Ask any executive to describe how their company interacts with others in their supply chain, and it isn't long before words such as "marriage," "partnership" or "relationship" come up. However, if there is one truism at all about relationships today, it is that of constant communication. Yet in some of the most "strategic" supplier relationships, this simple concept is almost never deployed. The literature on supply chain management offers a range of metrics for suppliers, including "hard" metrics such as cost and quality and "soft" metrics such as service and innovation and the need for sophisticated models to evaluate supplier performance. But where is the discussion of holding the buyer company accountable for its end of the bargain? In very few cases do buyers adhere to supply chain metrics for themselves. Nonetheless, buyers have as much influence as suppliers on the success or failure of a supply chain relationship. Some companies are addressing this notion with mechanisms that emphasize dual accountability. Dual accountability requires a fundamental shift in the psychology of buyer-supplier relationships. Not only is tangible accountability demanded from both partners, but suppliers and buyers also must show greater communication, openness and trust. The article explores the genesis of the dual accountability concept, outlines the benefits -- which range from decreased risk to improved reputation to lower total cost -- and illustrates how dual accountability can be profitably applied by suppliers and buyers working together. One means of achieving dual accountability is the Two-Way Scorecard, a performance tool that measures supplier and buyer results across a balanced set of categories and, within those categories, tailors metrics for each party. As such, it is a concrete means of embedding cooperation in the supplier-buyer relationship. Experiences with implementation of the Two-Way Scorecard and other methods of dual accountability are discussed for Johnson & Johnson Group of Consumer Companies and other corporations. The article offers keys to implementation of dual accountability and discusses the crucial role of technology.
Operations
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Strategic Supply Management
How leading companies use price, speed, quality and flexibility to drive innovation and shareholder value.
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How Do Customers Judge Quality in an E-tailer?
Early research in e-commerce projected that online retailing would spiral into a never-ending price war, but recent research has shown that customers are more likely to pay higher prices to online retailers of high quality that they trust. But how do customers evaluate quality in online retailing? What are the specific aspects of an online transaction that customers value and use to distinguish one site from another? The authors explored these issues by surveying customers who had recently engaged in an online retail transaction to determine how they evaluate the quality of their experiences with online retailers. The results demonstrated that customers' perceptions of quality and satisfaction with online purchases depend upon three things: interaction with the Web site, delivery of the product and how prepared retailers are to address problems when they occur. Of the three, product delivery has the strongest influence on customers' satisfaction and future purchase intentions. The authors further break down each of the three aspects of quality to create a complete picture of what it takes to build a trusting relationship with customers in an e-commerce environment.
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Managing Product Returns for Competitive Advantage
Effective product returns strategies can result in increased revenues, lower costs and enhanced levels of customer service.
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Evolving From Value Chain to Value Grid
The term "value chain" suggests an orderly progression of activities that allows managers to formulate profitable strategies and coordinate operations with suppliers and customers. Using examples from the telecom, pharmaceutical, steel and auto industries, the authors argue for a more complex view of value -- one that is represented by a "value grid". The grid approach allows firms to move beyond their industry lines to identify opportunities and threats. It pushes managers to understand the power balance between suppliers and manufacturers. The new pathways to value can be vertical (as firms explore opportunities upstream or downstream from the adjacent tiers in their value chain); horizontal (as firms identify opportunities from spanning similar tiers in multiple value chains); and even diagonal (as firms look more integratively across value chains and tiers for prospects to enhance performance and mitigate risk).
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Successful Business Process Outsourcing
Companies should evaluate an outsourced process on several dimensions and then tailor the contract accordingly.
