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Tuesday, December 18, 2007

Supply Chain

Is the Supply Chain a viable method for moving products in the twenty first century? It was developed so long ago, I am not sure anyone can pin point the exact beginning. The chain represents a linear process that moves raw materials and resources from extraction through a manufacturing capability through logistics and warehouses to an end user.

The traditional supply chain is like an old fashioned audio or video tape. You have to start at the beginning and move to the end in a linear fashion. There are no short cuts, although you can sometimes speed up the process.

Then we went from tape to discs to CDs and DVDs and MP3 players. Now you can get to any point of the recording at anytime. Why can’t we figure out how to do the same with our supply process?

One reason is that it scares many people in the industry. The word “disintermediation” jumps to mind. What if we could go around distribution? Could it be eliminated? Can we buy direct?

Of course the answer is yes. In some industries, where distribution added no value other than sending an invoice, it has been eliminated. The new world will no longer tolerate actions that add cost but not value.

Distributors that expect to survive will need to have a value proposition that can be justified by the customer. It may be supporting a “Just In Time” operation by keeping stock close at hand and delivering it as needed. Some users will pay for a middle man who will purchase product in manufacturer’s quantities, but repack and ship in smaller user quantities. For some customers, the value will be engineering and support. There may be components of training and safety education. Rental, repair and support are other value added capabilities.

In each case, it is important to know how to measure (quantify) the value so it can be justified. Be prepared to break down what you do into measurable functions. It is the only way to survive in a random access world. Then you can run your business to deliver value for a fair price. It is the way of the future.

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