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The Supply Chain is Just a Cost of Doing Business

SupplyChainEfficiency Illustration"Just part of the cost of doing business." That's how the supply chain is perceived in the least progressive of businesses. Gartner's observations on the importance of the supply chain among different businesses is a sobering reminder of how supply chain participants can be observed. Being a 'cost of doing business' means being an expense that should be reduced... definitely not a position in which any participant in the supply chain wants to find itself.

Drilling into what Gartner terms its 3 "Enablers" provides a high level view of how the supply chain is viewed by businesses that are at the end of the supply chain - typically retailers or other companies that are the final recipients of what the supply chain delivers. Their first caption identifies the supply chain's role as it is viewed by the recipient company.

The first level, and lowest in importance shows that the supply chain is viewed as simply a cost of doing business. In this position, all expenses associated with getting product to its destination are looked on as problems to be eliminated. The goal in this instance is to get rid of the costs associated with the process, thus reducing expenses, and improving margins. That's a pretty sad state of affairs both for the receiving company and for any of the participants along the path of the supply chain.

The second level identifies the supply chain as only one of the receiving company's competitive differentiations. This level is more interesting in that it takes the delivery process to the status of helping the organization achieve its margin and customer satisfaction goals. Gartner says that in north America 58 percent of its respondents believe their supply chain is assisting them rather than being simply an expense. On its face this looks good, but in reality that's only a little more then 1/2. 

Gartner's third level is much more positive and proactive. These companies believe their supply chain is their primary source of competitive differentiation. They depend on efficiencies and design of their supply chain integrated with their overall business model, to make them better than their competitors. Examples like Apple Computer come to mind as they have reportedly been able to drive down their manufacturing and delivery costs by using a hyper-optimized supply chain. Other examples may be Amazon.com and Zappos.com that rely on their automated systems to minimize shipping times and expenses while at the same time delivering great customer service.

As the role of the supply chain becomes more tightly integrated with the success of retailers, it is more important for each participant in the supply chain to establish itself as a contributor to its customers' success, and to be a part of its competitive differentiation rather than an expense to be reduced. To that end, having visibility into the segment of the supply chain your company participates in should be a goal.
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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

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