INTEGRATION

PERFORMANCE

EXECUTION

COMMUNITY

FRAMEWORK

THE EIGHT ESSENTIAL

The Global Supply Chain Forum of The Ohio State University has identified eight processes that form the foundation of supply chain success. The challenge is to integrate these processes both internally and externally with key partners in the supply chain. Two of those key processes customer relationship management and supplier relationship management help companies accomplish this integration and realize the revenue and profitability gains that inevitably follow.

James O'Brien

18

CH\!N

^I^\.\c;EME^r

2004

SUPPLY CHAIN MANAGEMENT

PROCESSES

By Douglas M. Lambert

u c c e s s t ti I sup ply c h a i n m a n age ni e ti tthe term- Many people consider it to be synonunotts witb requires cross-functional integration of key logistics or with logistics tbat also includes customers and business processes within the firm and suppliers. Others view supply chain management (SCM) as across the network of firms that comprise the new tiame for purchasing or operationsor the eomhinatbe supply chiiin. It is focitsed on relation- tion of purchasing, operations, and logistics. Increasingly, ship miinagement and the performance however, executives in leading companies are recognizing improvements that result. In many compa- supply chain management as the management of relationnies, however, executives struggle to ships across tbe supply ebain. They view SCM in terms ot achieve the necessary integration and, consequently, the business process excellence and as a new way of managing resulting improvements. The problem is that they don't fully tbe business and the relationships with other members of the understand the supply chain business processesand the supply chain. hnkages necessary to integrate those processes. In this article, we adopt tbe following definition of SC,\1 Drawing from work done by The Global Supply Cbain developed by tbe Global Supply Chain Forum: Supply chain Forum, this article identifies the eight processes tbat need to management is the integration of key business processes from be managed and integrated for successful supply cbain man- end user through original suppliers that provides products, seragement. (For more on (he Global Supply Chain Forum, see vices, and information that add value for custoiers and other tbe sidebar on page 21.) Two of tbese processes provide tbe stakeholders. linkages rcqitired to facilitate integration among the supply This view ot supply chain management is illustrated in chain members to coordinate tbe otbcr processes. These two Exhibit I. It depicts tbe following: a simplified supply chain ke\ linkages are customer relationship management (CRM) network structure of a manufacturer with two tiers of cusand supplier relationship management (SRM). tomers and two tiers of suppliers; tbe related information and produet flows; and tbe eigbt supply cbain management By understantling the key supply ebain management processesand recognizing why and bow tbey should be processes that must be implemented witbin organizations integratedsupply cbain managers ean sueeessfully position across the supply cbain. All of the processes are cross-functional and cross-organizational in nature. Further, as the their companies for higher reventies and prolitahility. exhibit illustrates, every organization in tbe su|)ply cbain needs lo be involved in tbe implementation of tbose processJust What Is Supply Chain Manageuient? es. But at tbe same time tbe exbibit shows tbe corporate silos IJelore [irocccding, it's inifiortant to define supply chain management beeatise theres still a great deal ol contusion over at ibe top, wbicb can work against tbis integration. In reality, of eotirse, a supply cbain is mucb more cotiiplex tban tbe row of silos de|)icted in Kxbibit I. For a comDouglas M. Lambert is the Rtjymond H. Mason Chair in pany in tbe middle ol the supply cbain, tbe supply ebain Transportation cintJ Logislics and Director of The Global Supply looks more like an uprooted tree (see Exbibit 2) wbere the Chain Forimi al the I ishfr College of Business, ihe Ohio State roots represent ibe supplier network and tbe brancbes repUniversih'. This article is adapted j rum his new hooh Supply resent tbe customer network. Moreover, tbe supply cbain Chain Managcmciil: Proct'sst's. Partnerships, Performance will look differently depending on a company's position in it. (Supply Chain Management Institule, 2004). Far more in/orFor example, in tbe case ol a retailer, like Wal-Mart, tbe mation, visit u'ww.sem-institutf.org.

