Ventana Research: Managing Supply Chains

Supply chains have increased in importance over the past decade. The world's economies are more integrated. More companies can handle more complex supply chains with the help of third-party services and using powerful new information technologies. Consequently, more companies, especially smaller ones, can utilize expanded supplier options. Indeed, some corporations have built successful strategies on the cost, flexibility, and other advantages delivered by superior supply chain management.

In the past, supply chain management was mainly about efficiency, as in how much can we save by making a part internally or by sourcing it externally from one vendor as opposed to another? Today, the focus is shifting to effectiveness -- how a well-operating supply chain can contribute to the organization's performance.

With this change, companies increasingly are turning to supply chain performance management, which is a discipline for understanding, aligning, and optimizing the elements of managing supply chains. This management practice is especially useful in handling the inevitable trade-offs that must be addressed to run a business in ways that support corporate strategy and objectives as well as reduce risk. Using supply chain performance management enables companies to make better decisions because they have a more up-to-date and complete view of their situation and the potential impacts of the decisions they are considering.

Companies with more effective supply chain management capabilities typically have four characteristics. First, they have developed a set of Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs), aligned well to the company strategy, that help to guide individuals in making decisions that will most benefit company, rather than business unit or individual, objectives. Second, they have a high degree of visibility into their supply chains. Third, they manage their purchasing function strategically. Fourth, senior management focuses on supply chain performance management to ensure ongoing engagement by all departments and business units.

Any organization seeking optimum competitiveness and performance must embrace supply chain performance management. To do so, we advise that your company first establish a clear set of objectives for SCPM and determine what weaknesses, if any, exist in the dimensions of your company's people (skills, incentives, and management communication), processes (how it executes manages supply chain performance), information (ensuring that all of the data you need is available and accessible), and technology (the software, hardware, and networks).

Software is a critical part of supply chain performance management because companies need to bring together disparate strands of information to be able to understand and assess situations. They also must have an analytical application to be able to quickly and consistently decide on the best course of action. Some software providers offer a set of capabilities in an SCPM package, while others can supply some or all of the parts without the label. A number of the larger vendors offer some or all of the pieces needed to support more effective supply chain execution -- supply chain management and ERP software for collecting data, data warehouses for staging data, and business intelligence software for creating and managing the reporting, scorecard, and dashboard elements. However, they may not be bringing all of the data together in a way that makes it useful, timely, and actionable.

In a difficult economy, it may feel easier to hunker down and focus only on meeting day-to-day needs. However, improving your company's ability to manage its supply chain function can save money and conserve cash in the short term while positioning it to continue paying dividends when business improves.