The Other End of the Supply Chain

The Other End of the Supply Chain is a supply chain management article co-written by several consultants from McKinsey's Helsinki and Copenhagen offices. Originally titled The Other End of the Supply Chain, the Chinese version appeared in McKinsey High-Level Management Review, 2000, No. 1, and has since circulated widely in Chinese management circles as a short piece, often included in electronic collections such as "world bestsellers." It runs only eight or nine pages. The problem the article addresses is specific: in the past, suppliers transforming their supply chains tended to focus only on their own end—cutting inventory, shortening production cycles, reducing product variety—yet from the customer's end these moves add little value and may even lengthen delivery times. The authors propose viewing the "supply chain" and the "demand chain" together as a so-called "demand-supply chain," and aligning buyer and seller on the same map through two key connection points: the order penetration point (OPP), where the supplier allocates goods to customer orders—make-to-stock or make-to-order—and the value delivery point, where the supplier truly creates value for the customer. The article argues that the spread of ERP systems and the rise of the Internet have greatly lowered the cost and difficulty of exchanging data between companies, so suppliers can now do more than serve as price comparisons; they can delve into customers' demand-chain activities such as item planning and inventory management, improving customers' operating performance and escaping the commodity price trap. The real difficulty is not technology but redesigning win-win supply chain solutions for specific customers. The article is short but explains clearly the logic of how suppliers can move from cost centers to value creators.