Relationships in the Supply Chain
The term "relationships" covers a lot of ground in supply chain management. There are strategic relationships, tactical relationships, transactional relationships, internal relationships, and possibly more. There are also relationships among members of the supply chain community. Let's look at those first.
Our supply chain universe can be seen as clustered around three "estates," roughly comparable to the social divisions in pre-revolutionary France. We might, without stretching too far, term them the First Estate—the academic community (or the "clergy"); the Second Estate—the consultants and software developers (or the "nobility"); and the Third Estate—the working practitioners (or the "commoners"), led then as now by the bourgeoisie of visible, leadingedge advocates. There is also a kind of Fourth Estate (or the "press") in supply chain management, but the trade press generally does not play the same watchdog role as its counterpart in the outside world.
For the moment, it's important to realize that relationships among the supply chain estates must be maintained for balance. Too much power and influence in any one camp and you risk undermining the effectiveness of your supply chain.
The principal means for bringing the estates together and leveraging their individual talents and contributions lies in the field's professional organizations, including the Council of Supply Chain Management Professionals (CSCMP) and the Warehousing Education and Research Council (WERC). The personal networks built among leaders in the three estates at these groups' annual gatherings continue to harness the synergistic potential of their collaborative strengths.
The governmental dichotomy
Relationships among businesses and all levels of government—federal, state and local—are important as well. Governmental and regulatory bodies can provide restrictions and incentives, regulations and freedom, and roadblocks and opportunities for individual companies. They also provide venues for teaching and research, and they can help create the environments that incubate consultancies and technology development.
Programs and actions at all levels of government can exert powerful influences on where supply chain operations are located, how successful they are, and how committed they become to maintaining a physical presence and investment in localities, regions, and countries.
These help to explain the phenomenon of "brain drain," headquarters relocations, some sourcing decisions, business flight from certain states, and continuing economic malaise in countries that should by all rights be prospering. Thomas Friedman's The World is Flat and The Lexus and the Olive Tree both provide insight into these phenomena.
At the level where most of us work every day, there are vital relationships to build and nurture: between the company and its key suppliers; between the company and its customers; and among the company and academics, consultants, software providers and other practitioners. This relationship business keeps getting more and more complicated. Let's touch on a few key issues that are a little closer to ground level.
Within the supply chain
Let's start with the working relationships between suppliers and customers, which some like to call "partnerships." Calling business relationships "partnerships" doesn't make them so. Furthermore, there are limits to how many partnerships any company can effectively maintain. Certainly, you can't have partnerships with everyone in your supply chain, unless the chain consists only of you and two others.
Still, it is important to maintain high-trust, highcommunication, mutually beneficial relationships with key suppliers and customers, whether they're called partnerships or not. Granted, there are some very successful mega-merchants that are able to dictate prices, terms, and processes to their suppliers by threatening to pull their business. But the fact is that very few of us are in the position of being able to tell our suppliers, "My way or the highway." For the rest of us, creating and developing strong, positive relationships is a key to supply chain success.
In an ideal supply chain relationship, both customers and suppliers get connected in ways that allow them to easily exchange information, demand data, and the visibility of status. What does this mean? For openers, it means communicating demand events and the direction of strategic plans. It also means linking information systems and jointly leveraging the potential for Internet and other electronic communications. It means working together to reduce costs and improve quality, and understanding capacities and capabilities. And don't overlook your responsibility to teach your partners the techniques needed to be successful in the 21st century.
On the customer side, it means many of the same things, only working in another direction. You need to know about their strategies and directions, their event plans, and their needs for flexibility and resilience. The collaborative planning, forecasting, and replenishment (CPFR) process works both ways. Your customers need to know about your capacities and capabilities, just as you need to know about theirs. And remember, it's your responsibility to educate them about ways in which you can help them succeed in their markets.
Wherever you sit in the supply chain flow, you can improve your positioning by understanding both the upstream and downstream business issues—and what the ultimate user or consumer wants and needs.
