Study Prompts Call for Priority On Improving Supply Chain Functions

April 1, 1999
Raising the profile of companies' supply chain functions should be a high priority for chemical industry management, said Nancy Nix of The University

Raising the profile of companies' supply chain functions should be a high priority for chemical industry management, said Nancy Nix of The University of Tennessee marketing department.

"You must get high-level managers on board so that supply chain functions receive as much attention as research and development (R&D) and sales," she said at the 4th annual Chemical Transportation and Distribution Conference January 11-13 in Houston, Texas.

Nix based her remarks on the results of a supply chain study of the chemical industry sponsored by The University of Tennessee and Ernst & Young.

Many companies are beginning to make changes and develop supply management procedures. However, companies aren't getting top-down management support for developing a good supply management focus. "And, resources are very limited," she said.

In addition, 60-80% of industry costs are within supply management. However, the goal is not necessarily to reduce costs, but to develop management skills for growth and value. She estimated an opportunity for cost improvement at 5%-15%, which equates to $20 billion industry-wide. Many companies are still focused on cost reduction while performance management and knowledge management are the most critical areas in this arena, she said.

Achieving growth and value through improved supply management satisfies value to shareholders, she added.

According to the study, few companies are managing the supply chain at the local level. Instead, they are using consultants or other outside firms to handle the operation. "It's hard to go out and get those resources," she added. "Firms say this is a major barrier."

She recommended an executive action agenda for strategy and initiative. Companies should identify major supply chains by market, segment each by customer, and develop specific supply chain strategies. A portfolio should be created for initiatives based on value creation potential.

She warned that many companies underestimate the time required to make changes and develop new programs. She also pointed out that even though companies may be implementing new electronic programs designed to meet the demands for the year 2000, the effort won't provide the solution to supply chain problems "in and of itself.

"You have to understand your company's supply chain before you can manage it. We saw a big need to improve supply chain skills, whether you are training your own people or bringing in people from the outside."

She advised managers to search for forums on the subject and contact university business department professors and professional consultants to obtain useful information and training. "Have patience and persistence, find those who are skilled, and learn to change people's behavior," she said.

Finally, when a program is developed, it should be explained to customers so they can understand its direction, she said.