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SYNERGY STRUCTURE CONTINUnY INNOVATIONS

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True supply chain excellence will only

come from making a digital business

transformation. It's a transformation that

exploits all that technology has to offer,

facilitates supply chain collaboration, and

leads to new levels of operational

excellence. More than a one-time project,

the transformation is a journey — and

the time to start that journey is now.

TBy Donald J. Bowersox, David J. Closs, and Ralph

hu model lor creating business Viilue hiis eiian-Jetl.Companies today participate in extended supplychains, where real operalional elMcienc\' \X\M\ rev-enue enhancement come Irom greater visihilily,integration, and s^nchroni/alion among connectedpiirtners. In short, collaboration among the part-ners in the extended supply chain—collaborationbe\()nd the physical walls of the enterprise—is the

1010010100110101010100101010101010! new jrena for value ereation.

ColUiboration oecurs when companies worktogether for mutual henelil. ll happens whensupply chain partners le\eragt' each other's oper-ational capabilities so that in combination theyperform better than they could possibly doalone. Collaboration can occur at all pointsalong tbe su|)pl\ chain—trom tiesign throughprocurement tfi linal tlistribulion. Wben doneeftecti\eiy. it enables companies to sbare inlor-mation tbat can dramaticalK sborten proeessingtime, elimiTiate \alue-depleting aeti\'ities, antiimpro\e (|uality, accurac\', and asset|irotlucti\it\—all ol whicb ari' iLuulaincnta! tolong-term success.

Supjily ebairi eollaboration can produce dra-matie improvements in operational anti linancialperformance. IJut tbere is no siber bullet to

W. Drayer

achieving real collaboration and the associatedbenelits. It requires bard work and some radicalcbanges in thinking and bebavior. It demandsbusiness-process integration and customer focusas well as a mindset tbat views supply cbainrelationships as strategic differentiators. It sbort,for a firm to acbicvc true collaboration, it mustgo tbrough what we call a digital business trans-fornialion (DBT). DliT is tbe journey of rein-\enting bow daily business is conducted to tullyexploit inlormation tecbnoi(jgy and to facilitatesupply cbain collaboration to achieve unprece-dented levels of operational excellence.

And DBT clcark is a "journey." not a consult-ing project or a one-time impro\ement initiaU\e.It's tbe process of rein\entino a business to digi-tize operations and formulate extended supplycbain relationsbips. Tbe I.)B'I leadership chal-lenge is about re-energizing businesses tbat mayalready be successful to capture tbe full poten-tial ol inlormation tecbnology across tbe totalsu|ipK cbain.' In essence, DBI is tbe conver-sion {)t business operations Irom Industrial-Ageto lnformation-/\ge tecbnology. Its about rein-venting and [positioning business o|ierations,processes, and relationships to fully exploit

Donald J. U(m'erso.v Ls thfjohn H. (VIcC'onncIl Univcrsily Pro/t'SMirand I^(i\'icl j . Closs is ifiejohn H.

C.'hciirt'cl Prq/esMir, \iiA\\ cil ihc UrocicJ College of/JiLsirie.ss, Michigtni Skite Uiiiversih'. Kti/pli VV. Drayer i.s chair-

man ()/.SuppI)' Chciin /nsights tindjormer vice presidenl oj customer service and logistics at Procter ik Cambfe.

22 SLI \ C H A I N M A V M . I \I [ \ I R I \

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infi)rmation technology.The greatest harriers ti) sueh n [ranslormalioii are not

technical or legal. Rather, they relate to prevailing managerialand em]ilo\ce attitudes, praetiees, and traditions around whaleonslitLites hest praclice. Most aeknowledgt'tl best [irLieticeswere estahlistied decades ago using the technology then iuiiil-ahle to address prohlcms or challenges that lor the most jiiirtno longer exist. Aelions thai once were c{)nsidered hest prac-tiee arc increasingly heeoniing Linneccssar\ or ohsolete. Vetits the perpetuation oi these traditional practices that thwartsigniheanl hrcaklhroughs toward new and more meaningKilways to work.

This article lays out the case for undertaking the digitalhusiness transformation journey, noting the pitlalls that ciininifiede progress and the hoimtihil opportLinitics that liealong the way. The siitehtir on page 25 enumerates the si\[laradigms of 1)15 \ that ean hel|i guide the journey.