All of this takes fundamental talent, a positive attitude, and an overall culture of strong relationships. And it's got to be for real. As someone once observed, "You can only fake sincerity for so long." That's true in the supply chain world, for sure.
Within the company
Before a company attempts to build good external relationships, it must first put its own house in order. You can't really develop open communications with others if your organization is partitioned itself.
Within the friendly confines of your own four walls, manufacturing and distribution need to do more than communicate—they need to march in lockstep. Both functions need to be plugged into what's going on with sales and marketing. Sourcing and procurement can't operate independently of other supply chain functions. Senior management must include the supply chain organization in the strategic information loop, while the supply chain organization must let the C-level officers know what it can do to support strategies.
This means joint planning and joint problem solving. It means cross-functional teams with a purpose other than political correctness. It means that everyone has, if not a voice, at least a hearing in product development and discussions about stock-keeping unit (SKU) extensions.
If all that seems alarming, you're not ready to manage external relationships. They can't possibly succeed until your company is master of its own domain.
LSPs, consultants, and worse
Once issues within the company and within the greater supply chain have been satisfactorily addressed, don't forget relationships with service providers. This need is particularly acute when logistics service providers (LSP) are involved.
Building a successful LSP relationship is absolutely essential to their successful use. Open and full communications are vital from the outset, beginning with the evaluation and selection processes. Multilevel working relationships throughout both organizations provide the key to making processes work and to effectively solving the problems that inevitably crop up.
And the work doesn't end there. LSP relationships, like marriages, require constant effort and continued attention. The LSP also needs to know about upcoming events, changes in strategy, and new products and customers— things that many companies used to keep "secret."
The arm's-length, transactionbased, traditional relationship may get the job done at a low price in the short haul, but it does nothing to build a foundation for the future. You and your LSPs need to engage in regular dialogue about where and how they can add value to what you are doing.
It's more difficult to have a relationship with consultants that spans functions and managerial generations. But the quality of relationships with consultants can have a profound effect on the quality and extent of outcomes. For best results, mutual trust and open communication are required. The more your consultants know about what's really going on and the more you can tell them, the better their chances of getting to the heart of the issues and devising on-target solutions.
As for software providers, they are often portrayed as salespeople without scruple or inhibition. That's unfair. When it comes to evaluating vendors, your job is to look for and assess the qualities that can make for a positive mutual relationship all the way through a successful implementation.
Like all other aspects of the supply chain, this is about more than simply making a purchase. It is about having a sustainable relationship with someone who can play a key role in your long-term supply chain success.
The Role of Consultants
Logistics service providers (LSPs) are not the only third parties lurking in the underbrush of supply chain management. The weeds are also full of management consultants.
They're everywhere. They're at every conference, seminar, and convention. They're on the Internet with web sites, e-newsletters, webinars, and spam. They're in all the trade publications. They're speaking; they're writing; they're selling endlessly.
Who are they? What do they do? Do they help—or hinder? Do they really offer a value proposition?
Some perspectives
At its best, management consulting can be a noble calling. It's a high-minded endeavor, requiring enormous amounts of both talent and integrity as well as a strong sense of mission and urgency. At its worst, it is an embarrassment and a scandal. To be honest, there have been some spectacular failures in consulting projects.
Whatever your view, the emergence of supply chain management as the business focus of the new century has attracted consultants of every imaginable variety. Some have been at it for years, evolving along with the field. Others are new to the game, and they seem to think that adding supply chain management to their list of service offerings is enough to get onto the playing field.
The difference between consultants and advisers
There was a time when great care was taken to distinguish management consulting services from management advisory services. The distinction has faded with time. But the implication is that advisers provide feedback and informed opinion, and that consultants take a more active role. Consultants make decisions, acting on behalf of the client. They design and implement processes, facilities, and systems—in short, they do the hands-on work.
Consultancies offer a diverse collection of different business models as well as approaches to problem solving. Let's begin by trying to sort out some of the fundamental types.
The mega-firms
This category is made up of huge organizations with thousands of people. They may be partnerships; they may be corporations. They are increasingly multinational.
