The authors propose a new framework for supply chain collaboration that identifies greater profit improvement opportunities than current approaches by providing better financial visibility with more accuracy and by fostering greater partner buy-in. In addition, it is easier to implement and maintain/sustain. Furthermore, the authors explain how a company can implement and roll out this new approach across its supply chain. Profit-Focused Supply Chain Management (PFSCM) leverages the new Time-Driven Activity Based Costing (TDABC) approach, which was discussed in a previous paper published in the November 2004 issue of the Harvard Business Review by Steven R. Anderson and Dr. Robert Kaplan. With this new approach, companies can clearly understand resource consumption within their company and with supply chain partners (e.g. customers and suppliers). Not only does PFSCM allow high level visibility into supply chain performance, but it also allows a company to take a much more granular approach to its supply chain and analyze the inefficient process links that drive the interaction and costs with its supply chain partners. Supply chain partners who have implemented TDABC can share not only their cost metrics (e.g. cost per drop) along process links (e.g. Delivery-Receiving), but also their process models. This allows them to understand how events are driving time spent and resource consumption by each company throughout its process links. Identifying these core process triggers in the supply chain can help align supply chain partners toward capturing enormous profit improvement.
The authors believe that the profit improvement opportunity through this sort of collaboration is larger than the traditional, sometimes adversarial supply chain initiatives previously attempted:
The popular Integrated Supply Model of the 1990’s naively assumed that the supply chain partners all had reliable open systems by which they could easily integrate their transaction data Procurement Programs ignored the fact that the lowest price does not always mean lowest cost, and completely disregarded the importance of relationships within the supply chain And today, the hot Revenue Management and Pricing models are likely to face a similar fate. By focusing entirely on revenue and external demand, companies often disregard cost to serve in the supply chain. This might ultimately bankrupt a company. Furthermore, these bad policies can have a deleterious effect throughout the supply chain To improve a company’s supply chain initiatives, PFSCM recognizes that understanding detailed, accurate transaction time, resource consumption, and cost data along the individual process links is critical to effective and profitable supply chain policies.