Suppi^

CHAIN

MANACEMEIVT

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Processes

EXHisrr 1

Supply Chain Management Players and Processes

Information Flow

Customer Relationship Management Customer Service Management Demand Management Order Fuifiliment Manufacturing Flow Management Supplier Relationship Management Product Development and Commercialization Returns Management

conciuded that they cannot optimize product Hows without first i m p l e m e n t i n g a process approacb to tbe business. Yet while s e v e r a i authors have suggested implementing business processes in tbe context of suppiy cbain management, tbere is not yet an "industry standard" on what tbese processes should be. Tbe value of baving standard business processes in plaee is that managers from organizations across the supply chain can use a common language and can link up their companies' processes with tbosc oi the other supply ebain members.

Tbe eigbt key supply cbain management processes identified by members oi Tbe Source: Adapted from Douglas M Lambert, Martha C. Cooper, and Jarus D. Pagh, "Sjpply Chain Management: Implementation Issues and Global Supply Cbain Forum Research Opportunities,' The InternalionalJournal of Logistia Management, Vo\.'), No. 2 (1998), p. 2. (as shown in Exbibit I) are: end consumers would also be the "tier-1 customers" next to Customer relationship management. the dark square in the center (indicating the iociil company, Customer service manageirtent. Wal-Mart). Demand management. Managing the entire supply chainthat is. managing ail Order fuifiliment. suppliers baek to the point of origin and all products/serviees Manufaeturing flow management. out to the point of consumption<;an be a daunting task. So Supplier relationship management. most exeeutives tend to Foeus on managing their supply Product development and cummerciali/ation. chains to the point oi consumption. The reasoning here is Returns iiianagcment. that whoever has tbe relationship with tbe end user has tbe Customer Relationsbip Management, ihe CM^M process power in tbe supply ehain. Intel, for example, created a rela- provides the structure lor how reiationsbips with eustomers tionship with tbe end user by having computer manulactur- are de\'elopcd and maintained. Throtigh this process, maners plaee an "Intel inside" label on their eomputcrs. This posi- agement identities key customers and ctistomer groups to be tioning also affects the computer manufacturer's ability to targeted as part of tbe firm's business mission. Ibe goai is to switch microprocessor suppliers. Yet while most of tbe focus segment eustomers based on their \alue ()\er time and to to date has been downstream, opportunities exist to signifi- increase customer loyalty by jiroviding customized products cantly improve profits by managing the upstream sLi|iplier and services appropriate to tbe particular value proposition. network as well. Leaders in this process create cross-lunetional customer teams to tailor product and serviee agreements (PSA) that At the end of tbe day, a supply ehain is managed link by link, relationship by relationship. And tbe key linkages in meet the needs of key aecoimts and customer segments and all ol these activities are formed by tbe customer relation- document how the two firms will engage in business. Tbe sbip management (CRM) process of the seller organization i-'SAs sjiecily levels ot perlormance lor the lirm. They also and the supplier relationship management (SHM) process provide the hasis for jierformance reports thai measure the of ihe buyer organization. C R M and SHM are tbe tools the profitability of individual customers as weli as the firms supply ehain manager uses to bring tbe eigbl key processes financial impact on (he customer's financial periormance.' CRM teams will then work wiih key customers to improve togetber. processes and eliminate demand variability and nonvalueadded actixities. The Eight Key SCM Processes Suecesslul supply ebain management re(|tiires a cbange from managing indi\iclual lunctions to managing a set oi integrated processes. In many leading corporations, management bas
2 0 Suppi.i C H A I N M A N A C : I; M K N T R I - V I K W S n - r r M H I n 2 0 0 4

Customer Service Management. Ibe customer service management process represents tbe company's faee to the customer. It is the key point ot contact for administering the
www. scmr. com

