Wednesday, December 5, 2007

Defining Supply Chain Management - Who's Right? Who Cares?

Ask twenty people to describe supply chain management, you get twenty different answers. For a concept that has been around since the 1960s (p. 42-43, Pennsylvania State University as integrated logistics) and a term that appears to have been introduced in the early 1980s – you would expect more consensus. [Dan Gilmore -Supply Chain Digest Question / Answers and Gene Tyndall (Supply Chain Management Review Leaderboard Blog) have talked about the origin of the term. Keith Oliver, of Booz Allen Hamilton, claims to have coined the term but according to the Global Supply Chain Group it was Dr. Wolfgang Partsch (a snow chain derivative?)

I found the Oliver story to have the ring of truth.

“He began to develop a vision for tearing down the functional silos that separated production, marketing, distribution, sales, and finance to generate a step-function reduction in inventory and a simultaneous improvement in customer service. Looking for a catchy phrase to describe the concept, the consulting team proposed the term integrated inventory management. In a sure sign that consultants should not be allowed near promotional issues, the group expressed confidence that the world would adopt the sophisticated-looking abbreviation I2M. . . “We’re talking about the management of a chain of supply as though it were a single entity,” Mr. Oliver replied, “not a group of disparate functions.”

‘Then why don’t you call it that?’ Mr. Van t’Hoff said.

‘Call it what?’ Mr. Oliver asked.

‘Total supply chain management’”

A June 4, 1982, an article in Financial Times ran an article by Arnold Kransdorff on Booz Allen’s “rather grandly titled supply chain management concept.” When I read the story, I laughed a bit. The meeting where the conversation took place was apparently at Phillips (consumer electronics) and my first thought was that it appeared that Mr. Van t’Hoff (Phillips) coined the term. Booz Allen was certainly a major contributor in popularizing the term if they didn’t invent it.

Why does the definition matter? First and foremost, the definition provides the context for communication. When talking to a partner (supplier, customer), when talking to a colleague (finance, IT, manufacturing, logistics, purchasing, warehousing, etc.) it sets a framework for discussion. As a practitioner, it shaped where I looked for business solutions. The term “supply chain” was and is the equivalent of a password that tells you that someone is conversant with the approach that you are trying to understand or adopt. When I looked for management best practices that were “cross-functional” I could qualify my sources by their use of the term “supply chain.”

Unfortunately, for me, when I discovered supply chain management there were far fewer resources than there are now. I don’t think the term supply chain was used when I completed my MBA even though a number of our research projects were, in hindsight, specific to supply chain. Supply chain was just emerging as a “hot topic in professional organizations (Council for Logistics Management – now CSCMP, APICS, and the National Association of Purchasing Management – now ISM). There is a great snapshot of the state of the art of defining supply chain management, in 2001, in the Journal of Business Logistics – although very academic. (This article is what led me to discover Jay Forrester’s contributions. I found another foundational article – less academic in the Journal of Air Force Logistics which helps put supply chain into business management history context). Relatively early in my investigations I found Penn State’s Center for Logistics Research (now Center for Supply Chain Research).

Besides professional organizations and academia, I had another source of readily available information – the solution providers. Consultants and software companies alike had recognized the emerging market for supply chain solutions. Each had a unique solution. Each had a unique definition. What seemed to be common was each solution provider seemed to define supply chain management in terms of specific industry application. There were unique solutions, definitions, and language for every industry (CPG, retail, aerospace, chemical, electronics, pharmaceuticals, etc). Not surprisingly, the solutions and industries were based on reference accounts. Originally I thought that the greedy and evil consultants and software providers deliberately fragmented the supply chain market to protect or grow their business. Although I still think that is true (to some extent), it is also true that every practitioner thinks that his industry is unique.

The problem that I encountered in the 1990s is not too different than the one today, although there is a lot more information. Definitions come from the IT / technical community, professional organizations, academia, and consultants. A web search for supply chain management definitions returns more than 200,000 hits. How does the practitioner determine which one to use or if, in fact, one is better than another? Perhaps an equally compelling question is should we be looking for supply chain solutions or value chain solutions? Is there a difference?

I think addressing the differences between logistics, supply chain management, and the value chain, at least from my perspective, allowed me to evaluate best practice, technology, and partners. That will be the subject of the next entry.

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