Yesterday's News and Today's Opportunity: Competing Supply Chains
by Art van Bodegraven, S4 Consulting
Masters of the Obvious Take The Stage
It's a common sight at conferences and seminars these days. Some over-educated and under-experienced self-appointed pundit will announce, "You know, companies no longer compete against other companies. Supply chains compete against other supply chains." Stentorian tones still ringing through the room, the pundit will stand back andw ait for the audience's collective gasp at having received an "aha" moment worth, all by itself, the registration fee.
The gasp might be a long time coming. That concept was news in the late '90s, but is stale, maybe even hoary, by now. And, we've got bigger fish to fry than pretending to be astounded by the obvious.
Do Supply Chains Really Compete Against Other Supply Chains?
Of course they do, and have for a long time.
- Lowe's versus Home Depot-- a raging battle
- Best Buy versus Circuit City-- you know who won this fight
- Boeing versus EADS (Airbus)-- different strategies, parallel challenges
- Amazon versus anybody in any space they go after
- Zappos with mainly shoes and accessories, and a killer customer service differentiator (now owned by Amazon)
- Barnes & Noble versus Borders, and both looking over their shoulders at Amazon, and, increasingly, Overstock
- Procter & Gamble versus Unilever, a clash of titans, with P&G a supply chain and logistics pioneer
- Dell versus Gateway-- pretty much settled, with Dell looking at radical departures from the early success model
- Nokia versus Ericksson, taking a big lead through supply chain resilience
- TechData versus Ingram Micro, with every order at stake
- Bed, Bath and Beyond versus Linens and Things, and the jury has returned a verdict in this case too
- Costco versus BJ's, a boon for anyone with a big cellar and an appetite to match
- The Limited staked its claim to success early, with an incredibly fast supply chain that collapsed the time from spotting a trend in Milano to having the latest fashion in its stores. Even today after several apparel spinoffs, Limited Logistics Services remains a pre-eminent supply chain organization
And so on and so forth, in consumer packaged goods, big box retailing, electronic components, category killer retailing, candy, personal care products, and many others.
Note that we haven't mentioned Walmart/Sam's Club. Actually, one could make the case that Walmart isn't so much a retailer as it is a supply chain company. Perhaps the same could be said about Amazon.
Every company in an end-to-end supply chain operation still has strategic and tactical decision and directions to take. At the end-user level, they are free to design and engineer form and function, identify and pursue target markets and demographics, attack selected price points, and manage styles and assortments.
But, for every player in an active and integrated supply chain, there are relationships that are critical to success or failure, no matter what other approaches to market have been decided. The stakes are enormous-- again, independent of the traditional merchandising issues-- and deciding not to play is not a feasible option. The company without a clear set of supply chain relationships, without a defined role in somebody's supply chain, is a company on the precipice.
Texas Hold 'Em In Supply Chain Management
It is frighteningly easy for enterprises to make "bet the business" decisions in their supply chains, sometimes in multiple directions, and sometimes without realizing what is at risk in their "all in" bets. Given time, a retailer-- for example-- can usually recover from a flawed merchandising decision. Even a flawed core strategy can be overcome, given patience from shareholders and a new vision that is clearly on the right track.
The wrong kinds of business relationships within the supply chain, or mismanaged business relationships, have the potential to sink the ship, for a variety of reasons in a variety of directions.
A company is surrounded by opportunities for failure in supply chain planning and execution. The danger zones are: suppliers, customers, and 3rd party logistics services providers. It's beyond daunting to face such challenges upstream, downstream and internally. And that deals with only the external relationships. No one can afford to take as a given that internal alignment is automatically in place.
Supplier Relationships
A decade or two ago, companies could get away with buying whatever was needed from any supplier who could make it, at whatever price the supplier could be beaten down to. They could change the suppliers regularly without regrets or second thoughts.
Today these organizations will become-- and be perceived as-- unreliable supply chain partners if such tactics continue. In a tough and globally competitive world, it is mandatory to get a grip on who the key suppliers are, and develop 21st century business relationships with them.
You need their brainpower and collaborations to develop and deliver a steady stream of superior solutions to your customers. You may have to educate them in their role in successful business relationships, and you may need to teach them techniques for continuous improvements that benefit: 1) your now mutual customer; and 2) both you and them.
It's worth repeating. This is not about hammering until the lowest global price has been reached; it is about leveraging global resources (including domestic entities) to deliver the highest global value. This can't be achieved and sustained without creating and nurturing supplier business relationships in support of prioritized and stratified customer relationships. More about that later.
In summary, if you can't rely absolutely on your suppliers, your customers can't rely absolutely on you. If one link in the supply chain can't be relied on, it is history-- toast-- and will be replaced. And, that raises the tough issue of customers and relationships.
The Customer is Always...
Richard Macy's iconic dictum that "the customer is always right" still rings bells at the consumer level of customer service. In a supply chain perspective, we face a different set of challenges with customers.
Stratifying, classifying, and analyzing customers and their current and potential value to a supplying company is a critical effort in the realm of building and maintaining business relationships for optimized mutual performance. There's a bedrock issue below that, though, and that is the question of whether the current customer is "right."
