Supply Chain Management Review SCMR_SepOct_2012_t504

7/30/2019 Supply Chain Management Review SCMR_SepOct_2012_t504

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FEATURES

10 The Supply Chain Top 25:Raising the BarBy Debra Hofman and Stan Aronow

20 Alliance Managment:Engaging Suppliers theRight Way By Bob Engel

28 How the Leaders Are TacklingGlobal Trade ManagementBy Bob Heaney

36 Bridging theSupply Chain DivideBy Ashutosh Dekhne, Xin Huang,

and Apratim Sarkar

43 Collaborating for a MoreSustainable Supply Chain

By Timothy M. Laseter and Nancy Gillis

COMMENTARY

Insights 4

Global Links 6

Talent Strategies 8

SUPPLY MANAGEMENT 50BENCHMARKS 62

S53 SPECIAL REPORT EUROPEAN LOGISTICS UPDATE

Quo vadis, Europe?European logistics industrylooks beyond the crisis

S E P T E M B E R / O C T O B E R 2 0 1 2

TheCollaborative

TOUCH

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Transforming the way businesssells surplus capital assets

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10 The Supply Chain Top 25Raising the BarThe Supply Chain Top 25 rankings from GartnerInc. is one of the most eagerly anticipated indica-tors of supply chain excellence. This years lead-ers share certain characteristics that drive day-to-day performance while solidifying the foundationfor future growth. Gartners Debra Hofman andStan Aronow tells how their standout perfor-mance is raising the supply chain leadership barfor companies everywhere.

20 Alliance Management:Engaging Suppliers the Right Way Alliance Management is non-traditional way of supplier engagement that holds great potential,writes management consultant Bob Engel. By focusing on collaboration and two-way communi-cation, Alliance Management opens up windowsof opportunity in the buyer-seller relationshipthat can lead to smoother operations, greater

value, and higher profitabilityfor both parties.

28 How the Leaders Are TacklingGlobal Trade ManagementAnalyst Bob Heaney of the Aberdeen Group high-lights the technology and processes that leadersare putting in place to ensure trade compliance,react to global supply and demand fluctuations,and manage increasingly risky and complex opera-tions. The author also identifies the best prac-tices in Global Trade Management and suggestshow companies can implement them.

36 Bridging the Supply Chain-Procurement DivideAt many companies, theres a divide betweenprocurement and supply chain operations thatrobs the organization of vital efficiencies. Butaccording to McKinsey & Co., companies thatrecognize that gap and work hard to close itcan gain sizeable financial benefits along withimportant qualitative advantages. Six key fac-tors make the difference.

43 Collaborating for a MoreSustainable Supply ChainGovernment and private industry can work together to create more sustainable supply chains. Thats the premise of a General ServicesAdministration initiative called the SustainableSupply Chain Community of Practice. Its acommunity in which key stakeholders shareinsights and information on creating greenersupply chains while reducing waste.

SPECIAL REPORTS

S53 Logistics and Distributionin Europe

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S e p t e m b e r / O c to b e r 2 0 1 2 V 6, N 5

FEATURES

Supply Chain Management Review (ISSN 1521-9747) is published 7 times per year (Jan/Feb, Mar/Apr, May/Jun, July/Aug, Sept/Oct, Nov, Dec) by Peerless Media LLC, a Division of EH Publishing,Inc., 111 Speen St, Ste 200, Framingham, MA 01701. Annual subscription rates: USA $199, Canada $199, Other International $241. Single copies are available for $60.00. Send all subscription inqui-ries to Supply Chain Management Review, 111 Speen Street, Suite 200, Framingham, MA 01701 USA. Periodicals postage paid at Framingham, MA and additional mailing offices. POSTMASTER:Send address changes to: Supply Chain Management Review, PO Box 1496 Framingham MA 01701-1496. Reproduction of this magazine in whole or part without written permission of the publisher is prohibited. All rights reserved. 2012 Peerless Media LLC.

Editorial Advisory Board

n Jack T. AmpujaNiagara University

n Joseph C. AndraskiVICS Association

n James R. BryonIBM Consulting

n John A. Caltagirone The Revere Group

n Brian CargilleHewlett Packard

n Robert B. HandfieldNorth Carolina StateUniversity

n Jim KellsoIntel

n Nicholas J. LaHowchic Tompkins Associates

n Hau L. LeeStanford University

n Robert C. LiebNortheastern University

n Clifford F. LynchC.F. Lynch & Associates

n Eric PeltzRAND Supply Chain Policy

Center

n James B. Rice, Jr.Massachusetts Instituteof Technology

n Larry SmithWest Marine

To subscribe: S s .s . /s s (8 ) 598-6 67.

(O s d f U.S., (5 8) 663- 5 x- 94).E s s s s s@ . .Authors Guidelines: I s d fss Supply Chain Management Review ?

S G d s f A s .s . .Reprints: R s f s f s ss d sss s f T YGS G . CD M s (8 ) 9 -546 x . 55 ; d .

s @ s .

COMMENTARY

4 InsightsSpeak Financially, Get ResultsBy Larry Lapide6 Global LinksBetting on BrazilBy Patrick Burnson8 Talent StrategiesThe Culture-Talent ManagementConnectionBy Ken Cottrill50 Spotlight on Supply ManagementWhat Makes an Effective CPO?By Enrico Rizzon and Kate Hart62 BenchmarksHow Shippers View Their 3PLsPerformanceBy Becky Partida
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Along time ago I got my doctoral degreefrom the University of Pennsylvanias Wharton School of Business in anarea called Operations Research (O.R.). As anewly minted graduate, Id explain to peopleunfamiliar with the discipline that it involvedthe use of the scientific method and quantita-tive analysis to solve business problems. I hadbeen trained in decision making, quantitativemodeling, and optimization techniques.

When someone would ask what my favor-ite graduate course was, I would carry onexcitedly about my methodology course. Itwas taught by a famous professor who delight-ed students with stories about companies thathad successfully used O.R. to solve some of their most pressing business problems. Math

applied to the real-world of businesswhatcourse content could be better than that? Atleast thats what I thought at the time.

F s L f B s ssFast forward to a recent discussion I had withsome colleagues about courses that should beadded to a supply chain program. When askedfor my opinion, I responded Introduction toAccounting. Why accounting and not O.R.methodology? Ill try to explain below.

During my 35-plus years of business experi-

ence, several things have made me realize theimportance of accounting and financial reportsto understanding what really makes a businesstick. Here are several points to consider.

First, in my November 2008 SCMR col-umn titled The Operational PerformanceTriangles, I presented a triangle that can beused to help conceptualize whether a bal-anced set of operational performance objec-tives align to competitive corporate strate-gies. Two points of the triangle, Efficiency and Asset Utilization, represent those types

of performance objectives that directly affecta companys income statement and bal-ance sheet, respectively. (The third point onthe triangle represents Customer Responseobjectives that do not directly affect financialreports). My point in that column was thatsupply chain professionals need to under-stand how the first two types of operationalobjectivesefficiency and asset utilizationrelate directly to financials.

Second, my research and experience withSales and Operations Planning (S&OP) pro-cesses has convinced me of the critical impor-tance of translating unit-based operational plansinto monetary (i.e., financial) terms. In this way,S&OP teams can maintain the visibility they need to help navigate companies towards achiev-

ing financial goalsespecially those related toprofitability and Return-on-Assets (ROA).Third, whenever a large-scale project is to

be undertaken, a business case analysis mustbe developed in financial terms. So before asupply chain project can get started, execu-tives need to be convinced that it will improvefinancial performance over the long run.