Many of the mega-consultants have their origins in the giant public accounting firms. Several years ago, each of the so-called "Big Eight" U.S. public accounting firms had enormous consulting divisions. They generally attempted to be all things to all clients, and they would undertake consulting in any channel that held the promise of growth or profit. As they created multinational accounting conglomerates, their consultancies likewise added the appearance of international capability, which tended to be more promise than practice.
Today, after mergers, acquisitions, and divestitures, their former consulting entities are barely recognizable. Accenture spun off from Arthur Andersen, which itself disappeared, thanks to Enron. KPMG became BearingPoint. Ernst & Young, itself a merged operation, folded in with Cap Gemini to become CGE&Y, and later changed its name to simply Capgemini. PwC Consulting, a unit of PricewaterhouseCoopers (which itself was the product of a merger between Coopers & Lybrand and Price Waterhouse), was acquired by IBM (after an attempted purchase by Hewlett-Packard) and has since disappeared as an entity. Deloitte Consulting, product of yet another merger and acquisition, retains its corporate identity but is legally a separate LLC entity.
The overall business model consists of a hierarchical, pyramidal organization, dependent on sales generation by a relatively small number of rainmakers to provide billable hours for large numbers of analysts and managers. Thorough methodology and process development is supposed to allow relatively inexperienced consultants to tackle complex problems in consistent ways.
This model has been likened to bringing in busloads of bright kids, who have been both indoctrinated into the corporate culture and provided with workbooks full of process descriptions and solutions. They must then hope to come across a client who is asking the right questions.
Few of these firms were willing to bring in more seasoned, more experienced, more independent-minded, and more expensive old pros. It's not so much an age issue as a business model issue, abetted by a cultural conformity.
Some independent consultancies have become mega-firms. Some of the early leaders, such as Booz Allen Hamilton, continue to prosper, while some others have fallen on hard times or have been sold off.
Big and important, but not huge
A handful of consulting firms concentrated on strategy but took differing directions. Some tried their hands at tactical implementations, and they remain successful in addressing operational issues with strategic implications. Others focused on taking equity positions and managing corporate operations. Several entities focused on performance standards, productivity, and cost reduction. A few pioneers survive, but just barely.
Their business model tended to be based on the engagement of contractors, who are off the payroll as soon as they've completed their assignments. The permanent cadre comprises successful salespeople along with a handful of top executives.
There were dozens of such firms, the majority of which have disap peared. One of the biggest was United Research, which has dropped off the map. But a few have survived. For example, the engineered standards and method ology-based consultancy H.B. Maynard remains an active player in the world of work measurement.
Some consultancies focused on such operations as manufacturing and logistics in the early days. One leader in the movement survived an unfortunate acquisition, and has rebounded as a broad-based global consultancy. Others, including some specializing in physical distribution, have disappeared.
Small and mid-sized firms
The small and mid-sized consultancies tend to be built upon limited but deep functional experience. They come and go, but some have remarkable staying power. Too numerous to cite here, they can be local, national, or global in coverage. They may be franchises, or they may be real companies. They may affiliate with "stringers" in several locations, handing out business cards to anyone with a suit and a laptop. Or they may grow more organically.
Some achieve greater functional breadth through working partnerships with other consultancies and achieve geographic coverage with multinational alliances.
They may follow the hierarchical organization model, or they may be flatter partnerships with more hands-on consulting involvement from senior partners.
The supply chain field has spawned many of these operations, and many of them deliver cost-effective and sustainable results. Some are highly specialized, while others offer a broad range of supply chain strategy, planning, and execution services.
Sole practitioners
Next come the sole practitioners. The range of services they deliver is staggering; they cover everything from freight-bill audits to supply chain strategies.
The solos run the gamut from internationally renowned specialists to prematurely retired managers to out-of-work inebriates. These sub-categories are not mutually exclusive.
Here's a clue: If the phrase "& Associates" appears in the company name, it's a sure sign that the consultant is flying solo. Unlike in aviation, no lessons are required, and there is no meaningful certification and licensing process. The only barrier to entry in the consulting marketplace is a failure of nerve.
