Supply chain management has always been an important business function and an area where improvements could impact corporate performance by enhancing customer service, reducing costs, and increasing asset productivity. Historically, however, only a few companies have viewed supply chain management as being strategically critical.

That perspective has changed over the past decade and particularly over the past five years. In industry after industry, supply chain management is now considered to be an increasingly important business function. In many industries, supply chain management is viewed as being critical to achieving corporate success.

As supply chain management has grown in importance, so, too, has the gap grown between the leading and the average players in almost every industry. That is, the best are getting better faster than the average company is improving its supply chain performance.

Consider the following examples (Note that in these examples, I have used inventory as the key measure of supply chain performance, as it tends to be a good, aggregate metric and the best choice when one must choose a single measure. It is not perfect, though, and I prefer a scorecard with five or six key metrics.):

• From 1995 to 2000, Procter & Gamble improved inventory performance from 9.7 to 11.1 turns, while the industry as a whole only improved from 9.7 to 10.1 turns. That gave P&G a full-turn advantage.
• Similarly, from 1995 to 2000, Wal-Mart improved inventory turns from 5.87 to 8.34, while its nearest competitor only improved turns from 4.65 to 5.01. That's nearly a 40-percent productivity advantage for Wal-Mart!
• Dell Computer's operations achieve between 64 and 100 inventory turns. The majority of its competitors achieve between 20 and 32 turns.

Outstanding and distinctive supply chain performance is easy to talk about, but hard to achieve. That's largely because companies need to do not just one thing but many things well to have an effective supply chain.

For example, they need to achieve functional excellence and leading-edge performance in such areas as transportation and distribution, procurement and supplier management, manufacturing operations, and inventory management. They also need to develop effective cross-functional processes and an integrated operating perspective, integrate their operations with suppliers and customers, and effectively leverage technology solutions and outsourced relationships. It can take years for companies to build and refine all of those capabilities.

Although supply chain management is becoming a more strategically and competitively critical factor, and although the gap between the leading and the average players is growing, I believe that the average-performing companies and the laggards in supply chain performance have a window of opportunity for catching up to the best-performing companies. But they must act now. If they do not aggressively transform their supply chain capabilities, they will be marginalized and suffer from poor financial performance and competitive decline. Or worse, they will become a relic of business history.