Fourth, and lastly, Im now completely convinced that all future supply chain leaders willneed to be good business people first and sup-ply chain experts second. For this to happen, they

must become conversant in the language of busi-ness, which is accounting and financially based.Luckily for me, I took some elective intro-

ductory courses in economics and accountingduring my graduate studies in O.R. While theaccounting course involved a lot of painstak-ing, time-consuming detailed calculations onpaper (we didnt have todays computerizedspreadsheet software back then), the hardwork helped me better understand the finan-cials of an enterprise. I learned to read balancesheets and income statements while develop-

Speak Financially,Get Results

Dr. Lapide is a lecturerat the University of

Massachusetts BostonCampus and is an MIT

Research Affiliate.He welcomes

comments on hiscolumns at llapide@

mit.edu.

In SIGHTSB Y L A R R Y L A P I D E
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SUPPLY CHAIN INSIGHTS

ing an appreciation for the value of corporate assets.Companies spend a substantial amount of upfront

money to build assets to manufacture and distributesupply as well as to deploy inventories in anticipationof customer demand. They expect to quickly get returnson their investments. Intel, for example, spends billionsof dollars to build semi-conductor fabrication plants. Sothe company operates them 24/7 to make sure that itis maximizing its long-run ROA on these huge invest-ments. Short-term margin and profit generation alonecannot justify these investments.

T D P M d

Put very simply, all supply chain managers shouldbecome conversant in accounting and finance if they want to get ahead. Once conversant, they will be ableto build business cases that will resonate closely with

executive-level thinking. The DuPont Model (shownin Exhibit 1) is a good blueprint to use when develop-ing a business case. The model, which according to

Wikipedia was established in the mid-1920s, has beenused by managers over the years to translate operation-al plans into their expected financial impact on ROA.

While simple, the model is robust in showing the inter-connections among operational productivities, revenues,operating costs, assets and inventories, and their impacton ROA.

Using a model such as this allows managers to trans-late operational supply chain improvements into theirfinancial meaning. For managers that adopt the modeland follow my advice to think financially, their executivepresentations will go from being bored-level to board-level. This will help them to get the executive approvalsas well as those promotions they are looking for!

EXHIBIT 1

The DuPont Model

Source: www.12manage.comSource: www.12manage.com

Sales

, G & Axpenses

Interest Expense

Income Taxes

easures o thee ectiveness withwhich assets are usedto produce revenue

easures of investmentsin long-term, revenue-producing assets

Measures ofinvestments in workingcapital assets neededfor sustaining ongoingoperations

Cash

AccountsReceivable

nventories Current Assets

Non-CurrentAssets

Total Costs Net Income

Total Assets

Sales

Sales

Net Pro tMargin

Total Assetsurnover

Return onAssets

arketableSecurities

Other

Land

Buildings

achineryand Equipment

Intangibles

+

x

x

-

- / -

- / -

Net Operating Pro t After Taxes

Net Pro t Margin otal Assets Turnover

Sales

ales

Average Net Assets= Return on AssetsReturn n ssets

= eturn on ssets
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Brazil is pursuing an energetic policy to expand its sup-ply chain infrastructure across the continent for greateraccess to Asian markets.

As it stands now, Brazils port system desperately needs updating and expansion as many ocean cargogateways are experiencing serious congestion in thecountry. Indeed, Ti analysts note that of the 34 publicmaritime ports under the jurisdiction of the SpecialSecretariat of Ports of the Presidency (SEP), 16 aremanaged directly by the state and local govern-mentsa bureaucratic nightmare. The other 18are administered by dock companies, whichare joint stock companies whose major share-holder is the federal government. Adding to thisconfusion is the fact that the SEP also is respon-sible for formulating policy and implementingmeasures, programs and projects to support thedevelopment of infrastructure of seaports.

Because of the poor state of the ports, many privatealternatives have been built in order for companies tomove their commodities to market quicker, Ti analystsobserve. For example, Brazils mining mogul, Eike Batista,announced plans to build one of the worlds largest ports.

The project has attracted both local and foreign investors.Batista came up with the idea of building a new port afterexperiencing constant delays in getting iron ore from hismines onto ships bound for China.

The port will include a cement causeway that willstretch about 1.8 miles into the ocean. It will have afour-lane highway, pipelines and conveyor belts that willmove raw materials onto vessels heading to China. TheAcu Super Port, nicknamed highway to China, will becompleted this year at a cost of about $2.7 billion. Theport will be a 10-berth terminal off the Brazilian coast.

Work is also underway to improve rail and road access

to the Port of Santos, which up until recently has been achoke point for goods moving in and out of the southeast.Grupo Libra, the first private company to manage a

sea terminal in Brazil, recently completed a dredgingproject at Santos navigation channel. Analysts say thecompany will likely make similar improvements in Riode Janeiro, where it holds several terminal concessions.

The Port of Rio Grandea southern gateway havinga strategic importance that goes beyond the limits of its national bordersis another resource worth track-ing. According to port administrator Jaime Ramis, itwill soon become the hub for the region, includingArgentina, Paraguay, Uruguay, and Bolivia. Indeed, the

Port of Rio Grande is able to accept 8,500 twenty-footequivalent units, while the average in Brazilian ports is2,300 TEUs. It is also preparing to become a logisticscenter for the southern end of Brazils hydrocarbons off-shore deposits and booming oil industry.

Despite Brazils vast network of navigable rivers,inland waterways currently account for only 13 percentof waterborne traffic. That, too, is changing, however.The Agencia Nacional de Transportes Aquaviarios, the

federal agency that regulates inland waterway, has beenaggressively promoting private investment for the pastdecade. And there have been encouraging signs thatinternational companies are preparing to expand opera-tions into this cost-efficient distribution mode.

B z S O D s As we have surmised before, the Panama Canal may not be the global transportation game changer many expect. Brazil is an example of how one giant sover-eign state and its supply chain stakeholders are shapingdestiny with ambitious plans of their own. Witness thestring of new highways planned to extend Brazils reachfrom the Atlantic to the Pacific via landbridge to Peru.Odebrecht, the Brazilian firm that built part of theexisting highways, plans to invest $10 billion on infra-structure in Peru over the next five years on a range of

power, water and road projects.The project is being dubbed InterOceanica, andanalysts suggest that this inevitable byproduct of South American integration will make Brazil the leaderin boosting the continents trade with China and therest of Asia.

Finally, because risk mitigation is now top-of-mindwith most U.S. supply chain managers, this could beanother reason to invest closer to home. Sudden anddramatic supply chain disruptions in Japan (earthquake)Thailand (floods), and India (blackouts) may make thishemispheric neighbor even more attractive as a way tohedge bets with a more sustainable sourcing strategy.

Brazil is an example of how one giant sovereignstate and its supply chain stakeholders are shapingdestiny with ambitious plans of their own.

GLOBAL L iN KS (continued)
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C orporate cultureor a lack thereofshapes an organizations value system.And the values that characterize a com-pany influence the types of individuals it hires,how they perform in the organization, and howlong they stay in the job.

There are many anecdotes about the negativeimpact of uninspiring corporate cultures on staff retention. These include cultures that are overly bureaucratic or too focused on micro-manage-ment, and ones that encourage finger pointingrather than constructive problem solving. Sadly,relatively few companies appear to leverage cor-porate culture as a positive employee retentiontool.