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A Supply Chain View of the Resilient Enterprise
Many companies leave risk management and business continuity to security professionals, business continuity planners or insurance professionals. However, the authors argue, building a resilient enterprise should be a strategic initiative that changes the way a company operates and increases its competitiveness. Reducing vulnerability means both reducing the likelihood of a disruption and increasing resilience. Resilience, in turn, can be achieved by either creating redundancy or increasing flexibility. Redundancy is the familiar concept of keeping some resources in reserve to be used in case of a disruption. The most common forms of redundancy are safety stock, the deliberate use of multiple suppliers even when the secondary suppliers have higher costs, and deliberately low capacity utilization rates. Although necessary to some degree, redundancy represents pure cost with no return except in the eventuality of disruption. The authors contend that significantly more leverage, not to mention operational advantages, can be achieved by making supply chains flexible. Flexibility requires building in organic capabilities that can sense threats and respond to them quickly. Drawing on ongoing research at the MIT Center for Transportation and Logistics involving detailed studies of dozens of cases of corporate disruption and response, the authors describe how resilient companies build flexibility into each of five essential supply chain elements: the supplier, conversion process, distribution channels, control systems and underlying corporate culture. Case examples of Land Rover, Aisin Seiki Co. (a supplier to Toyota), United Parcel Service, Dell, Baxter International, DHL and Nokia, among others, are offered to illustrate how building flexibility in these supply chain elements not only bolsters the resilience of an organization but also creates a competitive advantage in the marketplace.
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Managing Service Inventory to Improve Performance
The practice of pushing product by building inventory in anticipation of demand has fallen out of favor in recent years. Many companies prefer to build product only in response to actual demand. This permits firms to avoid costly supply and demand mismatches. Given how successful product-based firms have been with this approach, it is only natural to wonder how it would apply to service firms. Some argue that services cannot be inventoried. Yet this view relies on an extremely narrow definition of inventory as finished product waiting for customers. In practice, the authors say, inventory also serves as a way to store work that functions as "service inventory." As with physical inventories, service inventories allow firms to buffer their resources from the variability of demand and reap benefits from economies of scale while benefiting customers. By using the correct form of service inventory, companies have the opportunity to offer better quality, faster response times and more competitive pricing. Using examples from the travel, hospitality and insurance industries, the authors discuss how service firms can use inventory as a strategic lever in designing and managing service offerings.
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Making the Transition to Strategic Purchasing
This article contends that companies' traditional approach to purchasing misses the function's significant potential to add value by driving innovation and superior long-term cost performance. As a former senior vice president of technical purchasing for BMW, the author oversaw the transformation of the department's mission from functional to strategic, and he offers insights about the transformation. Strategic purchasing, he says, can only be effective if the purchasing department constantly expands and updates its technical knowledge to preserve credibility with both suppliers and internal departments. Toward that end, BMW's purchasing agents spent up to 20% of their time training -- in everything from foreign languages to technical know-how to contract law. In addition, BMW began to hire industry experts and train them as buyers who had as much in-depth knowledge as the suppliers with whom they would be dealing. The author describes how BMW associates become involved at the early concept stage of product development, often suggesting how certain design features will affect the technical equipment at the factory or the level of investment that will be required to execute the design. They also suggest what types of materials, components and systems best meet end-user requirements.
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Hedge Your Offshoring Bets
For companies considering offshoring, there are dangers in taking too narrow a geographical view, say the authors. Every country presents a different mix of strengths and weaknesses. One country may, for instance, have very low labor costs but a high degree of political instability and a small domestic market. Another might offer a wealth of engineering talent but quickly rising labor rates. A third may have robust local markets but intrusive regulatory regimes and a weak transport infrastructure. Currency fluctuations may unexpectedly swell the costs of sourcing from one country, for instance, or a natural disaster may wreak havoc on a critical source of supplies. The authors suggest that offshoring is no different from any investment program that involves choices with widely divergent cost and benefit characteristics in that it makes sense to create a portfolio that balances risk and reward over both the short and long terms. Their research, canvassing 138 manufacturing executives in sectors ranging from automotive to consumer products to technology, confirms the wisdom of a portfolio approach. It reveals that while many companies confine their offshoring efforts to China and India, 96% of cost leaders are active in countries beyond those two, and nearly half of the leaders have offshore activities in three or more additional countries. The authors illustrate their argument with a description of the global outsourcing portfolio strategy of U.S.-based conglomerate Emerson Electric. They conclude with a brief discussion of a number of practical steps executives can take to ensure that their portfolios are constructed successfully.