Today's global business opportunities require
nimble, sophisticated and global supply chains. And that often means
innovative, strategic partnerships with third-party specialists that can
provide critical supply chain capabilities more efficiently and more
effectively. By Roger W. Dik and Hans Von Lewinski Outlook Journal, July 2002
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 uperb engineering and flawless manufacturing are among
the great strengths of German automaker BMW Group. So the company's
announcement in late 2001 was extraordinary: BMW had turned to an outsider,
Magna Steyr, manufacturer of power trains and other automotive systems, for
much of the engineering and all of the production of the X3, a "sports activity
vehicle" that BMW expects to launch in 2004. Magna will construct a plant in
Graz, Austria, where it will turn out 300 X3s a day.
In essence, BMW has found a partner to take over a function
that was considered the very core of what BMW is as a company. This was
possible through the integration of its so-called "customer-oriented sales and
production system" into the production process of an outside company. Thus all
customer-relevant aspects of a BMW can be delivered to the consumer.
 That BMW would turn over
such a vital link in its supply chain to another company is dramatic evidence
that supply chain management, long regarded as necessary drudgery, has become a
strategic opportunity. Not only can it give companies new options for reducing
costs and improving asset utilization, but it can also drive growth and improve
customer satisfaction.
Global markets, the proliferation of products with shorter
lifecycles, and rising customer expectations have combined to create new
opportunities that require more sophisticated, complex and global supply
chains. And at many companies, some of the most creative minds are working on
reconfiguring the supply chain, a critical exercise that demands the attention
of executives all the way up to the CEO.
Fundamental to this creative thinking is that less is more
when it comes to keeping the critical links of the supply chain in-house. A
host of activities, from sourcing and procurement to manufacturing, logistics
and service management, can now be provided more effectively, flexibly and
efficiently through specialized third-party providers. Like BMW, other astute
companies are calling on outsiders to become essential links in that 40 percent
to 70 percent of the organization that comprise the end-to-end supply chain.
The Art of Partnering Executives who will
deal best with overhauling their traditional supply chain operations are those
who are comfortable with increased specialization. Each product group within
the organization could end up with its own supply line, creating a series of
links weaving inside and outside of the company. Winning companies will be the
ones that can visualize their supply chains as complex, sophisticated,
evolving, frequently mutating networks of partners. The art of partnering will
largely determine which companies succeed.
Consider how some cutting-edge companies have led the way
in forging new supply chain models:
 Zara, one of Spain's largest
clothing manufacturers, has reconstructed its supply chain so that daily sales
data are immediately shared with its stores, its headquarters and its
concentrated production network. The company outsources the most
labor-intensive aspects of its supply chain to small shops. As part of the
exclusive arrangements, Zara provides the shops with the necessary technology
and logistics capabilities to collaborate with other partners in the company's
supply chain. Consequently, a Zara product's lead time, from its design to its
arrival in stores, has been cut from several months to several weeks.
Another example is Microsoft. It has created a new game
console, the Xbox, which competes head-to-head with the Sony PlayStation. But
the giant software creator is not making the new product itself. Instead, it
has partnered with contract manufacturer Flextronics, which collaborated on the
Xbox design and handles the product's manufacturing.
How do senior executives apply this type of revolutionary
thinking to their own companies? We begin with the premise that every company
will benefit from fundamentally rethinking its supply chain link by link and
reconstructing it from scratch—but without any factories, distribution centers
or warehouses that it owns or has relationships with. Leadership needs to ask:
What would the ideal supply chain—the one that would deliver additional
revenues, slash costs and generate substantially greater efficiencies—look
like?
The answers will vary, of course, from industry to
industry, company to company and even year to year. But as executives go
through this tough-minded exercise, they should keep several principles in
mind.
Let Go of the Past
Historically
most supply chains in the United States have been do-it-yourself operations.
Typical corporate practice has been to control product and service flows to
customers by owning the means of production and distribution, including
factories, warehouses and trucks. As a result, as recently as 10 years ago,
only 10 percent to 15 percent of US supply chain assets were owned and operated
by outsiders.