One of the exceptions is Coyote LogisticsLLC. Headquartered in Chicago, the third party

logistics provider employs about 1,100 people.Coyote has clocked spectacular growth ratessince it was created in 2006. It effectively dou-bled the size of its work force in 2011, and plansto add another 500 people this year. CEO Jeff Silver is not worried about a shortage of talentthanks largely to the way in which his organiza-tions work force and culture are aligned.

F T s f B d

Named to the Inc. 500 list of the fastest-growingprivately held companies in the U.S. for two con-

secutive years, Coyote posted revenues of $558million in 2011 and is on course to near the $1billion mark this year.

Our brand is our culture, says Silver.Following a rebranding exercise, Coyote identi-fied four characteristics that represent its brand:True, Tenacious, Smart, and Tribal. The fourdescriptors define the way the organization posi-tions itself internally to employees and externally to customers and carriers.

True. The 3PL is a non-asset-based truck-load, less-than-truckload, and intermodal service

provider that moves 2,800-plus loads per day across North America. Coyote focuses on back-haul opportunities.

As Silver points out, traditionally the truck brokerage business has not been associated withtrustworthiness. The industrys early evolutioninvolved guys sitting in basements and trailersand there was a lot of black box mentality. Cargowas accepted and moved if the right marginswere on the table; if not, loads were rejected ordelayed. This tendency to put short-run profit-ability ahead of customer service has given theindustry a less than stellar reputation in the trustdepartment, Silver maintains.

Coyotes True characteristic addresses thisissue. Central to its business model is a noexcuses philosophy where every load that is

accepted is movedeven when unprofitable.Anyone who works here has to have that [mind-set], he says. We talk about it all the time nottaking short cuts. We dont optimize on margin.

Silvers rationale is that a reputation fordependability is good for business because ship-pers are more likely to repeat the experience andtheir referrals drive more orders.

Tenacious. Tied to the True descriptor,Tenacious reinforces the notion that an opera-tor never quits on a load that he or she is respon-sible for.

Smart. Silver is a graduate of MITs Mastersof Engineering in Logistics program (now theMIT Supply Chain Management program), asare two other members of his executive team.Five more MIT alumni will join the company this year. Graduate degrees from schools such asGeorgia Tech and Northwesterns Kellogg Schoolof Management also feature on team membersresumes.

The aim is not to collect prestigious schoolnames. Rather, it is to provide the smarts thatleading 3PLs need not only to compete globally,

The Culture-TalentManagement Connection

TALeNTSTRATe GIES

By Ken Cottrill

Ken Cottrillis Corporate

CommunicationsConsultant,MIT Center for

Transportation &Logistics. He canbe contacted at

[email protected]
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LEADErs coLLAborAtion ADvAntAgE synErgy community

the supply chain top 25Raising the Bar

B D br h fm d s ar wDebra Hofman is Managing Vice President and Stan

Aronow is a Research Director at Gartner Inc. Theycan be reached at [email protected] [email protected].

the 2012 ranking of supply chain leaders from Gar ner includesa broad mix of global companiesa few new o he lis , bu moshaving recorded mul iple appearances. these leaders share cer aincharac eris ics ha drive day- o-day performance while solidifying hefounda ion for fu ure grow h. their s andou performance is raising hesupply chain leadership bar for companies everywhere.
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Gartners Supply Chain Top 25, pub-lished since 2004, is an annualranking o leaders in the global sup-ply chain. At its core, the Supply Chain Top 25 is about demand-driv-en leadership. Every year, we iden-ti y the companies that push the

envelope o supply chain innovation. Our goal is to raiseawareness o the supply chain discipline, as well as howit impacts the business, and to catalyze the debate andthe cross- ertilization o ideas about what supply chainexcellence really means.

What Is the Definition of Excellence?

Our methodology, detailed below, is based on a compos-ite score or each company that is made up o a set o fnancials combined with an opinion component, provid-ing a balance between objective and subjective compo-nents. In completing their ballots, voters are asked toidenti y those companies they believe are urthest alongthe journey toward the demand-driven ideal, as defnedin Gartner research and on the voting website.

What does it mean to be demand-driven? Exhibit 1,on page 12 captures the organizational ideal o demand-driven principles as applied to the global supply chain.This model has three overlapping areas o responsibility:

Supply management Planning, sourcing, man-u acturing, logistics.

Demand management Marketing, sales, andservice. Product management R&D, engineering, and

product development.Excellence is a matter o visibility, communication, and

reliable processes that link all three o these unctionalareas together. Whenthese processes work together, the businesscan respond quickly ande fciently to opportuni-ties arising rom market

or customer demand.Defning characteristicso supply chains builtto this design includethe ability to managedemand rather than

just respond to it, a net-worked rather than lin-ear approach to globalsupply, and the ability to

embed innovation in operations rather than keep it isolatedin the laboratory. The demand-driven model is inherently circular and sel -renewing, unlike the push supply chains o our actory-centric industrial past.

Inside the NumbersIn the 2012 ranking, the top fve contenders includethree perennials and two relative newcomers. (See tableon page 14 or the complete rankings.) First is Apple,maintaining its No. 1 position despite some bumps this

year, using frst-to-market advantage, scale and brand towield supply chain as a competitive weapon. Already astellar per ormer on the fnancial metrics we use or theranking and well-respected in the voting portion o themethodology, Apple astoundingly raised the bar even ur-ther, getting to a near-per ect score.

Both Dell and Procter & Gamble have been in the top5 every year o the ranking. Dell, having paved the way withits confgure-to-order model, has trans ormed itsel anddeveloped a sophisticated go-to-market strategy that tailorssupply chains by segment. Procter & Gamble, an iconicsupply chain thought leader, has an unparalleled ability toorchestrate demand and connect the supply chain to theshel and its customers moments o truth. P&G continuesto push the envelope o innovation and per ormance.

Amazon and McDonalds were both new to the rank-ing in 2010 and have moved steadily up since then. With athree-year weighted average revenue growth approaching

40 percent, Amazon delivers consistently reliable prod-uct supply to its shoppersno small eat given the rangeo products it o ers, the complexity o its network, andits continued expansion into new channels and services.McDonalds, back to double digit growth this year, gets alot o respect rom peers or its ability to deliver growth insame-store proftability while managing a more complexproduct port olio driven by its McCa e line.

Movers and shakers in the middle o the rankinginclude Unilever (10), Intel (7), and Nike (14), threecompanies that have been steadily rising on the list andleading the way or others in their global supply chain

trans ormations with impressive results. Coca-Cola,known or its last mile distribution prowess, returnsat No. 6 with strong peer recognition and ROAevenwhile it navigates the integration o its bottlers in NorthAmerica. Cisco returns at No. 8, setting the pace witha robust risk management program and collaborationup and downstream in its value chain. Ranked ninth,

Walmart remains a mainstay. And despite some challeng-es in the past year in Mexico, the company continues toget a lot o respect rom peer voters or its contributions


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The Top 25

to supply chain best practices over the years.Colgate rises to No. 11 this year on consistently

industry-leading, double-digit return on assets and astrong governance model. Long a recognized leader indirect store delivery, PepsiCo (12) is collaborating withretail partners to reduce out-o -stocks at the shel andincrease the visibility and accuracy o its demand sig-nal. Samsung (13), well known or its advanced S&OPprocess, continues with strong growth and pro tability in a tough market. Inditex, the European-based retailerbest known or its Zara brand and the tight integrationbetween product design and supply chain, returns or

the third time to the ranking at No. 15.Rounding out the list in the 16-25 section we see acombination o newcomers, the newly-returning, andold-timers who continue to lead the way in supply chain.