EXHIBIT 2

The Supply Chain Network Structure

Tier 3 lo Initial Suppliers Tier 3 to Tier 2 Suppliers Tier 1 Suppliers
Tier 1 Customers Tier 2 Consumers/ Customers End Users

and coordinated witb key suppliers and customers. Tbe objective is to develop a seamless system frotn tbe supplier to the firtii, and iben on to the various customer segtnents. Manufacturing Flow Management, Manufacturing flow management includes all activities necessary to obtain, implement, and tnanage manufacturing flexibility in tbe supply cbain and to move products through tbe plants. Ibe ability to make a wide variety of products in a timely manner at tbe lowest possible cost is a reflection of tbis process, 'lo acbieve tbe desired manufacturing flexibility level, planning and execution must extend beyond tbe four walls of tbe manufacturer and oul to tbe supply cbain partners.
Supplier Relationsbip M a n a g e m e n t . Ibe SRM process

Focal Company

Members of the Focal Company's Supply Chain

Source: Adapted from Douglas M. Lambert, Martha C. Cooper, and Janus D, Pagh, "Supply Chair Management: tmplemeniation [S5jt5 arid Research Opportunities,' The Internat'ionalJournal of Logistics Management,Vo\. 9, No, 2,1998, p. 3,

PSAs developed by customer teams during tbe customer relationship managemetit [process. Customer service provides the customer with real-time information on [lromised shi[i|Mng dates and produet availability through ititerfaces with stich lunctional areas as manulacturing and logistics. Tbe customer service process may also include assisting the customer witb protltict ap|)licatiotis. Demand Managemetit. DemaiKl management is the process tbat balances customer re(.|uirements witb sitpply cbain capabilities. With tbe right process in place, management can matcb supply with demand proactively and execute the plan wilh minimal disrtiptions. It is important to note that this prcjcess is not limited to forecasting. It also includes synchronizing supply and demand, increasing llexihilJty, and reducing variability. Demand management entails controlling all of those practices that increase demand variahility, including end-of-qtiarter loading and terms of sale that encourage volume btiys. A good demand management system uses point-of-sale and key customer data to reduce uncertainty and provide efficient flows tbrougbout the supply ebain. It also effectively coordinates marketing retpiirements and |irodtiction [ilans. Order Fulfillment. Ihis suppK chain |>rocess involves more than just tilling orders. It also eneompasses all activities necessary to define customer re(;|uirements. design a network, and enable a firm to meet customer retjuests while minimizing tbe total delivered cost. While tnttch of the actual order ftilfilhneiit v\ork will be performed by tbe logistics function, the process needs to be implemented cross-functionally
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provides tbe structure for bow relationsbips witb suppliers are developed and maintained. As tbe name suggests, tbis process is a mirror image of customer relationsbip management. And as is tbe case for CRM, it involves developing close relationsbips wiib a small subset of suppliers based on tbe value tbat tbese suppliers bring to the firm over time. Note tbat tbese are long-term relationships tbat provide winwin outcomes for botb parties. For eacb key supplier, tbe firm should negotiate a |)roduct and service agreement tbat defines tbe terms of the relationsbip. For less critical suppliers, tbe firm sbould follow tbe more traditional approacb of simply providing tbe PSA, which iti most cases would he non-negotiable. In sbort, supplier relationshi|) management is abotit defining and managing tbese PS.As,
Product D e v e l o p m e n t and Commercialization. Ibis sup-

ply cbain management process provides tbe structure for working with customers and suppliers to develop products antI bring them to market. F^^lfective itnplementation of tbis process not only enables management to coordinate tbe efficient flow of new products across tbe supply cbain but also bel[)s otber members of ibe supply cbain to ramp up matitifacttiring, logistics, marketing, and other activities necessar\' to support product commercialization. A product development and commerelalization process team would work with CRM process teams to identify ctistomer needs (botb articu-

The Global Supply Chain Forum

The Global Supply Chain Forum of The Ohio State University is a group of noncompeting firms and a team of academic researchers that has been meeting regularly since 1992. The group's objective is to improve the theory and practice of supply chain management. The member companies of the Global Supply Chain Forum ar-e 3M, Cargill, The Coca-Cola Company, Colgate-Palmolive Company, Defense Logistics Agency, H e w l e t t - P a c k a r d Company, I n t e r n a t i o n a l Paper, L i m i t e d Brands, Lucent Technologies, Masterfoods USA, fVloen Inc., Shell Global Solutions I n t e r n a t i o n a l B.V., Taylor Made-adidas Golf Company, and Wendy's International.

