INTEGRATION PERFORMANCE EXECUTION COMMUNITY FRAMEWORK

THE EIGHT ESSENTIAL

The Global Supply Chain Forum

of The Ohio State University has
identified eight processes that form
the foundation of supply chain success.
The challenge is to integrate these
processes both internally and externally
with key partners in the supply chain. Two of
those key processes — customer relationship
management and supplier relationship manage-
ment — help companies accomplish this integration
and realize the revenue and profitability gains that
inevitably follow.

James O'Brien

18 CH\!N ^I^\.\c;EME^r 2004

SUPPLY CHAIN
MANAGEMENT
PROCESSES By Douglas M. Lambert

u c c e s s t ti I sup ply c h a i n m a n age ni e ti tthe term- Many people consider it to be synonunotts witb

S
requires cross-functional integration of key logistics or with logistics tbat also includes customers and
business processes within the firm and suppliers. Others view supply chain management (SCM) as
across the network of firms that comprise the new tiame for purchasing or operations—or the eomhina-
tbe supply chiiin. It is focitsed on relation- tion of purchasing, operations, and logistics. Increasingly,
ship miinagement and the performance however, executives in leading companies are recognizing
improvements that result. In many compa- supply chain management as the management of relation-
nies, however, executives struggle to ships across tbe supply ebain. They view SCM in terms ot
achieve the necessary integration and, consequently, the business process excellence and as a new way of managing
resulting improvements. The problem is that they don't fully tbe business and the relationships with other members of the
understand the supply chain business processes—and the supply chain.
hnkages necessary to integrate those processes. In this article, we adopt tbe following definition of SC,\1
Drawing from work done by The Global Supply Cbain developed by tbe Global Supply Chain Forum: Supply chain
Forum, this article identifies the eight processes tbat need to management is the integration of key business processes from
be managed and integrated for successful supply cbain man- end user through original suppliers that provides products, ser-
agement. (For more on (he Global Supply Chain Forum, see vices, and information that add value for custo»iers and other
tbe sidebar on page 21.) Two of tbese processes provide tbe stakeholders.
linkages rcqitired to facilitate integration among the supply This view ot supply chain management is illustrated in
chain members to coordinate tbe otbcr processes. These two Exhibit I. It depicts tbe following: a simplified supply chain
ke\ linkages are customer relationship management (CRM) network structure of a manufacturer with two tiers of cus-
and supplier relationship management (SRM). tomers and two tiers of suppliers; tbe related information and
By understantling the key supply ebain management produet flows; and tbe eigbt supply cbain management
processes—and recognizing why and bow tbey should be processes that must be implemented witbin organizations
integrated—supply cbain managers ean sueeessfully position across the supply cbain. All of the processes are cross-func-
their companies for higher reventies and prolitahility. tional and cross-organizational in nature. Further, as the
exhibit illustrates, every organization in tbe su|)ply cbain
Just What Is Supply Chain Manageuient? needs lo be involved in tbe implementation of tbose process-
IJelore [irocccding, it's inifiortant to define supply chain man- es. But at tbe same time tbe exbibit shows tbe corporate silos
agement beeatise theres still a great deal ol contusion over at ibe top, wbicb can work against tbis integration.
In reality, of eotirse, a supply cbain is mucb more cotii-
Douglas M. Lambert is the Rtjymond H. Mason Chair in plex tban tbe row of silos de|)icted in Kxbibit I. For a com-
Transportation cintJ Logislics and Director of The Global Supply pany in tbe middle ol the supply cbain, tbe supply ebain
Chain Forimi al the I ishfr College of Business, ihe Ohio State looks more like an uprooted tree (see Exbibit 2) wbere the
Universih'. This article is adapted j rum his new hooh Supply roots represent ibe supplier network and tbe brancbes rep-
Chain Managcmciil: Proct'sst's. Partnerships, Performance resent tbe customer network. Moreover, tbe supply cbain
(Supply Chain Management Institule, 2004). Far more in/or- will look differently depending on a company's position in it.
mation, visit u'ww.sem-institutf.org. For example, in tbe case ol a retailer, like Wal-Mart, tbe

