Supply Chain Integration Becomes a Reality

Customer-focused supply chains that can better align and link the various firms making up the supply chain are increasingly likely to gain competitive advantage. This can be exemplified by Walmart, Dell, and IBM examples. Supply chain integration with agreement on goals, business strategies, and information transparency can have significant impacts on capacity investment, inventories, design, responsiveness, and support of a firm’s worldwide product/service development, operations/manufacturing, and sourcing footprints. An example, discussed here in more detail, is the Motorola supply chain integration. In 2005, Motorola undertook the task of linking the various elements that make up its supply chains worldwide. The objectives were cost, cash, and customer service. Cost competitiveness would enable competitive pricing, cash would enable business investment, and customer service would enable the retention of customers. The challenge was significant, as Motorola operates worldwide. Sales spanned all regions of the globe, and purchases came from suppliers in 47 countries (as of 2004); in the past, the six business units generally did little sharing of resources or facilities. To achieve transformation to an integrated supply chain, the focus was to align and link product design, procurement, manufacturing, logistics, and customer service. In addition, the following six key steps provide a high-level process approach to implement the change:

1. Identify best-in-class processes for duplication throughout the company
2. Develop a supply base that has been right-sized and improve working relationships with key suppliers
3. Establish clear-cut supplier quality expectations and provide performance feedback via a performance scorecard
4. Establish most effective and efficient manufacturing and logistics operations
5. Focus information technology improvement projects to maximize the impact across all business units
6. Create an action-oriented and results-driven culture

The results of the transformation by 2007 were dramatic. Examples are the following:

• Various teams identified best-in-class practices, and the highest-priority practices were implemented worldwide.
• Business units work collaboratively to solicit quotes and award business.
• Suppliers were required to develop “quality renewal plans” to continue to do work with Motorola, and Motorola provided performance data to suppliers.
• Motorola’s manufacturing and distribution operation’s square footage was reduced by 40 percent by examining its worldwide footprint and consolidating facilities.
• Ninety percent of Motorola’s information technology spend is now on systems that are common and help all business units—not just one.
• In addition, a number of achievements as of year-end 2006 include reduced parts per million (PPM) defects from suppliers by 50 percent; achieved customer on-time deliveries of 85 to 92 percent at some business units (up from 30 to 40 percent); improved material expenses, product quality, and manufacturing efficiency by 40 percent; and achieved an 18 percent improvement in inventory turns.

Overall, this example suggests that a focused effort on integrating the vertical or functional silos into a more integrated supply chain(s) can produce performance results. This supply chain integration is a major ongoing challenge and will be the focus of future efforts.

Source: Adapted from Cook, J.A. (2007), “Metamorphosis of a Supply Chain,” CSCMP’s Supply Chain Quarterly, 34–38.

A common theme throughout this book is that the functional area called purchasing, along with the activities that support supply chain management, are experiencing dramatic change. Once regarded as a reactive and administrative activity capable only of neutral or negative contribution, purchasing and supply chain leaders and managers must today be at the forefront of responding to and creating change. As a vice president of a large manufacturing firm in the transportation industry commented, “Over 60 percent of our revenue is spent with external suppliers, and effective purchasing and world-class suppliers are absolutely required for us to be successful in the future.”

This chapter outlines the real and projected changes and trends that have affected and will continue to affect purchasing and supply chain professionals. These changes and trends appear within eight areas and are based on a joint research initiative of CAPS Research, the Institute for Supply Management (ISM), and A.T. Kearney, Inc.2 These areas are (1) expanding the mission, goals, and performance expectations of purchasing and supply; (2) developing category strategies; (3) developing and managing suppliers; (4) designing and operating multiple supply networks; (5) leveraging technology enablers; (6) collaborating internally and externally; (7) attracting and retaining supply management talent; and (8) managing and enabling the future supply management organization and measurement systems. Much of the discussion in this chapter is drawn from this recent and detailed study and other research combined with discussions with supply chain leaders. In closing, a series of high-impact strategies are presented.