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James O'Brien
u c c e s s t ti I sup ply c h a i n m a n age ni e ti tthe term- Many people consider it to be synonunotts witb
S
requires cross-functional integration of key logistics or with logistics tbat also includes customers and
business processes within the firm and suppliers. Others view supply chain management (SCM) as
across the network of firms that comprise the new tiame for purchasing or operations—or the eomhina-
tbe supply chiiin. It is focitsed on relation- tion of purchasing, operations, and logistics. Increasingly,
ship miinagement and the performance however, executives in leading companies are recognizing
improvements that result. In many compa- supply chain management as the management of relation-
nies, however, executives struggle to ships across tbe supply ebain. They view SCM in terms ot
achieve the necessary integration and, consequently, the business process excellence and as a new way of managing
resulting improvements. The problem is that they don't fully tbe business and the relationships with other members of the
understand the supply chain business processes—and the supply chain.
hnkages necessary to integrate those processes. In this article, we adopt tbe following definition of SC,\1
Drawing from work done by The Global Supply Cbain developed by tbe Global Supply Chain Forum: Supply chain
Forum, this article identifies the eight processes tbat need to management is the integration of key business processes from
be managed and integrated for successful supply cbain man- end user through original suppliers that provides products, ser-
agement. (For more on (he Global Supply Chain Forum, see vices, and information that add value for custo»iers and other
tbe sidebar on page 21.) Two of tbese processes provide tbe stakeholders.
linkages rcqitired to facilitate integration among the supply This view ot supply chain management is illustrated in
chain members to coordinate tbe otbcr processes. These two Exhibit I. It depicts tbe following: a simplified supply chain
ke\ linkages are customer relationship management (CRM) network structure of a manufacturer with two tiers of cus-
and supplier relationship management (SRM). tomers and two tiers of suppliers; tbe related information and
By understantling the key supply ebain management produet flows; and tbe eigbt supply cbain management
processes—and recognizing why and bow tbey should be processes that must be implemented witbin organizations
integrated—supply cbain managers ean sueeessfully position across the supply cbain. All of the processes are cross-func-
their companies for higher reventies and prolitahility. tional and cross-organizational in nature. Further, as the
exhibit illustrates, every organization in tbe su|)ply cbain
Just What Is Supply Chain Manageuient? needs lo be involved in tbe implementation of tbose process-
IJelore [irocccding, it's inifiortant to define supply chain man- es. But at tbe same time tbe exbibit shows tbe corporate silos
agement beeatise theres still a great deal ol contusion over at ibe top, wbicb can work against tbis integration.
In reality, of eotirse, a supply cbain is mucb more cotii-
Douglas M. Lambert is the Rtjymond H. Mason Chair in plex tban tbe row of silos de|)icted in Kxbibit I. For a com-
Transportation cintJ Logislics and Director of The Global Supply pany in tbe middle ol the supply cbain, tbe supply ebain
Chain Forimi al the I ishfr College of Business, ihe Ohio State looks more like an uprooted tree (see Exbibit 2) wbere the
Universih'. This article is adapted j rum his new hooh Supply roots represent ibe supplier network and tbe brancbes rep-
Chain Managcmciil: Proct'sst's. Partnerships, Performance resent tbe customer network. Moreover, tbe supply cbain
(Supply Chain Management Institule, 2004). Far more in/or- will look differently depending on a company's position in it.
mation, visit u'ww.sem-institutf.org. For example, in tbe case ol a retailer, like Wal-Mart, tbe
hiR'd iiiid uniirliculalL'd), willi ihf SRM [M-OCCSS tciims lo multiple fimctions ineluding marketing and sales, finance,
select tnaterials and suppliers, and wilh ihe manLikicturinj; produetion, [purchasing, logistics, ami research and develo|)-
Flow maniiuement process team to develop prodLiction [(.'cli- meiit. This team is res|)onsihle lor tlexeluping the proeedures
nology appropriate to the prodiiel/inarkel fomhination. at the strategic le\el and seeing that they are implemented.
