what exactly is an excellent supply chain? The Center for Transportation
& logistics at the massachusetts Institute of Technology (mIT) is striving to answer that question. In 2005, the Center undertook a long-term research effort, called supply Chain 2020 (sC2020), with the aim of finding out what the characteristics of so-called perfect supply chains should be in future. It will also map out the process innovations that will underpin successful supply chains as far into the future as 2020.
‘beyond best practices’ is one of the unifying themes behind the research to be conducted on identifying supply chain principles. It is predicated on the fact that a practice may be best for the supply chain of a specific company trying to achieve competitive advantage, but it may not be best for another company in another industry, nor even in its own. It is not mIT researchers’ intent to dismiss the value of best practice benchmarking in the right context. but it concerns them that managers continue to search fruitlessly for the ‘silver bullet’ that they expect will transform their organization into the next Toyota or dell.
The successes of global business leaders such as Toyota, wall-mart or dell, which have been described in a transparent and convincing way, have inspired theoreticians and the managers of supply chains from many sectors to attempt to compare themselves with these leaders and to transfer the best practices of these businesses to their own organiza-tions. In practice, however, such attempts at transferring outside solutions
have rarely succeeded. The best practices of Toyota, dell or wall-mart vary significantly as a result of their completely different approaches to the configuration and management of their supply chains.
according to sC2020, the companies with the best supply chains are those with a clear business strategy supported by a supply chain strategy and a complementary operational model, which enables the perfect realization of strategy. Their activities are driven by a limited number of
‘tailor-made’ supply chain practices.
a critical element determining the success of the supply chain is the
‘operational goals’ of the firm, which define the main aim of their supply chain. This supports the firm’s competition strategy and measurement system, which it uses to assess the effects of managing its supply chain.
The operational goals can be divided into three groups: customer re-sponsiveness, typical for firms active in those sectors with high profit margins and short product life cycles (eg fashion apparel, pharmaceuticals, cosmetics, toys, computers); efficiency, required in companies active in those sectors with low profit margins (eg the food and beverage industry, basic-goods retail, industrial supplies); and asset utilization, typical for those branches characterized by high capital intensiveness (eg the auto-motive and petrochemical industries, semiconductor fabricators).
some supply chains, such as those of wall-mart or dell, must be extremely efficient in order to maintain low costs and remain price-competitive. others are designed in such a way as to focus more on reactive capacity, less so on costs. Ibm is a good example of a company which has to focus on its ability to react quickly to signals coming from its customers, for only such an approach can guarantee its long-term success in the sale of its high-profit-margin products and services (although certainly at the cost of maintaining greater stocks and higher operational costs).
In light of these assumptions, a perfect supply chain is characterized by a focus on a limited number of consistent and cross-optimized business practices, which mutually reinforce each other and are strictly tied to the operational goals of the company. Perfect supply chains avoid, according to sC2020, the trap of trying to do everything well, for as a rule this results in nothing being done properly. In order to be perfect, the supply chain must focus more of its resources on the most important tasks, and less on others which are not as important from the perspective of the company’s strategy and operational model. Therefore, according to sC2020, perfect supply chain practices deserve such credit only when the entire package of practices strengthens the realization of the firm’s competitive strategy and its operating model. This means that the
term ‘best’ may only apply when the whole system of tailored practices is greater than the sum of the parts.
Source: www.sc2020.net; l. lapide, mIT’s sC2020 Project: the essence of excellence, Supply Chain Management Review, april 1, 2006;
Proceedings of the Supply Chain 2020 Project’s European Advisory Council’s Fall 2005 Meeting, frankfurt, 18 october 2005; T. speh, Key Criteria for Supply Chain Excellence: US experience, bestlog meeting, Paris, 16 may 2007.
The best practice of one company will not automatically become best practice in another unless it is adapted, successfully implemented and brings the expected results.9 Yesterday’s core capabilities embedded in best practices could become tomorrow’s core rigidities. Institutionalization of ‘best practices’ by embedding them in information repositories may facilitate efficient handling of routine, ‘linear’ and predictable situations during stable or incrementally changing environments. However, when change is radical and discontinuous, there is a persistent need for continual renewal of the basic premises underlying best practices.
Organizations in such environments need imaginative suggestions and inspiration more than they do best practices.10
The besT PraCTICes – beTweeN The hammer of eCoNomIC demaNds aNd The aNvIl of
CorPoraTe soCIal resPoNsIbIlITy
In business, the principle of achieving various goals (understood to be economic, most frequently financial) is dominant. This is generally the basic and sometimes only criterion of best practice assessment.
Undoubtedly, many such business goals can be found, but the basic role is played by various financial targets (eg costs, revenues, profit, profitabil-ity). A US research, consulting and publishing firm that is a world leader in the field of best practice benchmarking, Best Practices, LLC, defines them as verified tactics which maximize revenues and profits, increase productivity and optimize costs.11 When aiming for specific mastery of business activities, can non-business targets be completely overlooked?
First of all, this means facing balanced development postulates, which involve not only ensuring the financial success of a business in the long
run, but also simultaneous involvement on the part of economic and social development, environmental protection, protection of social stability and assisting clients and suppliers in the fulfilment of the same targets.
A balanced development has three, intrinsically linked, dimensions:
economic, ecological and social.
A given practice may potentially lead to business success, but fail to find success for political, social or ecological reasons. Examples of such unacceptable practices are: building lasting business relationships with raw material suppliers from a country that is politically unstable; enforc-ing advanced technology in production or distribution that eliminates the need for a larger workforce in countries and regions with a high un-employment rate; and building distribution systems based on frequent road transport supplies in regions affected by heavy traffic congestion and / or in ecological danger. For non-business targets one must undoubtedly include various aims, such as meeting the challenges of social responsibility and / or balanced development.
Such a perspective refers to the guru of green business, J Elkington, who claimed that the success of a company influences its achievement in three respects: economic, ecological and social. He proposed a simultaneous consideration and balancing of three key dimensions (the Triple Bottom Line) observed from a micro perspective.12 From the perspective of the organization, sustainable development is not only a question of good corporate citizenship based on collecting bonus points by reducing harmful emissions from its factory or ensuring healthcare for its workers, but becomes a fundamental principle for intelligent management. This concept emphasizes that combining social, ecological and economic activities not only has a positive influence on the natural and social environment, but also has its expression in economic benefits and the building of a competitive edge in the long term. In light of this concept, the exclusive realization of economic (financial) objectives is not the best of practices, but it is difficult to acknowledge that such practices realize ecological and social objectives but without any success in the economic sphere. Undoubtedly, good practices have the object of achieving eco-nomic and ecological, or ecoeco-nomic and social, objectives, while the best practices focus on realizing economic, ecological and social objectives at the same time (see Figure 2.1).
It is believed that orientation towards sustainable development helps today’s companies increase their market share, build customer loyalty, positively distinguish their brand, improve employees’ morale and loy-alty, and increase the effectiveness and productivity of their activities.
Attention is also paid to the fact that such an orientation lessens risk by way of avoiding negative social opinions, taking a proactive approach towards new regulation and avoiding future safety threats of the supply
Good practices?
Environmental performance
Social performance Sustainability
Economic performance Best practices
Better practices Better practices
Figure 2.1 The best practices in light of the Triple Bottom Line concept Source: devised on the basis of Carter and Rogers, 2008