Supply Chain Management

1. Smart Supply Chains
Supply chain management is a key differentiator
for corporations around the globe—and there’s
a whole new world of possibilities
By Bill Shepard
S
ince its origins in the 1980s, the field of by forecast demand, is being replaced by a ‘pull’
supply chain management has emerged as a view where customers initiate supply chain decisions,
strategic game-changer for enterprises around configuring products and initiating orders that pull
the world. Now, experts say, it’s poised to play product through the chain,” says Professor John (Jack)
an even bigger role. Nevin, executive director of the Grainger Center for
Supply chain management encompasses a broad Supply Chain Management at the Wisconsin School
range of fundamental interactive processes in product of Business. “In a pull-oriented supply chain, demand
design, procurement, production, distribution, and signals are collaboratively shared with key supply
demand management. chain partners.”
The promise of supply chain management is Nevin says supply chain management responds
equally wide ranging: to deliver the right product to demand as it occurs, as opposed to responding
in the right quantity at the right price to the right to delayed orders or forecasts: “It integrates demand
customer at the right time at the lowest-possible supply signals throughout the supply chain,” he says.
chain cost. In its early days, a “push” model of supply chain
“A ‘push’ view of supply chains, where product management was “divided into distinct silos—product
and materials move toward the final market, driven development, procurement, production, logistics,
8 ❖ UPDATE Spring/Summer 2010

2. Nevin cites Hewlett-Packard as an excellent
example of the value chain in action, noting that HP
redesigned its products and processes to reduce costs
and add value.
“They’ve condensed all of their sourcing,
reduced the number of motors and other parts in
their printers, and redesigned them so that there is a
base unit module that can be further assembled and
sales, and marketing,” explains Verda Blythe, director customized in distribution centers around the world,”
of the Grainger Center. By the 1990s, a new supply
chain management model had broken down the silo
Nevin explains. “They started at the design stage, and
established outright how products would be sourced, Payback
walls, she says, enabling customer-focused information produced, assembled, and distributed.” What’s the impact of skilled
to be shared among the distinct functional areas of Lean thinking and process improvement also play supply chain management?
companies to meet customer demand. key roles in the value chain, notes Scott Converse, According to benchmarking
In recent years, businesses using supply chain director of technology programs in the business data from AMR Research, a
management gradually have shed the linear model school’s Executive Education unit, and program global authority on supply
of pushing raw materials and labor into one end of director of its supply chain management certificate chain management, the
the chain in order to produce finished products at the series. most-advanced “demand-
other end. “At every step, you identify whether it involves sensing” companies enjoy
Imagine three overlapping circles representing an activity that the customer would be willing to pay these advantages:
supply, demand, and products/services. These three for,” says Converse. “So you’re identifying re-work, ►► 10 percent more revenue
domains are interconnected through demand-driven excess movement of goods and services, excess
►► 5
to 7 percent better
networks encompassing customers, employees, and transportation, idle time and wait time, and reducing profit margins
suppliers. The networks share real-time information those types of things to add value to the product or
►► 15 percent less inventory
about everything from customer orders, to parts and service.”
labor, to inventory levels and distribution channels, Focusing on customer needs and feedback is
to customer requests for product improvements and integral to all successful value chains.
innovation. In short, these networks efficiently respond “It is the supply-demand balance being achieved
to customer demand signals, whether they relate to up and down the chain, from the consumer back to
producing existing products or innovating new ones. the source, and value is created at every transaction
“Supply chain management enables us to along the way,” says Kevin O’Marah, group vice
negotiate the best pricing in the industry,” says Evan president, supply chain research at AMR Research,
Smestad, MBA ’04, strategic procurement manager who serves on the Executive Advisory Board of the
at Hewlett-Packard. “You’re not following the market, Grainger Center. “So, when you buy a Happy Meal
you’re setting the market. And that gives you a greater from McDonald’s, the value provided in reverse is the
advantage over your competitors.” customer knowledge provided to McDonald’s from
its Happy Meal data—for example, that drinks should
Value chains: focusing on be smaller, or that different plastic toys should be
the end customer
included. Value is created in the transaction, and that
These days, companies are adopting the “value
always is a two-way street.”
chain” concept, coined by competitive strategy expert
At Cisco, Inc., Customer Value Teams (CVTs) reflect
Michael Porter, as part of their overall supply chain
an intense customer focus. “CVTs are made up of
management operations and strategy. In essence, this
dedicated value chain experts focused exclusively on
means building value into every step of planning,
proactively connecting Cisco value chain capabilities
sourcing, making, and delivering products and
with our largest customers and partners,” says Karl
services.
Braitberg, vice president of demand management,
UPDATE Spring/Summer 2010 ❖ 9

