Supply chain management comes of age

In the last few years supply chain management has risen from nowhere to attain focal point in modern day business.

Though in India it has not always been a corporate priority, it can improve profit margins by at least 18 per cent.

Kumar K Iyer, partner with management consultancy Accenture told Business Standard that "earlier, companies often used supply chain to cut costs from existing operations rather than exploring opportunities for competitive advantage and differentiation".

However, it has changed now for large corporates such as Dell Computers, clothing manufacturers such as Zara of Spain, global trading companies such as Li & Fung, automobile companies such as GM and Ford and retail chains such as Wal-Mart and Sears for whom supply chain is the fulcrum around which they operate.

A research study was carried on the global study of supply chain leadership and its impact on business performance by Accenture Supply Chain Management Service in conjunction with Accenture Institute for Strategic Change, Stanford University and Insead.

The research team analysed corporate disclosure data from more than 600 global companies and conducted web survey.

However, none of the Indian companies responded to the web survey. The study analysed a direct relation of the supply chain performance with that of market cap growth of the company.

The findings suggest that "transforming supply chain operations can have a substantial impact on growth in market capitalisation, thus enabling improvement-driven companeis to catch up with - and even outpace - the growth of traditional supply chain leaders that do not continually improve their capabilities."

Iyer points out that though Indian companies are still coming on the map, "these findings are very relevant for the Indian companies. There is a pile of value locked in supply chain inefficiencies and Indian companies can unlock them."

The global research indicates that the supply chain leaders showed a market capitalisation compounded annual growth rate between 7 and 26 percentage points higher than the industry average.

Though supply chain came into being in the seventies and Japanese Just-In-time methods helped and encouraged it further, the real rise was witnessed only in the nineties.

It was innovative companies such as 7-eleven Japan, Dell, Nokia, Wal-Mart and Zara that were in the forefront of implementing supply chains which resulted in their outperforming competition and providing customer satisfaction.

Today it has migrated from being a cost centre to being the back-bone of marketing companies. In fact, the genesis of supply chain can be traced to the urge to cut costs rather than explore the opportunities and benefit it provided.

Today, as Dell puts it, supply chain is "the biggest leverage point we have."

The research team has also pointed out that "all winning strategies have competitively advantaged supply chain strategies at their core."

A classic example being Nokia with fast moving product and discerning customers, the company altered its playing field with rapid-response manufacturing, quick-ship logistics and a global supply web to link its suppliers and plants and to also support its vendor managed inventory and collaborative plannning.

These capabilities have contributed to a 20 per cent to margins, a 35 per cent market share, and an average cost to make and sell phones that is 18 per cent lower than its rivals, the study pointed out.