Returns Managetnent. Rett.rrns nKiiuijj,emenl is ihc process I h e strategic leam also identifies how the external partners
l)\ uhicli acli\ilic's associaled with returns, reverse logistics, will he integrated into the supply chain. The operational
"giitek(.'epi[ig, ciuil return avoidance are managftl within the eomponent of eaeh proeess. v\here tlie day-to-tia) acti\itics
firm and aeross key members ol the sii|)piy ehain. Avnidanee. take plaee. is exeeuted h\ the managers within eaeh lunetion-
whieb is a key jsart of this process, involves finding ways to al area.
minimize the numher of return requests. It ean include Lxhihit ^ shows how ihe husincss kmctions within the
ensuring that the [iroduct s t|uality iintl user Iriendliness are organization provide input to the eight supply chain manage-
at the liighest attainahle level before the [iroduct is sold antl ment proeesses. In the customer relalionship management
shipped. Avoid.ince could also entail changing promotional process, for example, marketing and sales pro\'idcs the
[jroj^rams that load the pipeline when there Is no realistic aecount management expertise, engineering provides the
chiince that ihe |ir(xluet shipped will be sold. Properly imple- spccilieations, logistics provides knowledge of logistics and
mented, then, the returns management process enables firms customer service eapahilities, manulacturing provides the
not only to manage the reverse product How ellieiently hut manulacturing ea|iabilities, purchasing provides knowledge of
also to identify opportunities to reduce UTiwanted returns and sujjplier capabilities, and iinance provides customer prof-
to eontrol reusable assets such as containers. Effective itahihty reports. Customer service requirements must he fac-
returns management is an important part ol SCM and pro- tored into ihc manufacturing, sourcing, and logistics inputs.
vides an opportunity to achieve a sustain a hie competitive Customers and suppliers are shown as hookcnds on the
advantage. exhibit to reinforce the point that each ol these processes, to
Kach of the eight sup|i!y chain maniigemcnt processes hiis he properly implemented, requires the in\()lvemcnt of cus-
hoth strittegic and operational elements—that is, a strategic tomers and suppliers.
element in which the firm establisbes and strategically man-
ages the process and an operational element in whieh the CRM and SRM: The Critical Linkages
lirm executes tbe process. The strategic elements should he Customer relationship management and supplier relation-
led by a management team eomprised of representatives from ship management provide the critical linkages throughout
EXHiBrr3
Business FunctionsH^ Marketing & Research & Logistics Production Purchasing Finance
Sales Development
Business Processes
IIK' sLipply ch.iin. As dcpiLlctl in Exhibit 4, ior (.-ath siipplicr related to trans|iortation incltitling deli\eries, order mini-
in the supply chain the ulUmalc measure ol suecess ot the mums, driver instructions, will-calls, and appointments; bill-
CRM process is the change in profitahility of an individual of-lading instructions; pallets to be used; purchase-order con-
customer or segment ot customers. Por each fiis/oii/cr. the firmations; order-status information: details related to prieJng
irue nifasurc of success of the SRM process is the impact inquires; availability of market-development funds; marketing
thai a supplier or supplier segment makes on that eustomer's promotional allowances; acceptability of haek orders and bow
[irolitahility. ( \ ' o t e ihat in eases where commodities or tbey will be handled; and contract terms.
undiffercntialcd components are heing bought for inclusion Supplier relationship management is the mirror image oi
in another product, it makes more sense to do a total eost cttstomer relationship management. Remember that all sup-
report than a specific profit-and-loss statement for each pliers are not the same. Some contribute more to a firm's
commodity/component.) The goal is to increase the joint profitability than others. Its important to ha\e en)ss-func-
profitability by de\'el<)ping the relationship. Accordingly, the tional teams that interact elosely with these high contribu-
overall performance of the supply chain is determined by the tors. Tbe strategie relationship sbould be led by a manage-
combined improvement in prolitability ol all nii'mbers Irorn ment team responsible for developing strategies and seeing
t)ne year to the next. tbat they are implemented. At tbe operational le\el. teams
are established for each key supplier and for eaeb segment of
EXHIBIT 4
nonkcy, or less eritiea!. suppliers. I'hese teams are eoniprised
CRM and SRM:The Critical Linkages of managers from several funetions, including marketing,
finance. R&D, produetion, purehasing, and |{)gisties. While
employees who arc not members ol the S H \ ! teams may he
Supplier Manufacturer Wholesaler/ Retailer/ involved in e.Kecuting the activities, the teams maintain over-
D C Distributor B End User A
all managerial eontrol of the process. (I he same holds true
for the CRM |iroeess,l
P&L Total Cost P&L P&L P&L P&L
Criven the current emphasis on business etbies, both the
for C as Report for B as for C as for A as for B as
Customer for D as Customer Supplier Customer Supplier C'R.M and SR\f teams need to have an agreement up Irorit
Supplier on what lypes ol data will be shared. Teams need to be mind-
lul ol the line line betv\een using proeess knowledge vs.