On the other hand, in Europe the fragmented nature of the
market fostered a stronger tradition of subcontracting, particularly for
logistics and transportation (which were especially affected by
country-specific tariff and tax structures, and by customs and other government
regulations). However, there were few outsourcing alternatives from which to
choose.
In both the United States and Europe, supply chains were
considered cost centers. In fact, that's the way many executives continue to
think of them. This leads managers into the efficiency trap, the delusion that
the only way you can improve performance is to shave a little more off your
costs. Companies can go into a death spiral trying to economize themselves into
prosperity by trimming here and there to fix a link that may not be worth the
effort.
Leadership needs to assess whether the organization is best
positioned to make money from its assets or to get more, for less, from
somewhere else. Although reconfiguring your operations—which ultimately will
affect significant numbers of people and involve well-established
investments—is no easy task, your competition could be making plans already
with a partner that's the best in the business.
At times, the rigorous, unsentimental evaluation of the
supply chain will lead to the conclusion that a particularly strong link should
be turned into a profit center. For example, Cat Logistics, a subsidiary of
Caterpillar that distributes its engines, power trains and other spare parts to
remote places around the world, provides the same service for Land Rover and
other companies too.
Walk a Mile in Your Customer's
Shoes
Sound familiar? Nonetheless, it's worth revisiting in the
context of the supply chain. Stand at the end of the chain and look back at it
from your customer's perspective. Are you reaching the customer in every way
you can? Do your distribution channels support one another as fully as they
can? Are you targeting new services that add value for your customers?
For example, buyers of GE refrigerators, dishwashers, air
conditioners and other appliances traditionally purchase them at big retail
outlets that warehouse and deliver the goods to customers. But in 2000 GE
agreed to partner with The Home Depot, which would display—but not warehouse or
deliver—the appliances. After a customer orders a refrigerator at a Home Depot,
GE ships it directly to the customer's home. The resulting inventory savings
are enormous. Moreover, because the giant retailer doesn't have to stock the
appliances, it can display a far greater variety of GE models.
Unpredictability is the norm in the cement business, with
half of all orders from construction sites rescheduled or canceled. But one
cement company turned this to its advantage. Embracing information technology
such as GPS locators and satellite communications, the company cut its fleet of
trucks by one-third while guaranteeing a delivery window of 20 minutes (down
from three hours)—a unique service for which customers are happy to pay a
premium.
Team with the Best
Until
recently, there were limited options for companies looking to hand off
important supply chain functions. However, there is an emerging sector of the
economy that provides contract services for everything from design and
logistics support to repair management and procurement.
One category of companies that barely existed a decade ago
is known as electronic manufacturing services. Flextronics, the partner
Microsoft turned to for its Xbox project, has manufacturing operations in 28
countries. The company produces cell phones for Ericsson, routers for Cisco
Systems, printers for Hewlett-Packard Company and PDAs for Palm. (As of
mid-April 2002, with 11 percent of the electronic services market, Flextronics
was number two in the sector, behind Solectron, which had a 17 percent share.)
Picking the best partner from the multitude now available
can require you to stretch your imagination and perhaps make an unexpected
choice. Rather than compete head-to-head in the unforgiving online retail
environment, Toys "R" Us and Amazon.com inked an arrangement in August 2000
that capitalizes on each company's strengths. Toys "R" Us focuses on
merchandising while Amazon.com draws on its Internet expertise to provide
website development, customer service and order fulfillment capabilities. It
took only a matter of months and minimal upfront costs for the partnership to
be up and running in time for that year's lucrative holiday season.
A perhaps more painful dilemma: Choosing the right partner
can sometimes mean acknowledging that the best option is your direct
competitor. Nestlé, the giant food and beverages conglomerate, competes with
Ocean Spray Cranberries in the fruit juice business. Nonetheless, the two
companies have formed a strategic alliance along part of their supply chains.
Nestlé will eventually move the manufacturing of Libby's Juicy Juice and
Kern's/Libby's Nectars to Ocean Spray plants. The goal is to reduce purchasing
and distribution costs for both companies.
