reduce the amount of
packaging carried over to the next season,
which will lead to lower inventory carrying
costs and reduced obsolescence.
Finally, the goal of integration drives orga-
nizations toward supply chain management.
To overcome the challenges, conflicts and
complexities inherent in most supply chains,
internal and external alignment are needed.
When senior-level executives align supply
chain capabilities with internal business strate-
gies and other core functions, the opportunity
to create greater value increases. Also, as
companies work together to synchronize
critical activities, establish collaborative
strategies and plans, and use technology to
share real-time knowledge, supply chain
benefits can be maximized. Potential inte-
gration outcomes include:
• Improved demand planning accuracy
• Optimized total cost of ownership
• Standardized processes and metrics
Of the three drivers, integration is the
most difficult to pursue and remains a
future opportunity for most organizations
in the fresh produce supply chain. Dell Inc.
is one of few organizations that have achieved
a high level of supply chain integration
and the benefits that it brings. Through
a long-term commitment and focus, Dell
has developed the real-time ability to
align supplier inventories, factory capacity
and logistics capabilities with each computer
ordered. As a result, supply is balanced
with demand, customers are served in
a timely fashion and potentially obsolete
inventory is avoided.
As the industry examples clearly show,
proper execution on the key supply chain
drivers generates tangible benefits across the
supply chain. An issue remains regarding the
OCT/NOV/DEC 2005 BLUEPRINTS — 13www.bluebookprco.com
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Feature - Front 9/20/05 1:44 PM Page 13
scope of these benefits. While short-term
improvements in customer satisfaction and
supply chain costs are being achieved, what
about greater profitability and enhanced
shareholder value?
The answer is positive for both issues.
Using an adaptation of the strategic profit
model, it is easy to demonstrate that suc-
cessful supply chain initiatives contribute
to greater financial performance. For exam-
ple, a successful effort to accurately match
supply and demand through collaborative
forecasting creates not only supply chain
improvements, it also positively impacts
revenues and costs as well. The net result is
higher profitability as highlighted in
Figure 2.
In terms of shareholder value, a 2004
study by San Francisco, CA-based
Montgomery Research Inc. of 636 global
organizations determined that a direct rela-
tionship exists between an organization’s
financial success and the depth and sophis-
tication of its supply chain. They found
that organizations with superior supply
chain performance enjoyed a compound
average growth rate (CAGR) of market
capitalization between seven and 26 per-
centage points higher than their industry
average. Conversely, organizations with
weak or deteriorating supply chain capabil-
ities had a CAGR that trailed industries
averages from two to 25 percentage points.
While supply chain management looks
straightforward on paper and the potential
benefits are compelling, the real challenge
is the development of strong supply
chains. Part of the problem
exists because companies have
been performing individual
functions – procurement, pro-
cessing, transportation and
warehousing – successfully for
many years. However, in a recent
Supply Chain Management Reviewarticle, Dr. Robert Trent, supply
chain management program
director at Lehigh University
in Bethlehem, PA, reported
that many organizations fail to
view them as interrelated
activities that must be aligned,
coordinated and synchronized –
the essence of effective supply
chain management.
Aligning the activities
requires preparation and
patience. The following five
steps will help organizations
begin the journey toward supply chain
management.
Step 1 – Develop the vision. The tran-
sition begins when an organization recog-
nizes the value-adding opportunities that
supply chain management can create.
Someone within the organization must
take the time to learn the concepts,
articulate the benefits and generate inter-
est in moving forward. In short, this
visionary needs to sell the top manage-
ment of the organization, its suppliers and
customers, that supply chain management
will improve the competitive position of
all involved.
According to “What Works: More
Green from Green Beans,” by G. Pascal
Zachary, Vegpro Kenya, a Cargo Village,
Kenya, vegetable producer and processor,
has discovered that supply chain manage-
ment methods can help the company
exploit new opportunities. The company
moves 30 varieties of freshly picked veg-
etables to a facility inside the Nairobi
airport, where employees wash and sort
the produce. Instead of sending bulk
quantities to regional markets, the
company cuts, mixes and packages
the goods in store-ready containers that
are labeled and bar coded. The product is
shipped via airfreight to Europe in this
two-day field to store shelf supply chain.
