By NICK WREDEN AND MARCUS OSBORNE

IT is probably safe to assume that the supply chain does not
figure strongly at most Malaysian retail firms. After all, in
the last month how many times have you heard the classic line
(normally delivered with an uninterested shrug of the shoulders)
"No stock lah!"?

But there's more to supply chain management than ensuring sales
staff have something to do. SCM is shorthand for the
interconnected coordination of the flow of materials,
information and finances (credit terms, payment schedules, etc.)
as they move in a process from supplier to manufacturer to
wholesaler to retailer to customer.

Without effective SCM, companies cannot deliver on the promises
made to customers.

Just as importantly, ineffective SCM raises costs across the
board. According to the consulting firm A T Kearney, supply
chain inefficiencies can eat up to 25% of a firm's operating
costs.

Poor SCM is the cause of many branding mistakes. Offerings are
advertised without adequate inventory, leading to that all too
familiar refrain "No stock lah, can come back next week?" which
results in unhappy or, more likely, lost customers.

Excess inventory leads to obsolescence or sales at a loss. Late
deliveries disrupt customer schedules. This in turn reduces
profitability, diluting the brand.

Despite the poor performance of global brands such as Sony, GM,
Ford and others that use advertising to build their brands, it
is really sad to hear advertising agencies and brand consultants
still talking about branding in terms of logos, slogans,
positioning, advertising campaigns, static websites and even new
business cards while ignoring the role of operations and supply
chain management (SCM).

Such supply chain failings are common, but not easily fixed due
to enormous complexity - which is often why Malaysian firms
ignore it. However, the problem of sales at a loss will not go
away.

The supply chain is often visualised as serial linkages, like an
assembly line, but actually it is a choreographed network of
interconnected activities, each dealing with uncertainty,
conflicting objectives and resource constraints.

Steve David, CIO of Procter & Gamble, lays out the vision of the
supply chain as a branding tool: "To realise the vision of a
fully integrated and efficient supply chain, we need to have
data visibility across all of the supply chain.

So, when a consumer buys a roll of paper towels, the forest
products company knows immediately they need to cut another tree
to send to the pulp maker who supplies Procter & Gamble so that
we can make another roll of towels to send to the retailer."

Achieving this vision requires progress in three interrelated
areas. The first, of course, is greater use of the Internet to
encourage collaboration and automate transactions within the
supply chain.

Remember that the phenomenal branding ability of the Internet
does not rest on advertising but rather on its capacity to make
supply chain activities transparent.

Second, data integration standards are required. Sometimes, a
powerful industry giant like Wal-Mart can enforce such
standards; other industries may see protocols like XML as a
solution.

Finally, organisational imperatives have to evolve. Companies
with price driven strategies will not work.

Other areas to address include:

"Lean" or agile manufacturing: Most manufacturing today
represents a holdover from the mass economy. By contrast, lean
manufacturing seeks a system so responsive that production can
respond to actual demand, rather than try to predict it.

Lean manufacturing enables short, profitable production runs
with quick changeovers, or machine conversions to manufacture
different products.

Lean manufacturing requires redesigning manufacturing processes,
increased supplier involvement and improved resource planning.
This is a model adopted by Zara, the fastest growing fashion
brand.

Zara has grown at 20% per annum since 1990 and their
double-digit net profit margins are the envy of the industry.

Logistics: Late deliveries are a prime source of customer
unhappiness. Yet, according to an Economist survey of 70 global
companies, only 22% of the companies were consistently able to
deliver on time.

Companies must incorporate transportation management systems for
routing and scheduling, or rely on advanced Fedex and other
carrier capabilities to improve delivery experiences.

Forecasting: Accurate demand forecasting is one of the biggest
supply chain challenges. Poor forecasts lead to lost sales or
profits through excessive inventories. New demand planning
systems can help.

These systems combine sales history, promotional plans and other
information with sophisticated algorithms to predict demand for
each product, reducing the possibility of over- or
underproduction.

The best forecasts are achieved with close supplier and customer
collaboration.

The payoffs from these initiatives can be substantial,
especially since it is estimated that supply chain costs form
50% to 75% of a product's final price.

According to the consultancy FinListics Solutions, reducing SCM
costs at a typical US$5bil company would increase annual profits
by US$20mil.

Additionally, supply chain improvements also contribute to
accountability, still being ignored in most branding
discussions.

Measurement can encompass three areas: performance, including
order fill rates and return rates; cost savings, including
inventory turns; and capital efficiency, including percentage of
work-in-progress inventory to total inventory.

In the mass economy, marketing departments could build brands
through "positioning," advertising and other tactics.

In today's New Economy, it requires an organisational effort to
build a brand based on relationships. In the emerging economy,
branding will require the coordinated efforts of the whole
organisation.

· Nick Wreden and Marcus Osborne are joint managing directors of
Fusion Brand, a brand consultancy headquartered in Kuala Lumpur.
Nick's latest book, ProfitBrand: Building the Profitability,
Accountability & Sustainability of Brands, will be available
mid-August 2005. For more information, please contact +6 03 7954
2075. Alternatively, e-mail marcus@fusionbrand.com or
nick@fusionbrand.com. Or visit www.fusionbrand.com