Supply Chain Management
By Leslie Pratch
When I was getting my M.B.A., I outlined what I considered most useful to digest the curriculum and to help classmates preparing to interview for consulting firms. Nearly a decade later, I realize these notes may be helpful to first- and second-year M.B.A. students at Chicago Booth (or elsewhere) who are boning up for interviews with consulting firms. I offer them freely and if they are helpful, encourage your use of them, especially if you are pursuing a leadership position in a consulting firm.
Supply Chain Management
Here are seven principles of excellent supply chain management (supply chain is from suppliers’ suppliers to customers’ customers):
Principle 1. Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
Principle 2. Customize the logistics network to the service requirements and profitability of customer segments.
Principle 3. Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
Principle 4. Differentiate product closer to the customer and speed conversion across the supply chain. The hardware manufacturer who solved the problem by determining the point at which a standard bracket turned into multiple SKUs. This point came when the bracket had to be packaged 16 ways to meet particular customer requirements. The manufacturer further concluded that overall demand for these brackets is relatively stable and easy to forecast, while demand for the 16 SKUs is much more volatile. The solution: Make brackets in the factory but package them at the distribution center, within the customer order cycle.
The key to just-in-time product differentiation is to locate the leverage point in the manufacturing process where the product is unalterably configured to meet a single requirement and to assess options, such as postponement, modularized design, or modification of manufacturing processes, that can increase flexibility. In addition, manufacturers must challenge cycle times: Can the leverage point be pushed closer to actual demand to maximize flexibility in responding to emerging customer demand?
Principle 5. Manage sources of supply strategically to reduce the total cost of owning materials and services.
Although manufacturers should place high demands on suppliers, they should also realize that partners must share the goal of reducing costs across the supply chain in order to lower prices in the marketplace and enhance margins. The logical extension of this thinking is gain-sharing arrangements to reward everyone who contributes to the greater profitability.
Principle 6. Develop a supply chain wide technology strategy that supports multiple levels of decision-making and gives a clear view of the flow of products, services, and information.
For the short term, the system must be able to handle the day to day transactions and electronic commerce across the supply chain and thus help align supply and demand by sharing information on orders and daily scheduling.
From a mid-term perspective, the system must facilitate planning and decision-making, supporting the demand and shipment planning and master production scheduling needed to allocate resources efficiently.
To add long-term value, the system must enable strategic analysis by providing tools, such as an integrated network model, that synthesize data for use in high-level what-if scenario planning to help managers evaluate plants, distribution centers, suppliers, and third-party service alternatives.
Principle 7. Adopt a channel-spanning performance measures to gauge collective success in reaching the end user effectively and efficiently.
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Leslie Pratch, Ph.D. is a clinical psychologist with an M.B.A. in Strategy and Finance and a B.A. in Religion from Williams College. She works with boards of directors and private equity investors to select and develop executives. She can be reached at (312) 464-7919 or email her at leslie@pratchco.com or visit www.pratchco.com.