The Digital ChallengeKeiinenting hiisiness o|»era[ions to exjiloit inlorination ti-ch-nolog\ aiul lacilitate supply ehain eolkihoration means exam-ining c\er\' iacet of every joh. It means asking the haril t|iies-tion, "Do eurrent netions add \al i ie to our eorc or keyeustonicrsr" 11 so. whal is the (.|uantifial)lc value propositioTi,anti how can it he ma\imi/edr 11 not. how can (he resourcesuseti to pertorin this aetion he rt'(.le[iloyetl? Ihe digital trims-iormalion tle|ieni.!s (JII liiiK Luulerstantling how to iisc tlu'power ol emerging generations ol Internet-based networkapplications sueh as those heing cle\eloped hy Interncl2,-These afiplications will prinide a communication baekhoneior integrated o|)erations and event nianageTiicnt eompeten-cy. Importantly, use o! this technology must he accompanietll)\ a willingness to ehange traditional organizational practices,

Hxpanding Internet eapahilitics provide an informationIramework that potcnliaily ean replace traditional one-to-one,onc-lo-nian\, or nuun-to-one communication with VVch-

J.W, STEWART

hased. simultaneous, many-to-many conneeti\ity. Within thatIramework, all participants in a supply chain simultaneouslyha\e access to the same stratc'gic and operational injormation.At the same time, they haw the ahilit\ to communieate plansand actions. I ratlitional command-and-conlrol practices canhv replaced with o|ien and shared inlormation access. Thislaeilitates the s\nehroni/ed distribution ol inlormation andknowletlge aeross the su|)[)l\' chain, which scr\es to moti\ateand accelerate the pace {)1 value creation. Quite IrankK, e\'enthe hest ol lirms totLiy ha\e much to learn when it comes loexploiting this emerging inlormation inlrastructure.

Its important to emphasize that DBI is ahout mueh morethan process ri'design to exploit iTiforniation technology. It isalso ahoiit structuring husiness operations to laeilitLite andhilK leverage su|i|iK chain collahoration, .Already, we secsLieh husiness motlels eiiierging, C'om|ianies like IBM LUKIC'isco. lor example, are repositioning themseKes as extendedand co]iiprehcnsi\e networks ol ser\icc pro\itlers, gi\'ingevcnthe smallest coinpaiiies they serve access to maximum infor-mation technology, IBM also is developing networks of con-tract maniitac turers, such as Celestieii and Solectron, to out-source the traditional tasks ol assi 'mbling modules andsuh-systems. By orehestrating the aeti\ities ol their tier-onesuppliers, automakers like C.eneral Motors, I hituia. andDainilerC'hrysler |iresen! a similar exaniple ol su|}ply chaininnovation. This nuiltilirm collaborative proeess is exploredlater in this article in ihc discussion of enterprise extension.

I inally, tligital husiness translormation is ahout leader-ship. It is the ultimate challenge in ehange managementhecause il impacts all organizational levels of an enterpriseand its extended su|»pK ch;iin. The translorniation start.s withredetiiiing the tirm's strategic vision^—thiit is. the sharedcomposite ol goals, competencies, and eapahilities a lirmdeploys to create and sustain competitive advantage.

At this early slage of the digital translormation. its clearihat some organizations are ha\ing a tougher time getting

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started on the jnumcy than otlitTs. For example it's tnidcnt cs that focus on maxitnizing customer value,

that A8 i l ' , Corning. Kodak, Motorola, Scars, and Xerox, to 2. A shared real-time information and t)pcrational cctnncc-

name a few, waited far too long to adapt to the digital impera- t i \ it\ thai creates a "response-based" or demand-driven nct-

l i \ c in hoth j iroducts and processes. Others, sLieh as ( i M . work ot sti|iply ehain relationships amonji the participating

I'rocter 8: Ciambie, and I B M (all discussed later in this arti- eoiTi|ianics.

^. C'oinniitnicnt to ojicrational cvccllcncc. c\[iressf<.i as

customer ccntricity.

The tramework in lixhihit I illustrates a supply chain con-

cle) sccrii to ho well on their way. In an\' case, one thing iselcar; The digital business transformation is hest initiatedIrom a position of strength rather than weakness.

