Robert R. Harcourt and Robert W. Hutchinson
often confine their plans for boosting the bottom line to
targets such as reducing headcount and inventory levels
or increasing price points. But with many businesses already
operating at lean levels, and with consumers showing increased
resistance to price increases, more companies are exploring
a comprehensive approach known as supply chain management
businesses must have the products and supplies available
to generate sales revenue or to provide consumer goods
and health care or public services, excess and outdated
products and supplies tie up working capital and storage
space, and reduce available funds for investments in plant,
people, service delivery, and product development. SCM
ties together the businesses that manage the inventory,
from supplier to customer.
that adopt SCM generally view the entire supply chain
as a single, integrated entity. Cost, quality, manufacturing,
delivery, and customer service considerations are shared
by every company in the chain, and inventory is the last
resort for resolving the risk of supply-and-demand imbalances
between suppliers and customers. Under this approach,
a company and its suppliers work together to optimize
the design, planning, production, and delivery of materials
and other resources used in delivering or creating the
end product or service.
also calls for relentless pursuit of improvement, demands
flawless execution, and rewards results. Management needs
vision, a sense of mission, and organization. As part
of the process, the company should develop and implement
appropriate benchmarks and key performance indicators.
may also require certain tools, such as economic value–added
analysis and multiple demand-forecasting techniques that
support collaborative planning and forecasting among customers
and suppliers. Effective SCM processes will be able to
dynamically include new data associated with changes in
demand, costs, times, and capacities, and provide accurate
information about products and processes, including costs,
cycle times, capacities, and lead times.
a general rule, monitoring the supply chain also involves
reviewing metrics such as order fulfillment, inventory
growth, inventory turnover, sales-to-working capital ratios,
accounts receivable collection time, cash generated by
sales, new product revenue, costs of logistics, and customer
ratings of quality and service. Key indicators of logistics
and supply chain efficiency are the amount of inventory
in the pipeline and its velocity through that pipeline.
SCM requires collaboration with customers, suppliers,
and business partners. This means working with vendors
instead of “squeezing” them. It means viewing
them as partners who help manage the sourcing and logistical
risks encountered in any supply chain.
competitive environment is now a battle of supply chains,
not business against business. A new wave of e-business
principles such as demand planning, collaboration, and
online procurement means that industrial suppliers will
align their supply chain processes with manufacturers
that align with retailers, who in turn align with financial
service organizations for funding, investment, and payment
processing. Those companies will likely align with communications
and content providers to manage channels to consumers.
R. Harcourt is an assurance partner and Robert
W. Hutchinson is a director in the risk and advisory
services practice, both at KPMG LLP, New York, N.Y.