Supply Chain Foundations

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Consider this: 100 percent of domestic manufacturers in the United States procure some combination of materials, components, sub-assemblies, and/or assemblies from other companies—they buy stuff. And 100 percent of domestic successful manufacturers have end-user, other business or government customers—they sell stuff. In other words, 100 percent of domestic manufacturers are in supply chains.

U.S. manufacturing’s competitiveness depends on the performance of companies operating at all levels of the supply chain. However, supply chain competitiveness depends not just on the performance of each individual member, but also on how the elements of the supply chain work together and on their responsiveness to market demand.

I once met with an executive from an iconic American manufacturer of products designed, “For those who cultivate and harvest the land. For those who transform and enrich the land. For those who build upon the land.” Through the course of our conversation, this executive told me in the most basic of terms that small- and medium-sized manufacturers cannot stay in business without sales to customers—whomever and wherever they may be.

This may seem obvious or basic, but bear with me; I’m going somewhere with this, I promise. At the same time, any manufacturing company’s growth is intrinsically linked to the performance of its supply chain. Companies cannot compete without other lean, flexible and innovative companies supplying necessary parts and components.

Companies in supply chains operate with a certain level of interdependence.

The figure below illustrates this point. Each level identifies the drivers of supply chain global competitiveness. At the top level, the match between the products produced by the supply chain to the needs of customers (including their quality, the time and location of delivery, and price) is the key determinant of supply chain competitiveness.

However, top level competitiveness cannot be achieved unless the supply chain is capable of rapid and effective product development in response to changing customer demand and in addressing any problems related to the speed, quantity, quality, and cost of delivering the products to customers. Even if the supply chain is focused on the “right products” at the “right price,” if these products cannot also be developed faster than the competition and if problems cannot be quickly identified and resolved, the supply chain will lose its competitive advantage. This is the nature of interdependence.

Of course, competitiveness at the top two levels cannot be achieved and sustained over the product life cycle unless the companies that comprise the supply chain are individually achieving operational excellence globally. These small companies are the foundation, the building blocks for this whole thing. Small manufacturers represent 99 percent of all manufacturing establishments, and employ about 8.2 million people; there are a lot more of them out there than you may think.

The interconnected sum of a supply chain is greater than its individual parts. It has to be, and for competitiveness’ sake, it better be, but the flexibility and agility of the individual companies in the supply chain is just as important. Managing supply chains requires integrating all the links in the chain into a seamless network. Orchestrating the flow of information and products—whether it is about new product needs, quality issues, costs, delivery, inventory, or something else—requires a deft touch, but also the ability to peer into the supply chain to make sure all the parts are working together smoothly.

If that’s something you’re struggling with, the Manufacturing Extension Partnership (MEP) national network may be able to help. The MEP Supply Chain Optimization program is a strategic approach to solving the challenges of U.S. manufacturers by promoting a better flow of product from suppliers to customers to reduce costs, improve quality and shorten lead times. As part of our mission to make U.S. manufacturers productive and globally competitive, we are your go-to resource for supply chain management assistance, to help you become 100 percent successful.

About Author

Carroll Thomas

Carroll Thomas is the Director of the NIST Manufacturing Extension Partnership. In her role as Director, she is responsible for a nationwide network of centers to help U.S. manufacturers compete globally, supporting greater supply chain integration and providing access to technology.

3 Comments

  1. Dr. Kofi Nyamekye on

    I am afraid that the figure you have depicted in your article does not truly reflect how a supply chain is designed/ managed. For example, the term “operational excellence,” from your excerpt — Of course, competitiveness at the top two levels cannot be achieved and sustained over the product life cycle unless the companies that comprise the supply chain are individually achieving operational excellence globally –, is an example of the three generic strategies [Porter 1998]. The three generic strategies are namely [Porter 1998], Cost Leadership (Low-Cost Strategy, Productivity Growth, or Operational Excellence Strategy [Kaplan & Norton 2000]), Differentiation (Growth Strategy), and Focus (Cost Leadership Focus and Differentiation Focus). To achieve a competitive advantage, each value chain member in a value system (or supply chain) must understand which, of three generic strategies, fits its firm’s strategy.

    A firm must first know its “Customer Value Proposition (CVP),” before it can determine its “strategy” [Kaplan & Norton 2000]. The “Customer Value Proposition” describes the unique mix of products, price, service, relationship, and image that the provider offers its customers. In fact, Kaplan and Norton [Kaplan & Norton] have noted that “approximately 75 percent of executive teams do not have a clear consensus around the CVP.” Knowing the CVP is a big deal for each value chain member. Why? Because some organizations may espouse a strategy of product innovation (Differentiation Strategy) or “value-added customers relationships (Operational Excellence Strategy).” Yet their customer measures relate to customer satisfaction on operational dimensions such as defects, lead times and price [Kaplan & Norton 2000]. No objectives or measures relate to the espoused strategy of product leadership or customer intimacy [Kaplan & Norton 2000].

    Operational Excellence Strategy is an example of Walmart’s strategy. Thus to fulfill its Operational Excellence Strategy, Walmart’s CVP (for its Operational Excellence Strategy) should dictate the type of supply chain it must design and manage. Most importantly, each SME firm doing business with Walmart should also follow Walmart’s Operational Excellence Strategy.

    I hope this helps to clarify your narration.

    Cheers,

    Kofi Nyamekye, Ph.D.

    REFERENCES

    Kaplan, R. S., and D. P. Norton. 2000. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, Harvard Business School Press.

    Kaplan, R. S. and D. P. Norton. 2004. Strategy Maps: Converting Intangible Assets into Tangible Outcomes, Harvard Business, School Publishing Corporation.

    Porter Michael E. 1998. Competitive Advantage: Creating and Sustaining Superior Performance: With a New Introduction, The Free Press, A Division of Simon & Schuster Inc., New York, NY, 10020.

    Stevenson W. J. 2015. Operations Management, McGraw-Hill Education, 2 Penn Plaza, New York 10121.

  2. Excellent article Carroll! Thank you for sharing… My team in California (supporting the NIST/MEP) has worked with over 1,000 manufacturers in 2016 to improve global competitiveness of supply chain system elements. Our work has impacted over 21,000 jobs!! Working together and sharing technology practices and gains allows us to position our clients to succeed globally. #TogetherWeWin #CMTC_Solutions Thank you, for all that you do!

  3. “100 percent of domestic manufacturers in the United States procure some combination of materials, components, sub-assemblies, and/or assemblies from other companies—they buy stuff. And 100 percent of domestic successful manufacturers have end-user, other business or government customers—they sell stuff. In other words, 100 percent of domestic manufacturers are in supply chains.”

    Business intelligence tools are invaluable to assisting enterprises in managing both the sales and operational areas of their supply chains by turning raw data into usable information. The ability to interpret this data is a crucial step for increased success.

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