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November 2005 Pioneering Supply Chain Forum Turns 10by Andrea Orr What began as an informal gathering to discuss supply chain dynamics is today a network that addresses the most successful means of bringing goods to the market.
Ten years ago Amazon.com opened its virtual doors offering a new business model for selling books that would spur countless copycats and usher in an entirely new way to sell merchandise online. Since then, Amazon and its founder, Jeff Bezos, have often been hailed for the genius of recognizing the young consumer-focused internet as a retail sales platform that could slash a company’s operating expenses and expand its customer base almost exponentially. But Hau Lee, the Business School’s Thoma Professor of Operations, Information, and Technology, says that Amazon’s real insight was in building an internet business that was solidly backed by a brick-and-mortar network of warehouses and distribution centers. While other online retailers slapped up businesses with little more than a website and a link to the manufacturer’s warehouse, Amazon took direct control of the merchandise it was selling in a way that would enable it to offer superior customer service while easing its expansion into other product categories like the toys and gardening tools it sells today. “The fascinating thing about Amazon is it is supposed to be an internet company, but they make use of brick and mortar very well,” Lee says. “Because they built several warehouses, they were able to sell a lot more than books. They combined the old economy with the new.” At the same time Bezos was launching Amazon, Lee was founding the Stanford Global Supply Chain Management Forum as a research institute bringing together academics and business leaders to understand successful supply chain practices in an increasingly fast-paced and global business environment. Looking back over the past decade, Lee, codirector of the forum, says that Amazon provides a wonderful example of how a company can transform its business and trounce the competition through effective supply chain management. The behind-the-scenes networks of manufacturing plants, distribution centers, transportation systems, and even central design operations, supply chains do not always receive a great deal of attention. Even big companies sometimes neglect to fine-tune their supply chains or put contingency plans in place to respond to manufacturing or shipping disruptions caused by natural disasters, local health epidemics, terrorist attacks, strikes, or bankruptcies. But mastering the supply chain is critical to ensuring a steady flow of goods and can also be the key to gaining advantage over rival businesses in extremely competitive markets, notes Lee. He cites the example of the Mexican cement manufacturer Cemex, which was able to grow its market share by incorporating road traffic technology to slash its delivery window from 2 hours to 15 minutes. Sixteen years ago, the Business School organized an informal gathering of students, academics, and local businesses including Sun Microsystems and Apple Computer to explore ways to strengthen supply chains. The discussion turned into a regular event and in 1995 the Stanford Global Supply Chain Management Forum was officially set up to develop and teach better supply chain practices for an increasingly global business environment. “We were the first group of its kind,” says Seungjin Whang, the forum’s codirector and the Jagdeep and Roshni Singh Professor of Operations, Information, and Technology at the Business School. “Without our leadership, this focus on supply chain practices may never have happened.” In early June, the group held its 10th annual symposium and hosted presentations on the latest supply chain practices from 13 global businesses including Intuit, Amazon, Cemex, and the Gap. Much of the discussion at the recent symposium focused on the ways globalization and technology have accelerated the business cycle and made efficient and nimble supply chains more important than ever. Software and other communications technology enabled by the internet have the power both to ease supply chain disruptions and to magnify the impact of a local disruption so that it is felt the world over, said speakers. Mark Roenigk, vice president of supply chain operations at the tax preparation software maker Intuit, noted that his company’s supply chain was so susceptible to unforeseen events that it has started to focus less on market forecasts and more on technologies that will make its manufacturing faster and more flexible. This kind of strategy is consistent with what Lee and other members of the
supply chain forum have long advocated. In 1997, Lee and Whang authored a paper
titled “The Bullwhip Effect,” examining how minor changes in demand are
magnified as they move up the supply chain—often causing companies to
dramatically ramp up or cut back production far more than is warranted. “In a sense, supply chain management was leveraged by technology, but it is not just about technology,” says Whang. Kosuke Ishii, professor in the design division at the Stanford School of Engineering, also serves as a codirector of the supply chain forum, in a nod to the importance of product design in effective supply chains. One business that has effectively altered its product design in the interest of better supply chain management is computer maker Hewlett-Packard, which has gradually shifted from building customized computers for different countries to adopting a common design with minimal variations. Today, HP computers include only a few country-specific features, such as the power unit, which can be added in the final stage of manufacturing. That way, if there is a sudden surplus in Iceland, HP machines headed for that market can be more easily diverted to Spain or another market where demand is stronger. Lee says this concept of “last-point-differentiation” also has been key to the success of other computer makers like Dell. Going forward, Lee says that the supply chain discussion increasingly will concern doing business in China, the site of a growing number of manufacturing operations and a major customer for U.S. companies. “It’s amazing that every time I talk to a company, it is hard to have a conversation that does not include China. Everyone wants more of an understanding about how to leverage China and make use of the opportunities in China,” he says. |
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Facts about the ForumPARTNER COMPANIES 25 ACADEMIC PARTNERSHIPS The European Forum on Global Supply Chain Management at Eindhoven University
in the Netherlands [Details] EDUCATION OFFERINGS FOR WORKING EXECUTIVES Managing Your Supply Chain for Global Competitiveness Executive Program
[Details] RELATED LINKS Stanford Global Supply Chain Management Forum
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