A test for logistics management
Peter Bradley, Editor in Chief -- Logistics Management, 6/1/2001
The promise of supply chain management has evolved rapidly over the last several years, coinciding with one of the longest runs of economic prosperity the nation has known. In fact, some observers would attribute at least a portion of that prosperity to gains made in inventory velocity and other supply chain management targets.
Now, as the economy falters, the extent of those purported gains is coming under greater scrutiny. At the same time, as businesses examine costs more closely and managers are tempted to squeeze suppliers of goods and services for lower prices, the collaborative efforts underlying supply chain management successes are likely to be tested. Those who believe in supply chain management's potential to reduce waste and improve efficiency may have to resist efforts to resort to old ways of doing business—a real temptation when businesses hunker down in hard times.
Unfortunately, some evidence suggests that we have not come as far as we might have wished in logistics and supply chain management. The economy didn't just decelerate over the last several months; it ran into a wall, catching many businesses with far too much inventory and thus driving up inventory costs. Those costs are a critical measure of how well the supply chain is working, and the implication is that it's not working as well as we hoped.
At a financial analysts' meeting in New York last month hosted by Bear Stearns, Joseph L. Rosiek, director of marketing freight business solutions for Unisys, was blunt on the issue. "Shame on us that we have not found ways to inject supply chain efficiencies into our businesses over the last 10 or 15 years," he said. "Our providers are not going to solve this for us. We need to get on with collaboration."
Rosiek argued that supply chain efficiency would not come by pushing carriers to cut rates, particularly when carriers are facing higher costs. Certainly, carriers have to justify increases, but rates alone will not accomplish much. Rosiek also made a second point that ought to be obvious but that managers under pressure to cut costs may overlook: "We're more concerned at the end of the day with delivery," he said.
What's important to understand is that astute logistics management can deliver both lower costs and a better supply chain. Mary Collins Holcomb, associate professor of logistics at the University of Tennessee, argues that efficiency and effectiveness are two sides of the same coin. When the pressure is on costs—as it is now—the arguments for change may center on efficiency. But the right sorts of change also make for a more effective supply chain.
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