The Limited Brands (tormerlv The Limitetl). a tliversilied sisting ot multiple enterprises that arc integrated and foctisedretailer whose stores also include Victorias Secret and Bath on one objeetive: Achieving and maintaining customer een-8. Body Works, is a case in point. I ollowing ibc direction oi trielty. Key resources (information, products. ser\'ices. iind soehairman and totuidcr Leslie Wexner, Limited Brands has lorth) arc shared from the stipply base to the distributionbegun a eareftil examination o\' its I'undaincntal \altie propo- partners. Similarly, assets and constraints arc integrated andsitions, Kccogni/ing tbat \alue is only ereated by ctistonier sbarctl across tbat same speetrum. I he resulting eross-enter-loyalty to its brands and stores, a bigb-le\cl management prise eollaboration protltiees value—hotb tor tbe suppK ebainteam bas begtin tbe [laiiistaking proeess {>t rcin\cnting ln(wLimited Brands eontiucts btisincss. Untlcr tbe leadcrsbip olNicbolas Lal lowebic , president of Limited LogisticsScr\iccs, tbe team is taking a no-iiokls-barrcd approacb as it

[lartners and, most im]Tortantl\, for tbi' cListomers.

Enterprise Core ProcessesI be beart {)t Lxbibit ! is tbe integrated enterprise. In tbe dig-

examincs e\cry acti\ity of e\'t'ry existing work practice to ital business context. de|iartments and operating entities tbatassess its \alue contribution. U" an activity directly sitpports have traditional!) dominated organi/ations arc subordinatedstore or garment brand success, tbe team seeks to identiKwbat [•>rocesscs and teebnolog\ ean be leveraged to achievemaximimi cllicicncv, cttccti\cness, and reievancv ol tbat

and replaced b\ t i \e core enterprise [processes: bumanresource development, tinaneial stewardship, integrated oper-ations, customer aecommodation. and tncasurcment and

cess, it is a candidate tor elimination.The real stor\ bcrc is not so iTiticb Limited Brands'

|iracticc. If tbe activity does not sup|iort store or brand sue- metr ics. Ibcsc core processes represent tbe lundamental

competencies tbat all organizations mtist incorporate to avoid

ing- s tagnat ion and acb icvc s t is ta inable [ i ro f i t ab le grnvvtb.

ness to begin tbe digital business translontiation, Batbcr, it's Stagnation in tbis context is i lel ini ' t l as perlorming at or near

tbe willingness ol management to eomntence tbe DIVI' jotir- a given intltisirv a\erage, /\ l i rms stipply cbain strticttire and

ney Irom a position oi market

and [ i c r l o r m a n c e s t reng tb

ratber tban v\ai t ing un t i l it

migbt become a ticcessity for

survival.

Three Dimensions ofthe TransformationHxbibit I illustrates an inte-grativc tnanagcment fratnc-work for tbe digital businesstransformation. To ful lyembrace this framework, acotnpany needs to pLit aside(at least tetnporarily) most otits tradit ional ideas abotitorganizational strtiettire. I betradit ional I i n c - a n tl - c o m -mand, functionally tocLisedorganizational ebart isreplaeed by an integratedsupply ebain struettire builton tbese tbree sbared values,or dimensions, eaeb ol v\bichis discussed below:

I. Enterprise core proccs.s-

EXHIBIT 1

The Digital Enterprise Integrative Mangement Framework

» Digital Bosiness Transformation

tntegrative Management Framework

Shared ResourcesInformation, Proriuct, Service, Financial, and Knowledge

Supply Base Collaboration

Integrated Enterprise

FinancialStewardship

ntegrated Human Customeriperatians Resource Accommo-. Developinent dation A

Shared Assets amd ConstraintsMarket Access, Capacity, Information, and Core Competencies

Source: Donald J. Bowersox, 2003

24 SL M \ \ \ ( , l . V I L \ I R l \ I I W • J \ N L \ l ) V / [ - | I ! I I L M i l 2

logistics are intrinsic to acbieving excellence

in each of the five enterprise core processes.

All five core processes must combine to faeili-

tate cross-enterprise su|ipK chain ci>ni|ieten-

cies and capabilities."*

As tbe framework suggesis, even business

musi interface witb customers and suppliers.

