Supply Chain Requires Integration

April 30, 2004
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GRAND RAPIDS — The inaugural Midwest Regional Supply Chain Management Conference and Exposition at Steelcase University spelled out a need for drastic changes in the way most local companies do business.

Opening keynote speaker Donald J. Bowersox of Michigan State University, one of the world’s foremost authorities on supply chain management, opened the conference with a description of how the practice of supply chain management is quickly moving toward an integrated future.

“We are experiencing a transformation in our fundamental structure of business,” he said. “Who would have thought we would see an age where one retailer does 5.8 percent of the nation’s total retail sales — Wal-Mart — and that’s including everything, even automobiles. Or where 58 percent of the sale of all household electronics is done by two retailers — Circuit City and Best Buy … I could go on and on.

“Our society is becoming highly concentrated, the supply chain is shifting closer and closer to the consumer,” he said. “We’ve known for years that efficiency and effectiveness go hand in hand. But now that is not enough. You need that and doing it how the customer wants it done. These are challenges unique to this particular point in time.”

As such, he explained that the model that businesses have based their supply chains on for the last century is now obsolete. Those practices, he said, were developed to overcome problems that no longer exist.

The old business model was forecast driven — a series of educated guesses that if incorrect could result in a warehouse full of extra inventory or an empty warehouse and a stopped assembly line.

Advances in information technology provide a substitute for a warehouse full of inventory.

“The old model, we could use the word ‘guess,’” Bowersox said. “Let’s get together and guess, then we can go from there. This is the model we used to solve last century’s problems — build up an inventory, move it along the supply chain.

“With an endcast-driven model, you are getting so close to customers and your customers’ business that you’re actually able to be involved in the manufacturing process.”

Bowersox used Dell Computers as an example. Using a similar system with a combination of Internet selling and supplier alliance, Dell at its peak was operating on a 15-day negative cash convergence. In effect, it was running its company on other people’s money for 15 days.

He cited Meijer Inc. as a local of example of the endcast model. Some products manufactured for Meijer can be produced, transported, sold and consumed in less than a day.

“It stems from the buzzword of 10 or 15 years ago: re-engineering,” said Jim Ross, director of supply chain management for Cascade Engineering. “I don’t want to say we’re re-engineering the value stream, but we’re looking at the whole value associated in making any product, and it doesn’t just stop with a customer or supplier. Now what we talk about is, starting from the ground up, collaborating all of our business enterprises that are associated with making a product.

“If a company, say, makes a chair, you can link the customer, you, and the four or five business entities that help you make that chair,” Ross said. “As soon as there is an order for something, all partners see what they have to do simultaneously. That reduces lead time across the chain … the efficiency and effectiveness, supplier and customer collaboration we started to do with lean, now we can link partners together, understand all the things that they do … get away from traditional relationship of buyer and seller and more toward business partners that have a stake in the ultimate product.”

The conference was sponsored by The Right Place Inc./MMTC-West, APICS Grand Rapids chapter, and the Eli Broad Graduate School of Management at Michigan State University. More than 200 people attended last Wednesday’s conference.

“Anytime you can get a gathering of professional people from different sized businesses together and learning is exciting,” said Michelle Cleveland, vice president of The Right Place. “I think we convened an outstanding group of professionals with multiple skill sets that integrated supply chain managers need to have.”           

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