Monday, May 01, 2006

Volume 22 - Supply Chain Management (and Respect)

What a simple business term: "Supply Chain".

The understanding of the term and the implementation of its consequences, as well as the respect, or lack thereof, for individual segments, and individual perspectives, equates to volumes of textbook information; but, we are simply going to start with the basics, without attempting to sell any particular point of view towards 'globalization' and/or 'out-sourcing', both of which, are future topics. Within "Volume 18 - The Customer", I refer often to the local neighborhood butcher, baker, and candlestick maker, and so our beginning point again is with these types of establishments, but for a simpler explanation, as it pertains to the 'Supply Chain'.

Like millions of individual small businesses today, the supply chain has as much importance and significance as it does for General Motors, just with less links. The butcher buys his meat from a distributor, who purchases it from a meat processor, who in turn has bought the product from a rancher/manufacturer, or something close to that process. The same is true, in theory, for the butcher, baker and the candlestick maker, with some insignificant nuances. All are dealing with supplier provided materials, and all are selling to the end-user, with a possible exception of an aggressive candlestick maker or baker, who might have elevated their game, and are now possibly selling through a distribution channel, one step before the end-user. Nevertheless, the 'supply chain' is in tack.

In the case of General Motors or Ford, the same scenario takes place, but with millions of links. Especially within the automobile industry, whose heritage, such as Ford Motors, owned the farms that grew the sheep that gave the wool to be used in the seat covers of the car, and, herein, lies the problem. Every time the supply chain is disrupted, individual companies and the employees, in particular, pay the price for the disruption. Excluding 'internal decisions', good or bad, in the area of cost expenditures, such as General Motors, opting to carry 120 SKUs of catalytic converters versus Toyota's decision to 'platform build' with only 30 catalytic converters, thus reducing costs of a single part number, most companies fail for attempting to influence external factors of the supply chain which takes place, more often than not, during their 'good times' versus struggling years. And as much as I would like to spend time on the subject of GM vs Toyota, we'll save that for an upcoming future volume on 'globalization'.

The point is that disruption of the 'supply chain', usually made during successful years, creates chaos and is usually done simply out of 'greed', of course, hidden under some financial and universal 'good-will' decision or shareholder enhancement. The attempted take-over of additional segments of the supply chain for the purpose of self gain, such as manufacturers buying up distribution channels and then attempting to sell to each owned account at better terms, pricing or service, thus failing to keep the 'playing field' even, for those other 'arms length' customers, are as history has continually proven, simply dooming themselves by their actions. For those, who contemplate 'moves' in this direction, even though they have 'respect' for the supply chain and have the ability to keep a fair and balanced equity, the risks still out way the reward, with few exceptions. My only advice on this matter is as follows: