Last Updated 27 May 2020

Barriers To Supply Chain Management

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Becoming an integrated value partner requires tight integration between the supply chain and customer relationship activities. There are many visible and invisible barriers that check smooth supply chain management. To illustrate, a company that customizes its offerings to delight a customer with high potential lifetime value must also ensure that its supply chain management processes seamlessly feed into its CRM process for that customer.

This forms the basis of an integrated demand and supply chain management system free from any kind of barriers.

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Research proves that companies that do integrate demand and supply chain management systems are more successful than their counterparts. Those that have successfully integrated their CRM and SCM activities tend to perform better than their competitors. Specifically, these companies gain a competitive advantage by (1) collaborating both internally and externally with supply chain partners, such as suppliers, distributors/retailers, and customers having no or less barriers, and (2) measuring and exceeding their goals for customer loyalty and retention for each customer and segment.

They often are aided by new Internet technologies, which help them, improve supply chain collaboration and build relationships across a network of suppliers and customers. This, in turn, allows them to differentiate the way they create value for every customer and segment. With these emerging e-business technologies that can seamlessly link manufacturers, suppliers, distributors, and customers, companies, in theory, can swiftly orchestrate resources to respond to each customer's needs. But in reality, this is virtually impossible to do.

Companies simply do not have the resources to simultaneously respond in real time, reduce manufacturing costs, keep zero inventories, and provide excellent service for each and every customer. So instead of trying to satisfy every customer perfectly, they need to learn how to dynamically balance customer value and supply chain costs to build the right customer relationships. Companies can achieve this balance by leveraging Internet technologies to create digitally integrated demand and supply systems in which there is no chance of any barrier.

Such systems would provide real-time, differentiated responses to customers according to their loyalty, lifetime value, requirements, and servicing costs. By focusing on maximizing the entire value creation process, rather than on just specific CRM or SCM activities, companies will begin to reap the real benefits of the new digital economy. Heineken and Cisco Systems are examples of companies that are leveraging the Internet to enhance collaboration with customers, distributors, and suppliers and hence an effective tool to remove various barriers of supply chain management.

Heineken has focused on CRM, while Cisco has emphasized SCM. Heineken has developed a Web-based system to share information with distributors on forecasts, marketing and promotions, and order fulfillment. The system has doubled Heineken's customer satisfaction ratings. Cisco, a leader in networking equipment for telecommunications and the Internet, has created electronic links with key suppliers across its entire product line to give it unprecedented supply chain flexibility. The links enable suppliers to ship more than 65 percent of Cisco's orders directly to the final customer without physical intervention from Cisco.

The result is a significant reduction in the time it takes to ramp up production of new products. Although both of these companies are innovators, neither one has developed a truly integrated demand-supply chain that depends on simultaneous excellence in both SCM and CRM. Other leaders are leveraging the Web in different ways. Companies like Herman Miller and Dell Computer, for example, have discovered that excellence in products, service, and production alone is not enough to compete in the future.

They recognize that they must become integrated value providers and they also leant that this is only possible by removing visible and invisible barriers from supply chain management. Herman Miller, a leading furniture manufacturer, is creating tailored Web pages that will not only streamline manufacturing, inventory, and order information flows to and from its 500-plus suppliers around the world but also sell to and service its most important customers. Leveraging the Internet in this way will help Herman Miller differentiate products, service, and delivery for customers according to the value they bring to the company.

(Siems, 2005) Similarly, Dell continually resegments its customer base and measures the lifetime value of customers. The computer maker then manages its interaction with customers through tailored Web pages that offer each customer the most profitable customer service level. Dell also has an online supplier portal that handles 90 percent of purchases from the 33 most important suppliers. This feature helps Dell and its suppliers share key data and measurements on shipment accuracy, quality, and demand forecasts.

As companies like Dell succeed in integrating customer and supply chain systems, they can further reduce inventories; improve customer responsiveness, decrease barriers and increase customer loyalty and shareholder value. Just by taking the early steps toward achieving excellence in CRM and SCM, companies can begin to boost their business performance while erecting formidable barriers to the competition. Competitors will find it increasingly difficult to mimic the value offered by these "integrated value providers.

" (Shankar, 2004) Creating new value propositions is the second approach to integrating demand and supply. This entails modifying the demand-supply chain design to create a mutually beneficial supply chain system for both the company and the customer and it also helps in removing various barriers in the way of supply chain management. To do this, companies must change the point in the supply chain at which they allocate goods while simultaneously altering the point at which they fulfill demand.

The idea that suppliers should work much more closely with customers to give them better value is not new as far as the removal of barriers is concerned. Yet close partnerships are still not common largely because, until recently, integrating the information systems of two or more companies was a lengthy, expensive, and technically difficult process. The recent widespread adoption of Web-based enterprise resource planning (ERP) systems and the rise of the Internet, however, have made it much easier and cheaper for customers and suppliers to integrate and exchange data.

(Holmstrom, 2001) And yet, disconnects still occur. In reality, most of the changes that suppliers implement do not add much value from the customer's point of view and this also proves to be a barrier. A supplier, for example, might typically cut its inventory by reducing product variety--which is not very helpful for the customer or for the customer's customer. By tweaking the demand-supply chain, however, suppliers can design mutually beneficial supply chain systems for particular customers.

These systems will offer customers completely new value propositions while improving the supplier's own operations. To affect a mutually beneficial supply chain design, companies must focus on the customer's demand chain, which transfers demand from the market to the supplier. A retailer's demand chain, for example, would consist of assortment planning, inventory management, and procurement. This demand chain joins with the supply chain to form the demand-supply chain. The chains link together in two places--the supply-fulfillment point (SFP) and the demand-offering point (DOP).

Efficient Consumer Response (ECR) is an approach to avert barriers in supply chain management which originated in the US and gained support from major European retailers. It is a managerial approach that starts with consumer demand and then gears the whole of the supply chain to responding to that demand. It is a customer-driven, demand-pull product management system: a seamless interface from consumer purchase to manufacturing schedules; it is different to a supply-push or buying-led approach, which is based on the principles of sales forecasting, with products supplied in preparation for estimated demand.

References Holmstrom, J. , W. E. Hoover Jr. , P. Louhiluoto, and A. Vasara. "The Other End of the Supply Chain," The McKinsey Quarterly, 2001, 1, 62-71. Shankar, V. "e-Marketplaces: Evolution and Future," Working Paper, University of Maryland, 2004. Siems, Thomas F. 2005. "Supply Chain Management: The Science of Better, Faster, Cheaper. " Federal Reserve Bank of Dallas. Southwest Economy. Issue 2, March/April, pp. 1, 7-12.

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