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Processes

hiR'd iiiid uniirliculalL'd), willi ihf SRM [M-OCCSS tciims lo select tnaterials and suppliers, and wilh ihe manLikicturinj; Flow maniiuement process team to develop prodLiction [(.'clinology appropriate to the prodiiel/inarkel fomhination. Returns Managetnent. Rett.rrns nKiiuijj,emenl is ihc process l)\ uhicli acli\ilic's associaled with returns, reverse logistics, "giitek(.'epi[ig, ciuil return avoidance are managftl within the firm and aeross key members ol the sii|)piy ehain. Avnidanee. whieb is a key jsart of this process, involves finding ways to minimize the numher of return requests. It ean include ensuring that the [iroduct s t|uality iintl user Iriendliness are at the liighest attainahle level before the [iroduct is sold antl shipped. Avoid.ince could also entail changing promotional [jroj^rams that load the pipeline when there Is no realistic chiince that ihe |ir(xluet shipped will be sold. Properly implemented, then, the returns management process enables firms not only to manage the reverse product How ellieiently hut also to identify opportunities to reduce UTiwanted returns and to eontrol reusable assets such as containers. Effective returns management is an important part ol SCM and provides an opportunity to achieve a sustain a hie competitive advantage. Kach of the eight sup|i!y chain maniigemcnt processes hiis hoth strittegic and operational elementsthat is, a strategic element in which the firm establisbes and strategically manages the process and an operational element in whieh the lirm executes tbe process. The strategic elements should he led by a management team eomprised of representatives from

multiple fimctions ineluding marketing and sales, finance, produetion, [purchasing, logistics, ami research and develo|)meiit. This team is res|)onsihle lor tlexeluping the proeedures at the strategic le\el and seeing that they are implemented. I h e strategic leam also identifies how the external partners will he integrated into the supply chain. The operational eomponent of eaeh proeess. v\here tlie day-to-tia) acti\itics take plaee. is exeeuted h\ the managers within eaeh lunetional area. Lxhihit ^ shows how ihe husincss kmctions within the organization provide input to the eight supply chain management proeesses. In the customer relalionship management process, for example, marketing and sales pro\'idcs the aecount management expertise, engineering provides the spccilieations, logistics provides knowledge of logistics and customer service eapahilities, manulacturing provides the manulacturing ea|iabilities, purchasing provides knowledge of sujjplier capabilities, and iinance provides customer profitahihty reports. Customer service requirements must he factored into ihc manufacturing, sourcing, and logistics inputs. Customers and suppliers are shown as hookcnds on the exhibit to reinforce the point that each ol these processes, to he properly implemented, requires the in\()lvemcnt of customers and suppliers.

CRM and SRM: The Critical Linkages

Customer relationship management and supplier relationship management provide the critical linkages throughout

EXHiBrr3

Functi anal Input to the Supply Chain Proce SS

Business FunctionsH^ Business Processes Marketing & Sales Research & Development Logistics Production Purchasing Finance

f
Customer Relationship Management Customer Service Management Demand Management

Account Management Account Administration Demand Planning Special Orders Packaging Specifications Order Booking Business Plan Product Lifecycle

Requirements Definition Technical Service Process Requirements Environmental Requirements Process Stability Material Specifications Product Design Product Design

Logistics Capabilities Performance Specifications

Manufacturing Capabilities Coordinated Execution Manufacturing Capabilities Made-to-Order Capabilities Production Planning Integrated Planning Process Specifications Remanufacturing

Sourcing Capabilities Priority Assessment Sourcing Capabilities Material Contraints Integrated Supply Supplier Capabilities Material Specifications Material Specifications

Customer Profitability Cost to Serve Tradeoff Analysis Distribution Cost ^ S c o =

Forecasting

2 "a.
Q.