Let's begin by eonsidering the CRM linkage. Companies using specific competitive marketing knowledge gained from
typically spend large sums ol moncv' to attract ncv\' cus- a ctistomer or supplier. In a similar vein, individuals should
tomers, ^et these same eomjianies often are complacent not he put in a position where they are working on teams
when it comes to nurturing and strengthening relationships involving competing suppliers or eustomers. The reason; Its
with existing ctistomcrs.- In most cases, hov\cvcr. existitig iust too diilicult to kce[i the tv\)) sets of relationships and
customers rcjiresent the best opportunities ior prolital^lc PSA tliscussions separate and distinct.
growth. In faet, studies sbow strong, direct rciationsbips lSup|ily ehain managers shouki note that CRM ami Sf-{M
between prolit growth and customer loyalty, eustomer satis- themselves have seveii subprocesses, which are not addressetl
faetion, and the value of goods delivered to customers.^ CRM in this artiele. These subproeesscs are dillercntiating CLIS-
|ii'o\ ides tbe structure lor leveraging
tbcsc t|ualitics and evaluating tbc prol-
itability—and potential profitability— Profitability reports that capture all
ol indiv idual eustomers. Aeting on tbis
evaluation, cross-lunctional customer
of the costs and revenue implications
teams can taihir product and service of a relationship are the key to tracking supply
agreements to meet the needs of key
accounts and customer segments."^
chain process improvements over time.
PSAs document how the two firms
will engage in business- For key customers, llie PSAs are cus- tomers/su[)(iliers; preparing the account/segment management
tomized; for segments of otbcr Ltistomers, stantlard values arc team; internally reviewing tletails related to the business con-
used for each element of the agreement. PSAs come in many ducted; identifying opporttmities lor sales grov\th, eost reduc-
forms, both formal and informal, and mav be referred to by tion, and service improvements; developing the product and
different names from company to company, fo achieve the service agreements; implementing the product and ser\iee
desired results, however, they need to be lormali/ed as writ- agreements; and measuring performanee and generating prof-
ten doctiments. 3NT for example, has comprebensive, written itability reports and total cost reports as appropriate.)
PS,\s that inelude tbe following: eontaet information inelud- In addition to linking partners across tbe sufiply cbain, the
ing name, tide, telephone number, and e-mail address lor CR.M and SRM processes coordinate each of the other si.x
both .-^M and tbe customer representatives; all ol tbc details processes. Any improvements made in these processes are
Failure t(i ini|ilenient those cross-functional business ^Heskett, James L., W. Earl Sassser, and Leonard A. Schlesinger.
prueesses can also result in missetl ojiportunities antl poor The Service Profit Ciiain, New York, NY: The Free Press, 1997, p.11.
decisions. I h e following real-lile example illustrates the •^Seybold, Patricia B. "Get Inside the Lives of Your Customers."
point. A manufacturer of consumer durable goods imple- Harvard Business Reviev\/yo\. 78, No. 5 (2001): pp.1-17.
mented a rapid deli\'ery system that pro\ided retailers with
deliveries in 24 to 4S hours anywhere in the United Slates. ^Lambert, Douglas M, and Renan Burduroglu. "Measuring and
The system was designed to enable the retailers to im|iro\e Selling the Value of Logistics." The International Journal of
seniee to their consumers while holding less in\enlor\ and Logistics Management Vol. 11, Mo. 1, (2000): pp. 1-17.