Were excited to welcome two heavy industrials amongthe newcomers: Caterpillar (20), an early leader in theconcept o segmentation with its well-known lane strat-egy, and Cummins (23) a major player in the engine andpower generation markets recognized or its best-in-classparts and service network. Leading industrials are tradi-tionally strong in upstream supply management, includ-ing the agility required to pro tably balance their long

and complex supply chains against volatile demand. Welook orward to seeing them share best practices withthe supply chain community through the Top 25.

Two remaining newcomers come rom the consumerand retail sectors. H&M, the success ul Swedish retailapparel group, joins the list or the rst time this year atNo. 17, with a consistently high-fying ROA on top o aproprietary distribution network o centrally controlledstores. Kimberly Clark, joining at No. 25, has broughtan innovative approach to logistics partnerships to NorthAmerica and is now ocusing on continued improvementsin on-shel availability and predictive demand planning.

Johnson & Johnson (22), the only li e sciences com-pany on the list, returns with a compelling vision oran ambitious supply chain trans ormation program.Hewlett-Packard (24), another perennial, runs one o themost complex supply chains in high tech, and is reapingthe cost bene ts rom being the rst PC OEM to moverom coastal to Western China. Research in Motion(RIM), the maker o BlackBerry mobile devices, ell toNo. 19 this year, a ter a di cult 2011. Given that ourmethodology relies on nancial metrics or 50 percent o each companys score, this all is not a surprise. Yet RIMalso took a hit in the voting portion o the score, despiteits impressive Value Chain Express strategy.

New to the ranking last year and coming back strong-ly this year are Starbucks (16), with a return to growthand a ocus on supply chain talent; Nestle (18), ocus-ing on supplier development and raw material sourcingstrategies; and 3M (21), best known or product innova-tion and returning to double-digit growth and ROA.

The companies populating our Supply Chain Top 25ranking this year are an impressive group and all havesome best practice aspect o their supply chain opera-tions that is applicable to the rest o the community o practice. In addition to each supply chains unique valueproposition, there are commonalities that we see acrossthem in terms o underlying characteristics and trendson where they are ocusing their trans ormation e orts.

Characteristics of Leaders

At Gartner, weve been researching and writing about theimportance o being demand-driven since 2003. Since thattime, weve published hundreds o pieces on the trans or-mation to a demand-driven value network. We continue toresearch these concepts and advise companies as they rec-ognize the value o becoming a demand-driven organization.

While every supply chain organization developsunique strategies and ocuses on di erentiated initia-tives, weve ound in our research that there are certainkey characteristics that de ne the leaders. We have talk-ed about some o these in past articles, and they remain

important oundational elements to being demand-driv-en. But they are not easy to attain, and what di erenti-ates the leaders in the Top 25 is that they are urtheralong the journey than others. Demand-driven leaders gobeyond best practices to build a oundation or growthand continual learning that constitutes an engine orsuperior competition.

These are among the key characteristics o the lead-ers weve observed:

Outside-in Focus. The concept o developing andmaintaining an outside-in ocus is almost synonymouswith the phrase demand driven. The galvanizing prin-

EXHIBIT 1

Demand-Driven Principles

Source: GartnerSource: Gartner

Demand Supply

Product


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The Top 25

The Gartner Supply Chain Top 25 for 2012

Rank Company

Peer Opinion 1 (173 voters)

(25%)

GartnerOpinion 1

(37 voters)(25%)

Three-YearWeighted ROA 2

(25%)Inventory Turns 3

(15%)

Three-YearWeightedRevenueGrowth 4 (10%)

CompositeScore 5

1 Apple 3241 651 20.2% 74.1 51.5% 9.69

2 Amazon 2713 435 4.4% 10.0 37.7% 5.40

3 McDonalds 1121 283 16.0% 142.4 7.2% 5.37

4 Dell 2131 546 6.8% 35.6 2.7% 5.30

5 P&G 1940 622 9.2% 5.5 2.5% 5.05

6 The Coca-Cola Company 1818 372 13.0% 5.8 19.7% 4.85

7 Intel 1006 406 16.2% 5.0 17.8% 4.63

8 Cisco Systems 1243 582 8.4% 11.0 5.5% 4.46

9 Wal-Mart Stores 1874 410 8.8% 8.3 4.2% 4.24

10 Unilever 1043 534 10.2% 6.0 5.5% 4.2111 Colgate-Palmolive 697 342 19.6% 5.3 4.2% 4.17

12 PepsiCo 917 427 10.2% 7.7 17.6% 4.05

13 Samsung 1014 291 9.4% 17.1 15.9% 3.67

14 Nike 1073 278 13.3% 4.6 5.2% 3.55

15 Inditex 397 225 17.3% 4.0 10.3% 3.37

16 Starbucks 940 191 14.3% 6.2 6.3% 3.28

17 H&M 385 24 28.6% 3.6 5.7% 3.09

18 Nestle 651 196 15.9% 4.9 -9.5% 3.06

19 Research In Motion (RIM) 254 104 17.0% 11.3 13.3% 3.00

20 Caterpillar 876 226 4.6% 3.4 22.7% 2.67

21 3M 856 70 13.2% 4.4 8.4% 2.65

22 Johnson & Johnson 798 176 10.7% 3.2 2.1% 2.55

23 Cummins 142 52 11.9% 6.0 20.0% 2.22

24 HP 598 192 6.2% 13.7 2.8% 2.22

25 Kimberly-Clark 463 182 8.9% 6.1 3.5% 2.21

1. Gartner Opinion and Peer Opinion: Based on each panels forced-rank ordering against the definition of DDVN orchestrator

2. ROA: ((2011 net income / 2011 total assets) * 50%) + ((2010 net income / 2010 total assets) * 30%) + ((2009 net income / 2009 total assets) * 20%)

3. Inventory Turns: 2011 cost of goods sold / 2011 quarterly average inventory

4. Revenue Growth: ((change in revenue 2011-2010) * 50%) + ((change in revenue 2010-2009) * 30%) + ((change in revenue 2009-2008) * 20%)

5. Composite Score: (Peer Opinion * 25%) + (Gartner Research Opinion * 25%) + (ROA * 25%) + (Inventory Turns * 15%) + (Revenue Growth * 10%)

2011 data used where available. Where unavailable, latest available full-year data used. All raw data normalized to a 10-point scale prior to composite calculation.

Source: Gartner (May 2012)

ciple here is to design the supply chain starting with thecustomer experience, and work back upstream throughthe supply chain. While the concept is relatively simple,its implementation is anything but. It requires a un-damental re-orientation not only in mindset, but in theway groups are measured and in the way networks andbusiness processes are designed. An outside-in ocus isnot synonymous with a customer ocus: companies canbeand o ten are ocused on the customer rom theinside-out, as witnessed in service metrics such as on-time shipments or fll rates.

Embedded Innovation in Supply Chain. In ourDemand Driven Value Network model, frst published in2004, the inclusion o a product circle to accompany supply and demand carried an explicit message aboutthe importance o connecting traditional notions o sup-ply chain with the new product development and launchprocess. The point is to ensure that new products arebrought to market that satis y the total customer experi-ence proftably and e ectively. Leaders understand thebalance between operational excellence and innovationexcellence (see Exhibit 2). Supply chain considerations


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The Top 25

must be taken into account early on in the new productdevelopment and launch process. And the act that newproducts require di erent supply chain strategies thanexisting products must be taken into account in the sup-ply chain design process.