Suppi^ CHAIN MANACEMEIVT R h v n u • SipirviUKn 2004 1 9

Processes

EXHisrr 1 conciuded that they cannot

optimize product Hows with-
Supply Chain Management Players and Processes out first i m p l e m e n t i n g a
Information Flow
process approacb to tbe busi-
ness. Yet while s e v e r a i
authors have suggested imple-
menting business processes
in tbe context of suppiy cbain
management, tbere is not yet
an "industry standard" on
what tbese processes should
Customer Relationship Management
be. Tbe value of baving stan-
Customer Service Management dard business processes in
Demand Management
plaee is that managers from
organizations across the sup-
Order Fuifiliment
ply chain can use a common
Manufacturing Flow Management language and can link up
Supplier Relationship Management
their companies' processes
with tbosc oi the other supply
Product Development and Commercialization
ebain members.
Returns Management
Tbe eigbt key supply cbain
management processes iden-
tified by members oi Tbe
Source: Adapted from Douglas M Lambert, Martha C. Cooper, and Jarus D. Pagh, "Sjpply Chain Management: Implementation Issues and
Research Opportunities,' The InternalionalJournal of Logistia Management, Vo\.'), No. 2 (1998), p. 2.
Global Supply Cbain Forum
(as shown in Exbibit I) are:
end consumers would also be the "tier-1 customers" next to • Customer relationship management.
the dark square in the center (indicating the iociil company, • Customer service manageirtent.
Wal-Mart). • Demand management.
Managing the entire supply chain—that is. managing ail • Order fuifiliment.
suppliers baek to the point of origin and all products/serviees • Manufaeturing flow management.
out to the point of consumption—<;an be a daunting task. So • Supplier relationship management.
most exeeutives tend to Foeus on managing their supply • Product development and cummerciali/ation.
chains to the point oi consumption. The reasoning here is • Returns iiianagcment.
that whoever has tbe relationship with tbe end user has tbe Customer Relationsbip Management, ihe CM^M process
power in tbe supply ehain. Intel, for example, created a rela- provides the structure lor how reiationsbips with eustomers
tionship with tbe end user by having computer manulactur- are de\'elopcd and maintained. Throtigh this process, man-
ers plaee an "Intel inside" label on their eomputcrs. This posi- agement identities key customers and ctistomer groups to be
tioning also affects the computer manufacturer's ability to targeted as part of tbe firm's business mission. Ibe goai is to
switch microprocessor suppliers. Yet while most of tbe focus segment eustomers based on their \alue ()\er time and to
to date has been downstream, opportunities exist to signifi- increase customer loyalty by jiroviding customized products
cantly improve profits by managing the upstream sLi|iplier and services appropriate to tbe particular value proposition.
network as well. Leaders in this process create cross-lunetional customer
At the end of tbe day, a supply ehain is managed link by teams to tailor product and serviee agreements (PSA) that
link, relationship by relationship. And tbe key linkages in meet the needs of key aecoimts and customer segments and
all ol these activities are formed by tbe customer relation- document how the two firms will engage in business. Tbe
sbip management (CRM) process of the seller organization i-'SAs sjiecily levels ot perlormance lor the lirm. They also
and the supplier relationship management (SHM) process provide the hasis for jierformance reports thai measure the
of ihe buyer organization. C R M and SHM are tbe tools the profitability of individual customers as weli as the firms
supply ehain manager uses to bring tbe eigbl key processes financial impact on (he customer's financial periormance.'
togetber. CRM teams will then work wiih key customers to improve
processes and eliminate demand variability and nonvalue-
The Eight Key SCM Processes added actixities.
Suecesslul supply ebain management re(|tiires a cbange from Customer Service Management. Ibe customer service
managing indi\iclual lunctions to managing a set oi integrated management process represents tbe company's faee to the
processes. In many leading corporations, management bas customer. It is the key point ot contact for administering the

2 0 Suppi.i C H A I N M A N A C : I; M K N T R I - V I K W • S n - r r M H I n 2 0 0 4 www. scmr. com

