Should supply chains be tactical or strategic?

By Gary Forger, Editorial Director -- Modern Materials Handling, 5/1/2007

The other day I came across an interesting report: “SCM 2010 and beyond: Mapping the future path of supply chain management” from professors at Michigan State, Iowa State and Texas A&M.

It says most supply chains today are tactical and focused on cost reduction and on-time delivery. I couldn’t agree more. In fact, the vast majority of practices, metrics and issues covered in this month’s food and beverage installment of our “Industry Survey Series” are clearly tactical. And I haven’t heard from anyone that we’re using the wrong measures to benchmark industry in these areas.

However, the report also says supply chains of the future will have to address broader issues and demands ranging from managing relationships and process development to product design.

“The goal of this future supply chain is not simply efficiency (doing things for less); it is effectiveness (doing the right things). It is a supply chain where managers recognize that SCM (supply chain management) can be a core competency and where one of the goals is to develop a supply chain where its capabilities support current strategic objectives and enable the firm to better serve its critical customers.” So says one of the report’s authors, Steven Melnyk, professor of marketing and supply chain management at the Eli Broad School of Management at Michigan State.

Melnyk also recently discussed the findings at the MidWest Supply Chain Management Conference and Exposition at Steelcase University. Here are some of his comments:

• Something is wrong with a supply chain where suppliers are going bankrupt because the pressure to cut costs rests with them.

• Innovation is more important than cutting costs. And radical innovation is what’s needed.

• You cannot have radical innovation in a lean system. You need slack for radical innovation… Lean is out.

• Today’s supply chain systems are not lean at all, but fragile. If it works right, it’s great. But if one link is upset it all falls apart.

Now that’s fairly provocative stuff. (E-mail Steven Melnyk for the full report.) Clearly, Melnyk thinks there are a lot of common supply chain practices that are counterproductive. Which brings up the question: Are current cost savings measures actually reducing overall supply chain effectiveness? Answering that is a key first step to deciding if your supply chain should be tactical or strategic.

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• Thanks for posting parts of the report. Just to clarify things. First, what I was trying to do was to identify the paradoxes that plague most supply chains. The first paradox is that of the measurement paradox. We measure performance in terms of cost savings at the firm level. Such a perspective can cause us to be locally optimal but globally sub-optimal. We can observe great cost savings at the firm level, while also causing our suppliers to go bankrupt (that activity is not measured). We also measure and focus on cost savings, while ignoring cost avoidance. Second, we are continuing the SCM 2010 initiative and are expanding it to Europe (June 2007 in Switzerland) and the East Coast of the United States (the Darden School in October 2007). We are also planning two other phases which should become finalized within the next month. If you are interested in these studies, please contact me, Stevenn A. Melnyk, at melnyk@msu.edu.

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  Thanks for posting parts of the report. Just to clarify things. First, what I was trying to do was to identify the paradoxes that plague most supply chains. The first paradox is that of the measurement paradox. We measure performance in terms of cost savings at the firm level. Such a perspective can cause us to be locally optimal but globally sub-optimal. We can observe great cost savings at the firm level, while also causing our suppliers to go bankrupt (that activity is not measured). We also measure and focus on cost savings, while ignoring cost avoidance.
  
  Second, we are continuing the SCM 2010 initiative and are expanding it to Europe (June 2007 in Switzerland) and the East Coast of the United States (the Darden School in October 2007). We are also planning two other phases which should become finalized within the next month.
  
  If you are interested in these studies, please contact me, Stevenn A. Melnyk, at melnyk@msu.edu.

  
  

  
  Steven A. Melnyk - 2007-11-5 09:00:00 EDT
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