Order Fulfillment

Network Planning Prior ttization Criteria Inbound Material Flow Movement Requirements Reverse Logistics

Manufacturing Flow Management Supplier Relationship Management Product Development & Commercialization

Manufacturing Cost Total Delivered Cost

R & D Cost

Returns Management

Revenue & Costs

2 2

S l I M ' M

C l l \ l \

M A N A C K M I N V

R i V l l V V

S l . P I F M R I R

2 0 0 4

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Processes

IIK' sLipply ch.iin. As dcpiLlctl in Exhibit 4, ior (.-ath siipplicr in the supply chain the ulUmalc measure ol suecess ot the CRM process is the change in profitahility of an individual customer or segment ot customers. Por each fiis/oii/cr. the irue nifasurc of success of the SRM process is the impact thai a supplier or supplier segment makes on that eustomer's [irolitahility. ( \ ' o t e ihat in eases where commodities or undiffercntialcd components are heing bought for inclusion in another product, it makes more sense to do a total eost report than a specific profit-and-loss statement for each commodity/component.) The goal is to increase the joint profitability by de\'el<)ping the relationship. Accordingly, the overall performance of the supply chain is determined by the combined improvement in prolitability ol all nii'mbers Irorn t)ne year to the next.
EXHIBIT 4

related to trans|iortation incltitling deli\eries, order minimums, driver instructions, will-calls, and appointments; billof-lading instructions; pallets to be used; purchase-order confirmations; order-status information: details related to prieJng inquires; availability of market-development funds; marketing promotional allowances; acceptability of haek orders and bow tbey will be handled; and contract terms. Supplier relationship management is the mirror image oi cttstomer relationship management. Remember that all suppliers are not the same. Some contribute more to a firm's profitability than others. Its important to ha\e en)ss-functional teams that interact elosely with these high contributors. Tbe strategie relationship sbould be led by a management team responsible for developing strategies and seeing tbat they are implemented. At tbe operational le\el. teams are established for each key supplier and for eaeb segment of nonkcy, or less eritiea!. suppliers. I'hese teams are eoniprised of managers from several funetions, including marketing, finance. R&D, produetion, purehasing, and |{)gisties. While employees who arc not members ol the S H \ ! teams may he involved in e.Kecuting the activities, the teams maintain overall managerial eontrol of the process. (I he same holds true for the CRM |iroeess,l Criven the current emphasis on business etbies, both the C'R.M and SR\f teams need to have an agreement up Irorit on what lypes ol data will be shared. Teams need to be mindlul ol the line line betv\een using proeess knowledge vs. using specific competitive marketing knowledge gained from a ctistomer or supplier. In a similar vein, individuals should not he put in a position where they are working on teams involving competing suppliers or eustomers. The reason; Its iust too diilicult to kce[i the tv\)) sets of relationships and PSA tliscussions separate and distinct. lSup|ily ehain managers shouki note that CRM ami Sf-{M themselves have seveii subprocesses, which are not addressetl in this artiele. These subproeesscs are dillercntiating CLIS-