 EXHIBIT 2
The Supply Chain Network Structure
Tier 3 lo Tier 3 to
Initial Tier 2 Tier 1 Tier 1 Tier 2 Consumers/
Suppliers Suppliers Suppliers Customers Customers End Users
Focal Company Members of the Focal Company's Supply Chain
Source: Adapted from Douglas M. Lambert, Martha C. Cooper, and Janus D, Pagh,
"Supply Chair Management: tmplemeniation [S5jt5 arid Research Opportunities,'
The Internat'ionalJournal of Logistics Management,Vo\. 9, No, 2,1998, p. 3,
PSAs developed by customer teams during tbe customer rela-
tionship managemetit [process. Customer service provides the
customer with real-time information on [lromised shi[i|Mng
dates and produet availability through ititerfaces with stich
lunctional areas as manulacturing and logistics. Tbe cus-
tomer service process may also include assisting the customer
witb protltict ap|)licatiotis.
Demand Managemetit. DemaiKl management is the
process tbat balances customer re(.|uirements witb sitpply
cbain capabilities. With tbe right process in place, manage-
ment can matcb supply with demand proactively and execute
the plan wilh minimal disrtiptions. It is important to note
that this prcjcess is not limited to forecasting. It also includes
synchronizing supply and demand, increasing llexihilJty, and
reducing variability. Demand management entails controlling
all of those practices that increase demand variahility, includ-
ing end-of-qtiarter loading and terms of sale that encourage
volume btiys. A good demand management system uses
point-of-sale and key customer data to reduce uncertainty
and provide efficient flows tbrougbout the supply ebain. It
also effectively coordinates marketing retpiirements and |iro-
dtiction [ilans.
Order Fulfillment. Ihis suppK chain |>rocess involves
more than just tilling orders. It also eneompasses all activities
necessary to define customer re(;|uirements. design a net-
work, and enable a firm to meet customer retjuests while
minimizing tbe total delivered cost. While tnttch of the actual
order ftilfilhneiit v\ork will be performed by tbe logistics func-
tion, the process needs to be implemented cross-functionally
www .scnir.torn
and coordinated witb key suppliers and customers. Tbe
objective is to develop a seamless system frotn tbe supplier to
the firtii, and iben on to the various customer segtnents.
Manufacturing Flow Management, Manufacturing flow
management includes all activities necessary to obtain,
implement, and tnanage manufacturing flexibility in tbe sup-
ply cbain and to move products through tbe plants. Ibe abili-
ty to make a wide variety of products in a timely manner at
tbe lowest possible cost is a reflection of tbis process, 'lo
acbieve tbe desired manufacturing flexibility level, planning
and execution must extend beyond tbe four walls of tbe man-
ufacturer and oul to tbe supply cbain partners.
Supplier Relationsbip M a n a g e m e n t . Ibe SRM process
provides tbe structure for bow relationsbips witb suppliers
are developed and maintained. As tbe name suggests, tbis
process is a mirror image of customer relationsbip manage-
ment. And as is tbe case for CRM, it involves developing
close relationsbips wiib a small subset of suppliers based on
tbe value tbat tbese suppliers bring to the firm over time.
Note tbat tbese are long-term relationships tbat provide win-
win outcomes for botb parties. For eacb key supplier, tbe
firm should negotiate a |)roduct and service agreement tbat
defines tbe terms of the relationsbip. For less critical suppli-
ers, tbe firm sbould follow tbe more traditional approacb of
simply providing tbe PSA, which iti most cases would he
non-negotiable. In sbort, supplier relationshi|) management is
abotit defining and managing tbese PS.As,
Product D e v e l o p m e n t and Commercialization. Ibis sup-
ply cbain management process provides tbe structure for
working with customers and suppliers to develop products
antI bring them to market. F^^lfective itnplementation of tbis
process not only enables management to coordinate tbe effi-
cient flow of new products across tbe supply cbain but also
bel[)s otber members of ibe supply cbain to ramp up matiti-
facttiring, logistics, marketing, and other activities necessar\'
to support product commercialization. A product develop-
ment and commerelalization process team would work with
CRM process teams to identify ctistomer needs (botb articu-
The Global Supply
Chain Forum
The Global Supply Chain Forum of The Ohio State
University is a group of noncompeting firms and a team of acad-
emic researchers that has been meeting regularly since 1992.
The group's objective is to improve the theory and practice of
supply chain management.
The member companies of the Global Supply Chain Forum
ar-e 3M, Cargill, The Coca-Cola Company, Colgate-Palmolive
Company, Defense Logistics Agency, H e w l e t t - P a c k a r d
Company, I n t e r n a t i o n a l Paper, L i m i t e d Brands, Lucent
Technologies, Masterfoods USA, fVloen Inc., Shell Global
Solutions I n t e r n a t i o n a l B.V., Taylor Made-adidas Golf
Company, and Wendy's International.
M AN A ( i i .VI h \ r Ri.viKW • SFLPTF:MBI.H 20(14 21
Processes

