Global Logistics and Supply Chain Strategies - June 2008 - (Page 6) Project-Centric Supply Chains, and Their Burdens ere’s a checklist of supply chain management strategies for keeping costs under control: offshore sourcing, production in low-cost countries, inventory optimization, and reining in logistics costs. There are others, of course, but those are key to most enterprises today. That’s because top management in manufacturing routinely measures operational success by how well supply chain costs are minimized. What about in project-centric industries? Consider asset-heavy industries, such as oil drilling, shipbuilding or defense. They have supply chain cost considerations as well. And they need to avoid risk and meet tight deadlines. So, are their issues different from manufacturers’? Or of those in retailing or distribution? Our cover story suggests they are to this extent: they are focused on 100-percent uptime 100 percent of the time. “Certainly cost management is important for these industries,” writes author Tom Foster, “but only in the context of the entire project, not necessarily for daily operations. The penalties of shutting down operations or not meeting deadlines for supply chain failures makes all other costs pale by comparison.” Nevertheless, we find that project-focused industries are learning from the supply chain management practices of others, particularly those in manufacturing. Here’s a major difference in these supply chains. Each project is unique, so each is literally started anew from the ground up. And so is the supply chain that undergirds the project. Our article lists five drivers that describe all challenges faced by project-centric businesses: risk, cost, cash flow, time and resources. “All five of these variables must constantly be H weighed against each other before a major decision is made,” the report says. “For example, a general contractor can reduce risk of missing a project deadline by increasing resources such as materials and labor. That decision will increase costs and reduce cash flow, perhaps jeopardizing the ability to pay key suppliers who could delay further shipments. All factors need to be weighed. “The way in which these drivers interact differs by the type of project and the strategies of companies involved, but they are ever present.” Like others, project managers know about complexity. But here’s the distinction: The complexity of dealing with the variables listed above has made it difficult for project-centric industries to adopt supply systems and processes commonly used by manufacturing companies. The construction industry, for instance, has long used a wide variety of separate systems focused on the needs of single-function silos such as purchasing, engineering, scheduling, payroll, and so on. The evidence suggests, however, that project-centric businesses are trying to do away with silos. And it’s a good thing because project managers increasingly face the same challenges as manufacturers and others: tighter completion deadlines, offshore competition, material cost inflation, labor shortages and pricing compression. Their solutions: visibility and control of the supply chain; communication, trust and collaboration among the partners; and risk management. Project-centric industries may have unique supply chains, but increasingly the problems they face—and the solutions they need—are common to supply chain management professionals across the board. Russell W. Goodman rgoodman@glscs.com 6 JUNE 2008
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