Supply Chain Management

By Robert R. Harcourt and Robert W. Hutchinson

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Managers 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 (SCM).

Although 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available to generate sales revenue or to provide consumer goods and health care or public services, excess and outdated products and supplies tie up working capital and storage space, and reduce available funds for investments in plant, people, service delivery, and product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.

Businesses 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.

SCM 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.

SCM 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.

As 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.

Successful 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.

The 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.

Robert 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.




















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