CRM and SRM:The Critical Linkages

Supplier D

Manufacturer C

Wholesaler/ Distributor B

Retailer/ End User A

P&L for C as Customer

Total Cost Report for D as Supplier

P&L P&L for B as for C as Customer Supplier

P&L P&L for A as for B as Customer Supplier

Let's begin by eonsidering the CRM linkage. Companies typically spend large sums ol moncv' to attract ncv\' customers, ^et these same eomjianies often are complacent when it comes to nurturing and strengthening relationships with existing ctistomcrs.- In most cases, hov\cvcr. existitig customers rcjiresent the best opportunities ior prolital^lc growth. In faet, studies sbow strong, direct rciationsbips between prolit growth and customer loyalty, eustomer satisfaetion, and the value of goods delivered to customers.^ CRM |ii'o\ ides tbe structure lor leveraging tbcsc t|ualitics and evaluating tbc prolitabilityand potential profitability ol indiv idual eustomers. Aeting on tbis evaluation, cross-lunctional customer teams can taihir product and service agreements to meet the needs of key accounts and customer segments."^ PSAs document how the two firms will engage in business- For key customers, llie PSAs are customized; for segments of otbcr Ltistomers, stantlard values arc used for each element of the agreement. PSAs come in many forms, both formal and informal, and mav be referred to by different names from company to company, fo achieve the desired results, however, they need to be lormali/ed as written doctiments. 3NT for example, has comprebensive, written PS,\s that inelude tbe following: eontaet information ineluding name, tide, telephone number, and e-mail address lor both .-^M and tbe customer representatives; all ol tbc details
2 4 S L I'I'M (.' II VI \ \1 V \ \(.l M I \ I I! I V I I I \ l l i l li 2004

Profitability reports that capture all of the costs and revenue implications
chain process improvements over time.
tomers/su[)(iliers; preparing the account/segment management team; internally reviewing tletails related to the business conducted; identifying opporttmities lor sales grov\th, eost reduction, and service improvements; developing the product and service agreements; implementing the product and ser\iee agreements; and measuring performanee and generating profitability reports and total cost reports as appropriate.) In addition to linking partners across tbe sufiply cbain, the CR.M and SRM processes coordinate each of the other si.x processes. Any improvements made in these processes are

of a relationship are the key to tracking supply

in customer iind su|>[ilii_'r |ir<iliLal)ility rcpiirts. For il the CRM and SRM Icjiiis idcnlily an opportunity t(t imiinnc' pcrlormancc by focusing on demand management, the\' iTihirm the demand management process teams from the two companies. If those teams do impro\c the demand management proeesji, then product availability imprcneswhich increases revenue for the customer and the supplier. In addition, better demand planning could reduce inventories, thereby lowering tbe inventory- cam-ing cost cbarged ro the customer's profitability report. There also may be fewer last-minute production changes and less expediting ot inbound materials, which will decrease the costs assigned to each customer. For these improvements to he realized, measurements must be in place to motivate and compensate team members. Having aceurate customer prolitability reports is tbe key to tracking these kinds of process improvements. These reports enable the CRM process teams to traek performance over time across all of the supply chain processes. Good profitability reports relleet all of tbe cost and revenue implications of the relationship. Variable manufacturing costs are deducted Irom net sales to calculate a manufacturing contribution. Next, \ariable marketing and logistics costs, such as sales eommissions, transportation, warehouse handling, special packaging, order processing, and account receivable cbarges, are deducted to calculate a eontribution margin. Assignable nonvariable costs, sueb as salaries, customer-related advertising expenditures, slotting allowances, and inventory' carrying costs, are subtraeted to obtain a segment-controllable margin. Tbe net margin is obtained after deducting a charge for dedicated assets. These statements contain opportunity costs lor in\estment in reeeivables and inventory' as well as a charge for dedicated assets, in this sense, tbey are much closer to cash-flow statements than a traditional profit-and-foss (P8rL> statement.

EXHIBIT 5

Sysco Sales and Earnings History

Sales (Billiors) 30 25 20 15 5 Year CAGR: Sales = 11.3%, Net Earnings = 19.1% 10 Year CAGR: Sales = 10.1%, Net Earnings = 14.5% 20 Year CAGR: Sales = 14.6%, Net Earnings = 16.0% Sales ^ ^ Net Earnings Net Earnings (Millions)

800

700

jj
/ /

60 0
50 0

/^

400

^ 5 -

200 100

0 '70

^""^""^^^^ '75 '80 '85 '90 '95 '00

0 '03

Source: Neil Theiss, senior director, Supply Chain Management, Sysco Corp.

