Beyond Plan-Source-Make-Move

Companies today need to move beyond plan, source, make, and move to take a holistic view of the supply chain if they want to score a market hit.

By James A Cooke -- Logistics Management, 1/1/1999

Supply chains come in all sizes and shapes. Some have many links; others do not. Some chains emanate from manufacturing, while others are woven around marketing. They stretch across different industries and geographical boundaries. They handle different production requirements and move their products by different modes of transportation.

No matter the type of chain, the purpose of supply chain management is to focus on meeting customer demand while minimizing inventory of both raw materials and finished goods. Yet as companies work together in an extended enterprise, the chain itself tends to gain more links and become more complex to manage.

Such complexity requires a shift in corporate thinking. "An enterprise is no longer a single corporation; it's a loose collection of trading partners that could contract with manufacturers, logistics companies, [and] distribution organizations," says William T. Walker, a supply chain manager at Hewlett-Packard's power products division in Rockaway, N.J., and co-author of the book Supply Chain Management Principles and Techniques for the Practitioner. "The supply chain has to have a holistic, end-to-end enterprise point of view."

Organic Model

The Supply Chain Council, an organization that focuses on supply chain practices, has defined four processes common to all supply chains--plan, source, make, and move. Although that definition applies broadly, many consultants note that it best describes a single company rather than an extended enterprise. "Every company has multiple customers and multiple suppliers," says Charles R. Troyer, a partner in CSC Consulting's New York office, "and many of those suppliers are parts of other competing supply chains, which means my customers are dealing with my competitors."

The council's definition of a supply chain strikes many as too one-dimensional to describe the intricate cross-links that exist in a multi-company supply chain. "Plan-source-make-move is too linear," says Troyer. "As I focus on the end consumer, I also have to have an equal focus on the interests of my trading partners."

Given the numerous connections between supply chain partners, a more appropriate depiction of an extended enterprise would be an organic model. An organic representation better conveys the synthesis of the numerous dynamic interactions that must occur among supply chain partners to fulfill consumer demand. "We're seeing an evolution from plan, source, make, and move to a holistic view of how multiple enterprises are going to cooperate to make efficient use of resources to get a product delivered," says Steve Gold, a partner in the supply chain strategy practice at KPMG in Chicago.

Gold says a holistic view of the supply chain would have to encompass the entire community of participants. Take a supply chain for potato chips as an example. The KPMG consultant says it would include the farmer who grows the potatoes, the package manufacturer who supplies the bags, the actual maker of the potato chips, the food distributor who handles the product, the trucking company that performs store delivery, and the supermarket where the product is sold, to name just the prominent ones. "You've got 30 or 40 enterprises working together just to enable potato chips to be put on a shelf," Gold reports.

With so many companies involved, visibility becomes critical to the extended enterprise's success. Trading partners require visibility about activities throughout the pipeline in order to coordinate the supply chain. Even the farmer should have knowledge about potato-chip sales projections to plan his planting and harvesting of a potato crop. Likewise, the potato-chip maker should have information about crop conditions to plan his production schedule. "At any point in time, [supply chain members] should know both quantity and status of inventory," says Steve Nevill, a principal at the consulting firm Kurt Salmon Associates in Atlanta. For instance, Nevill contends that the manufacturer should be informed by the retailer the moment the product arrives at the store.

The Importance of Being Online

Information technology provides the means for trading partners to share intelligence to handle a complex supply chain. "Instead of supply chains being driven by physical flows, they will be driven by information flows," says Joe Martha, the Cleveland-based leader of the supply chain strategy practice for Mercer Management Consulting.

Business software can help an individual supply chain partner track product demand and forecast sales in an effort to synchronize production with consumer takeaway. "Most companies that do well have comprehensive systems that are proactive in terms of planning and forecasting," Nevill notes.

But success for all supply chain members won't be possible unless the trading partners themselves integrate their disparate computer systems and hardware. Gold, for one, sees trading partners connecting portfolios of IT applications. For instance, a supplier may connect his advance planning and scheduling system (APS) to a retailer's warehouse management system (WMS) in order to predict future production requirements more accurately. "The ability to assemble the correct portfolio of applications is really the next big step in technology advancement," says Gold.

Such systems and application integration, however, may be just the first step required. In the future, Gold predicts, each member of a supply chain community will have to build its own control center, which will act as an information repository for all data required to manage the flow of materials. Smaller trading partners in the community may even have to subcontract with third-party logistics providers or IT companies to obtain access to such data-control centers.