3. planning, and customer operations. Braitberg serves “Company after company used supply chain
on the Grainger Center’s Executive Advisory Board. management to take huge costs out of the system
“Each team is focused on delivering personalized, when the recession hit,” says Nevin. “Harley-
high-touch, customer value chain solutions,” he says. Davidson, for example, closed its distribution center
“These teams are accountable for driving customer- and outsourced it. It also placed its transportation
specific metrics throughout the value chain.” operations with third parties.”
Supply chain management has made companies
Trends and challenges more resilient in tough times.
Increasingly, businesses and organizations are Quraish Baldiwala, MBA ‘01, is the commercial
discovering the critical role that supply chain director of strategic markets for Abbott Nutrition, a
management plays in responding to new challenges, Chicago-based division of Abbott Laboratories. He
which are shaping new trends in the field. lists several industry trends that developed over the
past two decades: “Globalization, focus on emerging
markets, and the decoupling of the supply chain
into a web of autonomous entities designed to work
Grainger Center for together.” Other aspects of important trends he cites
Supply Chain Management are growing efforts by companies to offset higher
costs in developed countries, take advantage of a
The Wisconsin School of Business has one of the only endowed,
growing middle class overseas, and developments
university-based centers specializing in supply chain management
in transportation and information systems that have
in the United States—the Grainger Center for Supply Chain
allowed remote supply chains to function.
Management.
“Through the economic crisis, not only have we
The center supports an MBA career specialization in supply
been able to ride it out, but supply chain management
chain management, an undergraduate specialization, and assists
has enabled us to continue our cost-saving initiatives
faculty research in the field.
to provide top-line dollars to invest in other areas, like
Its MBA offering has earned particular acclaim in various
RD,” says Smestad. “In fact, as we’ve grown over the
publications including U.S. News World Report, Gartner/AMR
last five years, it has tripled that ability, if not more.”
Research, and Supply Chain Management Review. Average starting
Other supply chain trends have stemmed from
salaries of its graduates are consistently the highest among peer
the challenges of political, economic, or other
schools, ranging from $80,000 to $110,000.
vulnerabilities in overseas markets.
The center is known for close ties to industry. Its Executive
“In the last few years, with escalating global risks,
Advisory Board comprises senior executives from firms recognized
the need to have effective risk-mitigation programs
for excellence in supply chain management.
is paramount,” says Braitberg. “A crisis in a distant
Verda Blythe, MS ’02, the director of the Grainger Center, is an
region can now spread very quickly across the world
alumna of the program. According to Blythe, the center’s reputation
economy, creating tremendous turbulence.”
and the growing importance of supply chain management have
In response, companies have diversified their
increased the demand for supply chain management education
supply bases and located them throughout the world,
and talent. Blythe says, “I feel confident telling prospective students
rather than basing them in one location, to spread risk.
that if they want to become a leader in world-class supply chain
“In order to reduce fuel costs or product safety-
management, the Grainger Center is the place to start.”
related risk stemming from tainted or unsafe products,
To learn more about the Grainger Center for Supply Chain
some U.S. companies have moved operations,
Management and careers in supply chain management, visit
suppliers, or other parts of their supply chains from
bus.wisc.edu/grainger.
China to Mexico,” comments Blythe.
Jennifer Schultz, MBA ’08, is in the Supply Chain
Leadership Development Program at Raytheon Co.
She points to another growing trend: supply chain
10 ❖ UPDATE Spring/Summer 2010

