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BOOK REVIEW: Unsexy supply chain the key to many benefits

May 18 2017 05:00
Ian Mann

The Supply Chain Revolution: Innovative Sourcing and Logistics for a Fiercely Competitive World, by Suman Sarkar

IN THE constant and often obsessive search for profit and growth, I think it would be fair to say that few CEOs think of their supply chain and sourcing as an obvious area for their attention. They are far more inclined to look to a change in business model, strategy or geographic reach to meet their objectives.

The value of this book lies in Sarkar’s cogent argument that will turn your understanding of supply chain from something “having about the same sex appeal as broccoli” into an area of immediate concern.

The ‘Supply Chain Revolution’ covers both the opportunities in supply chain and sourcing in some depth, but I will focus only on a few aspects from each.

When the late Steve Jobs returned to a failing version of the company he had founded, he set himself three goals. The first was, as to be expected, to improve Apple’s product line. The second was to improve its marketing - also to be expected. But the third was to transform Apple’s supply chain, not as an after-thought, but to save the company from going to the wall.

As Sarkar, explains, Jobs cared about supply chains because he knew the price Apple was paying for having one “so shoddy and slipshod”.

To address this critical area, he assigned Tim Cook to the task, the man who has succeeded Jobs as the CEO. Cook reduced inventory from months to days, and forged long-term deals with Apple suppliers for key components. This enabled Apple to become exceptionally fast at getting new products to consumers, causing sales to spiral upward.

Much of what we commonly understand by supply chain is based on World War II methods, designed to get supplies to the end-users as fast as possible. Hitler’s failures in North Africa and Stalingrad were partly caused by supply breakdowns. Given the successes of the Allies’ supply chain management and sourcing techniques, they have been adopted by organisations of all types. However, in most firms they have not changed fundamentally since World War II, even in huge companies.

Those who have recognised the value of constantly examining and upgrading their systems have reaped great benefit.

The Zara success story

Retailers everywhere are under constant pressure, and many great brands have folded. In contrast Zara, the Spanish clothing retailer with almost 7 000 stores in 88 countries, is thriving.

This remarkable achievement is based not on the fashion flair of its founder Amancio Ortega, the richest man in Europe, but on his attention to Zara’s supply chain. Retail clothing store Gap, for example, takes between 9 and 12 months to get its new designs into 4 000 stores in 52 countries. Zara needs only 10 to 15 days!

Zara is a perfect illustration of the connection between a company’s Functional Strategy (the way of functioning that causes its strategy to be successful) and its supply chain. Ortega’s view of clothing items is that they are “perishable commodities like fruit: people change their styles frequently, depending on their whim or some fashion trend”. His strategy is to feed that whim through Zara’s ability to get new designs to customers in a week or two.

In neither Apple nor Zara's case is their supply chain thought of as backroom grunt-work, but a strategic imperative that requires attention and respect.

Author Sarkar’s obvious depth of knowledge and experience shines through the book. It provides a host of insights into where attention needs to be focused to derive profit and growth benefits from one’s supply chain.

Understanding supply chain as the process by which materials are received and goods delivered is a very narrow view. Coupled to one’s supply chain thinking must be the company’s procurement approach and, more specifically, sourcing: the supplier selection and management.

There are two broad approaches to dealing with suppliers. One is to bring the function inhouse either through developing the needed capacity, or by buying the supplying company. Google, Tesla, Microsoft and Pfizer are cited by Sarkar as companies using this approach - which has not proven to be a great success. The losses they have incurred make this point.

The other approach is the through the formation of alliances with suppliers. An alliance differs in material ways from simply choosing a supplier, based on its ability to deliver on a company’s current needs. Rather, it involves a long-view commitment to making the alliance successful, which only begins, not ends, with the signing of the agreement.

The art of the alliance

The is an art of forging and maintaining an alliance. It involves seeing the supplier as an ally, and working with the supplier company to achieve your goals, and theirs. Suppliers come and go; allies are expected to stay and work together.

Starbucks, the giant chain of 20 000 international coffee shops, owes its success in large part to the alliances forged by its founder Howard Schultz. Starbucks has used these alliance in key areas of business. The first is discovering, sourcing and then marketing speciality coffees.

By treating its alliance partners fairly, it ensures a sustainable supply of coffee to support a growing business. This includes developing alliances with booksellers to open outlets in their stores, and with Apple to play music in Starbucks coffeeshops. 

Many have alliances with their suppliers and intermediaries, but they fail. Making your supply chain effective across the many allies in the supply chain requires work: commitment and ongoing attention. This attention is as much to the relationship with the ally, as to the process you require and jointly craft.

Thinking you don’t need allies has proven a mistake many make, of which Nokia is an example. It refused to partner with wireless operators and enter exclusive arrangements with them. Samsung, by contrast, allied with Verizon, and LG with AT&T, as did Apple.

But as Sarkar makes clear, whether the resources you require are inside or outside your company,the sophistication and ongoing development of the supply chain will determine profitability and market share in very significant ways.  

This is not a book directed at the operations executive alone but at the whole of the executive team, and the CEO in particular.

Readability:     Light ----+ Serious
Insights           High -+--- Low
Practical           High -+--- Low

* Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Executive Update. Views expressed are his own.


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