hiR'd iiiid uniirliculalL'd), willi ihf SRM [M-OCCSS tciims lo
select tnaterials and suppliers, and wilh ihe manLikicturinj;
Flow maniiuement process team to develop prodLiction [(.'cli-
nology appropriate to the prodiiel/inarkel fomhination.
Returns Managetnent. Rett.rrns nKiiuijj,emenl is ihc process
l)\ uhicli acli\ilic's associaled with returns, reverse logistics,
"giitek(.'epi[ig, ciuil return avoidance are managftl within the
firm and aeross key members ol the sii|)piy ehain. Avnidanee.
whieb is a key jsart of this process, involves finding ways to
minimize the numher of return requests. It ean include
ensuring that the [iroduct s t|uality iintl user Iriendliness are
at the liighest attainahle level before the [iroduct is sold antl
shipped. Avoid.ince could also entail changing promotional
[jroj^rams that load the pipeline when there Is no realistic
chiince that ihe |ir(xluet shipped will be sold. Properly imple-
mented, then, the returns management process enables firms
not only to manage the reverse product How ellieiently hut
also to identify opportunities to reduce UTiwanted returns and
to eontrol reusable assets such as containers. Effective
returns management is an important part ol SCM and pro-
vides an opportunity to achieve a sustain a hie competitive
advantage.
Kach of the eight sup|i!y chain maniigemcnt processes hiis
hoth strittegic and operational elements—that is, a strategic
element in which the firm establisbes and strategically man-
ages the process and an operational element in whieh the
lirm executes tbe process. The strategic elements should he
led by a management team eomprised of representatives from
multiple fimctions ineluding marketing and sales, finance,
produetion, [purchasing, logistics, ami research and develo|)-
meiit. This team is res|)onsihle lor tlexeluping the proeedures
at the strategic le\el and seeing that they are implemented.
I h e strategic leam also identifies how the external partners
will he integrated into the supply chain. The operational
eomponent of eaeh proeess. v\here tlie day-to-tia) acti\itics
take plaee. is exeeuted h\ the managers within eaeh lunetion-
al area.
Lxhihit ^ shows how ihe husincss kmctions within the
organization provide input to the eight supply chain manage-
ment proeesses. In the customer relalionship management
process, for example, marketing and sales pro\'idcs the
aecount management expertise, engineering provides the
spccilieations, logistics provides knowledge of logistics and
customer service eapahilities, manulacturing provides the
manulacturing ea|iabilities, purchasing provides knowledge of
sujjplier capabilities, and iinance provides customer prof-
itahihty reports. Customer service requirements must he fac-
tored into ihc manufacturing, sourcing, and logistics inputs.
Customers and suppliers are shown as hookcnds on the
exhibit to reinforce the point that each ol these processes, to
he properly implemented, requires the in\()lvemcnt of cus-
tomers and suppliers.
CRM and SRM: The Critical Linkages
Customer relationship management and supplier relation-
ship management provide the critical linkages throughout

EXHiBrr3

Functi anal Input to the Supply Chain Proce SS

Business FunctionsH^ Marketing & Research & Logistics Production Purchasing Finance
Sales Development
Business Processes

f Account Requirements Logistics Manufacturing Sourcing Customer

Customer Relationship
Management Management Definition Capabilities Capabilities Capabilities Profitability

Customer Service Account Technical Performance Coordinated Priority Cost to

Management Administration Service Specifications Execution Assessment Serve

Demand Demand Process Manufacturing Sourcing Tradeoff

Forecasting
Management Planning Requirements Capabilities Capabilities Analysis

Special Environmental Network Made-to-Order Material Distribution ^

2 Order Fulfillment
Orders Requirements Planning Capabilities Contraints Cost S
"a. c
Q. o
Packaging Process Prior ttization Production Integrated
^ Manufacturing Flow Manufacturing =
Specifications Stability Criteria Planning Supply
Management Cost

