MORE CHALLENGES FOR SUPPLY CHAIN MANAGEMENT
Lloyd's FTB Asia, April 2004
By THOMAS CRAIG
President LTD Management
upply chain executives have a daunting daily challenge managing a global supply chain. They must keep customers or
stores properly stocked and deliver the perfect order every time. They must balance the need for low costs, proper
inventory levels and maximum service. They must ensure that supply chain management is an integral component of the
company's strategic direction and plan to create and maintain competitive advantage. If that isn't enough, they have three
more challenges to deal with.
Merge the Financial Supply Chain and the Product Supply Chain
A supply chain is not a series of links forged together for a common purpose. That is a nice image. However it minimizes
the reality of the chain and how each link in that chain must design its own process to function within the chain. As a
result, there are supply chains within each supply chain.
Each chain is really a series of buyers and sellers of products and services. That means that each link participant has his
own objectives, and sometimes these are conflicting objectives that can work against supply chain effectiveness.
Companies buy and sell and participate in the supply chain for their own reasons. This is an important and sometimes
overlooked fundamental of developing a working supply chain process, both for the entire chain and for each link in the
A chain is extended from ultimate buyer back through his supplier to his supplier's supplier and to his supplier's supplier.
The mix of trade partners and participants in a chain reflects differences as to size, capital, costs, technology and
There are two flows in every extended chain, the product one and the financial one. With the continuing pressure to
generate shareholder value, reduce costs, improve profits, reduce inventories and increase service, a key to achieving
these results rests with recognizing and melding two flows and processes.
The diversity of participants adds to the complexity and length of the process. As a result, uncertainties, costs and
inefficiencies are created in both the product and financial chains. Uncertainty and inefficiency is compounded for firms
located further down a chain, removed from the ultimate buyer. Extended product chains generate inventories both for
sales and to buffer unknowns. Likewise extended financial chains generate capital needs for those inventories and sales.
The issue is to reduce the extra costs and redundancies, both for capital and for material and logistics, in a chain. The
costs are often not visible, as with freight costs, in the total process. But, while fractured among the various firms, they are
significant in the aggregate supply chain.
Key topics for c-level executives are inventory velocity and reducing the cycle time from purchase order placement to