Two important insights follow from tbis reali-

ty. First, supply cbain reiationsbips represent

a linn's strategic initiati\e to align suppliers

anti customers into colliiborati\e reiationsbips

to gain com[ietiti\e acKantage. Second, eafb

supply ebain structure and strategy resulting

irom tbat siralcgic alignment is Lmit|ue, In

situations wbere many different sLip|iliers

simultaneousK collaborate with tbe same

eustomers, eaeb suppK cbain rclationsbi|i bas

a well-clelined and unique structure.

S

Real-Time Connectivity and Responsiveness.•\ seconti im|iort.mt dimensiiin ol digital

transformation is real-time connecti\ity ant(

decision making. Web-based inlormation

connecti\ity is driving a major sblft in tbe

"anticipator)" model of operations ibat bas

guitletl businesses for tbe past century. Tbe

holy grail of that anticipatory struelurc was

the lorecast. Participants in the (.lisLribiition

cbannel believed tbat il you got tbe lorecast

ligbt. good tbings would lollow. But in reality,

(be forecast sek!om prescnteti a eorrect

assessment ol what customers actually jiiir-

cbasetl. tbercby introducing variability and

tbe resulting bullwbip effect.

Real-time information connectivity is mov-

ing us a\say from tbis traditional forccast-

guitletl business strueture—wberein all x'aiue

is created in anticipation of demand—to an

agiie, response-based structure tbat reads

rapidly to demand retju i retnents. Tbis

response-based strueture is geared towarti

£|iiickly and accurately identifying actual cus-

tomer demand and tben rapidly lulfilling ihal

demand. Response-based sujiply chains

exploit the lull capabilities ot all cbannci partners through

the sharing of synebroni/ed information [o jointly develop

com|iiete solutions tbat satisfy customers.

Ibe translormation trom an anticipatory system to a

resjionse-basecl strucUire wont bappen ovcrnigbt — nor

sboukl il necessarily. The managerial cballenge is to mo\e

tbe transition forward at a rate enabling tbe tirm and its sup-

ply cbain partners to tully realize the benefit^' ot OBT without

tnerlooking any o( tbe potenlial op|iortunities.

Ibe powtT ol real-time conneclix ity anti responsiveness is

most c\ident in a firm's planning and scbetluling capability.

The "Six Fs" of Going Digitalix paradigms seem to frame the challenge of digitally transforming business.

We call these paradigms the "Six Fs" of going digital. They speak to the

mindset that leaders must adopt as they begin to reconfigure every aspect of

their organization fo contribute economic value.

1 . Fact-Based Management: Fact-based management is a commitment

to—even an obsession with —developing precise information on every facet of what

the organization does and needs to do. Fact-based management provides answers to

questions such as, Why do we provide this service? What value does it add to cus-

tomers? What are our precise performance expectations? How exactly do we meet

and measure these expectations? Facts are not averages. Facts deal with specific

performance results in terms of specific customers. Managers must learn to under-

stand and rapidly act on these results at the specific product level and customer

purchase location.

2. Flexible: Driven by facts, successful firms demonstrate an inherent ability to

rapidly adapt operations to pursue a new course of action. Confronted with a break-

through opportunity, they are agile enough to make adjustments quickly and com-

mit the resources necessary to capitalize on the opportunity.

3. Focus on Cash: A business exists to generate cash. Quarterty or annual earn-

ings are not the fuel of long-term success. The only meaningful measure at the end

of any day, week, month, or year is the cash balance. As they make the digital

transformation, companies must remember that cash pays bills, cash pays salaries

and wages, and cash pays shareholder dividends. The focus must be cash first, cash

second, and cash always.

4. Fast Return on Investment (ROI): A business needs to make continuous

investments in new products, services, technology, people, and facilities. All invest-

ments are made with an expectation of financial return. The new mandate, howev-

er, is not just high rates of return but high rates of return fast. Payback periods

need to be short and rapidly yield positive returns —which translates to cash.

5. Fungible: Fungible means that business processes are modular in design with

maximum interchangeability. Modularity allows flexibility in process design and

maximum incorporation of the principles of postponement and acceleration. The

operational characteristics of agility, flexibility, sustainability, scale, scope, and

responsiveness are all attributes of fungible organizations.

