How to Understand the Supply Chain Management Concept

By Mike Loughrin, CEO for Transformance Advisors

One Hot Topic

A recent article in Bloomberg Businessweek states “one of the hottest tickets in business schools these days isn’t consulting jobs or investment banking positions; it’s a job that wasn’t on the radar just a few years ago: supply chain management.”

A study by the Georgia Center of Innovation for Logistics declares that “nearly 200,000 U.S. supply chain management jobs will go unfilled each year for lack of qualified talent.”

Message to Employers

These messages tell employers they need great people with an education in best practices and emerging trends to manage their supply chains.

This means continuing education for the people you already have and effective recruitment for the openings you need to fulfill with new hires.

The days of transferring some low performer from another department are long gone. Also gone, are the days of zero budgets for education.

It’s time to develop supply chain management as a core competency which allows you to create a competitive advantage.

Message to Employees

For employees, these messages indicate supply chain management can be a great career choice.

Rapid changes in processes and technology are providing exceptional opportunities to work for companies who view supply chain management as a core competency.

But, this reward does not come without risk. As one of the hottest tickets in business schools, the quality of candidates is moving up. And while there is a lack of qualified talent, most companies will leave a position open rather that hire someone who can’t do the job.

Keeping your job or earning a promotion requires a continuous investment in your knowledge and demonstration that you understand the strategic implications supply chain management plays in creating a competitive advantage.

Definition

While supply chain management is a hot topic, it is also often misunderstood:

Some organizations have promoted their purchasing manager to VP of Supply Chain Management and see the entire scope as only purchasing
Others look over at a few scrambling production schedulers and think the chaos they see is all there is to supply chain management
A few will find their definition when looking at a big warehouse full of inventory and some trucks moving things here and there

For our discussion, let’s consider a great definition from Christine Harland, Professor of Supply Strategy, University of Bath in the UK:

The management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. It spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.

Let’s look closer at four critical elements in our definition:

network of interconnected businesses
product and service packages
point of origin to point of consumption

Network of Interconnected Businesses

Supply chain management is about all the network of suppliers, partners, customers, and your own operations.

Developing and maintaining this network must be done in a manner that aligns with your business strategy.

If you are seeking differentiation as your strategy, then you need a tight network that seeks high quality and is continually investing in new products and technology. You need a synchronized supply chain that exceeds customer expectations and can quickly react to changing needs.

If you are seeking cost leadership, then you need efficient suppliers and operations. You cannot afford quality failures or expensive air freight to recover from poor planning and execution.

If market focus is your strategy, then you need to align your network to meet the specific needs of that market niche you are serving. You will want a network that has deep expertise and knows where your market niche is going.

Product and Service Packages

Supply chain management is critical for products, services, and the combination of both.

Of course, products made from raw materials have a supply chain that anyone can see.

But services also have a supply chain to back them up. For example, oil field services require all sorts of equipment, tooling, spare parts, and vehicles. All of this needs planning, scheduling, procurement, and so much more.

Those that provide a combination of products and services have additional complexity. It does you no good to sell someone a refrigerator and then not be able to deliver and install where and when the customer wants.

Point of Origin to Point of Consumption

Supply chain management extends far beyond your own operations.

It’s not good enough just to buy raw materials from suppliers. Best practices and emerging trends demand a more strategic approach to selecting suppliers and managing these critical relationships.

It’s also no longer good enough just to ship the order or provide a service and send an invoice. Best practices and emerging trends require understanding and working to reduce the total cost of ownership for your customer. In addition, reverse logistics at the end of life has become critical for maintaining a competitive advantage in many industries.

Back to that Definition

While the definition we used works well, there are a couple refinements in order.

For many, the word “businesses” implies for-profit entities engaged in commerce and leaves out hospitals, schools, fire departments, and a host of other organizations that have supply chains or are part of the supply chain for others. Let’s replace “businesses” with “organizations” as a simple fix.
The term “end customer” is not bad, but is not as crisp as I would like. Let’s use “ultimate consumer” to drive home the point that we need to get to that last person in the chain.
Speaking of the last person in the chain, “point of consumption” does not go far enough if there are reverse logistics issues. You may “consume” a mobile phone, but you are required to return the product for recycling when you are done. We need to go beyond “point of consumption” to “end-of-life recovery and reverse logistics” as our final link in the chain.
The “movement and storage of raw materials, work-in-process inventory, and finished goods” is fine for products, but needs something about the transformation aspects of products. More importantly, there does not seem to be fair and equal treatment for services. It seems like we need another sentence that clearly speaks to the scope of services.

I Propose the Following:

The management of a network of interconnected organizations engaged in the provision of product and service packages required by the ultimate consumer.

For products, it spans all movement, transformation, and storage of materials, work-in-process, and finished goods from point-of-origin to end-of-life recovery and reverse logistics.

For services, it spans all materials, supplies, people, equipment, permits, and other resources from point-of-origin to final acceptance with meeting the needs of the ultimate customer.

Summary

Organizations are rapidly raising the bar in terms of expectations for their supply chain management team.

The thirst for highly educated talent has fueled a surge in the demand for degrees at business schools. However, even with the surge in college graduates, there will still be a shortage of talent.

Employers need to hire and retain employees that will ensure they have a supply chain that is aligned with and able to execute their business strategy.

Employees need to take ownership of their careers and demonstrate they are thinking strategically when developing and managing the critical relationships that are the foundation for success.

Mike Loughrin

Mike Loughrin is the CEO and Founder of Transformance Advisors. He also teaches for Louisiana State University Shreveport and is on the board of directors for the Association for Supply Chain Management Northern Colorado.

Mike brings exceptional experience in industry, consulting services, and education. Mike has helped organizations such as Levi Strauss, Warner Home Video, Lexmark, and Sweetheart Cup.

Keeping a commitment to a balanced life, Mike loves downhill skiing, bicycle rides, and hiking in the mountains. See one of his trails of the month at: Little Switzerland.