Not only are Vegpro and European
grocers able to fulfi l l the growing
demand for ready-to-eat fresh produce,
14 — BLUEPRINTS OCT/NOV/DEC 2005
How can my organization adopt a supply chain perspective?
SUPPLY CHAIN BENEFIT
Increased forecast accuracyIncreased revenues
Reduced lost sales
Reduced variable costs
IncreasedProfits
Reduced fixed costs
Inceased on-time, complete delivery
Inceased customer responsiveness
Inceased in-stock availability
Reduced inventory carrying costs
Reduced shipment expediting costs
Reduced inventory investment
Reduced facility investment
INCOME STATEMENT IMPACT NET RESULTFigure 2.
Feature - Front 9/20/05 1:44 PM Page 14
they are generating higher margins
in the process.
Step 2 – Establish commitment.Supply chain management success
is dependent upon broad accep-
tance and support. Top manage-
ment must play an active role in
the process both financially and
strategically. First, they must sup-
port the development of key
resources – people, technology and
processes. Second, they must
acknowledge that supply chain
management is a key ingredient of
success, incorporate supply chain
issues in strategic plans and foster
strategic alliances with key suppli-
ers and customers. These top-level
actions convey a critical message
that supply chain management
must be understood, accepted
and integrated within and
across organizations.
The Harvard Business Reviewreported that a prime example of
top management commitment has taken
place within a major manufacturer of
retail, foodservice and food ingredients
products. During a strategic reorganiza-
tion of the company, the CEO recognized
the need to streamline the supply chain in
order to complete the organizational
transformation. He created a senior vice
president of Integrated Logistics position
and gave the new executive a key role on
an interdisciplinary team that is working
to transform the organization’s disparate
channels into a streamlined supply chain
with common processes and technology to
better serve customers.
Step 3 – Marshal the resources.Turning the supply chain vision into
reality requires more than interest; it
requires a commitment to assembling
key resources. First, identify the key
components—people who possess supply
chain skills, information technology
that promotes real-time information
access and supply chain processes that
provide efficient flows (see Figure 3).
Next, determine if these capabilities
exist in the organization or can be
developed internally. If development
time and cost is too steep or there are
internal barriers to success, leverage
the expertise and capabilities of supply
chain partners. Once the resources have
been identified, link them together in a
well-defined network.
A prime opportunity exists in the deliv-
ery component of SCM. While produce
wholesalers and retailers have in-house
procurement expertise, transportation may
not be their strong suit. Rather than build-
ing relationships with individual carriers
and installing transportation management
system (TMS) software, these organizations
could leverage the skills and technologies
of third-party logistics (3PL) firms.
“Customers look upon 3PL firms like us to
provide capacity, maximize cube utilization,
coordinate shipments and manage expe-
dited freight,” says Rob Goldstein, presi-
dent of GenPro Transportation Services in
Newark, NJ. “Our TMS helps with rout-
ing, communication, tracking and quality
assurance. The technology creates efficient
product flows.”
Step 4 – Get the ball rolling. Just like
Rome, Wal-Mart’s synchronized supply
chains weren’t built in a day. Organizations
should develop supply chain relationships
with a select group of key suppliers and
customers. The partners should focus on an
important, but manageable issue that is
impacting supply chain performance.
Next, apply appropriate supply chain
techniques and/or tools to the problem.
The key is to keep initial projects realistic
in scope to gain valuable experience and
minimize costly mistakes.
According to a recent article in Logistics
OCT/NOV/DEC 2005 BLUEPRINTS — 15www.bluebookprco.com
THE FOUNDATION — A WORKING KNOWLEDGE OF SUPPLY CHAIN CONCEPTS AND BENEFITS.
PEOPLE
• Strong supply chain knowledge& vision
• Able to manage key relationships
• Authority to assemble needed resources
• Creative problem solving skills
PROCESSES
• Provide efficient flows of product,data and $
• Responsive to unique customerrequirements
• Drive developmentfrom business strategy
• Establish common goals and metrics
TECHNOLOGY
• Links key partners for real-time dataaccess
• Provides visibility across supplychain
• Facilitates shared planning processes
• Optimizes decisions
INTEGRATEDSUPPLY CHAINCAPABILITIES
Figure 3.