6. Frugal: Capital investment, cash velocity, and a flat organizational structure

vi/ith focused human resources are characteristics of a frugal enterprise. Frugal

enterprises are lean in every conceivable way. Overhead is minimal. Operations are

focused on cash generation. Lean is an enterprisewide attribute that must permeate

every facet of every process. In frugal enterprises, the real benefits are cash and

dividends, not fringe benefits or luxurious environments. At the end of the day,

employees work for income and owners invest for dividends, With business success,

both constituents will benefit from the enterprise's success.

Tecbnology sucb as advanced ji lanning and scbeduling (APS)

systems facilitate responsiveness anti f le\ ibi l i t \ by increasing

accuracy ot order tdTiimitincnts while simultaneously rctluc-

ing protluction scheduling teatitiincs and in\en[or\ tiutlers.

To untlerstanJ bow APS can be ellectively implemented to

acbic\e tbese goals, eonsider IBM Microctectronics Division

—a produeer ot semiconductors, related electronic packag-

ing, and subassemblies tor internat IBM divisions and exter-

nal customers. I tistoricalK, the company tlcvelopetl, tahricat-

ed, packagetl. and testetl protbict at 12 sites around tbe

world, rbe planning jiroccss was done independently at each

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Transformation

of these sites and then the intli\itlual plans were aggregatedinto a combinetl ]ilan. This approach resulted in long plan-ning eyeles antj data inconsistencies. This, in turn, led toe\tcntlctl customer comrnilment times and even conflictswhen inventory or protluction capacity was promised to mul-tiple customers.

lo address these issues, IBM Microelectronics Divisionbegan a transformation lo reengineer tbe total planning andlultiiiment process. Ibe objectives were to provitle instanta-neous cListonier response tbrough real-time order promising,on-(ime shijiment eonsistcnc\ across all sites, taster in\entor\turno\er, and eleetn)nic connectivity witb customers.

Using APS Iccbnologv, tbe (.li\ision i niplementetl a

The digital business transformation isabout leadership because it affects all levels ofthe organization across the extended supply chain.

demand/supply rationalization process tbat allov\s tor v\eckt\integrated planning across att \1 sites wbile setting capacit)constraints tor all products. I be demand-allocation processenabled instantancou.s inventory commitment and last andaccurate delivery. Among the operating improvements thatthe Microelectronics Division realized In using tbis intercon-nective tecbnology are:

• 47 percent of bigb-volumc (>arts commiltetl tbrougbavailable to promise (ATP).

• Order response time reduced Irom f(jur days to one, v\itbover 65 percent of A'I'P orders committed in tess thanone day.

• On-time deli\-ery to promised commit date increasetlfrom 9. percent to 97 percent.

• Delivery perlormance lo customer ret|uest improved trom4T percent to 70 percent.

• Assets reduced by %H() million.• Average inventory reduced hy $20 million.• Ability to implement Web-enabled business processes

develo|ietl.

Operational ExcellenceIbe lliirtl ttimension ot the tligilal business transformal ion isa commitment to acbicve aiul sustain operational exeellence.Senior leadcrsbip must drive tbis commitment, vvbieb mustextend tbrougboiit tbe organization. Tbis commitment isbased on a cantliti—anti sometimes even brutal—^acknowl-edgment of wbat C(5nstitutes sustained superior scrviee per-formance trom tbe customer's perspective. We call tbis "cus-

tomer centrieity" because it clearty focuses cbannel-v\ idebebavior on creating customer \alue.

The essence of {)peralional excellence is to eftcclively andetticiently keep promises lo customers. This requires opera-tions to continuously adjust lo changing customer needs.Perhaps the best and most comprehensive measurement ofoperational excellence is tbe pertcct order. Ibis metricmeans that every order is delivered complete, on time, dam-age Irec, and invoiced correetly. Bccatisc tbe perfeet orderrepresents tbe resLilt of all operations, it also ser\es as anexcellent measLirement for supi K cbain analysis.