That is, have you identified and targeted customer sets that are intrinsically good fits for our strategies and objectives? Another make or break strategic decision is embedded in this question, with questions and issues around:
- What are the risks and rewards of shutting down a dealer/distributor network model in favor of supplying big box retailers?
- Can/should multi-channel models be developed in parallel?
- What happens if, for example in big box relationships, you don't hook on at the top tier, and are relegated to working with the also-rans?
- What are the odds, even with a strong relationship management culture in place, that key customer(s) will cut your company loose or reduce your product line-up, based on their own tactical decisions regarding merchandise assortment and price points?
- What are the organizational consequences in scale and profitability if a company chooses to leave the big box supply chain, and work through existing, or new, channels that have lower actual and potential volumes?
Reality is that, even with exemplary service and impeccable relationships, there are serious exposures when an "all eggs in one basket" strategy is implemented, especially when some of those eggs have to come out of baskets that have worked decently in the past.
So, choosing who your customers are going to be is a critical foundation for a business relationship management approach to working with them.
Two's Company; Three's A Party
Or not, depending on who the third party is and how compatible it is with your suppliers and customers. The significant, and growing, role of 3PLs in all supply chains presents both opportunities and challenges.
The "right" 3PL in the right role can do wonders for a company in consistent service performance, cost-effective transaction processing, and leveraged brainpower in creating value-added solutions for customers. Sustainability in these dimensions depends heavily on the depth and quality of the business relationship management processes employed.
There are many success stories: 20 year relationships, transparency to customers, staff and process integration, variable cost management, elevated service levels-- all the right stuff.
The "wrong" 3PL (or multiple 3PLs) have the potential to create apparently self-inflicted wounds that can become fatal.
We tiptoe around the horror stories, many of which have been buried deep in the interest of image and reputation. But, studies repeatedly show that something north of half of all 3PL relationships fail to deliver to expectations-- and some have been outright catastrophes.
The inability to ship toys in time for Christmas is one case that comes to mind. Then, there was the situation in which a global operator couldn't make a delivery to Walmart and other big box retailers, and all efforts at repair and remedy only resulted in worse performance. An apparel company had to pull the 3PL plug when the service provider couldn't ship successfully to either direct marketing customers or to leading national retailers. There are more.
And, Your Point Is?
In many venues, contemporary approaches to business relationship management are designed to optimize marketplace performance. That's a good thing for sure.
But looking at business relationships in the context of supply chain management shows the potential to "bet the business" on getting the right suppliers, targeting (and snaring) the right customers, and enlisting the operational support of the right logistics service providers (3PLs). Failure in any one of these dimensions can jeopardize the entire supply chain.
The grave consequences of not getting-- and staying-- aligned up, down, and sideways in supply chain relationships seems to demand full attention and commitment to constructing the right kind of business relationships.
The Lead-Off Batter
It's a fair question to ask which player ought to take the lead in building supply chain relationships. The answer will vary from one circumstance to the next.
For example, if a relatively inexperienced organization introduces a 3PL solution into the chain, the 3PL may have the ultimate responsibility to be the grown-up in the room, and drive/direct effective behaviors, processes and decisions.
If the company facing the end-user is large and powerful, it may force actions and get relationships simply because of its scope and scale. When the key player really "gets it" regarding supply chain integration and business relationships that's a good thing. Maybe that's a sign that it's time to re-examine the long term desirability of specific customers and channels.
A major customer's demand that all product is shipped on slip-sheets might be well-intentioned, but not thought through. Or, might have been proposed considering only the customer's processes. A requirement for RFID implementation among suppliers might be painful, but a necessary investment in the next generation's technology (in advance of the inevitable day when it will be table stakes for anyone serious about playing in the supply chain game). Mandated green initiatives have been costs we might have preferred not to face a few years ago, but are now widely accepted as foundational stewardship of resources. (And, that's an independent issue that has little or nothing to do with the reality or root cause of global warming.)
One thing is clear: it's not enough to go along for the ride. A weak supply chain partner in that position is a terrific candidate to get put off the bus when the road gets rough. It's always better to exit a supply chain relationship on your own terms and timing; getting the hook unexpectedly can be devastating to business continuity.
So, it's important, even when a company is a relatively minor player in the chain, to demonstrate enthusiasm, vision and an understanding of the relationship basics-- and actively collaborate with the major players. That responsibility includes pushing back with fact-and-data based rationales when the key player proposes a course that would benefit itself, but not be helpful to the other supply chain partners. "We were only following orders" is no defense.
Finally
None of this is intended to suggest that there can't ever be transaction-level business dealings. But, it does seem self-defeating to conduct arm's-length transactions with companies that ought to be in tight relationships. The other side of the coin is that it's a waste of resources to try to make deep business relationships with companies that won't ever be more than transactional contacts.
The real take-away from this discussion ought to be a realization of the number and magnitude of risks involved in supply chain participation without building appropriate supply chain business relationships at several levels. Assuming the reader agrees, the next issue is "What are you going to do about it?" Therein lies the promise of the future, for either good or ill, depending on the course that is chosen.
© S4 Consulting