Extended Supply Chains as Networks. Leaderstake the notion o the organization as value chain onestep urther, designing and managing their supply chainsas the extended networks o trading partnerscustom-ers customers, suppliers suppliers, logistics providers,contract manu acturers, third-party warehouses, etc.that they really are. What theyre doing is orchestrat-ing a set o activities across the network, aligning goalsbased on each players value proposition that will resultin the desired outcome rom that networkthe pro t-able delivery o nal product to a customer.

Excellence Addicts. All companies measure. Whatmost still struggle with is how to ocus on the metrics thatmatterand even more importantly, how to interpret andthen act on those metrics to achieve a desired outcome,namely to improve operational results. From our years o research in this area, we nd that most organizations are,in act, awash in supply chain metrics. They nd them-selves so caught up in the tactical aspects o measuringde ning, collecting, sorting, translating, rationalizing di -erencesthat it becomes an end in itsel , and suddenly they realize theyve lost sight o the bigger picture.

The best companiesthe ones we call excellence

addictshave a very di erent approach to metrics.First, they know what to measure. But they also under-stand that the whole is greater than the sum o the parts,that it is, in act, a system, and that the purpose o themetrics is to make the entire system work better. When

individuals in these companies get together to discussand interpret a set o numbers, the conversation isntabout whose ault something is; its about where thingsbroke down in the system, how to x them, and thenhow to take it to the next level. They are ruthless in con-stantly examining their own processes to push the enve-lope o per ormance.

Three Trends Evident

Each year, our analysts talk to and research the supply chains o hundreds o companies. Through these discus-sions, we note the trends: What are the leaders ocusing on,where are they investing time and e ort, and what can beapplied broadly? Overall, weve seen companies continuingto invest in resources and assets or growth, a trend thatstarted last year and is continuing. The global economicrecovery has been uneven and halting in some cases, but,companies outlooks are increasingly expansionary in termso the markets they serve and the products they o er.

There are three trends to note:1. Supply Chain Risk Management and

Resilience. Despite investing or growth, companiesalso know that the potential or disruption at any-time remains real. Many are looking to improve theresiliency o their supply chains to mitigate this risk.In turbulent times, and in the ace o growing com-plexity and risk, leading companies need sustainable,resilient supply chains that support pro tability and

drive industry leadership. This requires managers tore-evaluate the layout o their supply network designsto make them more resilient to uture catastrophes.It may also include designing products that allowmore fexibility in supply and manu acturing, increas-ing long-term alternative sources o raw materials andlogistics capabilities, and expanding outsourced man-u acturing capacity. Leading companies such as Intel,P&G and Unilever improved multitier supply chain

visibility and advanced network management capa-bilities to be agile in the ace o disruptions. Overall,leaders have remained ocused throughout the past

year on building resiliency into their global supply chains. We see this continuing to be a highly valuedsupply chain characteristic.

2. Simplifcation. Many companies tell us thatthey have exhausted easily gained e ciencies withintheir existing supply networks and product port olios.Further improvement will require structural changesto streamline the fow o supply, and eliminate lesspro table product and port olio complexity. Supply chain leaders are adopting complexity optimizationstrategies to eliminate in requently used product ea-tures, service o erings, suppliers and distribution

EXHIBIT 2

Operational Excellence and Innovation Excellence


OperationalExcellence

(Perfect Order,Total SupplyChain Cost)

OperationalExcellence

(Perfect Order,Total SupplyChain Cost)

LaggardLaggard

LaggardLaggard LeaderLeader

LosersLosers

WinnersWinners

Higher Cash Flow,Pro ts, P/E

Higher Cash Flow,Pro ts, P/E

LeaderLeader

Innovation Excellence(Time to Value, Return on R&D)

Innovation Excellence(Time to Value, Return on R&D)

D

Demand Supply

Product

S P


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www.scmr.com S C M R S / O 17

network capacity that does not add suf cient value tocustomers. Supply chain segmentation has emergedas a critical enabler of supply chain simpli cation,and while this is a concept that has been around fora few years, leaders are aggressively adopting it toreduce complexity.

3. A Shift Toward Multi-Local Operations.Manufacturers and retailers have long sought ways tobalance the trade-off in their supply network designsbetween global economies of scale and the demand forlocal responsiveness. Leading companies are reassessingtheir sourcing and manufacturing networks, and rebalanc-ing their supply network strategies in favor of multi-localdesign, supply and support. More speci cally, they areshifting from a centralized model, where these functionssupport global markets, to a regionalized approach, wherecapabilities are placed locally, but architected globally.

Supply Chain Top 25 Methodology One of the reasons this list has worked over the yearsis its transparent methodology. From the beginning wehave sought direct feedback from supply chain profes-sionals and incorporated suggested changes into themethodology where possible. As a result, the list re ectsnot only what Gartner analysts think about supply chain

leadership, but what the community as a whole respects.The Supply Chain Top 25 ranking comprises two main

components: nancial and opinion (see Exhibit 3). Publicnancial data provides a view into how companies haveperformed in the past. The opinion component offers aneye to future potential and re ects future expected leader-ship, which is a crucial characteristic. These two compo-nents are combined into a total composite score.

We derive a master list of companies from a combi-

EXHIBIT 3

Supply Chain Top 25 Methodology


ROA 25%ROA 25%Peer Vote 25%Peer Vote 25%

AnalystVote 25%AnalystVote 25%

InventoryTurns 15%InventoryTurns 15%

RevenueGrowth 10%RevenueGrowth 10%

sFinancial

50%Opinion

Module One:Managing theSupply Chainas a System

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Module Two:Managing Supply

and DemandNovember 6-7

Module Three:Supply Chain

AnalyticsDecember 4-5

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22/69


The rst page provides instruc -tions and a description of thedemand-driven ideal.

The second page asks fordemographic information.

The third page provides pan -elists with a complete list of thecompanies to be considered. Weask them to choose 30 to 50 that,in their opinion, most closely t thedemand-driven ideal.

After the subset of leaders ischosen, the form refreshes, bringing

just the chosen companies to a list.Panelists are then asked to force-rank the companies from No. 1 toNo. 25, with No. 1 being the com -pany most closely tting the ideal.

Individual votes are tallied acrossthe entire panel, with 25 points earnedfor a No. 1 ranking, 24 points for aNo. 2 ranking and so on. The Gartneranalyst panel and the peer panel usethe exact same polling procedure.

By de nition, each personsexpertise is deep in some areasand limited in others. Despitethat, panelists arent expected to

conduct external research to placetheir votes. The polling system isdesigned to accommodate differ -ences in knowledge, relying on whatauthor James Surowiecki calls thewisdom of crowds to provide themechanism that taps into each per -sons core kernel of knowledge andaggregates it into a larger whole.

Composite ScoreAll this informationthe three

nancials and two opinion votesisnormalized onto a 10-point scale andthen aggregated, using the afore -mentioned weighting, into a totalcomposite score. The compositescores are then sorted in descend -ing order to arrive at the nal Supply Chain Top 25 ranking.

Raising the Leadership Bar The goal of the Supply Chain Top25 is to help raise the bar for lead -

ership in the global supply chain.Companies that move fastest intoglobal markets with innovativeproductscoupled with supply chains that are customer-driven,adaptable to change and resilientto disruptionwill be the win -

ners. We look forward to continu -ing to share the lessons learned,providing a platform for informedand provocative debate, and help -ing the supply chain community provide vital contributions to theglobal economy. jjj

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LEADErs coLLAborAtion ADvAntAgE synErgy community

ALLiAncE mAnAgEmEnt:

Engaging Suppliers By Bob Engel

Bob Engel is the Senior Practice Leader of theSupply Chain Management Service Line for

Resources Global Professionals, a professional services firm. He can be reached at [email protected].

