Operations

For most companies, the single largest cost category is the total spend with suppliers. However, figuring out how to identify the best areas for supply savings--and then how to measure and report them--presents major challenges. Both understatement and overstatement of supply savings gaps signal the wrong reality, leading to an overemphasis on low-yielding cost saving initiatives, misdirected corporate resources and employees being rewarded for the wrong behavior. Moreover, supply savings gaps conceal the strategic contribution suppliers can provide. In studying the supply management practices at 30 large North American and European companies, the authors identified a variety of measurement and reporting practices for supply savings. They conclude that correct measurement of supply savings is almost impossible and that there are frequently gaps between reported savings and reality. They explore why gaps exist, what practices lead to under- and overstatement of savings, the consequences of poor supply savings measurement and what can be done to recognize supply savings gaps. To overcome the measurement and reporting challenges, the authors recommend that executives do three things: Focus on the total cost of ownership; categorize the different types of savings; and hardwire savings to the budget.

Supply chains should be designed and managed to deliver one or more of six basic outcomes.

How have strategies for supply chain design changed? Two leading thinkers offer insights.

Designers at restaurants and theme parks are leading the way in thinking about how to make waiting in line more pleasant.

Even before launching the MIT Center for Collective Intelligence,Thomas Malone was tryng to imagine how work could one day be done differently. A professor at the MIT Sloan School of Management, he was a founding co-director of the Initiative on Inventing the Organizations of the 21st Century, and in general has continuously explored how "to help society take advantage of the opportunities for organizing itself in new and better ways made possible by technology." Some of those ways offer interesting paths to sustainability but the paths are to sustainability as Malone defines it, which doesn't mean a world in which everything is built to last. "It's often the case that good things are sustainable, but sometimes things are sustainable but not good," he says. "And sometimes things are good but not sustainable." In this installment of the MIT Sustainability Interview series, Malone addresses the mental models that impede management progress, the role of collective intelligence in solving climate problems, and his view of how wrong people are about what business is for. He spoke with MIT Sloan Management Review Editor-in-Chief Michael S. Hopkins.

Receiving information more frequently isn’t always helpful.

When technology changes rapidly, outsourcing looks more attractive.

Spot markets can be used to limit exposure.

Ask any executive to describe how their company interacts with others in their supply chain, and it isn't long before words such as "marriage," "partnership" or "relationship" come up. However, if there is one truism at all about relationships today, it is that of constant communication. Yet in some of the most "strategic" supplier relationships, this simple concept is almost never deployed. The literature on supply chain management offers a range of metrics for suppliers, including "hard" metrics such as cost and quality and "soft" metrics such as service and innovation and the need for sophisticated models to evaluate supplier performance. But where is the discussion of holding the buyer company accountable for its end of the bargain? In very few cases do buyers adhere to supply chain metrics for themselves. Nonetheless, buyers have as much influence as suppliers on the success or failure of a supply chain relationship. Some companies are addressing this notion with mechanisms that emphasize dual accountability. Dual accountability requires a fundamental shift in the psychology of buyer-supplier relationships. Not only is tangible accountability demanded from both partners, but suppliers and buyers also must show greater communication, openness and trust. The article explores the genesis of the dual accountability concept, outlines the benefits -- which range from decreased risk to improved reputation to lower total cost -- and illustrates how dual accountability can be profitably applied by suppliers and buyers working together. One means of achieving dual accountability is the Two-Way Scorecard, a performance tool that measures supplier and buyer results across a balanced set of categories and, within those categories, tailors metrics for each party. As such, it is a concrete means of embedding cooperation in the supplier-buyer relationship. Experiences with implementation of the Two-Way Scorecard and other methods of dual accountability are discussed for Johnson & Johnson Group of Consumer Companies and other corporations. The article offers keys to implementation of dual accountability and discusses the crucial role of technology.

How leading companies use price, speed, quality and flexibility to drive innovation and shareholder value.