The New Competition

Very few companies are prepared to handle the new pressures being placed on their supply chains. A recent survey of executives in manufacturing companies found that 91% of them ranked supply chain management as either “very important” or “critical” to the success of their companies. Yet most acknowledged that they had problems with their chains, and only 2% regarded their chains as excellent. When asked about their strategies to improve their chains, 59% reported that their company had no strategy at all. Think about this for a moment: By their own reports, these managers realize that getting the supply chain right is essential, and they know they haven’t done it yet, but most haven’t even formulated a strategy for attacking the problem.

It would be nice to say that these results are unusual, but the same pattern shows up in survey after survey: Companies realize that they are in trouble with their supply chains, but they don’t really understand the problems, much less know how to fix them. Why so helpless? There are lots of reasons, but the root cause seems to be this: No one in the company is responsible for running the supply chain. Engineering designs the product, marketing sets prices and runs promotions, sales cuts deals with customers, purchasing negotiates with suppliers, manufacturing controls the inventories, logistics arranges transportation, accounting handles the cash flow, and so on. All the key activities take place in different groups with different agendas and conflicting goals. Worse yet, most of these groups go all the way up to the CEO before they come under common management. And the CEO is not the right person to be planning and operating the supply chain.

Given this level of disorganization, it’s hardly surprising that supply chains are out of control. The amazing thing is that these chains function at all. Clearly, the first step toward regaining control is to assemble the key decision makers from each group and get them working together to find solutions. Did you notice that all the supply chain successes described in the first section of the chapter started out by forming a team to take responsibility for the chain? That’s no coincidence: Cross-functional teams are a recurring theme in companies that run good supply chains. The most successful companies usually go further by designating a single toplevel executive who has full responsibility for the chain.

Even if a company gets its act together and forms a crack supply chain team, it’s still not ahead of the game. Today, the very nature of competition is changing, and it’s not an easy change to absorb. Ever since the Industrial Revolution, the battles have been company against company, and the weapons have been the techniques of production. Today, that game is largely played out. Good design, efficient production, and quality construction, while not yet universal, have become the basic qualifications for making it into the top ranks. Among the serious players, it’s now the supply chain that makes the difference between winning and losing.

Think about it this way. From the consumer’s point of view, supply chains are irrelevant. All the hardball negotiations about price and terms, all the careful synchronization of deliveries, all the delays and the scrambling to keep products moving down the chain— none of these things matter to consumers. Most of them don’t even know what a supply chain is, much less appreciate the problems of running one. In the ordinary course of events, the only member of the chain consumers ever see is the retailer, and their only sense of what lies upstream is summarized in the notion of a brand. For them, it all boils down to who can sell them the best product at the best price.

From an individual company’s point of view, this is hardly fair. Should a manufacturer be punished because a distributor runs out of stock? Should a retailer lose sales because a producer has a quality problem? But this isn’t about fairness; it’s about winning a new kind of competition. Like it or not, the fates of all the members of a supply chain are becoming increasingly joined. The new competition is no longer company vs. company; it’s supply chain vs. supply chain. If the members of a chain can work together to put the most quality in the consumer’s hands at the lowest price, they win. If not, they lose. Figure 1.5 illustrates this point by showing how a supply chain that is consistently cost-effective across the chain can outperform chains that are superior to it in any one link.

Figure 1.5 Competing Supply Chains

Cast in this light, the conflicting agendas and political infighting among functional departments seem like minor problems. The real challenge isn’t getting your own people to work as a team; it’s getting all the companies in your supply chain to form a larger team that can play and win the new competition. But how do you even approach a problem of this scale? Is vertical integration the answer? Will the techniques of supply chain collaboration do the trick? Is buying more software the solution? This book is here to answer these questions, but I’ll give you a quick preview: Probably not, not likely, and no way.

The new competition is a major upheaval that is affecting every aspect of how companies organize and operate. The required shift in thinking is so great—and the danger of not making the transition is so serious—that the National Research Council commissioned a study to articulate the problem and help prepare American manufacturers to meet the challenge. Their conclusion was that we are in the midst of a fundamental revolution in the nature of business, one that, in their words, “has the potential to alter the manufacturing landscape as dramatically as the Industrial Revolution.” If you want to thrive in this new landscape, you have to understand how supply chains work—and how you can make them work better.

The challenge of mastering your supply chain may be daunting, but it’s not insurmountable. Dell, Wal-Mart, and other supply chain leaders didn’t succeed because they found a magic formula or were managed by business geniuses. They succeeded because they understood the core problems of supply chains, committed themselves to long-term solutions rather than quick fixes, and had the stamina to stick with those solutions until they worked. I can’t help you with the stamina part, but I can explain the problems and show you how to find the best solutions. The next chapter kicks off that process by explaining how supply chains work and why they can be so difficult to manage.

This chapter, "The New Competition", Chapter 1, is excerpted from the book, "Supply Chains: A Manager's Guide" by David A. Taylor. It is posted with permission from publisher Addison-Wesley, copyright 2004".

About the Author
An internationally recognized authority on object technology, Dr. David A. Taylor has written numerous articles on business and technology, given keynote speeches at conferences, and served as the voice of authority for some of the world's leading companies. He is the author four books and coauthor of two others, including the acclaimed Object Technology, Second Edition: A Manager's Guide, (Addison-Wesley, 1998). Before founding Enterprise Engines, Inc., a company that develops supply-chain software, Dr. Taylor worked as a consultant helping Fortune 500 companies adopt object technology.