Unit 1 Supply Chain & Logistics Management KMBN OM01

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Supply Chain & Logistics Management (KMBN OM01)

Unit 1

Supply Chain Concepts: Objectives of a Supply Chain


Supply Chain

A supply chain is a network between a company and its suppliers to produce and distribute a specific product to
the final buyer. This network includes different activities, people, entities, information, and resources. The
supply chain also represents the steps it takes to get the product or service from its original state to the
customer.

Supply chains are developed by companies so they can reduce their costs and remain competitive in the
business landscape.

A supply chain involves a series of steps involved to get a product or service to the customer. The steps include
moving and transforming raw materials into finished products, transporting those products, and distributing
them to the end user. The entities involved in the supply chain include producers, vendors, warehouses,
transportation companies, distribution centers, and retailers.

The elements of a supply chain include all the functions that start with receiving an order to meeting the
customer’s request. These functions include product development, marketing, operations, distribution, finance,
and customer service.

 A supply chain is a network between a company and its suppliers to produce and distribute a specific
product or service.

 The entities in the supply chain include producers, vendors, warehouses, transportation companies,
distribution centers, and retailers.

 The functions in a supply chain include product development, marketing, operations, distribution,
finance, and customer service.

 Supply chain management results in lower costs and a faster production cycle.

The objective of a supply chain

The objective of every supply chain is to maximize the overall value generated. The value of a supply chain
generates is the difference between what the final product is worth to the customer and the effort of the supply
chain expands in filling the customer’s request. For most commercial supply chains, the value will be strongly
correlated with supply chain profitability, the difference between the revenue generated from the customer and
the overall cost across the supply chain.

For most commercial supply chains, the value will be strongly correlated with supply chain profitability, the
difference between the revenue generated from the customer and the overall cost across the supply chain.

For example, a customer purchasing a computer from Dell pays Rs.20,000 which represents the revenue the
supply china receives. Dell and other stages of the supply chain incur costs to convey information, produce
components, store them, transport them, transfer funds, and so on.
The difference between the Rs.20,000 that the customer paid and the sum of all costs incurred by the supply
chain to produce and distribute the computer represents the supply chain profitability. Supply chain profitability
is the total profit to be shared across all supply chain. Supply chain success should be measured in terms of
supply chain profitability and not in terms of the profits at an individual stage.

Stages of Supply Chain


Supply chain management encompasses such a wide range of functions that it can seem daunting, even to the
most experienced international businessperson. However, the process can be effectively modelled by breaking it
down into several main strategic areas. One common and very effective model is the Supply Chain Operations
Reference (SCOR) model, developed by the Supply Chain Council to enable managers to address, improve and
communicate supply chain management practices effectively. The SCOR model runs through five supply chain
stages: Plan, Source, Make, Deliver, and Return.

Stage 1: Plan

Planning involves a wide range of activities. Companies must first decide on their operations strategy. Whether
to manufacture a product or component or buy it from a supplier is a major decision. Companies must weigh the
benefits and disadvantages of different options presented by international supply chains.

Options include:
 Manufacturing a product component domestically
 Manufacturing a component in a foreign market by setting up international production facilities
 Buying a component from a foreign supplier
 Buying a component from a domestic supplier
If companies are manufacturing products, they must decide how they will be produced.
Goods can be:
 Make to stock (produced and stored, awaiting customer orders);
 Make to order (constructed in response to a customer order);
 Configure to order (partially manufactured the product and completed it after a firm customer order is
received); or
 Engineer to order (manufactured a product to unique specifications provided by a customer).
Sometimes, goods can be produced by a combination of these methods. Companies must also decide whether
they will outsource manufacturing. This operations planning is essential because these decisions influence the
supply chain.
Planning also involves mapping out the network of manufacturing facilities and warehouses, determining the
levels of production and specifying transportation flows between sites. It also involves assessing how to
improve the global supply chain and its management processes.

When planning, companies should ensure that their supply chain management strategies align to business
strategies, that communication plans for the entire supply chain are decided and that methods of measuring
performance and gathering data are established before planning begins.

Stage 2: Source

This aspect of supply chain management involves organizing the procurement of raw materials and
components. Procurement is the acquisition of goods and services at the best possible price, in the right quantity
and at the right time.

When sources have been selected and vetted, companies must negotiate contracts and schedule deliveries.
Supplier performance must be assessed and payments to the suppliers made when appropriate. In some cases,
companies will be working with a network of suppliers. This will involve working with this network, managing
inventory and company assets and ensuring that export and import requirements are met.

Stage 3: Make

This stage is concerned with scheduling of production activities, testing of products, packing and release.
Companies must also manage rules for performance, data that must be stored, facilities and regulatory
compliance.

Stage 4: Deliver

The delivery stage encompasses all the steps from processing customer inquiries to selecting distribution
strategies and transportation options. Companies must also manage warehousing and inventory or pay for a
service provider to manage these tasks for them.

