It's all in the details: align supply chain management with strategy.
From raw materials acquisition to production, sales and delivery, SCM drills down to the smallest detail, creating net value by using logistics and performance measures to ensure supply dovetails with demand.
John Harris, FCMA and chair of accounting and financial services at Centennial College's School of Business, says major gains have been made in the past few years through investments in better information and the development of collaborative products. Collaborative information sharing has also improved product-demand information by ensuring manufacturers, suppliers and customers all know what will be provided, and when, through every step of the supply chain. "Consequently, there's been a shift from a supply to a demand focus," says Harris.
As the world recovers from the recent economic downturn, Canadian companies are using supply chain management to compete effectively in a demanding global business environment. From locating distribution centres closer to customers, to boosting IT resources and offering better staff training, companies are beginning to position SCM as a core component of the organizational business model.
Bob Armstrong, president of Supply Chain & Logistics Canada (SCL), says SCM has made significant gains in the past five years, and yet it's still not where it should be. "Most Canadian companies either don't have a supply chain management strategy or if they do it's not aligned with the corporate strategy. We need to get Canadian companies to make sure supply chain management is in the boardroom." he says.
Indeed, SCM has grown from a marginal, non-strategic exercise to one that's front and centre, says Jean-Michel Laurin, vice-president of global business policy for Canadian Manufacturers and Exporters.
"It used to be that managing suppliers and getting products to customers on time was not a strategic part of work," says Laurin. "Now supply chain management is a critical part ofa manufacturer's strategy."
AGILITY IS KEY
Increasing numbers of customers are asking manufacturers to become more agile in managing their supply chain. Whether they're selling to original equipment manufacturers, large retailers or assemblers, there are higher expectations in terms of product and process.
"You need to have shorter production runs and less inventory because customers won't pay for it," says Laurin. "They want you to deliver the goods on lime. Higher customer requirements and expectations forced manufacturers to improve supply chain efficiency."
High-quality, less-costly information technology has helped. There's also been a significant increase in third-party logistics providers with growing expertise.
Greater competition from lower-cost countries has also driven change. The result? Competition based on differentiation and faster response to customer needs. This has been a plus for Canadian firms, especially with their proximity to major U.S. markets. The downside? The economic crisis, massive company downsizings and U.S. market sales slumps mean t a lost opportunity in proper SCM training, triggering a necessary refocusing on human resources and education.
According to Armstrong, production is returning to North America and companies here are rediscovering the advantages of the long-standing Free Trade Agreement. Firms that established production facilities in China and Southeast Asia are keeping those operations but reaffirming their Canadian market position.
IT'S ABOUT BUSINESS STRATEGY, NOT SECTOR
Not long ago, SCM was something only big companies such as Walmart focused on, says Laurin. Now it's everywhere.
"Supply chain management is really strategic. Five years ago I was getting calls from people asking 'What are the winning and losing sectors?' But it's not about the sector. It's about the business strategy, the supply chain." Companies that do well in supply chain management are growing in sectors that were thought to be disappearing, says Laurin.
Investment in SCM by smaller firms is increasing, especially in distribution centres, which saw a 106 per cent increase in the past five years, from $675 million to $1.38 billion, says Armstrong.
"SMEs (small to medium-size enterprises) are investing in new distribution centres to integrate themselves into the global value chain," Armstrong says. Collaboration with customers is de rigueur and technology advances have helped. "Now we have more Canadian companies investing in (better) technology and that's where we've gotten better."
"Supply chain has become, and is becoming, an ever increasingly strategic function within the organization," adds Richard Kingdon, a partner at the accounting firm Meyers Norris Penny. Optimizing the "supply chain footprint" is essential, in that "functions may continue to he directed by managers at an operational level, but many decisions and strategic directions take into account a more holistic view of the organization."
COST UNCERTAINTIES STILL A CHALLENGE
According to Kingdon. supply chain and risk arc now often linked together. "Being able to link the two, and lower risk while improving supply chain processes and technology, is a competitive advantage," he says. "Few have begun to master this, although Cisco and GE are leaders."
