The Productivity Loop

As we discussed in our webinar earlier this week, supply chain management is quickly becoming an important business discipline. Many companies are finding that they can study their supply chains, make improvements, and reduce costs tremendously.

The supply chain covers everything involved in moving a product or service from suppliers to customers. This process of converting raw materials into finished goods involves people, information, and resources. The goal of supply chain management is to fulfill customer demands as efficiently as possible.

However, there needs to be a shift in the way companies fundamentally view their competition. Companies no longer compete against other companies. Instead, networks compete against networks, supply chains compete against supply chains.

Take Wal-Mart as an example. It sells similar products as its competitors, yet it is more successful than its competitors. The Wal-Mart and Kmart in the same shopping complex do not compete against the each other. Instead, the supply chains of each company compete against each other. How? Wal-Mart has always focused on improving sales, cutting costs, achieving greater efficiency in distribution, and using innovative IT tools. All of these strategies allow Wal-Mart to lower prices. Additionally, the company has a bigger supply chain, with more suppliers, and then has more opportunities to bring customers into their stores. Therefore, Wal-Mart is more competitive. This example illustrates the productivity loop - lower costs, then lower prices, sell more, and then increase profits.

What is your business doing to make the supply chain more efficient? Is your company in the productivity loop?

You can see more about supply chain management in our newsletter, Intelligent World, that will be released on Monday.