Supply Chain Management: The Strategic High Ground in the Modern Economy

In a shift away from being viewed as a tactical function, supply chain management has become a strategic imperative in industries ranging from automobiles to semiconductors. Economic theorists contend that streamlined manufacturing and delivery methods have made the economy more recession resistant than ever, with cost-saving rewards and high stakes for mistakes driving the importance of effective supply chain management. Top corporate executives are now recognizing the critical role of logistics in their business models.

Key Takeaways:

• Lean manufacturing methods and lower inventory levels have helped U.S. companies reduce logistics costs to 9.9 percent of gross domestic product from 15.9 percent in 1980.
• U.S. firms still spent $920 billion on transportation, warehousing, and distribution in 2000, and industry experts say new information technology and the Internet promise to drive that figure far lower.
• Dell Computer's direct distribution model, not its technology, has been credited with the company's success, eliminating steps in the supply chain and eliminating massive amounts of unsold inventory or obsolete models.
• Companies like Amazon.com have not been able to duplicate Dell's stellar financial results due to their reliance on warehouses and employees, rather than streamlining their supply chains.
• The investment community is beginning to understand the importance of logistics in companies that plan to sell products over a wide geographic area, with CEOs who cannot answer logistics-related questions likely to face short tenure.
• Corporate officers are giving transportation more attention because they are paying for it instead of the customer, with the latest information technology allowing for instant evaluation of transportation cost and performance.
• Corporations are likely to outsource logistics to companies that specialize in the movement of goods, with the logistics market related to e-commerce forecasted to grow from $42 billion in 2000 to $274 billion in 2004.

Statistics:

• U.S. firms spent $920 billion on transportation, warehousing, and distribution in 2000.
• Logistics firms took in about $11 billion in 2000.
• The logistics market related to e-commerce is forecasted to grow from $42 billion in 2000 to $274 billion in 2004, with a predicted annual growth rate of more than 70 percent.
• U.S. companies currently spend about $400 billion a year on carrying costs and interest.
• UPS Logistics brought in more than $1 billion in revenue in 2001, and is one of the company's fastest-growing divisions.

Sources:

• Greg Burns of Lazard Freres & Co.
• Satish Jindel, a transportation consultant in Pennsylvania
• Todd Royer, a California transportation consultant
• Edward Wolfe, transportation analyst at Bear Stearns & Co.
• Dan DiMaggio, chief executive at UPS Logistics Group
• Harry Cabluck, Associated Press
• Kimberly Smith, Staff