There are many, many really excellent one-man and one-woman shops. For the right kind of problem, they can often offer an on-target solution at the right price. The best of them recognize their limitations, and they are brilliant at enlisting other specialists to work on solving the fundamental problems.
The worst of them believe their own press clippings. Because of their egos, they hesitate to bring in people smarter than themselves to help deliver the right answers.
The recently unemployed complicate the picture considerably. They typically have no training and little real experience in being a consultant. They generally have no idea of how to price services or of what's involved in scoping and executing analyses and solution development. They often don't understand the subtleties of communications, client relationships, and selling.
The academics
Many respected academics practice consulting on either an institutional or a private basis. Often their consulting includes a research component directed at a technical solution to a specific problem.
Sometimes they are able to assemble study and research teams of graduate and undergraduate students to observe and assess operational problems and practices. Other times they might conduct and analyze industry surveys. Sometimes they are called as expert witnesses in litigation.
There are times when the right approach to a problem is to build a team with academic and consulting components. That way there's an effective blend of both esoteric and practical solutions.
Turnaround specialists and litigation support
Turnaround management specialists are not really consulting firms, although they employ many consulting techniques in their cost-slashing blitzkriegs. Two well-known leaders in the field have senior management with extensive backgrounds in cost management consulting. They also manage either organic or affiliated investment partnerships.
Aside from competency, what's important in a consulting relationship are "chemistry," style, and comfort.
Technically speaking, litigation support isn't really management consulting either. But many very senior consultants deliver litigation support. Usually this service consists of providing expert witness input for a case, which could take the form of testimony at trial, depositions, or written summaries of observations and conclusions.
Other roles, which may get a little nearer to consulting, include topical education for attorneys, collaboration on case strategy, deposition preparation for either attorneys or deponents, and offers of proof development.
It is quite common for opposing experts in a case to be well-acquainted with one another and with their likely expert positions. The real pros are those who turn down a lucrative expert role when they are not persuaded of the merits of the case or when a negotiated settlement would be both achievable and an obviously better solution for all parties.
Conflicts of interest
For some reason, there's a peculiar notion out there that all business services ought to be considered consulting. In our view, that's ludicrous. Organizations whose revenue streams are derived from performing services—whether warehousing or running IT departments—aren't really consultants, either.
The IT outsourcing company, EDS, the source of H. Ross Perot's billions, ventured into operational consulting through acquisition. The firm Accenture presents an interesting meld of service delivery and consulting. Real estate companies that do network design make some people feel uncomfortable, and parcel shipping companies that want to design supply chains raise some nagging questions of independence. LSPs are often guilty of delivering what they call consulting solutions as part of their business activities.
We have nothing against any of them. But at some point the solutions they propose are likely to lean toward their mainstream service offerings, aren't they?
Although there have been some instances of vendors actually charging money to recommend their own products, it is possible for a service provider to dispense honest, independent advice. Here's the test: Does the "consultant" describe and offer up competitive alternatives to its own service?
Why do we need consultants?
There are lots of reasons to make use of consultants. Here are some:
- Shortage of internal resources reduction analysis and implementation
- Lack of specific internal experience
- New geographic operations
- New functional responsibilities
- Need for independent review of operations, decisions, and/or alternatives
- Solutions outside of internal political dynamics
- Desire for synthesis of multiple industry and functional experiences
- Availability of experience with analytic or decision- support tools
- Exposure to experience with service providers
- Experience with specific technology solutions— software, hardware, or both
- Knowledge of and access to best practices
- Track record of creativity in solution development
Consultants and supply chain management
So far, these points could apply to any element of an organization's operations. How do they apply to supply chain management specifically?
