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Supply chain management best practices, tips and advice from Supply Chain Top 25

Supply chain efficiency must be driven by customer demand and depends on the right IT systems, AMR's recent ranking of the top-performing companies finds.

Having a great supply chain means staying lean, keeping costs low and, perhaps most importantly, having a keen feel for fluctuations in demand, the latest review of the supply chains of top-performing organizations finds.

All the members of this year's AMR Research Supply Chain Top 25 are sensitive to customer demand, analysts with the Boston-based research firm said. And any SAP user hoping to emulate these companies should take a long, hard look at NetWeaver, they added.

Being "demand-driven" can mean different things to different organizations, said Kevin O'Marah, AMR's senior vice president of strategic research, but for the Top 25, it means reverse-engineering supply chains.

"Any company in any industry is going to fare better in this analysis, and in practice, if they focus on the demands from their customers and define their supply chain backwards from that point," O'Marah said. "Companies that are building a supply chain organization based on demand signals come out on top."

The Supply Chain Top 25, which is led by Nokia and includes Proctor & Gamble, IBM and Toyota in the top five, determines supply chain "leaders" and ranks them based on a detailed poll of their peers in manufacturing and retail industries, financial metrics and the opinions of AMR analysts.

Not surprisingly, O'Marah explained, demand-driven companies share certain qualities, namely strong IT organizations and the ability to interpret and react to customer needs swiftly.

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The analyst pointed to Apple Inc. -- the Cupertino, Calif.-based consumer electronics giant finished second in the rankings -- as a good example of a firm with a supply chain that is demand-driven. While the company doesn't have the tightest supply chain on the list, it created value first, with innovative products such as the ubiquitous iPod digital media player, then allowed its supply chain to serve that demand.

"Apple ranked highly not because they have such a tight, lean supply chain, but because they have fantastic product innovation capability," O'Marah explained. "For example, if [parts supplier] Johnson Controls is out of stock, they may get fired by Toyota. If Apple is out of stock, people just come back the next day and hope they can get an iPod."

Despite making it to the top 25, most companies on the list had room for improvement, particularly in the area of product development. O'Marah explained that in the ideal case, supply management, demand management and product management all overlap.

"Integration of the supply chain with product development is probably where companies are the farthest from maturity," he said. "There tends to be some link, but not as much as there should be."

While all of the companies in the Top 25 are large enterprises, their successful supply chain techniques apply to businesses of all sizes. In fact, in some ways it may be easier for smaller organizations to put the principles into practice.

Larger companies may have R&D or product development at corporate headquarters and manufacturing plants and sales offices scattered across the globe. With fewer locations and people, smaller companies face less of a burden getting their supply management, demand management and product management organizations in tune with each other, according to O'Marah.

SAP and supply chain management

Of course, one major requirement for the integration of supply, demand and product management -- and thus an efficient supply chain -- is strong information systems.

"Companies can basically forget about doing this unless they're willing to invest in the technology that provides process integrity, transaction reliability, data visibility and intelligence for decision making," O'Marah said. "Every single one of these rests on an IT infrastructure that's robust and scalable."

Very few of the top 25, if any, are dedicated to a wall-to-wall SAP strategy. Rather, they build their back-end information systems as flexibly as possible to respond to the always changing demand, O'Marah said.

Therefore, the potential value of NetWeaver, SAP's service-oriented application platform, is in its ability to maintain data integrity in the transaction system, while providing many specific, scalable business functions at a process level that link back to that core set of data definitions, according to O'Marah.

"NetWeaver is essential to the success of an SAP user if they really want to look at this group of companies and aspire to emulate what they see," he said. "[The strategy] had better be about the flexibility NetWeaver brings to the party, not slavishly sticking to an SAP release schedule."

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