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 / Fall 2003 / Issue 32(originally published by Booz & Company)


When Will Supply Chain Management Grow Up?

Answer: When companies take to heart its three underlying principles.

Illustration by Lars Leetaru
Over the last few years, companies in a wide variety of industries have created increasingly senior executive positions in supply chain management. Lucent Technologies Inc., the ChevronTexaco Corporation, and H.J. Heinz Company are among the many that now have a chief procurement officer serving alongside the COO, CFO, and CIO. Other companies have created even broader positions. DuPont has a position entitled “Vice President – Global Sourcing & Logistics and Chief Procurement Officer.” IBM last year named a “Senior Vice President, Integrated Supply Chain,” a new position the company says encompasses “end-to-end supply chain operations, including procurement, systems manufacturing, logistics, and customer fulfillment processes.”

This “entitlement” of corporate executives is not surprising, given the cost and complexity of managing a global supply chain. Businesses worldwide spend more than $19 billion annually on information technology for supply chain management, according to the International Data Corporation.

The business media, long trained to follow the money, have also become supply chain savvy. A search of ABI/Inform, a leading database of global business publications, shows that more than five supply chain articles were published each day last year, up from fewer than one article per week a decade earlier, and only one per month five years before that.

First introduced in a 1982 Financial Times piece about Keith Oliver, coauthor of this article, the term supply chain management (SCM) could have easily disappeared into the history of business jargon. Instead, SCM rapidly passed into the public domain — a sure indication the concept holds meaning for executives wrestling with the endless challenges of procurement, logistics, operations, sales, and marketing activities that fall within its realm.

Unfortunately, the attention has not been matched by satisfaction. Nearly half of the respondents to a recent global survey by Booz Allen Hamilton indicated disappointment in the results achieved by their investments in SCM systems. To this day, SCM remains a primary case study subject — read “problem” — in business schools, and a headache in headquarters.

Does the sound and fury over supply chain management signify nothing? Why has this child of the ’80s grown to such prominence without truly growing up? A look at its history, from best practice to worst, may provide some insight.

Born to Run
In the late 1970s, Mr. Oliver was formulating his ideas through work with a number of clients, including SKF, Heineken, Hoechst, Cadbury-Schweppes, and Philips. Many of the ideas jelled during an engagement with Philips, the Dutch consumer electronics manufacturer. He began to develop a vision for tearing down the functional silos that separated production, marketing, distribution, sales, and finance to generate a step-function reduction in inventory and a simultaneous improvement in customer service. Looking for a catchy phrase to describe the concept, the consulting team proposed the term integrated inventory management. In a sure sign that consultants should not be allowed near promotional issues, the group expressed confidence that the world would adopt the sophisticated-looking abbreviation I2M.

Later, at a key steering committee meeting, the team shared the vision and introduced the new term and accompanying abbreviation. Eyes glazed over as the phrase failed to resonate with participants. One manager, a Mr. Van t’Hoff, challenged Mr. Oliver to explain what he meant by “I2M.”

“We’re talking about the management of a chain of supply as though it were a single entity,” Mr. Oliver replied, “not a group of disparate functions.”

“Then why don’t you call it that?” Mr. Van t’Hoff said.

“Call it what?” Mr. Oliver asked.

“Total supply chain management.”

Both the term and the discipline it describes have evolved considerably during the past two decades. Indeed, by today’s standards, the original scope of supply chain management appears quite narrow. Initially, SCM applied only within the boundaries of a single company. The challenge was simply getting production, sales, finance, marketing, and distribution operating in concert to focus on the movement and availability of finished goods. It’s hard to believe that management’s perspective could have been so limited — until you consider that the origins of SCM predate the publication of Michael Hammer and James Champy’s Reengineering the Corporation: A Manifesto for Business Revolution (HarperBusiness, 1993) by nearly a full decade. Although it’s the norm today, focusing on cross-functional processes inside a company was a radical concept in the early 1980s.

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