Dr. Mary C. Holcomb, University of Tennessee contributed the
following article.
A CALL TO CREATE SUSTAINABLE SUPPLY CHAIN MANAGEMENT
PRACTICES
This past year presented unprecedented challenges to firms as
economies worldwide moved into recession. The tough economic
times significantly impacted how companies of all sizes managed and
operated their supply chains. The 830 companies that
participated in our 18th annual study on the trends and
issues in logistics and transportation told us that the economic
hardship is being compounded by unpredictable demand, increased
customer requirements, and volatile commodity and fuel
prices. All of these factors are making 2009 one of the most
difficult operating years ever for businesses.
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The economic slide since 2008 has placed tremendous pressure on
firms to become much more efficient than ever before. In this
relentless pursuit, customers have reminded companies that cost is
not the only critical factor for success - service is just as
important. This was reinforced by the study results that
showed that a majority of companies (48.9 percent) view themselves
as "being all things to all people" when it comes to the overall
strategy of the firm or business unit. We have seen growth in
this strategic direction of "being all things to all people" since
2006 when it passed customer service as the top ranked
strategy. As the Exhibit 1 shows, customer service and cost
leadership combined are a smaller percentage than the mix strategy
for 2009 illustrating just how dominant this approach is
becoming.
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Should we be concerned about the increasing number of firms that
are choosing this strategy? The short answer is yes.
For the mix strategy - being all things to all people - to be
successfully deployed, service and cost tradeoffs must be carefully
evaluated for each and every customer interaction. This
strategic direction requires that firms carefully differentiate
service levels for customers in order to maximize their
profitability. Without this segmentation firms deliver "one
size fits all" service. Not only is this approach too costly
for the firm in the short and long run it also results in the
"best" customers receiving the same service as less important
customers.
Over the eighteen years that we have conducted the annual study,
business conditions have fluctuated from good to challenging,
particularly after 9/11/2001. What we have found is that many
firms in response to difficult times take actions that are often
reactionary to the situation. While these changes may have an
immediate impact, the concern is that they are not changes that
will sustain the business once the economy recovers - much less
position the firm to take advantage of growth opportunities.
The current recession has prompted many firms to consider how they
can endure during this economic downturn. For many firms this
has led to a relentless focus on reducing costs. With the
increasing number of firms that have positioned themselves "to be
all things to all people," the concern is that the cost-cutting
decisions are not being made in a manner that will best support
this strategic focus. What we learned from past experience is
that cost-cutting initiatives focused solely on reducing operating
expenses often negatively impacted firms for several years
afterwards. What lessons did we learn that can be applied to
the current economic situation? Simply stated they are:
- Cost cutting must be done using a strategic filter.
- Investments in improving supply chain capabilities should not
be delayed.
- Even in bad times, customer service cannot be sacrificed.
The challenges and issues that firms are dealing with today
leads us to believe that the changes that are occurring are not for
a season; some argue that continual economic and social change is
the "new normal" for global supply chains. Therefore,
instead of constantly reorienting to the changing conditions
perhaps a wiser approach would be to create sustainable supply
chain practices that adapt to conditions. While the term
"sustainable" has been used lately in the context of environmental
and green issues, it also succinctly conveys the need to build and
develop approaches and techniques to managing and operating the
supply that will make the firm more responsive to a host of
conditions.
What are the supply chain management practices that will sustain
supply chains through good and bad economic times? They
are: velocity, adaptability, synchronization, optimization
and profitability. These are the drivers that will create the
type of supply chain that is needed for the new normal. Now
is the time for companies to set themselves apart from the rest by
viewing the economic downturn as the opportunity to change their
competitive position through the development and implementation of
sustainable supply chain practices. The challenge that firms
must deal with is how to advance this agenda in a period of
financial adversity when the unrelenting pursuit is one of reducing
costs. The study results indicate that smart firms are making
strategic and tactical changes to their businesses and supply
chains that will make it possible for them to weather this economic
storm. More importantly, they are building for a more
prosperous future. These companies will be ready to deploy
and utilize an array of capabilities that are based on sustainable
supply chain management practices. The question that you must
ask is - "Will our company be ready when the economy
rebounds?".
The 18th Annual Trends and Issues in Logistics and
Transportation is a joint research effort of the University of
Tennessee, Georgia Southern University, Capgemini, U.S. LLC, and
JDA Software. More research on the annual trends and issues,
as well as sustainable supply chain management practices, can be
found at: http://www.transportation-trends.com