Supply-Chain Strategist

IndustryWeek Managing Editor Tonya Vinas recently interviewed Jeff Trimmer, formerly director for operations and strategy in the Chrysler Group Procurement & Supply Organization at DaimlerChrysler Corp. Trimmer now is chairman of the National Initiative for Supply Chain Integration in Tempe, Ariz. He holds an undergraduate degree from Massachusetts Institute of Technology in industrial management and an M.B.A. from Harvard Business School.IW: What is the National Initiative for Supply Chain Integration (NISCI)? Who are its members, and what are its goals?Trimmer: NISCI is a trade association dedicated to creating and demonstrating advanced techniques for supply-chain collaboration and integration over supply chains of three or more links. The distinction of supply chains with three links or more is significant because the problems of coordinating and managing multitier supply chains is a lot more complex than managing bilateral links with first-tier suppliers. In addition, many other groups have addressed the issues of working directly with suppliers in bilateral relationships. NISCI's core hypothesis is that supply-chain collaboration is essential to achieving fundamental improvements to systems costs, quality, and cycle time. Most other approaches in dealing with supply chains focus primarily on shifting costs, quality problems, or cycle-time issues, rather than addressing the root causes of these issues. Inherent in this concept is the firm belief that the benefits of supply-chain integration must be developed and shared among all participants, including the final customer. There are nine active members of NISCI: Amkor Technology Inc., DaimlerChrysler Corp., Deere & Co., Harley-Davidson Inc., Intel Corp., National Assn. of Purchasing Management, Procter & Gamble Co., Trane Co., and Supply America Corp. (an organization that represents the hundreds of thousands of small manufacturing companies that make up the bulk of the lower-tier members of many manufacturing supply chains). NISCI has six key initiatives that we are working on with our members and other associates:

Developing supply-chain relationships that promote open collaboration and predictability. Open collaboration and predictability of a supply-chain member's actions are prerequisites to many of the other initiatives.

Stimulating continuous improvement in systems cost, quality, and cycle times. We expect this to be an iterative process, not a one-time event.

Measuring economic performance, which is essential to tracking our progress.

Developing processes to design efficient supply chains. This involves both supplier selection and chain structure.

Working to evaluate and promote technological solutions for real-time communication, measurement, and decision support. E-business and the Internet are key enablers to this process.