Feature - Front 9/9/05 1:55 PM Page 15
Today, Chiquita Fresh North America,
based in Cincinnati, OH, used this con-
trolled, go slow approach in its adoption
of the collaborative planning, for casting
and replenishment (CPFR) strategy. CPFR
is a major initiative that attempts to link
supply and demand, improve end-to-end
visibility, promote information sharing
between partners and create a more con-
sumer driven supply chain. Chiquita is
initially focusing on the replenishment
aspect of CPFR, using a transportation
software solution to match volume with
demand, balance inbound and outbound
freight and better manage on-time perfor-
mance to customers, according to Deverl
Maserang, vice president of Global Supply
Chain Strategy. As the process improve-
ments and information integrity are vali-
dated, Chiquita will expand collaboration
and information sharing with its supply
chain partners.
Step 5 – Monitor the results.Assessment of performance is critical to
understanding the impact of the supply
chain initiative. Metrics that span the sup-
ply chain to capture process performance,
malfunctions and variation should be
employed. A key misstep in many
organizations is to collect data and
measure performance but not to use the
results. Performance shortfalls should
be analyzed for root causes and process
modifications implemented if needed.
Positive outcomes should be used to
establish credibility in the organization
and build support for additional supply
chain initiatives.
Supply chain management is a field that
presents vast opportunities and challenges.
The benefits that can be gained are tangi-
ble and of keen interest to company execu-
tives. However, supply chain management
is not an overnight solution that provides
an immediate return on investment. As
Dr. Bernard “Bud” LaLonde, Professor
Emeritus of Logistics at Columbus,
OH-based Ohio State University wrote,
“There is no quick formula for successfully
integrating the supply chain. It takes time,
careful planning and a capacity for making
the right decisions.”
16 — BLUEPRINTS OCT/NOV/DEC 2005
Dr. Brian Gibson is an Associate Professor of
Logistics at Auburn University and a former
logistics manager in the retail industry. He is
active in supply chain executive education,
research and consulting.
BP
Without question,Wal-Mart is oneof the undisputed
pioneers of supply chain man-agement in the retail industry.The organization has been mov-ing toward supply chain excel-lence for two decades through
technology investment, relationship building and strategic innovation. Here are just a few of its early forays into supplychain management:
• Technology — According to Business Week, a 1985investment of $16 million in satellite technology provided a pri-vate network to more effectively link their stores and headquar-ters. It also laid the foundation for Wal-Mart to distribute pointof sale information across their supply chains, manage inven-tory more effectively and facilitate rapid replenishment.
• Relationships — During the same era, a senior executivefrom Proctor & Gamble facilitated a unique liaison with Wal-Mart on a two-day canoe trip with Sam Walton. Their conver-sations revealed that both companies had a strong customerfocus, but no coordinated approaches to serving customers.There was no sharing of data and technology, joint planningor systems compatibility. In an effort to build a long-term, customer-focused relationship, top officers of the companiesdeveloped a collective vision of the future. Eventually, aBentonville, AR-based Proctor & Gamble/Wal-Mart team,
composed of representatives of each business function, wasestablished to implement this vision.
• Innovations — It was the Proctor & Gamble/Wal-Martteam that developed the well-known quick replenishment sys-tem. Capitalizing on Wal-Mart's state-of-the-art information sys-tems, which instantly capture movement data on all brands andsizes and stores, the team devised a way to trigger the replen-ishment process off actual sales. Instead of sending sales repsinto stores, P&G examined the data for itself, created the orderand shipped it as approved. The linkage allowed P&G to cus-tom produce and ship to demand, substantially reducing inven-tories for both parties. This supply chain innovation is nowbeing used throughout the retail industry to improve in-stockavailability with lower inventory levels.
During the subsequent years, Wal-Mart has continued tomake supply chain management a core competency and com-petitive advantage of the organization. From its early adoptionof electronic data interchange, material handling technologiesand time-based strategies, to their current rollout of radio fre-quency identification processes, Wal-Mart is at the forefront ofretail supply chain management. The result? Wal-Mart benefitsfrom significantly higher fill rates and lower fulfillment costs thanits competitors, some of whom are a decade or more behind inthe development of sustainable supply chain capabilities.
Source: Anonymous, “Pritchett on Quick Response,”Discount Merchandiser, Vol. 32, No. 4, 1992.
SUPPLY CHAINPIONEER
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