4. “A crisis in a distant region can now spread
very quickly across the world economy,
creating tremendous turbulence.”
optimization. Essentially, supply chain optimization
strives to maximize commodity technology, while at
the same time reducing the number of suppliers for
a commodity, giving highest priority to the highest-
performing suppliers.
“Supply chain optimization is extremely important,
especially when it comes to global sourcing and
logistics,” says Schultz. “Who are my key strategic
suppliers, and what do they bring to the table? When as insights on variability of demand throughout the
we concentrate on those issues, we’re going to day, week, or month, overall supply and demand can
enhance efficiency in the supply chain.” be managed better. Congestion can be controlled and
better planning can be developed for roadways and
Expanding into non-traditional areas public transportation usage.”
Supply chain management has grown in scope and Not only can these smart solutions enhance
influence largely within the realms of manufacturing the world around us, but they’re also generating
and related sectors. Increasingly, there are additional considerable profits for IBM.
areas where supply chain management is having an In fact, supply chain management in
impact, providing solutions, and driving profits— non-traditional areas like business consulting has
especially in new markets. helped Big Blue transition from a manufacturing-based
Take IBM, which has successfully applied supply company into a knowledge-based enterprise.
chain management principles and practices to provide “When I started at IBM years ago, the majority
solutions in a host of non-traditional areas beyond of our profits came from hardware,” says Loehr. In
manufacturing. contrast, he notes that hardware accounted for 15
“For IBM, our focus is on the trend of ‘smart’ percent of IBM’s gross revenues for the first quarter
supply chains in support of ‘smarter planet’ of 2010, whereas consulting and services generated
solutions, which are rooted in the basic elements of about 60 percent.
‘Instrumented,’ ‘Interconnected,’ and ‘Intelligent,’” says The IBM roadway example points to other
Steve Loehr, vice president of operations and strategy, non-traditional fields where supply chain management
value services. will likely have a significant impact: social and
Loehr is another supply chain management environmental responsibility.
expert who serves on the Grainger Center’s Executive “Supply chain management is going to be
Advisory Board. He cites IBM’s consulting work for responsible for managing initiatives related to broader
the Swedish National Road Association in Stockholm social issues,” says Nevin.
and other cities around the world to reduce road IBM, Hewlett-Packard, Timberland Co., Starbucks,
congestion and vehicle emissions. and many other companies are incorporating the goals
“Think of cars on roads like one big distribution of sustainability and ethical labor practices into their
network within a supply chain, or multiple supply chain management strategies and practices,
components moving along various assembly lines demonstrating that it is possible to “do the right thing”
inside a factory,” says Loehr. “By equipping roadways while delivering superior returns to shareholders.
with instrumentation to both track and charge for “Whether you’re scoring suppliers based on their
usage, interconnecting the system to manage the carbon footprints or energy usage, or reducing waste
overall flow, and then applying analytics/intelligence in your own operations, supply chain management
to both provide real-time feedback on usage as well makes it happen,” comments Converse.
UPDATE Spring/Summer 2010 ❖ 11

5. Helping Firms Hone
Their SCM Expertise
Another non-traditional sector where Even when companies recognize the importance
supply chain management can make of supply chain management, their efforts
to pursue SCM improvement or technology
a significant impact is the U.S. health solutions can fall short. To help translate strategy
care system. into successful practice, the business school’s
Executive Education unit offers one of the
nation’s broadest offerings of courses in supply
Many companies have built recycling into different chain, purchasing, and transportation/logistics. A
parts of their supply chains. For example, Nike sampling includes:
reprocesses discarded athletic shoes to create rubber
►► S
upply Chain Leadership focuses on how to
for soccer fields, foam for playground surfaces, and
identify and minimize uncertainty in supply
fabric for padding under basketball floors. chains to improve customer satisfaction and
Another non-traditional sector where supply chain lower costs.
management can make a significant impact is the U.S.
►► S
trategic Global Sourcing provides insight
health care system.
on the best mix of domestic, near-shore, and
“In health care, there is a lot of waste in inventory far-shore sourcing, and practical advice on
and sourcing,” says Blythe. “Typically, hospitals how to execute the mix effectively.
and health care providers don’t buy directly from
►► I
ndustrial Transportation Management offers
manufacturers—they buy from distributors. So this
metrics, tools, and methods to integrate a
results in multiple layers of inventory.”
logistics and transportation network into the
Blythe suggests that a first step might entail overall supply chain for quicker response
improving electronic communications between and lower total costs.
hospitals and suppliers at the front end of the supply
chain, thereby facilitating more direct and efficient Information on these courses, related offerings,
demand signals that will reduce response times and and earning a professional development certificate
inventories. Sourcing and inventory management in supply chain management is available at exed.
would be other significant areas ripe for improvement wisc.edu or by calling 1-800-292-8964.
via supply chain management.
O’Marah agrees. “Patients don’t communicate their
demand information directly back into the system— Whether supply chain management can
they communicate their needs back through the reform America’s intractable problems with health
insurance industry, which distorts the demand signal,” care remains to be seen.
he explains. “The insurance industry collects all that But one thing is certain: supply chain
demand data but distorts the demand signal with rules management is not a flashy fad that will fade
about what it will and will not pay for.” away. It already has transformed companies
O’Marah envisions a solution involving demand- around the world, providing a strategic platform
driven networks of retail health care suppliers that for meeting customer demand through value-rich
would provide routine services, like physicals, directly processes.
to consumers who would pay out of pocket. But, he By offering solutions to environmental and
says, higher-risk procedures, like surgeries, would other problems, it may even make the world a
remain covered by insurance companies. better place.
Bill Shepard is a Madison-area freelance writer.
12 ❖ UPDATE Spring/Summer 2010