| A | By implication, Supply Chain Management should have a major impact on labor productivity -- namely, using SCM tools and best practices, the SCM effort should always be moving toward optimal efficiency. Efficiency would imply that excess or redundant costs are being squeezed out of the system, while high quality products delivered to the right customers at the right time (and price) would ensure maximum profit. But alas, it doesn't always work this way. First, much depends on how a company defines labor productivity. Consider Ford Motor Co., one of the largest and most capable corporations in the world. Previously, it had executed a strategy to exploit its massive capacity to capture and maintain market share. When Ford did gain market share (and revenue), it could argue that this effort resulted in higher revenue per employee. However, product quality and demand visibility problems resulted in Ford's inventory and asset turns lagging far behind its competitors, while Ford's revenue per employee ratio was not even close to the industry norm. Now, by reducing headcount by roughly 30,000 (10% of its total workforce) and cutting production by 26%, Ford's revenue per employee ratio might move closer in line with the industry. Ultimately, what Ford is attempting is to do far more with much less. It's one thing to cut headcount and eliminate assets, but the only way Ford will achieve these goals is either by charging a lot more for products that have experienced seasonal changes in holding lots, or it can execute a much more effective SCM strategy. Ford has emphasized a return to its roots as a high-quality, well-engineered product provider, so it can be assumed that it will be investing its resources into synchronizing its design and sourcing programs to build high-quality components, and only as many as it needs. Second, the shutdown of over a dozen manufacturing plant ensures a new supply chain design is in the works, where Ford can cut lead times by optimizing production and logistics and more effectively managing inventory. The bottom line is that labor productivity, whether at Ford at one of its third-tier suppliers, is inherently tied to SCM effectiveness. It is naïve to think that Wall Street does not closely monitor revenue per employee figures. However, from an SCM perspective, it's always a matter of ensuring that the right mix of process, skills and technology are being deployed, and being continually measured and improved for success. |