The number of possible partnerships across the supply chain
is seemingly endless, ranging from the simple and short-lived to the complex
and long-term. To deal with the complexities of forming multiple, overlapping
and continuously evolving partnerships, some companies might want to create a
C-level position like chief risk officer or chief relationship officer to
oversee their formation. After all, some of these relationships will be crucial
to business, acting as the eyes and ears or arms and legs to customers and
suppliers around the world.
Allow Technology to Set You Free
One of the reasons executives like to hold on to all the links of the supply
chain is that it is reassuring to be able to shout instructions down a corridor
and get an immediate response. Asia, for example, is a long way off—or used to
be. The Internet, mobile devices and attendant software have made it possible
for companies to stay in constant touch with their partners in real time, no
matter how widely scattered around the globe.
A second reason is that executives are
reluctant to share information that traditionally has been considered sensitive
and proprietary. But recent improvements in Internet security software, secure
networks and other technologies have eased concerns for some. For others, it
will require a more fundamental culture shift, driven from the top, to unlock
the benefits of exchanging information across supply chain partners.
Consider some examples of companies leveraging technology
and information to improve supply chain responsiveness and efficiency. In the
fast-moving high-tech industry, data communications hardware and software maker
Adaptec relies on the Internet for its collaborative design processes, which it
uses to link its California-based designers with suppliers in Hong Kong, Japan
and Taipei. This process has cut design-to-delivery cycles by more than 50
percent and saved $10 million in inventory costs.
Zara's innovative use of technology—equipping all of its
store managers with handheld devices—allows managers to provide real-time
feedback to the designers about what customers are buying. The garment maker
introduces an astonishing 12,000 new designs a year while aggressively managing
inventory obsolescence.
In the days following the September 11 terrorist attacks,
Dell Computer Corporation relied on its Web-enabled supplier network to adapt
quickly to supply chain disruptions. The company increased production at its
factories in Europe and Asia and filled orders from these facilities. In
addition, Dell was able to see its pending orders and fulfill the most
important first. At the same time, customer service representatives could
determine which computer configurations could still be assembled quickly, and
were able to steer new customers accordingly.
Think Differently About the Supply
Chain
Today CEOs have market opportunities their predecessors
could only dream about. Supply chain operations are no longer a given—an
inherited operating model with few alternatives for improvement. Companies have
many more tools, practices and capabilities available to respond to market
opportunities. By assembling best-in-class partners and leveraging leading-edge
technologies, an innovative idea can go from drawing board to market launch in
months.
As an increasing number of world-class companies reevaluate
their supply chains, breaking them apart and picking partners with which to
reconfigure them, the question inevitably arises: Are there dangers in
reconstructing a familiar supply chain that appears to have functioned well for
decades? Certainly.
When you team with a partner, you run some risk of losing
proprietary information, failing because of misunderstandings and cultural
mismatches between partners, or eliminating an internal link that should not
have been cast aside. But the much greater risk emerges when a company neglects
to reevaluate its supply chain, link by link, as a strategic opportunity—while
the competition moves ahead with innovative partnerships. Increasingly, the
ability to sense and respond rapidly to the market through flexible,
high-performing supply chains will be a competitive weapon for any organization
looking to change the game and lead the market.
 Roger Dik, a partner in the Accenture
Supply Chain Management service line, leads the company's global supply chain
value transformation practice. With 20 years of industry and consulting
experience, Mr. Dik advises a wide range of public and private-sector clients
on major supply chain-driven strategic programs designed to strengthen their
competitive position. Based in Boston, he speaks and writes frequently on the
topic of supply chain transformation.
Hans Von Lewinski is a London-based
partner in the Accenture Supply Chain Management service line. He leads the
company's supply chain value transformation practice in Europe, and he oversees
Accenture's supply chain work in the electronics and high-tech industry in the
United Kingdom and Ireland, where he is responsible for the company's computing
and software segment. Mr. Von Lewinski's particular focus is on supply chain
synchronization and channel strategies.
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