Part - I

Looking to increase market share, grow profits, and gain strategic advantage? Then you want to become a supply chain master. These leaders have put supply chain competency at the very heart of their business model, creating supply chain and service strategies that drive additional revenues. Here's how they do it, and what you can do to get on the mastery track.

Today's customers are significantly reducing their supplier bases, providing the opportunity for the most capable suppliers to seize huge market share gains. The "win" factor in gaining these new revenues is a new business model built around inter-company supply chain innovation, a process that we call "supply chain mastery." Supply chain mastery provides an effective means of achieving market share gains, customer intimacy, and enduring advantage. However, few companies are achieving supply chain mastery because most managers are focused on the wrong goals; they are confusing operating efficiency with mastery.

To achieve supply chain mastery, a company needs to redefine its strategy in order to make supply chain capabilities the core of the business model. This requires both creating a new strategy and bringing the company's other core activities into alignment with this new business model-most importantly, account selection, in-customer operations, channel strategy, core operations capabilities, and management/organization structure. All of these activities must undergo sweeping change. Mastery creates a distinctive business model that shifts the prime objective of supply chain management from cost control to revenue enhancement.

Companies that have successfully mastered their supply chains have realized documented gains measuring up to 35 percent in market share. However, most supply chain managers today are stuck in what we call the "efficiency trap"-that is, they focus inwardly on operational cost control, rather than on creating supply chain and customer service strategies to drive additional revenues. Supply chain mastery involves major changes in both company strategy and the overall business model. Yet because many supply chain managers are inexperienced in these areas, they fall back on the familiar pursuit of cost reductions instead. At the same time, most senior executives do not systematically think through how to reinvent their business models to make supply chain mastery the core engine of differentiated market positioning and sales growth.

This article explores the essence of supply chain mastery through the successes of three acknowledged supply chain leaders. It then outlines the five key activities that companies must undertake to become true supply chain masters.

We have seen many promising supply chain innovations that have failed or were short-lived because they did not exploit the five key leverage activities highlighted here. We have chosen the examples of Dell, Baxter (now part of Cardinal Healthcare), and Procter & Gamble because they achieved success by utilizing the key levers and because we have been able to chart their progress over a number of years.

Dell Computer. In 1994, Dell was a struggling second-tier PC maker. Like many others, the company ordered its components in advance and manufactured to inventory. Then Dell began to implement a new business model. It converted its operations to a build-to-order process, eliminated its inventories through a just-in-time system, and sold its products directly to consumers. The results were spectacular. By putting these new supply chain capabilities at the core of its strategy, Dell developed a supply chain mastery that went far beyond the simple pursuit of efficiency and asset productivity. However, the company had to make a series of very difficult strategic trade-offs to bring its functional activities into alignment with its new business model.

Baxter. In the mid-1980s, Baxter, the hospital-supply company, mastered its supply chain by developing a powerful new type of partnership with its hospital customers. In one of the first and most widely followed vendor-managed inventory systems, the company developed a new strategy for managing its customers' inventories within their hospital facilities. Baxter used this supply chain innovation, then called the Stockless System, to fundamentally redefine its business. The company moved from an eroding position as a supplier of increasingly commodity-like products subject to constant price wars to a new position as a highly differentiated provider of value-added services.

Procter & Gamble. P&G used supply chain mastery to carve out strong, lasting competitive advantage. The company first partnered with Wal-Mart to develop a pioneering continuous replenishment system. Through this system, P&G replenishes Wal-Mart's facilities without purchase orders based on the retailer's product movement data. Based on this experience, P&G systematically shifted its strategic focus toward supply chain-based service innovation-and in the process transformed both the consumer products and retail industries.

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Source: The Net