Last Updated 17 May 2021

Supply Chain Management: Overview

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A supply chain is the process of moving goods from the customer order through the raw materials stage. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured.

These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer. Managing the chains of events in this process is what is known as supply chain management. Effective management must take into account coordination all the different pieces of this chain as quickly as possible without losing any of the quality or customer satisfaction. Why supply chain management? In the world, companies are looking across the value of innovation management for strategic growth. The performance of scm outputs are as follows:

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  1. Quality
  2. Time
  3. Continuity of supply
  4. Technology
  5. Quantity

Important of supply chain management: Service orientation: The very basis of supply chains has been to provide superior customer service. Services are all about the value that the customer gets, which in turn depends upon his own perception about what constitutes value. The design, the alignment, the integration of the companies on the supply chain and the coordination between them are all for the customer the ultimate customer. System orientation: System orientation is at the core of the existence of any supply chain.

Synergy due to cooperation and coordination in the main gain of the supply chain. This entails that while getting optimal results for the chain as a whole, the results for the partners on the chain may not necessarily be optimal; these could be less than optimal. But, these are substantial gains for all the parents in working together. The apparent sub-optimal gains for a company in the supply chain could be far better than if it were to operate independently outside of the chain. Competitive and efficiency: The supply chain is a business organization. It provides value to the customer while being competitive.

Competitiveness is essential for it to healthy sustain itself in order to be able to provide increasing value to its customer. Efficiency is an important element of competitiveness. Improving visibility of demand: Efficient supply chain improves visibility of demand by each one of the partners. Improving quality: Efficient supply chain helps in improving the quality of operations of the organizations. Total Quality Management (TQM) has become a major commitment throughout all facets to industry. Overall commitment to TQM is one of the major forces contributing to the logistics renaissance.

Reduces transportation cost: Efficient supply chain reduces the transportation cost, thus helps in increasing efficiency and reduction in carrying cost of the company. the traditional objectives of SCM is to minimize total supply chain cost to meet fixed and given demand, where the total cost is composed of raw material and other acquisition costs, inbound transportation costs, facility investment costs, direct and in direct manufacturing costs, direct and indirect distribution centre costs, inventory holding costs, interfaculty transportation costs, and outbound transportation costs.

Reduces warehousing cost: Efficient supply chain helps in reduction of warehousing cost of the company as there will be less held up of inventory. Rationalize Supplier Base: Organizations that procure commodities or multiple services often find themselves with a range of suppliers. As organisations grow the number of suppliers may have supplier base of tens of thousands of suppliers and this “tall” can become increasingly complex to manage coupled with a relatively poor return from fragmented use of spending power

The measure according to which supply chain performance is judged is still a matter of debate. Financial performance indicators of individual firms in the supply chain will tell the story post facto, but that alone is not enough to give managers information on which to base their actions. Lack of good supply chain metrics has been identified in the literature as one of the major pitfalls of SCM. Others surveys have proposed a number of performance measures.

These include total supply chain cost, process capability, customer retention measures and lead-time as some primary indicators of supply chain management. The total supply chain cost alerts managers to the fact that it is not  Process capability is usually measured in terms of variability of the outcome with respect to the desired target.

Improving process capability is the basic quality control tool that has a long-run impact on effectiveness by reducing wastes and decreasing uncertainty over yields at any stage in conversion. In addition to conversion activities, it is essential to view storage, transportation and other activities also as processes where capability can be built. Customer retention is another attribute that modern supply chain management must explicitly focus, in order to stay competitive.

This captures the value aspects of the supply chain process and must, therefore, be vied in all the dimensions that value implies. For example, if availability or reliable supply is a value, then a measure such as, fill rate may be important which is then translated into a logistical service parameter. LEAD-TIME: Process lead-time is another measure of basic supply chain capability. If process capability the technology and engineering aspect of the activity. Lead-time to deliver a certain promised range of products indicates how quickly and reliably the supply chain can respond to needs as and when they arise.

Which inventories can be contingency plan; process lead times would measure the primary effectiveness of the demand fulfilment process. On the strategic level it is important to know how SCM can contribute to the enterprises basic “value position “to the customers? Important questions that are addressed at the level include: What are the basic and distinctive service needs of the customers? What can SCM do to meet these needs? Can the SCM capabilities be used to provide unique services to the customers?

This is the level where operational details are decided upon. Functional excellence requires that the optimal operating practices for transportation management, warehouse operations, and material management are designed. These strategies should keep in view the trade-offs that may need to be made for the overall efficiency of the system. Achieving functional excellence also entails development of a process-oriented perspective on replenishment and order fulfilment so that, activities involved in these functions can be well integrated.

I Without successful implementation, the development of SCM strategies and plans is meaningless. Of particular importance are the organisational and information systems issue. Organisational issues centre on the, overall structure, individual roles and responsibilities, and measurement systems needed to build an integrated operation. Information systems are “enablers “for supply chain management operations and therefore must be carefully designed to support the SCM strategy.

Supply chain managers must consider their information needs relative to decision support tools, application software’s, data capture, and the system’s overall structure. It is important to note that the decisions made within the SCM strategy, pyramid are interdependent. That is, it must be understood what capabilities and limitations affect the functional and implementation decision and consider those factors while developing supply chain management strategy and structure.

Five fundamental features of supply chain management

  • Single entry Inventory perspective
  • Improving flexibility
  • Reducing lead-times
  • Reducing uncertainties
  • Improving quality
  • Strategic decision making
  • Systems approach

The Issue The company, a market leader, has spent the past seven years restructuring its installed capacity and reducing its cost base in an effort to raise efficiency. Since management expected demand to remain flat, they have continued to focus on these areas. However, the market recently responded with a sharp upswing in demand.

Management planned to capture a large percentage of this growth and use the profits from these sales to finance the additional capacity that this surge would require. The impact on the company was a large and increasing backorder overworked production team, irate customers, and a corresponding increase in late delivery penalties. Management responded by creating a large group within the firm dedicated to expediting “important” orders to minimize the penalties for late penalties paid dynamic that frustrates the firm’s ability to satisfy its clients’ on-time delivery requirements.

Each operational area had its own incentives. The marketing VP was charged with selling as much as he could to maintain or grow market share during this boom period. The production VP, just finishing up a five-year initiative to reduce costs, had eliminated all excess assembly capacity from the system and would bring on additional capacity cautiously. The Approach The company brought in Strategic Clarity to help understand how their business policies affect their ability to take advantage of this changing demand.

Together with the client, Strategic Clarity developed a model that shows the basic Strategic Clarity’s analysis exposed management to the conflict between these policies and how this drove the company to the situation they were suffering. In addition, the modelling process highlighted a critical underlying assumption for management, that assembly capacity grows with sales, which in their reality is not true, since all excess capacity had been “streamlined” out of the system. Small profits would limit the company’s ability to invest in additional capacity and, with sales increasing and assembly stabilizing; orders would be later and later.

Increasing late orders would reduce sales in the future, leaving the newly installed capacity idle. By enabling senior management to visualize the impact their policy decisions might have on the company’s future performance, Strategic Clarity provided the tools and the insight necessary for the company to help create the future it wants. The company used these results to reformulate their sales policy and adjust their investment programs to create a more balanced approach to their challenges of the future.

After validating the model with management, by showing that it accurately replicated the historic results leading up to the present situation, Strategic Clarity worked with the client in using the model to simulate into the future. The simulations showed that, under current policies, sales could increase over the near term but with minimal profit, due to the high cost of expediting and heavy penalties for late orders.

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