Supply chain management is not unique; it can benefit from the tactics and techniques applied across all types of business operations. But there are some specific examples within the supply chain community that illustrate areas where honest-to-goodness management consultants can add genuine value:
- Creating a conceptual, overall supply chain design
- Designing a physical distribution network
- Creating supply chain strategies for service and performance
- Performance and practices diagnostics, including for overall supply chain and for specific components (transportation, warehousing, sourcing and procurement, manufacturing integration, information technology, and supplier and customer relations)
- Litigation support for either a plaintiff or defendant
- Across-the-board or targeted cost-reduction analysis and implementation
- Transportation management analysis and improvement
- Facility location, retrofit and upgrade, and/or operations improvement
- Software evaluation, selection, and implementation
- Training and education in supply chain management concepts and components
- Metrics design, implementation, and analysis
- Supplier management programs
- Process design and re-engineering
- Due diligence on other studies
- Performance management programs
The list could be longer, but you get the idea. The trick is to find the right consultant for the right problem.
How do you select a consultant?
What's important in a consulting relationship? Aside from competency, the issues are "chemistry," style, and comfort. Typically, you are going to be working with the consultant(s) for some time. If there's a style mismatch, tolerance wears thin very quickly.
If your organization is culturally welded to a megafirm approach, it's usually pointless to open the bidding to a lot of solo practitioners. On the other hand, if the organization is confident and secure and wants to cut through the fog to get the answer, the solo practitioner can be marvelously effective in terms of time and cost.
If the problem has some size or complexity, the small or mid-sized firm, or a team of solo practitioners, can be the right way to go.
Competence can be evaluated from references and from experience. Experience means work that the people who are actually on the job have actually done, hands-on, not an endless list of organizational qualifications.
There are a few additional points. As you evaluate the possibilities, look for a good listener, one who's more interested in you and your business than in his or her own credentials. Take that a step farther. Try to ferret out whether he or she is comfortable departing from the script when an unexpected subject pops up.
Finally, be sensitive to the consultant's sense of context, the confident ability to wrap a specific solution in an appropriate setting of process design, information technology, best-in-class practices, integrated planning and operations, and corporate strategies. Not that every problem needs the entire universe to be analyzed before a solution can be considered. Still, a good consultant can articulate when and to what degree these elements may be important.
How do you find consultants in the first place? For starters, use directories. The Council of Supply Chain Management Professionals (CSCMP) has one, but it is incomplete. Talking with industry peers or networking in your professional community can also be good ways to find out about consulting professionals.
Check out the Internet, which is generating consulting contacts at a level undreamed of a few years ago. Anybody worth anything has a web site. Be sure, however, to concentrate on web site content rather than gee-whiz site design and graphic effects.
A grim reality
Turnover in the consulting field is incredible. The average consulting career is less than three years. It's a tough lifestyle: tough on the individual, tougher on families.
While inertia may keep some larger firms going during difficult times or market shifts, those same firms will not hesitate to downsize or redeploy people. The solo practitioner, though, faces almost no barriers to failure and contributes mightily to the profession's turnover rate. He or she may not have the financial resources to see things through or might not have the background to move with marketplace demands. The solo practitioner might burn out from the travel and workload factors that affect almost all management consultants at one time or another.
There are people who make consulting a lifelong career. Most bounce from firm to firm, a few years here and a few years there. Those who are with successful small firms tend to stay in the game longer. Very, very few establish long careers at one organization. So, the odds are heavy that the person you really liked the last time you hired a consultant is no longer at the same organization or even still in the game.
In the end
As much as we believe in the value and potential efficacy of consultants in building and improving supply chain excellence, it can be overdone. The normal company doesn't need consultants to answer every question. And it might not need large numbers of them, if the consultant is inclined to leverage the knowledge and experience of internal teams.
It's a bit like the people on radio talk shows who answer their own questions before the call is over. The solution frequently lies within the company, and it may only need a little probing and direction to get on the right path.
Editor's Note: One of the authors is a sole practitioner, and the other works in a small/mid-sized consultancy; both are alumni of one of the mega-firms.
Fundamentals of Supply Chain Management: An Essential Guide for the 21st Century can be purchased for US $69 from DC Velocity Books. For more information, go to www.dcvelocity.com/books.
