November 2000 | Commentary | Carriers Corner

Supply Chain Revolution Is In Your Hands

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Corporate leaders today recognize what logistics professionals have always known: supply chain performance can have a significant dollars-and-cents impact on an organization's market share and profitability. The evidence is compelling. For example, best-in-class companies spend five to six percent less on supply chain management as a percentage of sales than median performers, according to The Performance Measurement Group.

Achieving breakthrough improvements in supply chain performance requires a revolution. Transforming a company's supply chain by building on the re-engineering efforts of the past, and harnessing the power of technology and the Internet, can enable you to build a digitally based, seamless customer-centric operation that executes flawlessly across the extended supply chain.

In the new economy, creating this different way of doing business may be a matter of survival. The potential rewards are great: sustainable competitive advantage, reduced assets and costs, and increased profitability and shareholder value. As a logistics leader, the responsibility for driving the supply chain revolution is in your hands. It's up to you to decide whether to go it alone or to leverage the complementary strengths of other firms within your supply chain.

During my 19 years working in logistics and supply chain management, I have identified nine critical success factors that must be in place to establish and sustain high-value, strategic relationships with carriers, 3PLs, and other partners within the supply chain:

1. A Win-Win Relationship. While the financial and organizational objectives of both parties should always be met, the more strategic the relationship, the greater the need for mutual benefit. When financial rewards are not in equilibrium, the relationship reverts to a customer-supplier model, eventually yielding incremental rather than transformational results. The alliance must make good, long-term business sense for both parties. Don't consider entering into a strategic relationship to transform your supply chain unless you're in it for the long haul, and willing to share rewards as well as risks.

2. Compatible Cultures. Great things can be accomplished by companies that are in sync, with similar core values, business practices, and outlooks. Companies with harmonious cultures expect and respect the inevitable cultural differences that will crop up, leveraging them to build powerful new synergies and greater results. Look at factors such as values, overall management style, formality vs. informality of the organization, decision-making processes, goals and objectives, whether the company is a risk taker or avoider, and is an early adopter, innovator, or follower.

3. A Clear Delineation of Each Party's Expectations and Responsibilities. Laying out the "rules of engagement" up front creates a road map that heads off future difficulties. Entering into a strategic supply chain relationship can mean many different things, depending upon the scope of the project and the function of the internal champion.

Clearly define what each party expects from the relationship, in writing. Identify and document joint goals and objectives as well as each party's responsibilities for meeting them. To make sure that both parties continue to receive maximum advantage, revisit these expectations, goals and responsibilities throughout the life of the agreement.

4. Commitment. Failure to gain complete buy-in from all parties can seriously hamper results. It is crucial to get company-wide commitment to the reengineering project as well as to the strategic ally. Select a corporation with proven success as a change agent. Work with it to develop and implement a thorough communications strategy and plan based on sound change management principles. Continually watch for indications of lack of commitment to the transformation, and move quickly to address the issue.

Additionally, you must be committed to providing the full resources required to make the transformation happen. This means that in addition to financial capital, your organization must dedicate the necessary human capital for as long as it is needed.

Be realistic rather than optimistic when calculating all the resources required for the supply chain transformation. Assign a top team to the effort, and be absolutely fanatical about making sure that it can concentrate fully on the transformation, from beginning to end.

5. Communication. Critical to the success of any relationship, and particularly to those on strategic levels, is frank and open communication—on all matters, at all levels. Such communication must be multidirectional and occur at all levels. Establish a relationship where you each feel comfortable communicating freely, even on difficult issues. Communication should be collaborative and constructive, contributing to furthering the goals of all supply chain parties.

6. Performance Metrics. The two parties should establish up front both micro and macro measures to track and evaluate performance. Micro measurements might include meeting the deadline for implementing a new system, and completing the project within budget. Macro measurements might include reducing the total cost of distribution by a specified amount, improving cash flow, and increasing return on equity and assets. Don't stop with these measurements. Continue to evaluate the effectiveness of the relationship on an ongoing basis.

7. Process for Resolving Issues. It is crucial to set up, in advance, a clear, formal process for resolving issues. When issues can't be resolved via regular weekly reviews at the operational level, be prepared to work directly with your organizational counterpart to move beyond the bottlenecks and keep the project on track.

8. Active Management of the Relationship. The most successful supply chain relationships have at their core senior executives who lead the transformation—articulating the vision, setting clear goals and objectives, making sure timelines are met, resolving conflict, and addressing turf battles and political gamesmanship.

If you are one of the executives leading the supply chain revolution, be sure to assign your best and brightest individuals to the transformation team, and remove any barriers that get in the way. Make sure that team members are equipped with the skills they need—such as negotiating and relationship management—to operate effectively. Stay in touch with the other firm's leadership, and consider quarterly high-level status reviews on the effectiveness of the relationship.

Finally, as a corporate leader, remember to inspire your organization and the joint transformation teams to continue the drive for relentless improvement and breakthrough results.

9. Trust. Each of these eight steps must be in place before the final critical success factor—trust—can develop to the level that is necessary for a relationship to flourish.

During a transformation effort, you have to establish trust to have the depth and breadth of knowledge and experience to develop innovative solutions, and the capability to consistently deliver executable excellence. You have to trust that your partner will apply technological and intellectual expertise to build and implement the ideal solution for your organization.

They, in turn, have to trust you to lead the charge, to be open to new ideas and innovative thinking, to provide the necessary resources, to reorganize structures, and to make hard decisions when required. They must rely on you to be fair, to establish and maintain a win-win relationship.

Collaborating with strategic members of your supply chain enables innovative solutions and yields mutual advantages. The benefits are great—an agile, intelligent supply chain that leads to enhanced competitiveness through optimized assets and cash, and improved financial performance and customer satisfaction.

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