[lating member of tbe Global Supply Chain Forum, offers a good example of bow tbis can be done effectively. I his international provider ol food and agricuftural products worked vvitb a key customer to develop a method for sbaring sup|ily ebain benefits tbat inct)rporated tbese elements: An agreement in principle on a fair allocation ol benefits. (Sbouid it be 50/50, 60/40, or some otber breakdown?) A timeframe for benefit sharing. (Sbouid it be for tbe fife of tbe agreement, for five years, or re-assessed annually?) A decision on w bat benefits/costs to include. A fair apjiroacb to bandling ca[iital expenditLire costs. An accurate baseline to use as a starting point lor measuring sav ings. A comm{)n process to measure value captured. Sysco, a $23.4 billion food distributor, began implement A benefit reviev\ and approval procedures, ing profitability reports by customer In \9'~)9 with great suc A mechanism to accrtie and transfer value Iwbere, how, cess. Tbcse reports bave enabled management to make how often, and so forth). strategic decisions about the alloeation of resources to A methodology re\iew. accounts, f he li\t'-year cumulati\e annual growth rale The process improvement teams from both companies (CAGR) for the period 1499 to 2003 was 1 1.3 pereent for agreed that benelits deri\ed from su]ipfy cbain initiatives sales and 19.1 percent for net earnings. As sbown in Exhibit must f)e explicitk' recognizetl in supply cbain project outS, net earnings growth improved shar|ily after the [jrolitahility comes (l(jr e.xamplc. redtieed freigbt. iov\er invcntorv-earr\ ing reports were im|ilcmented. costs, and redueed transaction costs). Additionally, tbese benelits must be in excess of a pretfetermined baseline for One Success Story each area. They ftirther agreed that the costs to f)c considManagement should work to implement proeess improve- ered sfiotifd (I) directly relate to recommended stippK chain ments that increase the profitability ol tbe total sup|ily cbain, initiatives (capital costs, transaction costs, system-related not just tliat ol a single firm. This means encouraging actions costs, and so lorth); (2) the addition or deletion of fuli-time that henefit the entire supply chain while, at the same time, employees (not the increase or decrease in the v\orkload of etjuitably sharing the risks and the rev\ards. It's especially existing employees): (3) be greater than an agreed-iipon miniimportant lo develop clear guidelines fOr sharing tbe rev\ards. mtim dollar amount: and i,4l be ftilK' ditcumentcd. I he two If any one of the parties perceives that its not gaining any- companies decided that a 50/50 split ot benelits was in keepthing from the process improvement efforts, it v\ill be diffi- ing with the overall partnership. Plus, they lelt that this arrangement wotild motivate botb [larties tcj maximize tbe cult to obtain tbat party's full commitment. The CRM and SRM teams must (|uantif\- the benefits of opportunities vvbile acknowledging that neither partv eould process improvements in financial terms. Cargill, a partici- have achieved the savings without the other.
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Processes

Ciirgill's manajtcmfiU hdicxcd thai it was Importaiil ti> idcntiR- the ran^f ol llu' cApcelations that each icani hroiight to the project. This would help hoth parties reach iifirt'cmcni on realistic and nuitLKilly henefieial ohiecti\es in sueh areas as proeess elliciency, growth/proiit stabilit\'. c{)sts savings, improxed customer senice. orjiuni/ational alif^nmcnt, and mclrics.

