“Outcome-Driven Supply Chains,” by Steven A. Melnyk, Edward W. Davis, Robert E. Spekman, and Joseph Sandor, published in the Winter 2010 issue of MIT Sloan Management Review, examines how tomorrow’s supply chains can be designed and managed to deliver multiple outcomes that move beyond traditional cost-reduction objectives.
The article and its findings are the results of the Trends in Supply Chain Management 2010 and Beyond research initiative. This initiative was launched by the Broad School in 2006 in order to better understand emerging trends in supply chain management in addition to identifying gaps, and future strategies through a series of research workshops involving leading-edge SCM practitioners and academicians. Phase I of this study took place at Michigan State University in 2006. Phase II was held at the IMD in Lausanne, Switzerland in June 2007. Phase III was held at the Darden School of Business at the University of Virginia in October 2007. Finally, Phase IV was hosted at the University of Alberta in June 2008 and focused primarily on healthcare, energy, and public sector spending.
Using surveys and focus groups, industry executives and thought leaders defined today’s supply chain as primarily driven by price, quality, and delivery concerns. Yet a different picture emerges when looking at the supply chain of the future—it is far more complex, value-driven and is increasingly a source of competitive advantage. Beyond the traditional cost objective, supply chains can be designed and managed to deliver five other basic outcomes, each with a unique set of key design traits: responsiveness, security, sustainability, resilience, and innovation.
Cost: Traditional supply chain outcome which combines criteria for monetary cost along with delivery and quality measures.
Responsiveness: Ability to respond quickly to volume, mix, and location demand changes.
Security: Ability to protect product integrity and consistency while ensuring a supply chain’s products will be otherwise safe.
Sustainability: Environmental responsibility through reduction in waste, pollution and carbon footprint and ensuring minimal resource impact.
Resilience: Ability to identify and monitor supply chain risks and recover quickly and effectively from both external and internal disruptions.
Innovation: Develop new products and services, or new ways to produce and deliver products.
There is no ‘one-size fits all’ approach for identifying desired supply chain outcomes nor are the six potential outcomes mutually exclusive. By blending outcomes and “compatible,” non-inherently conflicting supply chain objectives (e.g., innovation and cost-reduction), companies avoid the pitfalls of being “overfocused” or, conversely, being merely “sufficient” and mediocre across all fronts. The goal of blending outcomes is to differentiate a supply chain from its competitors through added flexibility. While this blending does present challenges – requiring trade-offs and complicating performance metrics – supply chains designed with a mix of outcomes in mind are more adaptable to changing market conditions and critical customer demands.
Outcomes should be based on a deep understanding of key customer needs and desires. Additionally, outcomes, objectives and design characteristics should reflect the alignment between customer desires and supply chain capabilities as well as supply chain members’ “shared vision for competitive success.” Successfully managing a supply chain for multiple outcomes also requires: an understanding of critical supply chain drivers (e.g., demand vs. supply-driven or technology-driven), sensitivity to country or region-specific cultural differences and infrastructural capabilities, appreciation for the role corporate culture, and an understanding of how a product’s life-stage influences demands placed on a supply chain.
S. Melnyk, E. Davis, R. Spekman and J. Sandor, “Outcome-Driven Supply Chains,” Sloan Management Review, Winter 2010: 33-38.