Supplier Relationship Order Material Inbound Integrated Supplier Total

Management Booking Specifications Material Flow Planning Capabilities Delivered Cost

Product Development Business Product Movement Process Material

R & D Cost
& Commercialization Plan Design Requirements Specifications Specifications

Product Product Reverse Remanu- Material Revenue &

Returns Management Design Logistics facturing
Lifecycle Specifications Costs

2 2 S l I M ' M C l l \ l \ M A N A C K M I N V R i V l l V V • S l . P I F M R I R 2 0 0 4 www ,S(.'nir,i'i)m

Processes
IIK' sLipply ch.iin. As dcpiLlctl in Exhibit 4, ior (.-ath siipplicr
in the supply chain the ulUmalc measure ol suecess ot the
CRM process is the change in profitahility of an individual
customer or segment ot customers. Por each fiis/oii/cr. the
irue nifasurc of success of the SRM process is the impact
thai a supplier or supplier segment makes on that eustomer's
[irolitahility. ( \ ' o t e ihat in eases where commodities or
undiffercntialcd components are heing bought for inclusion
in another product, it makes more sense to do a total eost
report than a specific profit-and-loss statement for each
commodity/component.) The goal is to increase the joint
profitability by de\'el<)ping the relationship. Accordingly, the
overall performance of the supply chain is determined by the
combined improvement in prolitability ol all nii'mbers Irorn
t)ne year to the next.
EXHIBIT 4
CRM and SRM:The Critical Linkages
Supplier Manufacturer Wholesaler/
D C Distributor B
P&L Total Cost P&L P&L
for C as Report for B as for C as
Customer for D as Customer Supplier
Supplier
Let's begin by eonsidering the CRM linkage. Companies
typically spend large sums ol moncv' to attract ncv\' cus-
tomers, ^et these same eomjianies often are complacent
when it comes to nurturing and strengthening relationships
with existing ctistomcrs.- In most cases, hov\cvcr. existitig
customers rcjiresent the best opportunities ior prolital^lc
growth. In faet, studies sbow strong, direct rciationsbips
between prolit growth and customer loyalty, eustomer satis-
faetion, and the value of goods delivered to customers.^ CRM
|ii'o\ ides tbe structure lor leveraging
tbcsc t|ualitics and evaluating tbc prol-
itability—and potential profitability—
ol indiv idual eustomers. Aeting on tbis
evaluation, cross-lunctional customer
teams can taihir product and service
agreements to meet the needs of key
accounts and customer segments."^
PSAs document how the two firms
will engage in business- For key customers, llie PSAs are cus-
tomized; for segments of otbcr Ltistomers, stantlard values arc
used for each element of the agreement. PSAs come in many
forms, both formal and informal, and mav be referred to by
different names from company to company, fo achieve the
desired results, however, they need to be lormali/ed as writ-
ten doctiments. 3NT for example, has comprebensive, written
PS,\s that inelude tbe following: eontaet information inelud-
ing name, tide, telephone number, and e-mail address lor
both .-^M and tbe customer representatives; all ol tbc details
2 4 S L I'I'M (.' II VI \ \1 V \ \(.l M I \ I I! I V I
related to trans|iortation incltitling deli\eries, order mini-
mums, driver instructions, will-calls, and appointments; bill-
of-lading instructions; pallets to be used; purchase-order con-
firmations; order-status information: details related to prieJng
inquires; availability of market-development funds; marketing
promotional allowances; acceptability of haek orders and bow
tbey will be handled; and contract terms.
Supplier relationship management is the mirror image oi
cttstomer relationship management. Remember that all sup-
pliers are not the same. Some contribute more to a firm's
profitability than others. Its important to ha\e en)ss-func-
tional teams that interact elosely with these high contribu-
