Final Thoughts: The Price of Talk

Talk is cheap, the saying goes. But is it really? What happens when Manufacturing isn't talking with Distribution at all, because the production side is focused on optimizing the manufacturing run and couldn't care less what supply chain does with the finished goods after they roll off the assembly line? Or when the customer only talks at Distribution, dictating service levels. Suddenly, talk ain't so cheap any more.

If supply chain executives traditionally have been caught in the middle between their manufacturing colleagues, on the one hand, and their companies' customers, on the other, Jonathan Colehower believes that the balance of power in these relationships is shifting in favor of the distribution side of the business these days.

Colehower, who is CEO of Optiant, a Burlington, Mass.-based provider of supply chain design and optimization solutions, argues that today's supply chain executives can take advantage of information technology to gain an understanding of the total supply chain cost of various production and distribution scenarios, and then use that data in discussions with Manufacturing and their customers to arrive at scenarios that reduce costs for the entire supply chain.

Armed with the right data, for example, Supply Chain can tell Manufacturing what is the most efficient run lot size, given the constraints of distribution and the demand variability. Or tell the customer: "Fine, you want a 99.5 percent service level, here's what that is going to cost me on a per-unit basis. So are you willing to pay me that plus my margin, or should we shoot for a service level of 96 percent, which is more in line with what you're proposing to pay me per unit?"

But although Colehower runs a software company, he readily admits that it's not the technology that matters when it comes to giving supply chain leverage in discussions with production or the customer. What's the secret sauce? "It's leadership," he says. "Give me someone in a management position who understands the business from a financial standpoint." In other words, it's not the data that matter, it's how you use the data to "sell" the total supply chain cost concept to Manufacturing and to the customer.

So how do you sell total cost internally? "Whenever you have to talk about who you are and what you do," Colehower advises, "frame it in one of three ways: cost reduction, service improvement or risk management. Because those are the three things that a businessperson will listen to, and I guarantee you that any businessperson worth their payroll will listen to you talk about one or all three of those." For that reason, Colehower adds, oftentimes Supply Chain's biggest ally is the one person in the enterprise who best understands the numbers game. "The CFO will want to know, if you're talking cost reduction, how you're going to get the cost out, where it's going to hit the balance sheet and when it's going to come in, but if you have the answers to all those questions, that CFO will help champion your cause."

Colehower believes that the same principle applies to conversations with customers. "There's a misperception that the 'big box' retailers are just these big bullies," he says. "But they're not, they're actually just very smart about running a business; when a partner comes and says, 'Let me show you how these four things you are asking for will drive my costs through the roof,' I guarantee they will come to the table to find a solution."