Alliance Management kicks SRM up a notch.By focusing on collaboration and two-waycommunication, itopens up new windowsof opportunity inthe buyer-seller

relationship. Whenimplemented properlywith key suppliers,Alliance Managementcan lead to smoother operations, greater value,and higher profitabilityfor both parties!
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Right Way W hen veteran supply chainpro essionals hear the termalliance management, they o ten cringe. They think back to the days when consultantsbegan heralding this con-cept as the next great break-

through in buyer-seller relationships. It soundedgoodwork with your key suppliers as i they were true partners so that both o you would bene-ft. But when trying to implement this logical idea,the old habits proved to be an insurmountableobstacle. Buyers reverted to the traditional master-servant relationship and the Alliance Managementgoal o mutual beneft through collaboration wasseldom achieved.

Back then, a program like Alliance Managementwas considered nice to have. Today, however, itsbecome a competitive necessity. In a dynamic envi-ronment o global supply chain complexity, newproduct development pressures, and continuingeconomic challenges, the need to capture the great-est possible value rom our supply base has neverbeen greater. This article is written to share withthe supply chain community a reality that most o

us already know: Our supply base holds the key to valuable opportunities to help us save money andincrease the value or the dollars we spend. The way to achieve that is through Alliance Management.

Defining the TermsIn examining these opportunities, the frst ordero business is to defne the termsin particular,the di erence between Supplier RelationshipManagement (SRM) and Alliance Management.The two are not the same.


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Alliance

According to the Institute or Supply Management(ISM), the term supplier relationship managementre ers to the practice and process or interacting withsuppliers. SRM generally incorporates such elements assupplier contracts, terms, service levels, delivery require-ments, and the like. In practice, SRM is typically a one-way communication channelthat is, rom the buyerwho conveys direction, control, and in ormation to thesupplier.

Alliance Management takes SRM to a higher level.The practice includes all o the major elements we justmentioned but adds a oundational component o col-laboration. In the relationship both parties are, in act,allies. Their actions ocus on creating value and ben-e t or both parties. In true Alliance Management, bothbuyer and seller jointly engage in reducing overhead, cut-ting costs, simpli ying business processes, and improvingthe alliance to ensure growth. In other words, its a two-

way collaborative relationship in which both the buyerand supplier bene t by providing value to each other.Theres an interesting parallel here with strategic

sourcing. Strategic sourcing has been de ned as an orga-nized and collaborative approach to leveraging targetedspend categories with the objective o selecting thosesuppliers that are best suited to provide knowledge and

value. Similarly, Alliance Management can be de ned asthe organized and collaborative approach to managingthe supplier relationships.

The success o this collaborative approach very muchdepends on the people involved in the relationship.

Through the ormation o Alliance Management teams,representatives rom both the buyer and the seller willregularly sit down at the table to work together on oster-ing a long-term, mutually bene cial alliance. These dis-cussions typically will have our overarching objectives:

1. To ensure that the relationship remains healthy.2. To establish a mechanism or addressing and

resolving issuesrecognizing that most relationshipswill have issues and the objective is to resolve thoseissues.

3. To provide an atmosphere and plat orm or setting con-tinuous improvement goals that go beyond the agreements

basic terms and conditions.4. To ensure that contractually agreed-upon per or-

mance metrics are monitored and measured. (Too o ten,we see that once agreements are negotiated and signed,they nd their way to the le cabinet with little e ort tomeasure how are we doing?)

Thinking about our description o whats involved inAlliance Management, youve likely already concludedthat it would be physically and economically impossible

to include all o your suppliersin the program. And you areright. Later in this article, welldetail how to go about identi-ying and selecting those sup-pliers to ormally engage in anAlliance Management initia-tive. For now, lets just state ourpremise up ront: With the key

suppliers, it is well worth the time, money, and e ort toestablish a collaborative Alliance Management program.

Why Alliance Management Now?The ace o supply chain management in todays environ-ment is changing rapidly in ways we enumerate below.Because o these changes, a commitment to alliancemanagementin terms o time, money, and resourceshas become a necessity and not an option. Consider how

these changes in our environment underscore the needor strengthening supplier relationships. Shifting Demand-Supply Balance: Prior to the

global nancial collapse o 2008/2009, economic li ewas airly consistent and or the most part prosperous.Demand was heavy; it was supply that proved challeng-ing or many commodities and services. However, overthe past several years, and as a direct result o the recentglobal nancial collapse, we have witnessed widespreadcost containment and cost reduction initiatives. This,in turn, has resulted in less demand and over-supply inmost cases (though not all).

Changing Sourcing Strategies: With the volatileeconomy o the past several years, sourcing groups with-in companies have been required to make mid-coursecorrections with regard to their sourcing approach andstrategies. Today, in addition to pricing, actors like sup-plier solvency, reliability, and attention to quality are inocus. The result: risk mitigation has been added to thesourcing decision tree process.

Expanding Sourcing Domain: The executiveC-suite or most companies has turned to their supply chain management leadership or additional cost savingsand value creation. Refective o this, SCM leaders are

Our supply base holds the key s s s d s

f d s s d. T

s A M .


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being asked to look into areas o spend that were tradi-tionally o their radar screen. A sampling o these areasincludes legal services, marketing and advertising, nan-cial services, acilities, and pro essional services.

Increased Logistics Complexity: Until recently,logistics was almost a secondary actor in sourcing deci-sions. Logistics pro essionals o ten elt rustrated hav-ing to repeatedly articulate the importance o shipping,warehousing, and inventory management. But with glo-balization and its attendant complexity now the norm,the pivotal role that logistics plays in the business hasbecome clearer to everyone. How long will it take toship, what governmental and regulatory issues will posechallenges and potential delays, how will natural disas-ters and the contingent planning or them a ect ourlogistics strategy? All o these actors speak to the impor-tance o logistics in our buying decisions.

Emergence of e-Procurement and Technology: Supply chain unctions today are seeking ways to bemore e cient and productive. A big part o this is nd-ing technologies that will allow sourcing sta s to con-centrate their time and energy on strategic issues andnot just transactional activities. In the context o AllianceManagement, its about selecting those suppliers thatcan incorporate technology e ciencies in the day-to-day ordering, shipping, and inventorying activities. Havingthe right procurement technology not only results in

more streamlined processes, but alsoallows the buyer to concentrate moreon strategic imperatives.

Heightened Emphasis onCompliance and Controls: TheSarbanes-Oxley Act o 2002 (SOX)certainly provided some high anxi-ety regarding how companies con-duct their nancial a airs. The initialwave o SOX review ocused on issues relating to nan-cial reporting and transparency. Because this initial con-centration on nancial issues, most companies are now

incorporating additional ocus in other process and con-trol areas such as supply chain management. All aspectso the supply chain unctionprocesses, sourcing, sup-plier relationships, and so orthshould be part o theSOX review. Suppliers are being included in discussionsto ensure that compliance, price veri cation, and secu-rity issues such as the t and raud are being addressed.

Cultural Issues with Alliance ManagementBe ore detailing our speci c recommendations orimplementing an Alliance Management program, itsimportant to point out some o the cultural issues

that, unless addressed, can stand in the way o suc-cess. Organizations develop a culture around the way activities are per ormedincluding, o course, in thesupply chain space. With the introduction o AllianceManagement, many o these long-held cultural belie sand attitudes will have to change. Two in particular areespecially sticky: an inherent distrust between supplierand buyer in existing relationships and the buyers earo losing control.