tors. Tbe strategie relationship sbould be led by a manage-
ment team responsible for developing strategies and seeing
tbat they are implemented. At tbe operational le\el. teams
are established for each key supplier and for eaeb segment of
nonkcy, or less eritiea!. suppliers. I'hese teams are eoniprised
of managers from several funetions, including marketing,
finance. R&D, produetion, purehasing, and |{)gisties. While
employees who arc not members ol the S H \ ! teams may he
Retailer/ involved in e.Kecuting the activities, the teams maintain over-
End User A
all managerial eontrol of the process. (I he same holds true
for the CRM |iroeess,l
P&L P&L
Criven the current emphasis on business etbies, both the
for A as for B as
Customer Supplier C'R.M and SR\f teams need to have an agreement up Irorit
on what lypes ol data will be shared. Teams need to be mind-
lul ol the line line betv\een using proeess knowledge vs.
using specific competitive marketing knowledge gained from
a ctistomer or supplier. In a similar vein, individuals should
not he put in a position where they are working on teams
involving competing suppliers or eustomers. The reason; Its
iust too diilicult to kce[i the tv\)) sets of relationships and
PSA tliscussions separate and distinct.
lSup|ily ehain managers shouki note that CRM ami Sf-{M
themselves have seveii subprocesses, which are not addressetl
in this artiele. These subproeesscs are dillercntiating CLIS-
Profitability reports that capture all
of the costs and revenue implications
of a relationship are the key to tracking supply
chain process improvements over time.
tomers/su[)(iliers; preparing the account/segment management
team; internally reviewing tletails related to the business con-
ducted; identifying opporttmities lor sales grov\th, eost reduc-
tion, and service improvements; developing the product and
service agreements; implementing the product and ser\iee
agreements; and measuring performanee and generating prof-
itability reports and total cost reports as appropriate.)
In addition to linking partners across tbe sufiply cbain, the
CR.M and SRM processes coordinate each of the other si.x
processes. Any improvements made in these processes are
I I \ l l i l li 2004
 in customer iind su|>[ilii_'r |ir<iliLal)ility rcpiirts. For EXHIBIT 5
il the CRM and SRM Icjiiis idcnlily an opportunity
t(t imiinnc' pcrlormancc by focusing on demand management, Sysco Sales and Earnings History
the\' iTihirm the demand management process teams from the Sales Net Earnings
(Billiors) (Millions)
two companies. If those teams do impro\c the demand man-
30
agement proeesji, then product availability imprcnes—which 5 Year CAGR:
Sales = 11.3%, Net Earnings = 19.1%
increases revenue for the customer and the supplier. In addi- 800
25 10 Year CAGR:
tion, better demand planning could reduce inventories, thereby Sales = 10.1%, Net Earnings = 14.5% J 700
lowering tbe inventory- cam-ing cost cbarged ro the customer's
20 20 Year CAGR: jj 600
profitability report. There also may be fewer last-minute pro- Sales = 14.6%, Net Earnings = 16.0%
/ / 500
duction changes and less expediting ot inbound materials, 15 Sales ^ ^ Net Earnings
which will decrease the costs assigned to each customer. For /^ 1 400
these improvements to he realized, measurements must be in
place to motivate and compensate team members.
•^ 200
Having aceurate customer prolitability reports is tbe key to 5 -
100
tracking these kinds of process improvements. These reports
0 - ^""^""^^^^ 0
enable the CRM process teams to traek performance over time
'70 '75 '80 '85 '90 '95 '00 '03
across all of the supply chain processes. Good profitability Source: Neil Theiss, senior director, Supply Chain Management, Sysco Corp.
reports relleet all of tbe cost and revenue implications of the
relationship. Variable manufacturing costs are deducted Irom [lating member of tbe Global Supply Chain Forum, offers a