Wben it comes to serving customers, \er\' few firms todayeonic close to o]ierational excellence. Ibe reality is tbat most

senior managers do nox bave even aremote idea of tbeir existing operationalperlormance in terms ol a s|)cci(ic cus-tomer or product. Ibe yardsticks used tomeasure [lertormanee are t\picatly pre-sented as averages. Vet v\bile averagespro\itle a general view of operationalcompetency, tbey fail to identily specificservice breakdowns. More importantly,tbey mask tbe root causes of service lail-ures. I bis failure to view operations intemis of comjiliance to specific expecta-tions and promises made to individual

customers may be ibe greatest o! all sbortcomings in modernbusiness leadersbiji. C'ustomer centricitv tlcmantls tbat a firmcommit to |)crlcct-order e.xeeution. Kt|ually importaiit is acommitment lo identify tbe root cause ol any service break-down tbat occurs, iollowetl bv corrective action eacb andevery time an order tails lo meet customer exjiectations.

In addition to tociising an organization on tbe customer, acommitment to o[)erational excellence brings witb it oneotber povverfu! advantage: ft allows tbe enterprise to positionsiipj>ly cbain operations to drive top-line revenue grovvtb andbelp achieve its strategic business objectives.

Operational excellence yields huge dividends when it isextended externally to supply chain partners. In particular,leading-edge firms arc beginning to use information lecbnolo-gy to acbievc new levels of effectiveness and efficiency bycollaborating witb tbeir supply cbain partners. 'I'bis creates anew form of enterprise extension referred to as cross-enter-prise collaboration."^ Sucb collaboration enables firms toestablisb Itmg-term arrangements v\itb customers as well asmaterial and service suppliers in an ellort to reali/e tbe bene-fits ot integrated operations, linterprise extensions aredesigned to leverage capabilities and resources across thesupply chain. C'.oltat)orating partners are positioned to focuson their uriique competcney and expertise to provide an inte-gralett ottering to ciistoTners. The objective of cross-enter-l rise coltaboration is operational excellence tbat synergisti-caltv creates value. Ibe e\am|ilt' l>elov\ bigbligbts hov\ CMdid just this.

The l'- 9()s found Cleneral MtJtors in serious financial trou-

26 S L f 11 \ I N M V ^ A (; L M I. N I R I V 2()0=i www.stmr.com

b!c. One of the world's largest corporations, it \:'as strugglingwith bloated and inflexible mcmagemcnt, unexciting ears,constraining union contracts, and diFHcuit supply chain rcl;i-tionships. These rcUitionships ranged from unhappy suppliersthat teit they had been squee/cd to service providers that hiiclto respond to unit|ue component- or plant-related rcqLiirc-nicnts. Supplier and sourcing decisionsolten were made independently by divi-sions ynd indi\'iclua[ plants. For e.xiimpic,each asscmhK plant coukl select its i>\\n[larls and ser\iee suppliers, /\s a result,similar parts were being purchased tromdiKerent s(.i[)plicrs—sometimes h\' [ilantslocated in the same town. The resultswere lost o p p o r t u n i t i e s lo achieveccoiioniies ol scale with stip|iliers andpoor asset titili/ation tor logistics serviceprovitlers.

In help ensure its long-term viability.CiM had to make substantial changes in tfie wiiy it tlid htisi-ness. While GM vlevvs \chicle assembly and global logisticsstrategy as core competencies, it wasn't con\ inced that it hatito continue doing the analysis and management of suppivchain How internallv. |-tirthcr, the compativ lelt that havingan outside specialist perlorni these tasks could lead to newopportunities tor further scale economies.

This line of thinking tiltimatelv led to the creation ofVector Supply Chain Management (Vector SC^Ml, a jointventure hetween C N F and Ccncral Motors with C N F themajority partner. \'ector SCM was crcatetl in 2(K)() to design,implement, and manage su|")ply ehains tor components, work-in-process, and tinishcd vehicles. While CM is Vector's tirst

Operational excellence is based on acandid —and sometimes brutal—

acknowledgement of what constitutes sustainedsuperior performance from the customer's

perspective.

customer, the plan is to commerciali/.e the serviee lor othermajor aecoimts as v\cll. \ \ ith this business model. Vectorbecame one ot the tirst tirnis to actually implement the con-cept ol an integrated lourth-party logistics provider (4I'L).

The objective was for \'eetor to perform ongoing analysisof CM's sLipi ly chain requirements using state-of-the-artplanning tools in conjunetion with a comprehensive shipment

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bistor\' database. "Fbe analyses would toeus on GM"s global iHow of parts, components, and vehicles witb an eye towardiilentifying opportunities lor synergy and eoordination. Onee Itbe opportunities were identified. \ 'ector woLild seleet leadlogistics pro\iders (IJ.Ps) to implement the plan. '

In essence, the digital businesstransformation is the conversionoperations fmm industrial-Age toInformation-Age technology.