In most buyer-seller relationships there is an inher-ent, though not always obvious, distrust between theparties. Naturally, suppliers want to charge more or theirproducts and services while buyers like to lower thepricing hammer. What emerges rom these confictingobjectives is an element o distrustmost o ten comingrom the supplier side. Alliance Management provides anew stage upon which to eliminate this negative elementand build a new relationship based on mutual trust andcollaboration. I we can sit down in a collaborative andgood aith spirit with our partners, the relationship willbe a whole lot more enjoyableand pro table.

Various techniques can be employed to help over-come any sense o distrust and gain buy-in rom the sup-plier side. One o the most e ective Ive seen is relatedin the ollowing anecdote.

A colleague and very good riend o mine was at onetime the CPO o a Fortune 500 utility company. Among

his objectives was to not only initiate a strategic sourc-ing program or key commodities, but also to develop ane ective Alliance Management program with incumbent

and newly selected suppliers. One o their key supplierswas a cable manu acturer who made the cable line orelectricity.

To set things on the right course, the rst AllianceManagement program meeting was held at the manu ac-turers acility that made the cable. My riend wanted todrive home the point o two-way communication and dia-logue. So early in the meeting he said to the supplier peo-ple in attendance: Tell me what we are doing that doesntmake sense to you. There was not a word, not a peeprom anyone in the room. He then repeated the requestseveral times until nally one o the foor supervisors said:

Alliance Management is a two-waycollaborative relationship

d s f d .


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Alliance

Follow me and I will show you what you are doing thatis really dumb.

They ollowed the oor supervisor to the actual linewhere the cable was being manu actured, a process thatbasically involves braiding strands o wire in a straightline. At the end o the braiding line, there were a series o 90-degree turnsone right, two le t, and then one rightagain. The supervisor explained that in the specifcationshe received rom this utility company, one o the require-ments was or no markings on the outside o the cable.But the supplier had built into its manu acturing processa machine that marked the outside o the line with three-oot markings to help the feld lineman with measure-ment. Because o the no markings requirement, how-ever, the cable company had to build a workaround in theprocess so that markings would not be applied.

The neat part o this story is that my CPO riend hadwith him his lineman operations manager as part o theteam. When the manager heard this, he said: Youve gotto be kidding me (or a variation thereo ). I dont knowwho in our company developed that specifcation, but Ineed those markings. And because there were none, Ihave to use tape measures to fgure out my runs. I I hadthese markings, it would have saved me over 10 hours aweek in man hours. This story underscores the impor-tance o both parties understanding the value o an alli-ance management program.

On the buyer side, one o the big cultural issues to beaddressed is the sense o losing control. Buyers tradition-ally have enjoyed the eeling o control over their suppli-ers. Do it my way and you will ft in nicely into our supply chain plans, has been the prevailing sentiment. For many buyers, the thought o losing control can be a cause oruncertainty and anxiety. But to have an e ective AllianceManagement program, you simply have to get over it.Control needs to give way to collaboration.

Many people on the buyers side may have di fcul-ty giving up control; a ter all, they are being asked toundertake a major change, and change can be di fcult

or many. But they must be made to see that change inthis matter is essential to the success o the business. I persuasion doesnt work, then orced change may haveto come in play. The reality is that all acets o businessare rapidly changing. We see joint ventures, in ormationsharing, globalization, and a host o other leading indica-tors that confrm that being in control doesnt necessarily translate to success.

Six Steps for a Successful ProgramBy this point, we hope to have captured your atten-tion regarding the potential advantages o Alliance

Management. The next logical question, then, is howto implement a program that captures those advantages.

We recommend the ollowing six steps to help ensure asuccess ul Alliance Management program.

Step 1: Focus on the Core RelationshipsEarlier we mentioned that it is neither practical nordesirable to establish an Alliance Management relation-ship with all o your suppliers. This should be reservedonly or your key, or core, suppliersthat is, suppliersthat are critical to your business needs and, as such,warrant the time and resources involved in an alliancemanagement program. But how to determine which sup-pliers all into this category?

The matrix shown in Exhibit 1 can help. It simply takes all o your supplier relationships and puts theminto one o the our quadrants. The Y axis represents thespend categories and goes rom low criticality to high-est criticalitythat is, rom the non-strategic, easily replaceable spend to the strategic buys that impact thecore business. The X axis is the di fculty and complex-ity o managing the relationships. Those suppliers thatft into the top right-hand quadranti.e., suppliers thatare critical to your business and are relatively complexto manageare the top candidates or a ormal AllianceManagement program.

Most suppliers will all into one o the remainingquadrants and are best managed through routine SRMprocesses. The level o e ort will be di erent in eacho these remaining quadrants or example, the easily managed strategic buys (upper le t quadrant) will getmore attention than the easily managed non-strategic

EXHIBIT 1

Where to Have Alliance Management Teams

Source: Resources Global Professionals

S p e n

d C a

t e g o r

i e s

Strategic,impacts

core business

Non-strategic,easily

replaceableEasy to

manage, simple

RoutineSRM

RoutineSRM

RoutineSRM

Alliance Managementfocus is here

Formalized meetingswith representatives from

both the buyer and supplier

Dif culty of Supplier Management

High maintenance,emotional, complex


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buys (lower le t quadrant). Yet the basic SRM processused outside o the Alliance Management quadrant willbe essentially the same.

Step 2: Form the Alliance Management Team With those suppliers that warrant an AllianceManagement program, the next step is to orm the teamto manage the relationship. Team members should comerom both the buyer and supplier sides. In selecting theirteam members, the buyers and sellers should emphasizethe characteristics discussed below:

When identifying the respective team members,involve users from various levels of the organization that

will be affected by the sourcing decisions. These include(but are not limited to) technical, operational, adminis-trative, and executive personnel. The point is to get theinternal users actively involved in the management pro-cess o the alliance.

Select team members with a variety of perspectives. Just having technical specialists on the team, or exam-ple, will limit the scope and e ectiveness o the alliancemanagement initiative.

Include non-believers as well as supporters.The hopeis that the non-believers will not only o er challenging

viewpoints, but will ultimately understand the value o the program and will support it with the ervor o a con-

vert. (A secondary beneft is that they will become ans

o the supply chain organization.) Most importantly, choose team members who willcommit to the time effort required to

make the program work.The time com-mitment or a unctional team mem-ber will vary rom company to com-pany, but in most cases will represent5 to 10 percent o the persons time.

When approaching a unctional man-ager to put one o his or her peopleon the team, the team leader mustbe prepared to answer two key ques-

tions: (1) How much o this persons time will you need?(2) How will participation in the Alliance Managementteam help our particular unctional area?

Here are a ew other points to consider in teamselection. Be wary about placing persons with eitherdominant or passive personalities on the team. The or-mer could subvert the collaborative spirit required o Al-liance Management while the latter will contribute littlein moving the relationship orward.

With regard to the requency o team meetings,note that it will vary depending on the commodity andservice and the maturity o the relationship. Early on,

the team needs to meet more o ten. In addition, atleast twice a year a senior executive rom both the sup-plier and the buyer company should attend the meet-ing. This will accomplish two objectives: (1) the teamsees frst-hand the importance that senior leaders placeon the alliance and (2) the leaders are kept up to speedon how the relationship is progressingits a greatcommunication tool.