Educating and training people in the techniques and strategies that we have developed. To that end, we are working to encourage standards for supply-chain management education and training. NISCI works with its members in a variety of ways. We hold quarterly meetings where we share best practices in supply-chain integration that our companies, or, in fact, other companies that we are associated with, have developed. We are helping member companies to adapt and apply these best practices to their unique supply chains and corporate cultures. We are funding selected research projects in advanced supply-chain techniques. Where practical we are conducting experiments with specific member supply chains, and finally we are constantly exploring new directions and innovative concepts in supply-chain integration, wherever they may arise. IW: Why should corporate executives or analysts who follow manufacturing care about supply-chain management? Trimmer: Industry is, or is about to be, in a third phase of development. The first phase was when companies worked to optimize the individual functions within companies. We tried to make marketing, engineering, manufacturing, or finance all work well. Some 20 years ago managers recognized that simply optimizing functions within a company wasn't adequate. We had to find a way to optimize the total firm. So books such as Reengineering the Corporation [1993, HarperBusiness] advocated the kind of cross-functional process thinking that became popular in the '80s and '90s. We "broke down silos" and implemented process thinking. As good as these efforts were, today's enlightened companies are recognizing that when a company purchases 50% to 70% of the cost of its final product from outside suppliers, there is a limit as to how well you can make your individual company perform. If a company really is to manage its total costs, quality, cycle time, and even technology, it needs to be able to manage its supply chains. And managing a supply chain means not just your direct suppliers, but their suppliers, right on down sometimes to the most basic raw materials. Some companies may choose to ignore this imperative for a while, but they do so at their own risk. When the day comes that a competitor firm manages and energizes the creativity in its supply chains, the rules change for everyone in that industry. Companies that fail to manage their supply chains will find themselves not facing individual competitive companies, but entire supply chains with synchronized goals and energized and involved management. IW: One of the goals of your group is to establish an economic metric for measuring supply-chain health. Why is that important? What's being done now to measure supply-chain health? Trimmer: Realistically, there are few measures of supply-chain health or performance. To be sure, there are plenty of supplier measures and scorecards that various companies use with their suppliers, but virtually no true measures for a multitier supply chain. We have taken a first pass at developing a framework for supply-chain measures. Our first attempt was based on determining the EVA [economic value-added] for a multitier supply chain. We believe that if a supply chain could maximize its EVA, it probably is performing extremely well in serving its customers and maximizing returns. The problem is that to measure EVA for an individual company is very difficult, let alone measure it for a series of supply-chain companies with various links. We had to fall back on developing a structure to measure the drivers of EVA, with the concept that if we could improve EVA drivers then we were, by definition, improving EVA. This is still very much in the concept stage, however, and is fertile ground for development. IW: Are there particular industries that are further along in terms of supply-chain sophistication? What manufacturing industries are lagging in supply-chain development? Trimmer: There is no industry that we are aware of that really has this supply-chain concept completely figured out. Several are working hard on it, and some of the tech industries seem to be moving quickly in this direction. Companies such as Cisco Systems Inc. and Dell Computer Corp. seem to be working hard to develop competitive advantage by managing their supply chains. The pharmaceutical industry has some interesting supply chains to manage worldwide certification and distribution of their various products. The automotive industry has some of the most complex and volume-intensive supply chains of any industry. Chrysler and Honda for many years led the industry in innovative supply-chain management concepts. The recent economic downturn has definitely slowed progress in this industry, but they continue to be innovative in development of e-business approaches to supply-chain management. As far as laggards, I am concerned with some of the government/military procurement and supply-chain management practices. Some of the aerospace companies as well have struggled with control of their supply chains. IW: What are the warning signs that a supply chain is in trouble? Trimmer: When a chain gets in trouble, it can continue to exist, in that product can continue to flow to the final customer, payments and information can be distributed. What happens is that the chain suboptimizes its performance, focusing on the bilateral links between the members, rather than the performance of the overall chain in service to the final customer. So when I think of a chain in trouble, or performing poorly, I'm looking for combative behavior among the members; I'm looking for attempts to shift costs or problems to other areas of the chain, rather than solving for root causes of problems . . . . These behavioral trends will in the long term produce the poorer cost, quality, cycle time, and technological lagging that define a poorly performing supply chain. IW: Has the emergence of public and private trading exchanges helped or hurt supply chains? Trimmer: It is important to recognize that not all trading exchanges are totally dedicated to just holding auctions. Several, such as Covisint in the auto industry, are working to move beyond the auction phase, working to develop other tools for members to use in managing their supply chains. But let me deal first with the trade-exchange-auction issue. Trade-exchange auctions can be a useful tool for companies in managing certain classes of their purchases. Not every commodity that a company buys is a strategic commodity, and it is probably fair to say that some companies can reduce their costs by utilizing trade-exchange auctions for nonstrategic items. But a company must know the difference between strategic and nonstrategic items. Auctions have two problems: First, there rarely is any kind of significant relationship between the parties, and second, auctions typically have one variable: price. Buying a commodity at the lowest price is O.K., if that's the only thing you're concerned with. But most companies also buy strategic items, for which there is a whole package of issues in addition to price. Quality levels, delivery performance, technical content, warranty support, manufacturing/launch support, future product development, company financial strength are just some of the issues that can and should influence a strategic purchase in addition to price. So a company needs to be able to differentiate between its strategic and nonstrategic items to make proper use of trade-exchange auctions. Let me make one additional comment on trade exchanges. As I noted, some exchanges, such as Covisint, seem to be moving beyond simple auctions. I think this is a very positive development in that they will provide the engine to develop some of the advanced supply-chain-management tools that companies will need to manage their supply chains. These advanced trade exchanges will have a much brighter future than those that limit themselves to executing auctions. IW: What new technologies are helping supply chains? Trimmer: Obviously the biggest impact on managing supply chains is the availability of the Internet and e-business. The biggest problem with managing supply chains in real time is their inherent complexity. Mapping supply chains gets very complicated very quickly. I believe that many of the e-business solutions, using the Internet, will soon provide the practical tools for companies to manage their supply chains in real time. There are some real problems to get effective solutions; for example, the solutions must be scalable to the largest OEMs, but they must be affordable and useable by the smaller, less-sophisticated suppliers. They must be able to accommodate differing internal ERPs and legacy systems of the various supply-chain members. They must provide effective real-time communication, measurement, and decision-support capability. They must be able to address the critical chain-wide issues of cost, quality, and cycle time, to permit the appropriate tradeoffs. IW: What lessons can we learn from companies that are doing well with supply-chain management? Trimmer: Unlike so many management disciplines, this is one where we're still struggling to write the definitive textbook. Some companies have gotten partial answers for their industries. There are some key lessons that are probably universal: First, the only entity that puts money into a supply chain is the end customer. Until that customer decides to buy a product for his final usage, the rest of us are all shuffling his money back and forth among the various supply-chain members. Second, the only solution that is stable over the long term is where every element of the supply chain, from raw material to end customer, profits from the business. It is very shortsighted for some businesses to believe they can solve their cost problems by beating up their suppliers for cost reductions. Shifting cost or quality problems without solving root causes is inherently unstable and unsuccessful over the long term. So the best supply chains will solve problems, figure out the best solutions, and share the benefits among the members. Third, supply-chain management is not just about cost. It's about the total content of a final product including its quality, its technical content, its delivery method, and so forth. If we cannot manage the total content of our product, then we ultimately will be unable to meet the needs of our customers. IW: Is "supply-chain management" as a concept here to stay or will it be outdated soon? Trimmer: Supply chains are definitely here to stay. Supply chains go back to Marco Polo and earlier. As long as humans have traded goods, supply chains have existed. The real issue is whether companies will choose to manage their supply chains, or abdicate this responsibility to other entities. For thousands of years businesses have depended on Adam Smith's "invisible hand" to optimize supply chains. Think about it. From the silk-worm raiser in China to the cloth seller in Venice, each element of the supply chain tried to optimize his individual gain by negotiating with direct suppliers to keep his cost downs, and with individual customers to maximize his income. That was fine, up to a point. Today we have countless examples of how managing the multiple tiers of a supply chain can improve efficiency and quality, not by small amounts, but by huge amounts -- 30% to 40% improvements are not impossible. Supply-chain management strategy should be an inherent part of any corporate strategy, just as product strategy, marketing strategy, and financial strategies are elements. As important as supply-chain management ought to be to individual companies and supply chains, it could be of essential interest to economists and government planners. Think of the potential macroeconomic impact in the United States if we could make our supply chains more efficient by eliminating unnecessary inventories, respond to quality problems more quickly, deliver products to customers more quickly and efficiently, and so on. The growth prospects and inherent protection against recessions are powerful incentives for the development of effective supply-chain management processes. In conclusion, I don't see supply-chain management as the fad of the month. I do, however, see it growing and maturing as a discipline, as we continue to discover how to make it work. NISCI can be contacted at P.O. Box 22160, Tempe, AZ 85285-2160; or by phone at 888-286-4724. Fax: 480/752-3902. E-mail: [email protected] or [email protected].