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ACHIEVING COMPETITIVENESS THROUGH SUPPLY CHAIN MANAGEMENT

by Rene T. Domingo (email comments to rtd@aim.edu)

Since there are practical and theoretical limits to improving and fine-tuning the internal systems and processes of a firm, supply chain management (SCM) has become the key strategy in achieving competitiveness. Unless the whole supply chain which includes its suppliers and distributors is reinvented, the firm will sub-optimize its efforts and resources and stay uncompetitive. Normally these inbound and outbound logistic entities are treated as third-party service providers and not as partners. They are treated usually with mistrust. They are tied to the firm with arms-length legalistic contracts. Loyalty is virtually non-existent. A customer can drop a supplier anytime, while a supplier can also drop a customer anytime. Since price and costs essentially rule the length of relationships, there is a high turnover of business partners. Conventional supply chains are characterized therefore by inherent weaknesses that may threaten not only the profitability but also the long term viability of the firm and its partners. These chains have long and unreliable delivery or lead times and consequently uncompetitive time-to-market. Because of the inherent mutual mistrust in the system, there are many hand-offs among and within partners. They are mainly unnecessary transport, control, and inspection activities that aim to check and countercheck the other party. As a result, the entire supply chain suffers from high system costs and high inventory across all channels.

Supply chains have to be reengineered because of rapid and fundamental changes in the business environment. Customers demand more product variety. There is a shift from commodity to specialized parts, products, and services. Product life cycles are getting shorter. Competition is becoming time-based. Competitive advantages are created with faster time-to-market and turnaround times. Inefficient companies and systems will not survive. Competition is no longer between companies, but between supply chains. Supply chains must be reengineered to enhance competitiveness and survivability. There are now new and tested paradigms in supplier or channel relationships. Among the more powerful ones are supplier partnership and development, sole-sourcing, and supplier co-location which make possible the seamless integration of the systems of business partners and channels. With the use of information technology, supply chains can also adopt the paperless PO-less continuous replenishment of customers or CRP. This technology allows suppliers, in a reverse role, to continuously order for their customers, and deliver continuously. Here information is processed at the source with minimum handoffs. Reengineered supply chains can rapidly configure and deliver custom orders with very low system costs and inventories. Being robust and flexible, they are less vulnerable to uncertainties and inaccurate forecasts.

SCM and SCM thinking are becoming increasingly important to the banking industry with the advances in technology, particularly IT, and the networking happening among the different players and service providers in the industry. Soon competition would no longer be among banks but among banking supply chains. Take for example the credit card business. It is one sub-industry of banking that offers opportunities for the application of SCM concepts described above. There could be as many as 4 players in the supply chain involved in serving the end-user or cardholder. First is the participating network which owns the brand, like Visa and Mastercard. Second is the merchant bank that ties up with the network. It issues the cards, recruits and serves the merchant establishments and cardholders. Third is the merchant establishment, like airlines, hotels, and restaurants, that honors the card and provide products and services to the cardholders. Fourth is the merchant processor that perform point-of-sale authorizations and transaction processing and billing. There may other secondary players in the chain that play crucial roles. For instance, the merchant bank may contract out the supply and maintenance of the card verification machine where cards are swiped. It may also hire a messengerial service firm to deliver the monthly statements to the cardholders’ offices and residence. It may also hire a firm to check the creditworthiness of new cardholder applicants.

All the players in this credit-card supply chain must work seamlessly and efficiently in a well-coordinated fashion to satisfy the needs of the ultimate end-user or cardholders at the end of the chain. Will he get the goods and services he wants? Will his transaction using the card be swiftly and correctly processed? Will he get his new or renewed credit card (or lost card replacement) on time? Will he get accurate statements on time? Will it be convenient for him to pay his bills? The entire supply chain, transparent to the cardholder, must operate like one firm or one processor, instead of four or six independent units, to ensure the complete and consistent satisfaction of these diverse needs of its ultimate customer. This “one company” concept is the core principle of SCM, i.e., designing and integrating diverse systems such that it is as if there is only one company serving one customer. Surely, the 4-6 players led by the participating network must develop a partnering relationships whereby they treat each other as partners, not suppliers or customers, and look at the cardholder as their only common customer. They have to accept the fact that their ultimate goal is his satisfaction and retention, and in achieving these goals, every member of the supply chain benefits and achieve its respective business goals. SCM will also cut down total system costs, particularly processing costs, in this credit card supply chain.

Moreover, the players must make intensive and intelligent use of information technology as an enabler, not just as accelerators of transaction processing. This technology should enable the entire system or any of its parts, to share crucial information, especially customer information, concurrently across the supply chain. In well managed supply chains, data and information are not passed on sequentially as in conventional arms-length systems. With the sharing of information and the resulting breaking down of barriers inside member companies and among member companies, the entire supply chain acts that a well-oiled black box optimized to service its client. In the new millennium, banking competitiveness will be redefined. It will come not from the strength of a bank, or its branch network, but from the strength and resiliency of its entire supply chain.


 

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