The New Supply Chain Agenda: The 5 Steps That Drive Real Value
Reuben E. Slone, J. Paul Dittmann, and John T. Mentzer
Thomas J. Goldsby
Slone, Dittmann, and Mentzer embark on an ambitious endeavor to distill the complexity of supply chain management (SCM) to its essence through five pillars: 1) Hiring the right talent, 2) Selecting the appropriate technology, 3) Collaborating internally, 4) Collaborating externally, and 5) Managing change. Each of these pillars calls for a book of its own, but the authors manage to convey the essentials, with ample discussion and examples, in just under 200 pages. How is it possible that such a complex discipline as SCM can be addressed in so few words? To borrow a quip from one of my former professors: You only truly understand a complex topic if you can explain it to your grandmother. Essentially, that’s what Slone, Dittman, and Mentzer accomplish through their synthesis. Fortunately, the authors have a rich reserve of supply chain experience and expertise to draw upon which makes the read not only succinct but enjoyable.
The book pushes off with a focus on supply chain as a primary driver of shareholder value. The authors assert that we, as supply chain professionals, must speak the language of the CEO and the business directors. These corporate leaders understand economic profit and its connection to shareholder value. Supply chain professionals, however, continue to be looked toward for cost savings only, as they allow others to perceive the supply chain merely as a cost center. The authors suggest that “the most neglected pathway to increasing shareholder value runs through the supply chain.” As for which activities compose the supply chain, they note that the supply chain function includes “the activity that manages the flow of information, money, and material across the extended enterprise, from supplier through the functional silos of the firm to customer,” noting that the book generally does not cover manufacturing but rather focuses on the “supply chain outside the four walls of the plant.” This reader takes that to mean “logistics.” After coming to terms with this disparity in terminology, one can appreciate the message that improved management of product availability, delivery, inventory, employed assets, and their associated costs can render improvements in economic profit that drives shareholder value. The authors provide anecdotal evidence and industry data that convincingly back up this assertion.
Particularly valuable in this opening stanza are the in-depth primer on working capital and the comparison between terminologies used by supply chain personnel and the CEO/board of directors. For instance, when CEOs speak of working capital, cash flow, and DSO (days sales outstanding), those in supply chain conventionally speak of inventory turnover. When CEOs speak of NOPAT (net operating profit after taxes) and ROIC (return on invested capital), we tend to speak of fill rate, shipments, and cost. The authors note that when it comes to economic profit, shareholder value, and price-equity ratio, these terms are rarely used or understood by those in supply chain roles – emphasizing that this must change. These observations seem consistent with the findings derived from the “Career Patterns in Logistics” studies conducted annually by professors LaLonde and Ginter at The Ohio State University who, for decades, have asked logistics professionals what short courses they would take if given an opportunity to study a topic for 90 days. Without fail, they find that financial acumen is a weakness that logistics/supply chain professionals would like to address.
The book transitions from this rousing opening salvo on embracing economic profit to drive shareholder value to implore supply chain executives to devise a supply chain strategy composed of the five pillar elements. The authors include a short assessment tool to help senior executives quickly identify areas of deficiency. The tool, devised in a supply chain forum at the University of Tennessee, provides the reader with an immediate sense for areas in need of attention. Further, the authors provide a synopsis of findings from 35 companies that have completed the assessment. The findings suggest that a short-term focus on decision-making is “the greatest disease plaguing supply chain effectiveness,” followed by cross-functional misalignment – which I agree are two major barriers to achieving the supply chain dream.
The successive five chapters (chapters three through seven) address the five pillars toward supply chain excellence. Assembling the right talent is proposed as the first step. Assembling supply chain talent is not limited to new hires coming in the door, but also the current personnel, including the senior supply chain leaders. It is emphasized that supply chain executives must possess expertise within the activities they manage, and that they must also have an ability to coordinate areas that they do not control in the end-to-end supply chain. This clearly poses challenges for the supply chain leaders who must not only comprehend the challenges faced by other functional areas of the firm (e.g., new product development, sales, finance, and marketing, among others) but to help these “outside” areas to appreciate the capabilities (and limitations) of supply chain operations. With this in mind, the supply chain executive must be held in the same esteem as the leaders of the interfacing functions. The ideal supply chain leader, then, embodies the following characteristics: global orientation, systems thinking, inspiring and inspirational leadership, technical savvy, and business skills. Perhaps most interesting in this embodiment of the modern supply chain leader is the ability to appreciate and accommodate cultural differences in a globally dispersed operation. Supply chain executives who have worked in other countries and understand the global environment are extremely valuable.
The discussion of supply chain technology offers a poignant consideration of various IT solutions, and their prospective role in advancing the supply chain agenda. While technology is posited as a critical contributor to the agenda, the authors assume a “pain versus gain” perspective, recognizing that – for a variety of reasons – technologies employed in supply chain operations/planning often fall (far) short of their anticipated benefit. Three rules for successful implementation are brought forward: 1) Use leading-edge (beta) technology appropriately, 2) Realize that people issues are tougher than technical issues, and 3) Ensure that the technology project has a business case. The technology chapter closes with an excellent set of questions that supply chain executives should consider before acquiring or implementing a new piece of technology.
I found the next two chapters focusing on the collaboration – both internal and external to the firm – to be richest of the five agenda steps. These chapters address the concept of systems thinking (mentioned previously as an important attribute for the supply chain leader) when applied across the functions of the business and to the larger supply chain beyond the company. It is here that the “team sport” that is supply chain management must take root, and the authors provide good, practical advice for aligning departments and businesses for the greater good of supply chain performance that creates shareholder value for the focal firm and its fellow supply chain members. The section on matching supply with demand through sales and operations planning (S&OP) offers real contribution through rich examples and supporting data. The experience and research of the writing team (as well as colleague Dr. Mark Moon) are apparent in this section. The inclusion of an S&OP Assessment Test is a worthwhile bonus feature. Likewise, the examples of successful external collaboration from OfficeMax (where Mr. Slone serves as VP), Lowe’s, and West Marine are especially interesting.
The last of the five pillars (Managing Change in the Supply Chain) is, in some ways, a compilation of the previous four steps.
The book closes on a strong note with two detailed case studies chronicling the development and execution of supply chain strategy. The first case study depicts the setting of Whirlpool North America, where authors Slone and Dittmann were charged with leading a transformation of a supply chain operation paralyzed by a disastrous ERP rollout in the year 2000. They describe how they achieved buy-in to a supply chain strategy and how they implemented the five pillars to generate payback on a $60 million investment within two years. The second case study captures the experience at Stage Stores Incorporated (SSI), where the late Dr. Mentzer served as a director, during the company’s aggressive growth throughout the 2000s. This example is valuable as it portrays similarly positive results to the Whirlpool example in a very different setting – that of a retailer operating on a more regional basis within the United States. Both examples are compelling and represent a fitting way to close the book.
While not the final word on all things supply chain, this book is a solid contribution to any supply chain professional or business executive’s collection. The practical orientation of the book will be appreciated by most readers. Not only is the book a quick read, but it contains helpful tools, rich examples, supporting statistics (when needed), and chapters that close with a concise series of action steps. In sum, the book hits a sweet spot by addressing complex issues in a straight-forward fashion with a good dose of experience-based advice.