TOPIC PRESENTATION: SUPPLY CHAIN MANAGEMENT

"Adapt Your Supply Chain - or DIE"!
(Commentary on article by Hau L. Lee: http://hbswk.hbs.edu/tools/print_item.jhtml?id=4435&t=entrepreneurship)

Prof Lee of Stanford Graduate School of Business proposes that the fluid nature of the new economy requires great companies to constantly, dynamically adapt their supply networks to their changing markets or strategies. I think this dynamic environment leads to high complexity that is best penetrated by professional logistics and supply chain management companies. Because of the complexity of shipping large quantities of raw materials and finished goods over large distances and international borders, professional companies such as UPS, DHL, Fedex, Ryder serve a unique role as supply chain providers for other companies.

Prof Lee posits that a key tactic of supply chain management is to anticipate changes in the supply chain due to economic, political, social , demographic or technological change and adapt. Forms of adaptation include "relocate facilities, chang[ing] sources of suppliers, and if possible outsource manufacturing." Prof Lee cites several key examples of companies that have successfully utilized adaptive supply change management. A prime example would be HP's production and distribution of ink-jet printers. In its first stage of production and distribution, HP set up R&D and production in Vancouver, Washington to serve the national market. As worldwide demand grew, HP second stage was to set up separate production facilities in Europe and Asia. As printer manufacturing matured and became cheaper, HP entered its third stage and completely outsourced production to vendors.

Prof. Lee's Advice:
1. Spot the trend - track economic changes in developing countries to anticipate new markets and possible opportunities for outsourcing. In addition, focus on the consumer needs to prevent extremes of under and overproduction.
2. Change supply networks - constantly develop new suppliers that add value to current suppliers. Use intermediaries in unknown or new parts of the world. Have designers incorporate design features with the supply chain in mind (e.g., design products with common components, ensure components and processes are identical).

UPS Supply Chain Solutions (SCS) (http://www.ups-scs.com/) is a subsidiary of UPS, Inc. that can execute the dynamic supply chains described by Prof Lee. SCS can "encompass every step in producing a product or service and getting it to customers" ( Salter, C. Suprise Package, Fast Company (2004) 79: 62-66: http://www.fastcompany.com/magazine/79/ups.html). In 2004, SCS was 8% of UPS's total business. Although this is not a large portion of a company with greater than $30 billion in revenue, it is the fastest growing division of UPS. SCS has greater than 700 locations worldwide; greater than twenty companies have acquired to expand services. The potential growth of this division can be seen in a trend noted by Northeastern University Prof Bob Lieb: in 1991, 38% of companies used third-party logistics; by 2003, the percentage was 82.

SCS President Bob Stoffel states that UPS-SCS encompasses everything from "your warehouse group, your planning group, your distribution group, your technology group (Salter, C. 2004). In the Fast Company article, an interesting observation is made that SCS does for companies what UPS has been doing for years in its package delivery services. The same services that enabled UPS to track and ship goods and materials throughout the world are the now being put to the use of other companies.

I personally believe that logistics/supply chain management companies such as SCS will continue to be key drivers of a global network of any company. Additionally, these service providers will quicken the pace of competition by providing ready made global distribution networks for regional firms.