net sales to calculate a manufacturing contribution. Next, \ari- good example of bow tbis can be done effectively. I his inter-
able marketing and logistics costs, such as sales eommissions, national provider ol food and agricuftural products worked
transportation, warehouse handling, special packaging, order vvitb a key customer to develop a method for sbaring sup|ily
processing, and account receivable cbarges, are deducted to ebain benefits tbat inct)rporated tbese elements:
calculate a eontribution margin. Assignable nonvariable costs, • An agreement in principle on a fair allocation ol bene-
sueb as salaries, customer-related advertising expenditures, fits. (Sbouid it be 50/50, 60/40, or some otber breakdown?)
slotting allowances, and inventory' carrying costs, are subtraet- • A timeframe for benefit sharing. (Sbouid it be for tbe
ed to obtain a segment-controllable margin. Tbe net margin is fife of tbe agreement, for five years, or re-assessed annually?)
obtained after deducting a charge for dedicated assets. These • A decision on w bat benefits/costs to include.
statements contain opportunity costs lor in\estment in reeeiv- • A fair apjiroacb to bandling ca[iital expenditLire costs.
ables and inventory' as well as a charge for dedicated assets, in • An accurate baseline to use as a starting point lor mea-
this sense, tbey are much closer to cash-flow statements than a suring sav ings.
traditional profit-and-foss (P8rL> statement. • A comm{)n process to measure value captured.
Sysco, a $23.4 billion food distributor, began implement- • A benefit reviev\ and approval procedures,
ing profitability reports by customer In \9'~)9 with great suc- • A mechanism to accrtie and transfer value Iwbere, how,
cess. Tbcse reports bave enabled management to make how often, and so forth).
strategic decisions about the alloeation of resources to • A methodology re\iew.
accounts, f he li\t'-year cumulati\e annual growth rale The process improvement teams from both companies
(CAGR) for the period 1499 to 2003 was 1 1.3 pereent for agreed that benelits deri\ed from su]ipfy cbain initiatives
sales and 19.1 percent for net earnings. As sbown in Exhibit must f)e explicitk' recognizetl in supply cbain project out-
S, net earnings growth improved shar|ily after the [jrolitahility comes (l(jr e.xamplc. redtieed freigbt. iov\er invcntorv-earr\ ing
reports were im|ilcmented. costs, and redueed transaction costs). Additionally, tbese
benelits must be in excess of a pretfetermined baseline for
One Success Story each area. They ftirther agreed that the costs to f)c consid-
Management should work to implement proeess improve- ered sfiotifd (I) directly relate to recommended stippK chain
ments that increase the profitability ol tbe total sup|ily cbain, initiatives (capital costs, transaction costs, system-related
not just tliat ol a single firm. This means encouraging actions costs, and so lorth); (2) the addition or deletion of fuli-time
that henefit the entire supply chain while, at the same time, employees (not the increase or decrease in the v\orkload of
etjuitably sharing the risks and the rev\ards. It's especially existing employees): (3) be greater than an agreed-iipon mini-
important lo develop clear guidelines fOr sharing tbe rev\ards. mtim dollar amount: and i,4l be ftilK' ditcumentcd. I he two
If any one of the parties perceives that its not gaining any- companies decided that a 50/50 split ot benelits was in keep-
thing from the process improvement efforts, it v\ill be diffi- ing with the overall partnership. Plus, they lelt that this
cult to obtain tbat party's full commitment. arrangement wotild motivate botb [larties tcj maximize tbe
The CRM and SRM teams must (|uantif\- the benefits of opportunities vvbile acknowledging that neither partv eould
process improvements in financial terms. Cargill, a partici- have achieved the savings without the other.

