Operations & Logistics

Managing Supply Chain Key Link to Growth

Successful businesses will be the ones who can adapt to changes from globalization, greater product variation, and shorter production cycles.

November 01, 2000

| by Barbara Buell

Back in the 1970s, corporations competed on quality. In the eighties, the quality effort gave way to the quest for lean manufacturing. In the nineties and beyond, business is increasingly global, product variety is growing, and production cycles continue to shorten. “Everything is changing rapidly, so the key is supply chain management,” says Hau Lee, professor of operations, information, and technology. He should know. During the last 10 years, Lee has kept the Business School at the forefront of this field, which has exploded with the advent of the Internet.

What exactly is supply chain management? It has many aliases: supply network management, supply web, demand chain, value-network integration. Whatever the moniker, it does one thing, Lee says. It gets products or services from their origin to their destination. And it manages three kinds of business flow: materials, information, and money. Supply chain management, executed through the use of complex software, handles this trade of information and commodities in two directions-between, for example, buyer and seller, or manufacturer and supplier.

The Internet and other forms of rapid data exchange are creating more efficient supply chains. How companies can best build these “exchanges” is at the crux of good supply chain management. The Internet offers corporations an opportunity to cut costs while increasing their responsiveness to customer needs. In the end, supply chain management can enable corporations to expand markets, create new products, and ultimately improve profits and market values.

This can be accomplished by using online business-to-business exchange sites to gather information from multiple customers and suppliers and process it rapidly into orders and deliveries. Clothing-manufacturer Benetton is a favorite case study of Lee and his colleague Seungjin Whang, professor of operations, information, and technology. Each season, Benetton dyed yarn, knit sweaters, and then shipped the sweaters to retail stores. It was never clear until well into each season which colors would sell best. By reversing the process and getting rapid online feedback from retail outlets, they realized a huge return. Instead of dying the yarn first, Benetton knit the plain wool into sweaters and postponed coloring all the inventory. After an initial shipment of dyed sweaters went to stores, the company got solid information about which ones were selling. They dyed the remainder of their sweaters to more accurately meet demand for certain colors. Benetton employed the concept of “postponement”-delaying the point of production differentiation until better demand signals could be obtained. This is the cornerstone of supply chain management practice at many high-technology companies such as Hewlett-Packard and Sun Microsystems today.

In Japan, 7dream.com, a joint venture between the Seven-Eleven Japan convenience store chain and six other Japanese corporations, including music vendor Sony and Fuji Photo Film, allows customers to order tickets and books off the Internet and download music at their local store. Cashiers estimate the age and record the gender of each customer. The information is compiled overnight and distributed to give both the store and its supplier a precise picture of who buys what, when, Whang says. Based on that information, stores change their layouts several times daily in response to expected customer demand. Seven-Eleven Japan’s market valuation quadrupled in 1999.

In 1995, Lee, who also teaches in the School of Engineering, established the Stanford Global Supply Chain Management Forum, an academic-industrial consortium in which academics team with industry to conduct research based on real-world problems at companies designing and managing global supply chains. The Forum, which has grown to more than 40 companies, holds members-only seminars on topics such as global network management, supply contracting, design for variety, e-business and supply chain integration, and distribution strategies. To give members an extended network of companies and seminars in Europe and Asia, Lee and Whang have forged alliances with the European Forum on Global Supply Chain Management at Eindhoven University of Technology in the Netherlands and the Hong Kong University of Science and Technology Global Supply Chain Forum.

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