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Unit 6: Supply Chain Management

warehouse to store vast amounts of transactional and decision-support data for easy retrieval Notes
and application in annual negotiations consolidated across six divisions cut one manufacturer’s
operating costs enough in the first year to pay for a redesigned distribution network and a new
order management system.

Principle 6: Develop a supply chain-wide technology strategy that supports multiple
levels of decision making and gives a clear view of the flow of products, services, and
information.

To sustain reengineered business processes (that at last abandon the functional orientation of
the past), many progressive companies have been replacing inflexible, poorly integrated systems
with enterprise-wide systems. One study puts 1995 revenues for enterprise-wide software and
service, provided by such companies as SAP and Oracle, at more than $3.5 billion and projects
annual revenue growth of 15 to 20 percent from 1994 through 1999.
Too many of these companies will find themselves victims of the powerful new transactional
systems they put in place. Unfortunately, many leading-edge information systems can capture
reams of data but cannot easily translate it into actionable intelligence that can enhance real-
world operations. As one logistics manager with a brand-new system said: “I’ve got three feet of
reports with every detail imaginable, but it doesn’t tell me how to run my business.”

This manager needs to build an information technology system that integrates capabilities of
three essential kinds. For the short-term, the system must be able to handle day-to-day
transactions and electronic commerce across the supply chain and thus help align supply and
demand by sharing information on orders and daily scheduling. From a mid-term perspective,
the system must facilitate planning and decision making, supporting the demand and shipment
planning and master production scheduling needed to allocate resources efficiently.

Notes To add long-term value, the system must enable strategic analysis by providing
tools, such as an integrated network model, that synthesize data for use in high-level
“what-if” scenario planning to help managers evaluate plants, distribution centers,
suppliers, and third-party service alternatives.

Despite making huge investments in technology, few companies are acquiring this full
complement of capabilities. Today’s enterprise-wide systems remain enterprise-bound, unable
to share across the supply chain the information that channel partners must have to achieve
mutual success.
Many companies that have embarked on large-scale supply chain reengineering attest to the
importance of information technology in sustaining the benefits beyond the first annual cycle.
Those that have failed to ensure the continuous flow of information have seen costs, assets, and
cycle times return to their pre-reengineering levels, which undermines the business case for
broad-based supply chain programs.

Principle 7: Adopt channel-spanning performance measures to gauge collective success
in reaching the end-user effectively and efficiently.

To answer the question, “How are we doing?” most companies look inward and apply any
number of functionally oriented measures. But excellent supply chain managers take a broader
view, adopting measures that apply to every link in the supply chain and include both service
and financial metrics.

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