I Damuge-lree oiilliound shi|iments of \ehieles ineieasedto 99.S percent.

I Vehicle delixcry-date reliability iiicrciisecl to more ihiin

8S percent.I Production and material constraints reduced by 70 percent.

• Work-in-progress inventory costsreduced by M) percent.

£ • Logisties costs reduced hy !S percent.** ' In brief, the N'eetor SCM joint venture

illustrates an innovati\e comhination ofoutsourcing aTid enterprise extension lo

achie\e o|ieriitional excellence.

In practice, the Veetor SCM venture has led to numerousopportunities for shipment consolidation and lane balaneing.On an ongoing basis, W'etor eollects \olume and perfor-mance data from the LI.P and manages that relationship lorCM. The results to dale have exceeded e.vpeetations:

• Orcler'fnlfillinent leadtimes retlueed h\' SO percent.• On- t ime del i \cry oi parts to LissembK-line station

increased to 99.9 [lereent.

Sustaining the Transformationlhe linal dimension ol I)i51 is sustainingthe c{)mpetitive ad \an tage onee it hasbeen achiexed. Ihe information age allowsI-,,) iJDiL' for resting on ones laurels. The

most successful companies understand this aru! continuallystrive to improve upon previous aeeomplishmcnts. In a \eryreal sense, sustained success is a jirocess of continuousrenewal. It s just as important to businesses as it is to livingorganisms. The following example shows how Procter &CJamble (P&C) has continuously renewed itself o\er theyears—partieularly with regard to tbe relationsbip with itslargest eustomer, W'al-Mart.

Supply ChainForecasting Conference 2005

FREE GOLF!At the IBF Golf Outing». ($165 Value)

If you register before' ^January 25. 2005

Pointe Hilton Squaw Peak Resort • February 27 - March 1,2005 • Phoenix, Arizona U.S.A."Hear 37 forecasting/supply chain professionals sharing real-world experiences"

You will Learn (partial list):

How to develop & benefit from a Sales & OperationsPlanning (S&OP) process for emerging demand drivenenvironmentsTbe advantages of consensus & collaborative forecastingHow to improve forecasting to support Wal-Mart

Metbods tbat will help you optimize your supply cbainwitb sales for greater efficiencyHow to forecast for new and seasonal products in a multi-cbannel distribution environmentHow to transform monthly forecasts into weekly demand

How to manage a Vendor Managed Inventory (VMI) program signals for material planning purposesAnd Much More!

Speakers Representing (partial list):

AvnetBlockbusterCalphalon/Nev\/ellRubbermaidCarter'sCoca-Cola

Deere & CompanyHewlett-PackardHollisterHutamakiIBM

John DeereKraftNestleNoveonProcter & Gamble

Radio SbackRevlonSiemensWacker CbemicalsWells'Dairy

Institute ofBusiness Forecasting

Tel. 516.504.7576 or 800.440.0499Email: info@ibf.org • Web: www.ibf.org/0502scmr.cfm

28 f l M I N \ t \ \ \ ( , l M l N I U l \ J AN L / I I I! II L M H 2 0 0 S

P8:C'T'S willingness to reinvent itself dates back to 1920when ihc company made the hold decision to hegin sellingdirect to its kirfjcsl customers as ojiposcJ to selling throughbrokers or tlistrihtitors. In later years, the emergence of inlor-niation lechnology such as bar-code scanners ;ind hiuidheldconi|>Liters pr(im|ited P&(! to pioneer small-scale e,\pcri-ments with u lew retailers to build and share electronic data-bases, torge closer ties, and streamline the supply chain todeli\er higher value to consumers- In <tnc such experiment,PSiCI prototyjied the grancldaddy of collaborative businessprocesses^continuous replenishment. This initiative beganwith P&G iiutomatically shipping Pampers to a grocerv' chainin St. Louis without the stores buyers having to plaec orders.