Gary Cross of the IBM Consulting Group foresees supply chain partners taking advantage of new Internet technologies to provide "just-in-time" information. In other words, when a customer gives a retailer an order, the retailer in turn would query its carrier on rates and delivery availability.

Cross contends that the deployment of Extensible Markup Language (XML) on the Internet will make such a scenario possible in the near future. XML is a more advanced language than the Hypertext Markup Language (HTML) that's currently used to exchange data on the Internet. XML allows for the use of special tags before a message that would allow a browser to identify the message. Through the use of those tags, the browser could immediately recognize whether a sequence of numbers--say, 1,2,3--refers to a purchase order or an advance shipment notice. "XML provides a way to describe the rest of the information following in the transmission," says Cross.

For an extended enterprise engaged in supply chain management, XML tags could be placed on such common messages as the purchase order or the advance shipment notice. A Web browser capable of decoding XML then would be able to ascertain quickly the nature of the messages from a supply chain partner. Furthermore, it would become possible for one member's computer system to respond automatically to information requests from another member's system.

XML thus could provide an alternative to electronic data interchange, which has been limited so far to big companies willing to make the investment in the requisite computer services and hardware. "We see XML as 'new age' EDI," says Cross.

How the Money Moves

Although software can help channel the information flow required to coordinate material movements, there's a third element that's often overlooked--fund flow between the trading partners. Peter Metz, deputy director of the Massachusetts Institute of Technology's Center for Transportation Studies in Cambridge, Mass., says that trading partners in the supply chain also need a clear picture of how money is moving. "The fund flow has not gotten the attention it needs," he notes.

Some companies are working to address that. Consultant James Morehouse of A.T. Kearney Inc. in Chicago says several retailers are considering an experiment with a pay-on-scan arrangement. Under that plan, every trading partner in the supply chain would get paid when the consumer makes a purchase at the retail checkout counter. "When everybody ends up getting paid when the consumer pays," he says, "everybody [in the supply chain] has an incentive to keep [inventory levels] lean."

But a supply chain must do more than provide visibility over materials, information, and money. It also must offer enough flexibility that partners can change it to handle new products. For example, the members of the potato-chip supply chain might decide to produce potato sticks as an alternative snack food. "You can't have a supply chain that's just optimized for one mission," says Metz. "When the next mission comes along, the supply chain won't be able to handle it."

Consultant Kevin O'Laughlin in Ernst & Young LLP's Boston office says such flexibility may become more important in the future as manufacturers embrace configuration management. Such a strategy requires that a manufacturer customize a product for a particular set of clients. A shoe manufacturer, for instance, might tailor his production to produce footwear with a particular sole and style that appeals to a higher-income customer. O'Laughlin adds that an increasing number of manufacturers are becoming interested in configuration management.

Of course, someone in the supply chain has to decide what's best to make for the end consumer. Morehouse believes that in any given supply chain, someone has to take charge and orchestrate the process. "The captain of the supply chain should be like the captain of a team," says the A.T. Kearney consultant. "I have to select players and put the team together."

In some cases, Morehouse notes, the captain of the extended enterprise might be a powerful retailer. In others, it would be a strong manufacturer. "One organization tends to be the captain," he says, "And [the team] only stays together as long as everybody feels there is a benefit."

That unity will be taxed as supply chain partners make decisions and weigh the tradeoffs between inventory and production capability necessary for speedy throughput of product to the customer. To maintain the cooperation, companies will have to adopt a big-picture perspective on what's required from each partner. "You've got to take a complete supply chain view," says Cross, "as opposed to optimizing some components at the expense of others."

Supply Chain Diversity

When it comes to structuring a workable supply chain among trading partners, there's no one solution. Nor is there one piece of software on the market that will provide it. "People are looking for a silver bullet," says consultant Gold. "There's more to it than just [installing] an application."

Indeed, Gold thinks that companies will have to work harder than ever at constructing and managing the complex supply chains that will take shape during the 21st century. "We've gone through this period where people focused on taking costs out of the supply chain," he says. "But supply chains will become more complex as people sell through other channels like the 'Net or in other parts of the globe."

The extended enterprises operating these supply chains will face the enormous challenge of coordinating many activities simultaneously. Although that task appears daunting, leading companies today have shown that it can be done if they mind the details. "Attention to details is what does things better," observes Gene Tyndall, supply chain international director at Ernst & Young.

In the end, though, companies will not achieve a supply chain breakthrough until they realize that no company can run or build the chain itself. Instead, companies must work in collaboration and adopt a holistic view of the supply chain. "While technology is the driver, people will be a big component of the success of this thing," says Gold. "People have to shift their thinking about the supply chain, and a lot of organizations will have to do the same thing."