I participated in an interview with Teradata Magazine back in December of 2006 that focused on the concept and the direction required by firms for implementing more intelligent supply chain capabilities.  I recently noticed that this article remains a headliner on the Teradata Magazine site.  But the question I pose is whether significant progress has been made by firms in grasping this concept.

In 2006, I stated that an intelligent supply chain is one that is predictive to customer needs, meaning it can more intelligently respond to value-chain disruption and better support network-wide decision making in a much timelier manner.  In the interview, I further outlined the need for implementing an intelligent platform strategy, one that integrates value-chain business processes with existing or new investments in IT capabilities.  The challenge was to IT and functional business groups to play a more proactive role in streamlining key information flows, creating needed architectural constructs, and accelerating progress toward broader adoption of these capabilities.  This is also much more than management dashboards.

Some progress has been made.  Within the last year I have observed much broader interest among manufacturers in IT applications such as multi-echelon inventory optimization, supply chain network design, strategic sourcing, and broader manufacturing and global supply chain information visibility. All of these, in my view, are components to the whole.  But on the IT and industry analyst side, I sense some confusion. 

Many industry analysts hype to the IT community the benefits of adopting services oriented architecture (SOA) or business process management (BPM) concepts, which tend to be non-specific to ISC.  My former colleague, Bob Parker, Vice President at IDC Manufacturing Insights, comes the closest to articulating what he terms Collaborative Decision Environments (CDE), and outlines the requisite key components (subscription required to view).

No doubt, the recent acquisitions by major ERP players Oracle (acquiring Hyperion and BEA) and SAP (acquiring Business Objects) will add more potential hype to the IT world.

The time is now for leadership in moving toward more intelligent supply chain capability.  With only two months into 2008, we already have ample evidence of continued supply chain disruption, and the notion of a very uncertain economy places heightened emphasis on sales and profit goals targeted at the still growing emerging economies that lack mature supply chain infrastructure.  There will never be a more crucial time for our community to be able to claim progress toward implementing a more intelligent supply chain.

 It has been interesting to observe that Wal-Mart, among other firms, has taken a very high public profile for leading efforts to reduce greenhouse emissions, and sustain a green perspective throughout its vast supply chain.  Wal-Mart’s pledge to help reduce between 33-66 million metric tons of carbon dioxide (CO2) emissions, and up to 200,000 tons of nitrogen oxide emissions (NOx), should be applauded.  But what seems disconcerting to me is the notion that this pledge seems to be again translated into mandates to certain Wal-Mart suppliers. 

This seems all too familiar, and we have been here before.  Did our supply chain community learn anything from the initial conformance mandates that were issued by Wal-Mart and the U.S. Department of Defense to support RFID adoption? 

In 2004, Wal-Mart issued its mandates to certain key suppliers to have an RFID enabled product identification process in place by January of 2005.  What followed was essentially the implementation of basic “slap and ship” conformance, as suppliers communicated that they could not economically justify any wide scale adoption.  At that time, there were no generally accepted international standards for RFID enabled information transfer, and the high cost of RFID tags made wide-scale adoption prohibitive for the majority of suppliers.  This has led to a forced march toward the so-called Gen2 RFID technology, with the scrapping of that earlier technology driven by mandates. It has only been of late, almost four years later, that RFID enabled processes can be considered for wider scale adoption with measurable return on investment.

Today, while we all can embrace the need to reduce overall greenhouse emissions across global supply chains, we find a similar lack of standardized and/or widely accepted measurement and tracking standards.  The most noted mitigation efforts are the Carbon Disclosure Project (CDP), which Wal-Mart is a member, along with Dell, HP, PepsiCo, and others.  China has been supporting its Pollution Prevention and Energy Efficiency Program (P2E2), and the ISO has been promoting its ISO 14000 family of standards.  But again, more work remains.

In the area of business ROI justification, many supply chain groups will need to grapple with trading-off many of their previous efforts toward establishing very lean supply chains, with the trade-off toward a more carbon efficient supply chain.  The two may not necessarily be the same in certain industries. New analysis tools with consistent measures of a carbon footprint will most likely need to be adopted.

My point with this post is that mandates tend to benefit the party that mandates, as well as certain technology vendors.  Wal-Mart’s recent fourth quarter earnings statement to Wall Street points to 2008 as the year to re-emphasize Wal-Mart’s low prices, and overcome the huge increase in energy costs, specifically the cost of diesel fuel.  Obviously a carbon emissions mandate among key suppliers will help Wal-Mart to achieve this goal, but at what cost to suppliers? 

No supplier to Wal-Mart can afford to ignore any mandate.  Many firms do not have this overall clout. But it seems to me, that Wal-Mart and other firms can reap more timely progress in an atmosphere of win-win collaboration. 

Green supply chains will present many new business process and technology obstacles to overcome, similar to what has been encountered with RFID.  Let’s get realistic, and make this a joint effort, without the need for mandates.  Perhaps more will be accomplished, in far less time.

 Recent press reports, including a front page Wall Street Journal article have highlighted the fact that a Chinese factory producing the active ingredient that makes up the critical blood-thinning drug Heparin, has been identified  as a suspected source of contamination.  Of more concern, at least four people have died after being given the drug, produced by Baxter International.

