The Art (and Science) of Delivery
WHY MORE CEOs ARE BECOMING SUPPLY-CHAIN EXPERTS.
August 1 2004 by Chief Executive
It’s been 21 years since consultants at Booz Allen Hamilton coined the term “supply-chain management.” And it’s taken most of those two decades for many C-level executives to really care.
Can you blame CEOs for thinking that supply chains are the province of the logistics department? After all, supply chains are tactical. They’re sweaty. They require mind-numbing attention to detail.
But now folks in the executive suite are starting to become well-acquainted with the process of getting goods, information and funds from Point A to Point B. They recognize the world has changed. Thirty years ago, it took 24 hours to rack up $10 billion in foreign exchange transactions. Today, the same amount of trade occurs in a single second. Globalization has raised the competitive stakes, forcing companies to compete on more than just product features and price. Companies can achieve competitive differentiation based on how well they deliver the right product to the right place at the right time.
In other words, supply chains are no longer merely tactical. They’re strategic.
At UPS, we have a name for this kind of highly orchestrated, strategic supply-chain management. We call it synchronized commerce, because it requires a high degree of collaboration, trust, precision and accountability among the various supply-chain partners. Synchronized commerce spans every aspect of the business cycle, from sourcing to order processing, warehousing, transportation, delivery and post-sales service. This is bigger than the logistics department. This is about business strategy€¦quot;and setting our businesses free to prosper.
There’s nothing like money to get the attention of CEOs, and it takes a lot of money to move goods from sellers to buyers. About 10 percent of the cost of a typical product is wrapped up in logistics. But that percentage has been coming down, thanks to better automated, better synchronized supply chains. Just-in-time fulfillment€¦quot;combined with sophisticated information-technology systems that speed the flow of goods from suppliers to manufacturers to distributors to consumers€¦quot;has taken the slack out of supply chains. In the past decade, there has been a $4.6-trillion reduction in total business inventory and a 10-percent improvement in order-to-cash cycle times.
More good news: Investors tend to reward companies that run synchronized supply chains. A study by Accenture found that, from 1995 to 2000, the companies with the best-run supply chains had stock market capitalization rates that were 7 to 26 percent above industry averages.
There are other incentives to invest in supply chains besides financial ones. For starters, companies can leverage a well-run supply chain to open new geographical markets or new sales channels. At UPS, we have thousands of customers who lack distribution networks overseas€¦quot;or the capital to build them. Instead, they rely on the UPS network to transport their goods and clear them through customs; to manage their inventory in warehouses near their foreign customer bases; and even to manage their network of suppliers. They gain instant supply chains for instant global presence.
Competitive differentiation is another incentive. Thanks to technology and global competition, edges in product innovation don’t last for long. But companies can set themselves apart by the way they package and deliver their products. For instance, a Japanese manufacturer relies on a logistics partner to kit and configure its digital cameras according to the requirements of individual retail chains. Free memory cards or carrying cases can be packaged with the cameras, enabling retailers to differentiate.
Another strategic benefit is the opportunity to enhance customer service. Some of the most common customer-service challenges€¦quot;like out-of-stock items, inconvenient returns processes and warranty services€¦quot;are really supply-chain issues. Highly visible supply chains able to track the movement of goods, funds and information from seller to buyer enable companies to provide instant answers to their customers.
Although long in coming, this is finally Topic A in the business world. A Google search of “supply-chain management” produced 4.5 million citations. Now that executives are paying attention, we have a golden opportunity to use these chains to set our businesses free. s
Mike Eskew is chairman and chief executive officer of UPS, based in Atlanta.