In the summer of 1927, Henry Ford observed the 15-millionth Model T Ford roll off the assembly lines at his Michigan plant. If Ford was still alive today the words supply chain management (SCM) would mean little to him. Every car he made was black and all Ford was interested in was building them and selling them. In those days, the core function of sales and marketing was mere order taking. Distribution was about getting the finished product from A to B.
Almost 80 years later, Ford would turn in his grave because buying not only cars but everything from phones to computers to a pair of jeans is a bespoke exercise — business conducted over the phone or the web could trigger an entire global chain reaction. Click on to the Mini Cooper website (www.mini. com) and you can conjure up your ideal model in terms of exterior, interior and added extras and all the vital parts could be drawn from China to Europe to America manufactured and delivered to the customer’s door. In essence, the very balancing act of modern sales and marketing to managing and sourcing stocks needed to manufacture an item and getting into the marketplace has added the terms logistics and SCM to the business bible.
SCM was seen as a vital component of the post-WWII industrialisation of Japan where the concept of world-class manufacturing originated. Under this strategy all the various components needed for production of a product would arrive on a just-in-time basis for final assembly and shipment to the customer. These principles are viewed as instrumental to the success of computer manufacturer Dell.
Visionaries attempting to define Ireland’s industrial future believe the shift of people-intensive manufacturing to lower-cost economies such as Asia and South America is an opportunity for Ireland to embrace SCM as a component of the vaunted knowledge economy. IDA Ireland is believed to be developing a strategy to position Ireland as a European hub for SCM expertise. It is understood that food giant Kellogg is managing its supply chain for Europe, the Middle East and Africa from Swords, Co Dublin. Industrial equipment manufacturer Ingersoll-Rand is also understood to have established a global SCM hub in Swords.
SCM is not only an area of interest for overseas manufacturers but locally based Irish companies and has been identified by Forfás as a crucial element in the overall ability of businesses to compete successfully in today’s environment. However, despite this there is evidence that few Irish executives actually know what SCM is. Only 7pc of companies are effectively managing their supply chain, according to a Deloitte survey conducted last year. “Effectively managing a complex, global supply chain has a positive impact on a company’s financial performance,” says Ann Potter, a former senior manager at Deloitte who now operates as an independent supply chain consultant.
According to Potter, there are many examples of world-leading SCM excellence in Ireland. However, she believes a large proportion of Irish organisationsunderemphasise the importance of their end-to-end supply chain in favour of a functional focus on silos such as inventory, sales, production, distribution and purchasing. “These Irish organisations may struggle to compete in a world of dispersed global value chains with production and sourcing and increasingly research and development shifting to lower-cost locales,” Potter warns.
Randal Faulkner, director of consulting at the National Institute of Transport and Logistics, agrees. “We surveyed more than 1,000 companies that were representative of all large and small companies on the island and one of the key findings was that multinationals are much more aware of SCM than Irish indigenous companies. “There is a clear link between business performance and SCM awareness — companies that excel in SCM perform better in terms of profitability than those that don’t.”
Faulkner points to another piece of research by French business school INSEAD, which surveyed Fortune 500 companies and established that SCM has improved shareholder value by up to 26pc. “Some 90pc of Fortune 500 CEOs believe SCM is critical to their business going forward.”
Faulkner warns that obvious cracks and under-investment in the nation’s existing transport infrastructure could seriously derail the IDA’s marketing efforts.
John Whelan, chief executive officer of the Irish Exporters Association, says Ireland’s logistical problems are very much a by-product of the nation’s economic success. “Some €136bn worth of goods flow in and out of Ireland every year. Of this €85bn is for export. To keep growing at this level more investment needs to be made, not only in the roads infrastructure, but the railway and ports infrastructure,” Whelan says, echoing Faulkner’s fears about the under-investment. “Belfast, Drogheda and Dublin Ports have capacity problems and new ports proposed for locations such as Balbriggan are at least five years away. Dublin Port Authority has been asking for the go-ahead to develop a 22-hectacre site on reclaimed land since 1973. Dublin’s Port will run out of capacity in 2007 because we won’t be able to handle import-export levels. There is an amazing lack of understanding at government level of the reality of the situation.
“The difficulty is putting all of our eggs in one basket. Some 70pc of the freight generated in Ireland comes through Dublin and there is an over-dependence on our road networks. This is unique in the whole of Europe where governments are pushing to develop their respective railway freight systems to handle logistics. If anything, it appears the Government is intent on decimating our rail freight system. Ten years ago, rail freight accounted for 16pc of all transport volume in the country. Today, it accounts for less than 3pc of transport volume. Private businesses such as Dell and Wyeth are experimenting with rail systems to flow down to Waterford but private companies alone can’t be expected to handle the burden.
“The Government doesn’t appear to appreciate the magnitude of the issue. Taoiseach Bertie Ahern TD established a cross-departmental taskforce a few years ago to advance key transport infrastructure projects, but there is little evidence to suggest this taskforce has been effective … If anything, the logistical efficiency of Ireland has taken a back seat,” Whelan warns.
By John Kennedy