Readers may recall previous stories of the discovery of lead paint in toys, leading to multiple product recalls in the U.S., as well as the discovery of melamine in pet food products originating from raw material manufacturers located in China. I don’t know about you, but this latest story causes me, as well as  a whole lot of others, much concern, since now the focus is on a vital medicine in our healthcare system.  Yikes!

There are even more challenging supply chain implications at play here.  First, this involves a highly regulated supply chain, one that is subjected to many process controls. A spokesperson for Baxter International indicated that the active ingredient for the Heparin in question was procured from another unnamed company, probably naïve in thinking that the Internet overcomes all information shortcomings.  According to the Wall Street Journal blog Health Block, the supplier of this suspected contaminated active ingredient is Scientific Protein Laboratories (SPL) of Waunakee Wisconsin, who’s joint-venture supplier is located in Changzhou China. The China operation has been reported to have had three different owners in the last four years.

The pharmaceutical supply chain has more than half of its products originating from India, Hong Kong, and China for producing both active ingredients as well as final products.  It has only been recently that China has been emerging as yet another low-cost source.

How this incident continues to play out in global supply chains from both a risk management, supply strategy, and distribution perspective are going to be something worth watching.  There is already speculation that healthcare providers and distributors are scouring to lock-up whatever “safe” supplies of Heparin are available, for fear of a looming shortage for a critical drug.  The press, manufacturers and politicians are pointing fingers at regulatory agencies such as the FDA, for its reported 13 years of backlog to inspect every foreign drug plant.  We may potentially discover that the long distribution pipeline back to the U.S.  may have contributed to the perishable nature of drugs of this kind, or that other manufacturers or geographic regions will be impacted by cascading events.

Supply chain risk management related to global sourcing  is the topic of the day, and this incident will add even more of a wake-up call for firms to have an active strategy in place.

Does your firm have a viable supply chain risk management strategy?

Stay tuned …..

 A recent posting by David Blanchard in his Industry Week blog Chain Reactions commented on Chrysler’s recent decision to cancel its contract with Tier One supplier Plastech, which not only caused Plastech to file for bankruptcy protection, but also required Chrysler to temporarily shut down production at four of its own final assembly plants.  David references the past history of efforts by former Chrysler executive Thomas Stallkamp to initiate a multi-year initiative of strategic collaboration among its suppliers, similar to an Americanized version of Toyota’s kiretsu framework, and how this apparent new era of Bob Nardelli, so completely eradicates these efforts.

I could not agree more.

Any management professional who studies companies that truly manifest both innovative, as well as industry competitive supply chain will soon come to understand that the majority of these companies view their suppliers as an integral part of the fabric of their overall value-chain network.  As such, these suppliers contribute to innovation and reap the same rewards as their customers.  If cost reduction is a goal, it is a shared goal. The same is true in product innovation.

But, as an industry observer, it’s still amazing how this tenet escapes certain North American automotive OEMs.  Is it any revelation that so many of the North America OEMs now find their Tier One suppliers have either filed for bankruptcy, seek private equity funding, or have just gone away. I read a statistic about two years ago that up to $50 billion in Tier one automotive assets was for sale, while private equity waited to pounce. Certainly there are issues of legacy of high health care, pension and other labor costs, but solutions have taken far too long.

Now some of you out there would argue that these are the natural forces of the market at work, and if these companies could not compete, they should go away.  But many foreign manufacturers (Toyota, Honda, Hyundai, Kia, and others) have a successful and growing manufacturing and market presence in North America.  They have transplanted the tenets of supplier collaboration to all of their global value-chains. The evolving auto manufacturers in China and India are showing an eagerness to also mature their supplier collaboration practices.

Perhaps Mr. Nardelli and Chrysler’s new management team need to understand that running a company, including its value-chain purely by the numbers, at the expense of valued suppliers, is a very short sighted strategy.   

The topic of globalization can evoke many viewpoints, both positive and not so positive.

Writing on this topic over three years ago, I often advised manufacturers to differentiate their supply chain strategy efforts on the appropriate response to two different business objectives.  The first and most visible today is the need for reducing direct manufacturing costs, most often manifested by a sourcing strategy to lower-cost regions such as China, Southeast Asia, or Eastern Europe. The second, objective is building and supporting revenue growth in new markets, a focus on emerging growth economies.  At certain times, both business objectives can complement one another, Asia and China being the best examples.  But in many firms today, they often provide a conflict.  Both may have to be managed with different deployment strategies.

One of the companies that practices the benefits of how to best balance these two strategies is Toyota.  For many years now, Toyota has sourced its final manufacturing sites not just to serve its customers located in a geographic region such as North America or Europe, but also to have the built-in flexibility to serve another geographic market when economic factors warrant. Supplier sourcing, on the other hand, is motivated by product quality and cost considerations, regardless of geographic location.

The latest success of the payoff of these strategies is Toyota’s recent 2008 third quarter results, posting a 7.5 percent growth in profits, coupled with a 9.2 percent increase in revenues.  While the majority of North America based auto companies continue to struggle, Toyota was able to reap the benefits of its geographic diversification.  Units sold in Russia recorded a 52 percent increase, along with a 62 percent increase in unit sales within China. Toyota continues to benefit from record sales in North America.

Properly balancing a low-cost sourcing strategy and a new markets growth strategy requires the ability to quantify the needs, requirements, and bottom line benefits for both. No doubt, the Toyota culture of lean, superior quality, and fact-based decision making helps them to complement sourcing and growth strategies.

Let’s hear your view…