V&G broadened the scope of the St. Louis prototype andused it as the foundation for its much-publicized colkiborLi-tive partnership with Wal-Mart. And the rest, as they say. ishistop.'. The P8iGAVal-Mart continuous replenishment pro-gram sticceeded because ot a trusting business relationshiiiand senior management's support for an initiative that wotilclproduce mutual benelits, Sam Walton summed u[) the phi-losoph) behind this eollahorative approach best: "Let's inventa system wherein \ou ship me product, and I'll ship youmoney, Quote me a net price, and I'll give you my ilistrihu-tion center inventory turnover hourly, Yoti manage the order-ing, shipping, and billing and meet my ttirno\er rc(.|tiirc-ments. You keep the monev you make from the sa\ings, andI'll keep mine. Let's vvork together," Another of Walton'scjuotes is relevant here as \\ell: 'Think of my stores as anextension of your brands. Would you then think tlifferently ofhow we do businessr" You bet P&Ci did! Lbe result was a col-laboration tbat has sustained the extended enterprise acrosstbree decades.

Today. PK:Ci coiTtinues Lo iiino\ate and drive im[iro\emcntin its supply chain operations, Ibe companv's current sii[iplvnetwork operating strategy is called the constimcr-driven sup-ply network (C'OSN). It incorporates a number ol new sLipplychain ca|iabilities, technologies, integrated systems, andproeesses to enable the company and its supply chain [part-ners to sense and react to real-time constmier demand, P&Cis targeting to get some impressive results Irom C^DSN by2008, starting with a 5()-percent redtiction in total su|)plychain inventory; a S{)-pcrcent redtiction iti response timeIrom constimer purchase lo deli\cr\. and a 2()-percent redue-tion in supply chain costs.

Procter & Clamble's v\illitigncss to contintialK rein\cntitself has led to signifieani competitive advantages and a posi-tion of intlustrv leadership. Along the way, the company hadto develop and sustain a ctilttirc committed to ([uestioningnearly everything with a w illingness to change e\en time-hon-ored practices.

Questions for the Journey AheadThe \ \ a l -Mart /P&Ci col laborat ion is a fascinat ingstory—not only for what it achieved but also as a testamentto the power ol collaboration. What are the limits of work-ing together for mutual henefit in this nevv age ol informa-tion technology? What might he aehieved as a result of dig-ital business transformation?

An inquisitive CEO and the supply chain professionalsworking with him or her might wonder how \\ell their organi-zation is i^ositioned to begiii the DHl journev, /\nswers to thefollow ing questions will helji them determine whether or notthey're on the right traek to DU I:

• Are our core [irocesses customer-centric?• Is my firm willing to eontintrousK' "rewrite the rules' to

meet the evolving needs of end cotisumers?• Have we reviewed and establisbed the value proposition

concerning enterprise core processes?• Are we willing to share strategic information, responsibili-

ties, and resources with otir supply chain partners?• Have we incorporated planning teehnologv to synthesi/e

common sujiply chain rc(.|uirements and determine tacticsto meet consumer needs vvhile maximizing asset utiliza-tion?

• Are we willing to integrate operatifniallv with othiT iirms,potentially even eompetitors, to lacililale enhanced sup-|>iy chain responsiveness and perlormance?

• Does the digital business transformation vision lit ourlirm?

Ii' tbe answers to these (juestions are mostly "yes," you'reready to consider starting tbe DRT journey in earnest. But iftbey're mostly "no," you ve still got some work to do beforevou can begin. Hut don't wait too long. Yes, DBI is a journeyand not a sprint. But you don't want to give the eompetitiontoo much ol a head start, CS3D

Footnotes

•'^Michael Hammer, The Agenda, (New York: Crown Business, 2001).

2|nternet2 is a research and development consortium led by more than 200

universities in partnership with industry and government to develop and

deploy advanced network applications and technologies. These applica-

tions and technologies will enable collaboration among people and provide

interactive access to information and resources in ways not possible on

today's commercial Internet, (www.internet2.edu)

^Donald J , Bowersox, David J . CIQSS, and Theodore P. Stank, "How

Supply Chain Competency Leads to Business Success," Supply Chain

Management Review, September/October 2001: pp. 70-78.

'^Donald J . Bowersox, David J , Closs, and Theodore P, Stank, "How to

Master Cross-Enterprise Collaboration," Supply Chain Management

Review, July-August 2003: pp. 18-27.

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