McKesson Corp.'s medical and surgical division had too many distribution centers and its logistics were problematic. It approached the predicament a year ago by gathering data, testing variables and simulating scenarios, all to increase productivity. What McKesson executives concluded was that the company's distribution system was costly and inefficient, and the only way to fix it was to coordinate its supply chain management with its customers and suppliers. Suddenly, the Web was in the mix, and McKesson brought in Web-enabled software first to help it with planning and then ultimately to implement collaboration with its trading

partners. The reward: McKesson was able to cut its square footage by 25% and reduce its annual expenses by $15 million. "The changes improve customer service and lower our operating costs," says Dan Neuwirth, senior vice president of operations for Richmond, Va.-based McKesson.

Throughout the 1990s, when executives discussed supply chain management, they were usually referring to an internal control function–basically an attempt to maintain inventories of production supplies and finished product at optimum levels from both cost and operational perspectives. But industry research began to suggest that companies can really only control about 30% of their supply chain costs; the remaining 70% was in the hands of customers and suppliers. That's when supply chain control started to move beyond the domain of the information technology department and into the CFO's office, out of the confines of a local campus and, via the Web, into the operations of trading partners. "Supply chain management is a team sport, and the CFO is the captain," says David Hough, director of supply chain management for Schaumberg, Ill.-based consulting firm PSC. "By collaborating effectively with their suppliers and customers, companies can reduce cost all along the supply chain. Most software programs available on the market today have some form of Web enablement. Within two years every software package in the marketplace will have some version of Web services enablement."

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