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Is “Supply Chain function” a critical function to business?

This blog is a representation of my feelings and thoughts about the significance of supply chain as a function. I have been associated with supply chain for little less than a decade now, and based on my experiences and interactions with supply chain practitioners, I feel that supply chain function has slowly started gaining importance in the industry. We know that companies are driven by functions that drive business, get revenue and manage money. And therefore, functions such as Sales, Marketing and Finance have always been the pillars of any organization, independent of its size and scale. Having said that, I feel that over the past few years, supply chain as a function exists as a more formal organization and has grown from a mere supporting function to the one that has a direct impact on a company’s balance sheet. As per one of the articles in AMR Research, the average tenure of a supply chain organization in consumer products is eight years. So, there is still a long way to go from here.

As I understand, supply chain used to exist (may be it still exists today for few industry segments) in a very nascent form with hardly any interaction with business teams. Even, the term ‘supply chain’ has been used by companies in a very ad-hoc manner and each company has understood it in its own way. I remember instances where few buyers in a purchase organization would comprise a supply chain function. As companies grow rapidly without a formal supply chain organization, it develops processes and systems that are inefficient, sub-optimal and costly to maintain. This, in addition to stiff competition, has resulted in having supply chain function taking a lead role in company’s business decisions, and running large business transformation projects. It has helped companies in gaining market share, sales growth and controlling costs.

Let me share a real-life example here to explain my point. Very recently, I spent some time with one of our hi-tech manufacturing clients, which is a global leader in the industry. They have been showing consistent performance over the years in revenue growth and profits, despite an economic slowdown. They are also present globally in most of the countries, as any other large corporation, but have their supply chain processes and systems disintegrated, disparate and regional in nature. I observed that although this company has been pioneer in its industry, the supply chain function has never grown in the same degree. The function had existed in piecemeal and had a much localized presence. Even the designations of people were fairly traditional. The processes and systems lack the ability to provide flexibility and agility that a business environment demands today. But, now they have taken a very serious view of their supply chain processes, systems and organization structure. Their strategic intent is to have centralized global supply chain planning processes with few controls given to regional supply chain teams. They are even mapping their talent pool to the future needs and then analyze the gaps and take appropriate hiring decisions.

To close my viewpoint, I would like to share a data point: I was reading the ‘Global supply chain planning study 2009’ done by Capgemini, wherein one of the survey results is about “perception of supply chain function”. Interestingly, 16% respondents view supply chain as a source of competitive advantage and another 29% consider it as a critical decision-making function. I hope this number improves in future…

So, what has been your experience? Do you feel that supply chain is bound to gain that competitive edge and mature on a continual basis? Please share your experiences and feel free to comment especially if you disagree.

Comments

I have the same view in my SCM blog. In my blog, I have compared SCM against the story of an elephant and five blind men. Those interested to read the article can visit the blog through the given below link.

http://logisticssupplychainforum.blogspot.com/2009/06/this-is-my-first-article-on-scm-in-this.html

In recent trends, the supply chain started spreading its wings through the integration of all related activities from SRM (Supplier Relationship Management) to CRM (Customer Relationship Management).

From my experience, I have noticed that even the major MNC companies who have opted for Supply Chain, have not embraced the SCM concepts with true spirit. They have integrated various departments by sharing the information through ERP packages, but functionally still performing in silos.

The various departments should be integrated functionally in order to take coordinated decision making, keeping the company objectives in mind rather than the department's interest.

Most of the companies failed in integrating the various functions, and it became a big pitfall where SCM as a department failed to meet the company expectation.

Though the concept of Supply Chain has been around for quite some time but unfortunately barring a few industries, it has not been able to get the right focus. The reason, primarily is that there aren't enough high profile qualified Supply Chain Practitioners who can put it on the centerstage of global economy. What I mean to say is that unlike marketing & finance functions, which have been the main focus areas in most industries, SCM has not been able to get similar coveted position so far. Perhaps, we, as supply chain practitioners and leaders, need to usher in a broader understanding across various industries.

Thanks Krish and Shad for your comments. I agree with your viewpoints on why supply chain as a function is not that successful in few industry segments. But I am sure, you would agree that this scenario is slowly changing, though there is a long way to go from here.

I agree to Shad's view. Marketing, Finance and Production are separate functions and their roles and responsibilities are defined within the functional boundary.

SCM is a function which encompasses various departments and their roles and responsibilites may criss-cross with other functions, directly or indirectly.

I can compare SCM profile against the performance of rope-walker as he needs to do a balancing act with a stick. SCM person should be good in interpersonal skills apart from functional skill, to be successful.

As Aatish rightly pointed out, it may take time to evolve SCM as a fully developed function.

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