Su I'!• I Y CIIVI \ M \ I Rl \ I I W • SFL P T l M II I I! 2 0 0 4 25

Processes

Ciirgill's manajtcmfiU hdicxcd thai it was Importaiil ti> idcn-

thus improving per-unit [inilitahilit). Six \cars later, the man-
tiR- the ran^f ol llu' cApcelations that each icani hroiight to the
ufacturer had not seen the anticipated inventory reductions
project. This would help hoth parties reach iifirt'cmcni on realis-
and redueed the serx'iee promise to 48 to 72 hours. Vel the
tic and nuitLKilly henefieial ohiecti\es in sueh areas as proeess reason llial the rapid delivery system never aehie\ed its lull
elliciency, growth/proiit stabilit\'. c{)sts savings, improxed cus-
potential was that the manufaeturers sales and marketing
tomer senice. orjiuni/ational alif^nmcnt, and mclrics. organization was still |iro\iding eiistomers with ineentives to
The key lessons learned Irom Cargills e.xperience can he hu\ in large volumes.'' ()])\ iously, the husiness proeesses ol
summarized as lollows: this company were nol integrated and coordinated.
• Gain sharing agreements need to he tletcrminctl at the This example should make it clear that lailure to manage
outset so that it doesn t untlermine the accomplishment of all the touehes hetween suppk chain partners will diminish
the joint oh|eeti\cs. the impaet of any suppK chain in[tiati\e. Conversely. im|ile-
• Working het\\ecn internal husiness units is (.hallenging menting the eight sLip|ily ehain management [processes
enough. \ \ hen yoti add into the mix cxtei'na! trading partners, iiiereases the likelihootl of success because all kmctions as
the challenge intcnsilies hecaiise ol issues ot trust, eulture. well as all key eustomers and suppliers—v\ill lie involved in
jirocess, and systems Cii|iahilily. tbe initiative's planning and im|'>lementati{>n. This was cor-
• Skeptics ahounti; success ret]Liires tocusetl leadership rob{)rated at tbe Spring 2004 meeting oi Ibe Cllobal Supply
and management support. C'bain Forum, wliich featured a series of breakout sessions
• Partnerships work; they may take a while to develop, devoted lo tbe topic. ""Ihe Supply Chain of the Future," At
hut they work. Once trust is established, hoth ]iartics will the entl oi the day, the group concluded that if an organiza-
lind numy opportunities to learn Irom eaeh other. tion can sueeessfully implement all eight of the processes, it
• Hvcrynnc involved in this initiative enhanced their will have reaehed that supply chain of the luture and he ah!e
knowledge and capabilities, which will pni\e ad\antageous in to respond to whatever ehallenges the husiness might lacc-
future initiatives. 1 las your company successfully integrated the eross-lune-
As reflected in the Cargill e\aniple. the eustonier relation- tional business processes descrihed in this article- If the
ship management and supplier relationship management answer is anything les.s than an unqualified yes, then y{)u re
processes do a numiier of important things at the strategic not creating the most value for your shareholders and vour
level. Specifically, they identify eustomer and supplier seg- sLi[iply ehain partners. The time for aetion is now ,
ments, provide criteria for categorizing customers and suppli-
ers, provide teams with guidelines for cust(jmi/ing product Author's note: Ihe uuthoT ivuidd tike- to acknowledge the contri-
and senice offerings, dexelop a iramework for metrics, antl huliiiii nj ihe members oj The Gloha! Sitpfyh (^Jiaiii Foniui at
offer guidelines for sharing process improvement benefits. At I lie Oh'id State University whose practice, iiisii^ht. idens. mid
the operational level, these processes mainly focus on writing conniicnts hai'c cinitvibutcd sioujfjcuiith to (/(i,s iirticlc. CS3D
and implementing ihe prncluet and seniee agreements.

How Are You Doing? Footnotes

f^csearch among the participants ol the Cllobal SuppK C'hain
f-orum shows that successful supply chain management
requires the integration of eight key business proeesses—
both internally and exlernally with key members of the supjily
chain. W h e n that necessary integration is nonexistent or
insuflieient, resources are wasted and supply ehain perfor-
mance suffers.
^Lambert, Douglas M., and Terrance L, Pohlen. "Supply Chain
Metrics." The International Journal of Logistics Management Vol.
12, 1^0. 1 (2001): pp. 1-19.
^Barry, Leonard L., and A. Parasuraman, "Marketing to Existing
Customers/' Mari<eting Services: Competing Tiirougii Quality.
New York, PJY: The Free Press, 1991, p 11.

Failure t(i ini|ilenient those cross-functional business
prueesses can also result in missetl ojiportunities antl poor
decisions. I h e following real-lile example illustrates the
point. A manufacturer of consumer durable goods imple-
mented a rapid deli\'ery system that pro\ided retailers with
deliveries in 24 to 4S hours anywhere in the United Slates.
The system was designed to enable the retailers to im|iro\e
seniee to their consumers while holding less in\enlor\ and
^Heskett, James L., W. Earl Sassser, and Leonard A. Schlesinger.
The Service Profit Ciiain, New York, NY: The Free Press, 1997, p.11.
•^Seybold, Patricia B. "Get Inside the Lives of Your Customers."
Harvard Business Reviev\/yo\. 78, No. 5 (2001): pp.1-17.
^Lambert, Douglas M, and Renan Burduroglu. "Measuring and
Selling the Value of Logistics." The International Journal of
Logistics Management Vol. 11, Mo. 1, (2000): pp. 1-17.

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