Teaching supply chain management to business executives

Production and Operations Management, Spring 2000 by Vollmann, Thomas E, Cordon, Carlos, Heikkila, Jussi

TEACHING SUPPLY CHAIN MANAGEMENT TO BUSINESS EXECUTIVES*

By focusing on the management of entire value chains, supply chain management has gained increasing popularity in management research and in the teaching of global businesses. The right practices can take companies to great heights; lack of attention can draw companies close to peril. In teaching supply chain management to business executives, there are four major issues that need to be highlighted: flawless execution of operations, the change from supply to demand focus, outsourcing and supply base development, and partnership implementation. This article explains these four issues, and the material that is developed at IMD to teach each of them.

(SUPPLY CHAIN MANAGEMENT, DEMAND CHAIN MANAGEMENT, SOURCING, PARTNERSHIPS)

Introduction

The supply chain management teaching approach at the International Institute for Management Development (mD) was developed within the Manufacturing 2000 research project (M2000). M2000 was a major collaborative research project between industry and ID. The primary mission of M2000 was "to continuously redefine the nature of manufacturing activities and enterprises by identifying the changing requirements for manufacturing excellence and the appropriate organizational responses."

Most recently; our M2000 work focused predominately on supply chain management. Our guiding tenet was that supply chain management is a vehicle of corporate transformation--large-scale change-the objective of which is the coordination of change across companies and business units in the whole supply chain.

In M2000, we replaced the term supply chain management with demand chain management. Why? Because in our view, the chain focus should start with the customer and work backwards, instead of starting with the supplier/manufacturer and working forward. The focus needs to be on the final customer and the ways in which the overall chain can optimize the flow, produce maximum benefits, take out any unneeded transactions or other costs, and continually improve the bundle of goods and services provided-to all members of the chain.

Teaching demand chain management to business executives means discussing it from a number of perspectives. Demand chain management integrates several managerial concerns: flawless execution, move from supply to demand chain management, outsourcing and supply base development, and partnership implementation. Figure 1 illustrates this conceptual framework.

Flawless execution is an absolute prerequisite for ambitious demand chain management. The move from supply to demand chain must be dictated by the distinct customer needs focusing on a particular business unit. The issues in outsourcing and supply base development are concerned with core competency development and the choices that need to be made by the firm to focus its resources. And finally, customer and supplier partnerships with aggressive improvement agendas are the vehicle for transforming the demand chain.

Flawless Execution

In good demand chain management, flawless execution is imperative. It focuses performance measurement on several levels of operations and between two or more partners in the chain. Flawless execution begins with good performance in terms of internal measures, such as ability to keep the production schedules, perfect order fulfillment, quality, and productivity improvement. This internal focus is next expanded to see what are the world class manufacturing techniques that are being implemented, such as total quality management (TQM), Total preventive maintenance (TrM), 5s,1 and empowerment. But focusing on the internal operations of one company is not enough. Good performance in demand chain partnering assumes joint operations between one or more companies to satisfy the customer needs of the whole chain.

A good example of the need for the chain based on flawless execution is seen in fast moving consumer goods. One ultimate measure of chain perfection is the extent to which products are not available on the supermarket's shelf when the consumer wishes to buy them. This goal needs to be met while simultaneously reducing the inventories in the entire pipeline. The emphasis on flawless execution is well illustrated in the teaching case Unichema. This case serves as an excellent starting point for a program or course module in demand chain management.

Case Unichema: Prerequisites to Demand Chain Partnering. The Unichema case is about a Netherlands-based division of Unilever that manufactures specialty chemicals. The firm is facing globalization of competition, lower than desired returns on investment, and an internal turf war between logistics and sales over who should be the primary contact point with customers. There are new customer demands for just-in-time (Jrr), technical support, vendor managed inventories, faster delivery times, etc. And there is insufficient knowledge of how the customers use Unichema's products. The company also has one problem that is less common. It fully recognizes that the solution to its problems can not be found only in cutting costs. Unichema realizes that it must focus on new ways to create value with customers.