Step 3: Share the Agreement with All Team MembersFurnishing all team members with a copy o the con-tractual agreement is essential in the development o asound buyer/supplier relationship. A lack o understand-ing among team members as to exactly whats involvedin the agreement results in con usion and non- ocusedmeetings. At this point in the relationship, the negoti-ating is over with and team members ( rom both sides)need to down to the business o executing against thatagreementwith a unifed ocus.

Too o ten, we see instances where companies havethe right mindset in ostering supplier relationships. Buti the team members are not aware o the specifcs o theagreement, the per ormance objectives, and the requiredcommitment levels, how can you expect them to orm asuccess ul alliance?

Step 4: Constantly Assess Satisfaction and Status

An agenda item at every meeting should be the status o the relationship and whether it continues to move in a

positive direction. As discussed earlier, issues will arise.The key is to quickly identi y and resolve those issuesand prevent similar ones rom becoming a hindrance tothe relationship. This can be accomplished by simply taking stock o where we are with regard to:

Satisfaction levels of the internal users in both thebuyer and supplier organizations.

Whether issues are being addressed in a timely ashion and with corrective action.

Enhancements that could be implemented toimprove the relationships e ectiveness.

Potential problems that may develop down the road.

Alliance Management is one moreimportant tool s

d s s s f .


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Alliance

Step 5: Establish a Feedback-and-Fix SystemA ormal method o gathering user and supplier eed-back and then publishing the results is critical to sat-is ying the users and giving the alliance team the datanecessary to manage the relationship. The tools used insuch a eedback-and-fx system will depend on many actors. In most cases, however, the technology does nothave to be overly complicated or super sophisticated.Typical tracking toolsets employed include Excel, AccessDatabase, or other commercial products on the market.

Regardless o the method, tool, or system that youengage, the key activities o a eedback-and fx systemare to: (1) establish a simple procedure or eedback,(2) create a process or responding to any eedback, (3)employ a tracking toolset, (4) provide specifc eedback to the person submitting the issue, and (5) publish theresults o the fndings to all team members and to any buyer or supplier users that are a ected.

Step 6: Structure the Meetings Properly How you structure the team and individual meetings is amajor actor in the success o an Alliance Managementprogram. Certainly, meetings should be convened whenan emergency or special circumstance arises. But dontwait or such events to happen be ore having a meeting.Instead, meetings should be scheduled on a regular basisso that many potential problems can be averted in the

frst place. Frank and open discussion should be encour-aged at the meetings. But the tone should always be civiland the opinions positive and constructive. On thoserare occasions when emotions take over, call a time outand reconvene in a ew days when everyone cools down.

An important part o the agenda should be to identi y and discuss industry trends and market conditions withall team members. Remember, this is a collaborativeprocess that relies on the sharing o in ormation. Valuecreationthrough cost savings, cost avoidance, quality improvement, process improvement, and so orthisa central element o Alliance Management and should

be a major ocus o every meeting. Importantly, a com-munication plan should be put in place to convey theproductive discussions that are taking place back to theexecutives and stakeholders o both organizations. Dontbe a raid to celebrate success!

Finally, no contractual changes should be adopted atthe meetings without allowing both parties to take theproposed modifcation back to the responsible party ateach company. Keep in mind that the person who nego-

tiated the contract and has ultimate responsibility or itmay not necessarily be a part o the alliance team. Notethat contract responsibility tends to vary rom organiza-tion to organization.

Drivers of Profitability Alliance Management is one more important tool thatsupply chain management leaders can apply to increasetheir companys proftability. One o the greatest(though o ten overlooked) opportunities or identi y-ing cost savings and e fciencies lies in looking beyond

your internal sourcing activities and resources to thoseo your suppliers. By leveraging supplier expertise andworking in a collaborative manner, companies canreduce costs and streamline operationstwo primedrivers o proftability.

APQC, a major nonproft benchmarking organization,recently completed a survey keying in on the benefts andelements o e ective supplier relationships. Exhibit 2 pro-

vides a summary o their fndings, which distinctly showsthat managing supplier relationships goes well beyond

just establishing a pricea central tenet o AllianceManagement. Asked to put a percentage on the impor-tance o various elements in the relationship, the supply chain executives who responded placed total cost (whichincluded elements such as cycle time, process e fciency,collaboration and innovation) well above price alone.

I we concentrate and commit an equal amount o e ort to managing our supplier relationships as we doin the up ront sourcing process, we can signifcantly increase the credibility o the supply chain managementunction and become an important contributor to com-pany proftability. Alliance Management is the key tomaking that happen. jjj

EXHIBIT 2

Importance of Components in Supplier Relationships

Source: APQC

Price 22%Quality 10%Capabilities 7%Delivery 6%Other 9%

Cycle Times Process Ef ciency Collaborative Technology Inno vation

Focus on Total Cost 46%


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Are TacklingManagementBy Bob Heaney

Bob Heaney is Senior Research Analyst, Supply Chain Management at the

Aberdeen Group. He can be reached at [email protected].

Aberdeen Groups Chie Supply ChainO cer (CSCO) Survey, conductedin July 2012, collected data rom 191companies. That survey revealed thatthe increase in the number o suppliers,customers, carriers, and countries o trade is changing the importance o col-

laborative synchronization between all parties in the multi-tiered global supply chain. As a result, were seeing a grow-

ing shi t in ocus towards collaboration and Global TradeManagement (GTM) with suppliers and trading partners.The insights in this article will ocus on an impor-

tant segment o that research samplethe 69 compa-nies in discrete manu acturing industries. In particular,we examine the key process and technology di erentia-tors displayed by the chie supply chain o cers in thesecompanies to improve visibility to supplier/partner/cus-tomer product fow across an increasingly global, multi-tier, and cross-channel distribution network.

Complexity Overtaking the Supply Chain

Our CSCO study ound that the top business pressuresacing the discrete segment are the impact o increasingsupply chain complexity (that is, longer lead times andlead-time variability, or increasing numbers o suppliers,partners, carriers, customers, trade countries, logisticschannels) and rising supply chain management costs ( orexample, total landed costs, uel costs, labor costs), asshown in Exhibit 1.

Globalization, global trade, and o shore sourcing areon the upswing as the overseas supplier base grows rela-tive to a given companys home country. Three quarterso the companies in the discrete segment report having

suppliers in China and 60 percent indicating suppliersin Europe. Fully 90 percent o discrete companies inthis study have imports or exports, compared to only 38percent or the others. Other key ndings regarding thediscrete companies compared to the other respondentsinclude:

84 percent of discrete companies are importing(receiving from other countries) vs. 74 percent forothers.

88 percent are shipping domestically vs. 74 percentor others. 83 percent are receiving domestic shipments vs. 64

percent or others.Exhibit 2 illustrates the percent o suppliers by region

among the companies in Aberdeens survey data. (Note:Discrete companies percentage indicated in black; allother companies in red).

EXHIBIT 1

Main Pressures on CSCOs

Growing Complexityof Global Operations

52%

26%

Rising Supply ChainManagement Costs

46%52%

Source: Aberdeen Group, July 2012

Discrete All Others
http://www.scmr.com/http://www.scmr.com/mailto:[email protected]://www.scmr.com/mailto:[email protected]


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Global Trade

Top Supply Chain Strategic ActionsExhibit 3 compares the top strategic actions that discreteand other industry segments are pursuing to alleviate thepressures associated with globalization and supply chaincost or complexity. Top among these strategies is inter-

nal collaboration, as companies struggle to synchronizeand integrate data across various management systemsand internal groups. This strategy o multi-party, multi-enterprise collaboration in GTM has held airly constantduring the last year.

All companies need int

Documents

Supply Chain Management Review SCMR_SepOct_2012_t504