The next hot area
The supply chain is often called the value chain—with good reason.
BY GREG HUTCHINS, CONTRIBUTING EDITOR
Ten years ago, re-engineering was the killer solution for all organizational problems. Internal silos were obliterated as companies focused on internal horizontal processes.
The new focus is to remove the barriers between you and the customer and between you and supply partners. Customer relationship management (CRM) is the solution to removing customer barriers. Supply chain management (SCM) is the solution to removing supply-partner barriers.
One of the nine knowledge areas in A Guide to the Project Management Body of Knowledge (PMBOK® Guide), procurement management, is probably the least understood and most underutilized. But it is the knowledge area with the greatest impact for your organization and your career. According to a recent study of 200 companies by Deloitte Consulting, 91 percent of manufacturers rank supply management as “critical” or “very important” to their company's success. Only 2 percent rank their supply chains as world class. An article in the August 1999 issue of Total Quality Management showed that the importance of supply chain management was rising from only “somewhat important” in 1990 to “extremely important” by 2000.
The top 250 procurement departments in the United States spent $1.4 trillion for goods and services in 1999, a 10 percent increase over the $1.27 trillion spent in 1998, and a 40 percent increase over the $1 trillion spent in 1996, according to Purchasing Magazine.
The importance of procurement management can be understood by looking at today's preferred business model. A company may do many things and have multiple product lines, but it can't be all things to all customers. It must focus on its knitting or core competencies and outsource non-core activities. This is SCM, and it has become today's killer enterprise solution.
Supply Chain Management
SCM has several definitions. According to Hillary Rettig writing in VARBusiness, it is “A group of companies connected loosely, all collaborating on the same goal: efficient and economical product delivery.” Or, according to the International Tax Review, “Supply chain management considers the management of materials and products from suppliers through all internal operations, including distribution to the customer.” It's designed to:
- Optimize network and material flow
- Reduce costs and cash consumption
- Increase speed
- Streamline, align, and focus information flow
- Streamline and refocus the organization from functional and national to process and cross-border.
Project management ensures seamless supply chain management by:
- Managing the supply base and value chain throughout the contract or product life cycle (integration management)
- Distilling customer requirements into doable supply requirements (scope management)
- Ensuring supplied materials arrive at the correct location, just in time for assembly in the correct number and in sequenced delivery (time management)
- Securing products and services based on total life-cycle or contract costs instead of solely by price (cost management)
- Ensuring supply base quality through simultaneous robust design, lean manufacturing, mistake proofing, total productive maintenance (quality management)
- Providing strong leadership commitment and supplier involvement in all supply management activities (human resource management)
- Ensuring customer requirements are properly communicated throughout the supply chain (communications management)
- Identifying and managing supply risks through product and contract life cycle (risk management).
As you can see, the PMBOK® Guide's nine knowledge areas are fundamental principles and practices in value chain management.
Your best career bet? Join the Institute of Supply Management (www.napm.org) and integrate your project management best practices into today's hottest strategic career. PM
Greg Hutchins is a principal with QPE, a program, process and project management advisory firm in Portland, Ore., USA. QPE's core competency is leading/coaching project teams to do the right things right on time.
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PM NETWORK | JULY 2002 | www.pmi.org