thus improving per-unit [inilitahilit). Six \cars later, the manufacturer had not seen the anticipated inventory reductions and redueed the serx'iee promise to 48 to 72 hours. Vel the reason llial the rapid delivery system never aehie\ed its lull potential was that the manufaeturers sales and marketing organization was still |iro\iding eiistomers with ineentives to The key lessons learned Irom Cargills e.xperience can he hu\ in large volumes.'' ()])\ iously, the husiness proeesses ol this company were nol integrated and coordinated. summarized as lollows: Gain sharing agreements need to he tletcrminctl at the This example should make it clear that lailure to manage outset so that it doesn t untlermine the accomplishment of all the touehes hetween suppk chain partners will diminish the joint oh|eeti\cs. the impaet of any suppK chain in[tiati\e. Conversely. im|ile Working het\\ecn internal husiness units is (.hallenging menting the eight sLip|ily ehain management [processes enough. \ \ hen yoti add into the mix cxtei'na! trading partners, iiiereases the likelihootl of success because all kmctions as the challenge intcnsilies hecaiise ol issues ot trust, eulture. well as all key eustomers and suppliersv\ill lie involved in tbe initiative's planning and im|'>lementati{>n. This was corjirocess, and systems Cii|iahilily. rob{)rated at tbe Spring 2004 meeting oi Ibe Cllobal Supply Skeptics ahounti; success ret]Liires tocusetl leadership C'bain Forum, wliich featured a series of breakout sessions and management support. Partnerships work; they may take a while to develop, devoted lo tbe topic. ""Ihe Supply Chain of the Future," At hut they work. Once trust is established, hoth ]iartics will the entl oi the day, the group concluded that if an organization can sueeessfully implement all eight of the processes, it lind numy opportunities to learn Irom eaeh other. Hvcrynnc involved in this initiative enhanced their will have reaehed that supply chain of the luture and he ah!e knowledge and capabilities, which will pni\e ad\antageous in to respond to whatever ehallenges the husiness might laccfuture initiatives. As reflected in the Cargill e\aniple. the eustonier relationship management and supplier relationship management processes do a numiier of important things at the strategic level. Specifically, they identify eustomer and supplier segments, provide criteria for categorizing customers and suppliers, provide teams with guidelines for cust(jmi/ing product and senice offerings, dexelop a iramework for metrics, antl offer guidelines for sharing process improvement benefits. At the operational level, these processes mainly focus on writing and implementing ihe prncluet and seniee agreements. 1 las your company successfully integrated the eross-lunetional business processes descrihed in this article- If the answer is anything les.s than an unqualified yes, then y{)u re not creating the most value for your shareholders and vour sLi[iply ehain partners. The time for aetion is now , Author's note: Ihe uuthoT ivuidd tike- to acknowledge the contrihuliiiii nj ihe members oj The Gloha! Sitpfyh (^Jiaiii Foniui at I lie Oh'id State University whose practice, iiisii^ht. idens. mid conniicnts hai'c cinitvibutcd sioujfjcuiith to (/(i,s iirticlc. CS3D

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f^csearch among the participants ol the Cllobal SuppK C'hain f-orum shows that successful supply chain management requires the integration of eight key business proeesses both internally and exlernally with key members of the supjily chain. W h e n that necessary integration is nonexistent or insuflieient, resources are wasted and supply ehain performance suffers. Failure t(i ini|ilenient those cross-functional business prueesses can also result in missetl ojiportunities antl poor decisions. I h e following real-lile example illustrates the point. A manufacturer of consumer durable goods implemented a rapid deli\'ery system that pro\ided retailers with deliveries in 24 to 4S hours anywhere in the United Slates. The system was designed to enable the retailers to im|iro\e seniee to their consumers while holding less in\enlor\ and

Footnotes ^Lambert, Douglas M., and Terrance L, Pohlen. "Supply Chain Metrics." The International Journal of Logistics Management Vol. 12, 1^0. 1 (2001): pp. 1-19. ^Barry, Leonard L., and A. Parasuraman, "Marketing to Existing

Customers/' Mari<eting Services: Competing Tiirougii Quality.

New York, PJY: The Free Press, 1991, p 11. ^Heskett, James L., W. Earl Sassser, and Leonard A. Schlesinger. The Service Profit Ciiain, New York, NY: The Free Press, 1997, p.11. ^Seybold, Patricia B. "Get Inside the Lives of Your Customers." Harvard Business Reviev\/yo\. 78, No. 5 (2001): pp.1-17. ^Lambert, Douglas M, and Renan Burduroglu. "Measuring and Selling the Value of Logistics." The International Journal of Logistics Management Vol. 11, Mo. 1, (2000): pp. 1-17.

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