And risks maybe monumental and surprising, warns Mark Pagell. associate professor, operations and management of information systems at the Schulich School of Business. He says cost uncertainties will continue to be problematic, dashing a long-held notion of cheap and accessible raw materials, labour and transportation, especially internationally.
"Companies created supply chains based on the assumption of easy and cheap access to transportation, energy and water. (In the future) these will not be as cheap and easy as they have been," says Pagell.
While technological gains have created greater efficiencies, they might not be enough to offset the costs of just getting things made and distributed. Pagell says decision making becomes a crapshoot: do you go with short-term cost savings or seek guarantees that maybe more costly, but better long-term? Production-efficient enterprises must also be cost-efficient.
"If you can't predict what it will cost to mo\'e things and how you can obtain those materials, it will do no good in how well you predict efficiencies," says Pagell. In addition, companies need to rethink how they buy materials and perhaps move toward greater assurances on cost and availability. Getting guarantees by paying more per unit might work, "but it's not traditionally what we've taught students to do," he says.
Still. Armstrong is convinced that a combination of sound technology, distribution improvements and education will pay dividends. Outsourcing of supply chain services is on the rise. As American companies become bigger, more sophisticated and more competitive, Canadians follow suit. And while, according to Kingdon, finding trained staff to manage complex supply chains continues to be a challenge, there's also a major growth curve in certifying supply chain professionals.
"We're taking it to a whole new level, and universities and colleges offer more training than they did five years ago," says Armstrong.
It's also an area where the multi-dimensional skill sets of CMAs can easily find a fit.
"There are a lot of accounting/purchasing system and personnel/training issues/decisions that need to be made," says Harris. CMAs are well-prepared to dig into the details to ensure operations are cost and time efficient.
The benefits are clear: when companies have the potential of operating at increased levels of efficiency, reducing their bottom line and boosting profit margins, the ROI looms large, says Armstrong. He adds that studies show that 60 per cent of businesses making investments in SCM immediately improve their customer service performance. "They (a) keep their customers, and (b) get more customers," he says.
And that's a big picture that should make any CEO sit up, notice and invest in SCM.
John Cooper is a freelance writer based in Whit by, Ont.
RELATED ARTICLE: Demers: Integrated supply chain, customer service, flexibility
Demers Ambulances' business model reflects its deliverables: build excellent products, get them to customers on time and follow up to ensure a healthy long-standing business relationship. It's a model that has worked well for the 50-year-old company in Beloeil. Que,
The company designs, builds and distributes ambulances for clients in 20 countries and has sold more than 15,000 units. In addition to a quality product, success is credited to impressive customer service.
Striving to maintain its world-class industry status drives Demers' business philosophy. Procurement director Nadine Bernier says the supply chain is a core component of strategic planning.
"Our role in procurement is to support business development by finding high-quality innovative products at competitive prices," says Bernier. "The suppliers we are working with need to be very sensitive to our industry lead time and meet a shortened delivery schedule."
Demers works with customers on 12-month forecasts that allow the sharing of strategic information critical to production planning and raw materials acquisition. This information is passed on to suppliers, allowing them to plan their production cycles. The company also makes significant investments in training employees and building supply chain relationships.
"We have put in place different technical and management-skills training sessions for our employees," says Bernier. "In terms of procurement, we're developing strategic relations with key suppliers to develop important parts for our ambulances." This is bolstered by clear objectives, performance indicators that are checked twice a month, and regular forecasting. Product orientation committees gauge new trends and make strategic decisions about market development.
The company's supplier pool is flexible. It's able to work with low volume and customized designs and is capable of meeting Demers' lead time. The company engages two suppliers for each component it needs, successfully securing its sourcing, and most suppliers are within a 1,5-hour drive of Demers' facilities,
"Our customers often have quick needs, so we have to try to reduce lead times and keep quality high while respecting the price in order to respond to their requests," says Bernier.
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|Publication:||CMA Magazine (Mississauga)|
|Article Type:||Company overview|
|Date:||May 1, 2011|
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