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Fortune 1000 corporations are beginning to recognize that untapped potential resides within their supply chains. This potential, when extracted, creates strategic competitive advantage for the corporation, impacts the bottom-line, and contributes significantly to customer success. "A recent survey by Deloitte Consulting revealed that 91 percent of North American manufacturers ranked supply chain management as very important or critical to overall company success (although only 2 percent said their supply chains were currently world class)." (1)
Richard L. Pinkerton in "the Evolution of Purchasing to Supply Chain Management," (2) explores the transition from the "passive-reactive purchasing function focused on paper trails and inward orientation to the proactive strategic supply chain concept ...." Pinkerton cites authors D.S. Ammer and V. H Pooler Jr., as among the first to articulate the concept that material savings directly improve profits as a higher leverage factor than merely increasing sales. Dr. David Burt further expounds upon this value proposition in his campaign to inspire firms to pursue World-Class Supply Management.
The issue of how to harness the power of SCM (supply chain management) is creating debate in upper management boardrooms and academic classrooms across the world. Firms need to come to terms with how they are going to improve their competitiveness in the future through SCM. Competition is not just firm versus firm, but chain versus chain (or network versus network). (3)
Raytheon's Case for Action
Like our industry peers, Raytheon has been contemplating "the issue of how to harness the power of SCM ...." Our chief executive officer and other company executives have recognized the pivotal role of supply chain and the organizational benefit to be gained by implementing integrated supply chain management. This acknowledgement in the executive ranks has provided the momentum for Raytheon to accelerate our pursuit of "world-class supply management."
A review of our internal data and performance history revealed that our current supply base was too large for effective management. Poor supplier performance was impacting key programs. There was a lack of alignment with our business plan. There was significant redundancy in certain commodities and single sources of supplier in other areas, creating a high degree of vulnerability. Many new suppliers were being added without valid justification when existing suppliers had the capability and capacity to meet requirements. Our analysis revealed that significant benefits are obtainable through leveraging effective supplier management and proactive supplier development, when we strategically focus our resources on fewer suppliers.
The results from characterizing our current supply base made it clear that a new source-selection process was warranted. We needed to optimize our base to provide a competitive advantage to our company. This analysis also helped our key stakeholders understand the need for conscious redesign of the supply base. Benchmarking data showed that our competition was already engaged in supply base rationalization initiatives and that world-class companies have elevated supply base management to an art form. An extensive literature review validated our hypothesis that "an optimized supply base would result in increased bottom-line performance through improved cost, quality, and schedule." A financial analysis projected savings over a five-year period at $52 million.
What Is Supply Chain Management?
The Supply Chain Management Review defines supply chain management as "the science of integrating the flow of goods and information from initial sourcing all the way through to delivery to the end-user. Key activities within this end-to-end process include purchasing, production planning, order processing and fulfillment, inventory management, transportation, distribution, and customer service."
World-Class Supply Chain Management
Burt provides a four-stage continuum toward "world-class," whereby firms can assess the current state of their supply chain and determine the appropriate process improvements needed to achieve world-class status. (See Figure 1.)
A world-class supply chain
(1) Has "bottom-line impact" and contributes to shareholder value;
(2) Is a core competency;
(3) Is by "design" based on an understanding of key supply industries; and
(4) Incorporates integrated supply strategy, which upon execution becomes an integrated supply chain.
Integrated Supply Chain Management
We define the integrated supply chain (ISC) as the "value-added coordination in the design, execution, and measurement of all the activities that go into satisfying customers." ISC aligns our resources and processes with our suppliers' capabilities to meet the needs of …