The delivery stage includes any trial period or warranty period, customers or retail sites must be invoiced and
payments received, and companies must manage import and export requirements for the finished product.

Stage 5: Return

Return is associated with managing all returns of defective products, including identifying the product
condition, authorizing returns, scheduling product shipments, replacing defective products and providing
refunds.

Returns also include “end-of-life” products (those that are in the end of their product lifetime and a vendor will
no longer be marketing, selling, or promoting a particular product and may also be limiting or ending support
for the product).

Companies must establish rules for the following:


 Product returns
 Monitoring performance and costs
 Managing inventory of returned product
Value Chain Process
A value chain is a business model that describes the full range of activities needed to create a product or service.
For companies that produce goods, a value chain comprises the steps that involve bringing a product from
conception to distribution, and everything in between—such as procuring raw materials, manufacturing
functions, and marketing activities.
A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its
business. The purpose of value-chain analyses is to increase production efficiency so that a company may
deliver maximum value for the least possible cost.
Components of a Value Chain
In his concept of a value chain, Porter splits a business’s activities into two categories, “primary” and “support,”
whose sample activities we list below. Specific activities in each category will vary according to the industry.
Primary activities consist of five components, and all are essential for adding value and creating a competitive
advantage:
(i) Inbound logistics
Functions like receiving, warehousing, and managing inventory.
(ii) Operations
Procedures for converting raw materials into finished product.
(iii) Outbound logistics
Activities to distribute a final product to a consumer.
(iv) Marketing and sales
Strategies to enhance visibility and target appropriate customers—such as advertising, promotion, and pricing.
(v) Service
Programs to maintain products and enhance consumer experience—customer service, maintenance, repair,
refund, and exchange.
Support Activities
The role of support activities is to help make the primary activities more efficient. When you increase the
efficiency of any of the four support activities, it benefits at least one of the five primary activities. These
support activities are generally denoted as overhead costs on a company’s income statement:
(i) Procurement
How a company obtains raw materials.
(ii) Technological development
Used at a firm’s research and development (R&D) stage—designing and developing manufacturing techniques;
and automating processes.
(iii) Human resources (HR) management
Hiring and retaining employees who will fulfill business strategy; and help design, market, and sell the product.
(iv) Infrastructure
Company systems; and composition of its management team—planning, accounting, finance, and quality
control.
VALUE CHAIN PROCESS
Step 1 – Identify sub activities for each primary activity
For each primary activity, determine which specific sub activities create value. There are three different types of
sub activities:-
(i) Direct activities: Create value by themselves. For example, in a book publisher’s marketing and sales
activity, direct sub activities include making sales calls to bookstores, advertising, and selling online.
(ii) Indirect activities: Allow direct activities to run smoothly. For the book publisher’s sales and marketing
activity, indirect sub activities include managing the sales force and keeping customer records.
(iii) Quality assurance: Activities ensure that direct and indirect activities meet the necessary standards. For
the book publisher’s sales and marketing activity, this might include proofreading and editing advertisements.
Step 2 – Identify sub activities for each support activity.
For each of the Human Resource Management, Technology Development and Procurement support activities,
determine the sub activities that create value within each primary activity. For example, consider how human
resource management adds value to inbound logistics, operations, outbound logistics, and so on. As in Step 1,
look for direct, indirect, and quality assurance sub activities.
Then identify the various value-creating sub activities in your company’s infrastructure. These will generally be
cross-functional in nature, rather than specific to each primary activity. Again, look for direct, indirect, and
quality assurance activities.
Step 3 – Identify links
Find the connections between all of the value activities you’ve identified. This will take time, but the links are
key to increasing competitive advantage from the value chain framework. For example, there’s a link between
developing the sales force (an HR investment) and sales volumes. There’s another link between order
turnaround times, and service phone calls from frustrated customers waiting for deliveries.
Step 4 – Look for opportunities to increase value
Review each of the sub activities and links that you’ve identified, and think about how you can change or
enhance it to maximize the value you offer to customers (customers of support activities can be internal as well
as external).
Cycle view of Supply Chain Process

Supply Chain is a sequence of processes and flows that take place within and between different stages and
combine to fill a customer need for a product. The processes in a Supply Chain are divided into series of cycles,
each performed at the interface between two successive stages of a Supply Chain. Cycle view of Supply Chain
is useful in making operational decisions as role of each member of Supply Chain is clearly defined.
Key Issues in SCM

Key Issue #1: Globalization


Globalization presents several critical supply chain management challenges to enterprises and organizations:
First, to reduce costs across the supply chain, enterprises are moving manufacturing operations to countries
which offer lower labor costs, lower taxes, and/or lower costs of transport for raw materials. For some
companies, outsourcing production involves not only a single country, but several countries for different parts
of their products.
However, outsourcing not only extends the production process globally, but also the company’s procurement
network. Having suppliers in different geographic locations complicates the supply chain. Companies will have
to deal with, coordinate, and collaborate with parties across borders regarding manufacturing, storage, and
logistics. Furthermore, they have to extend or maintain fast delivery lead times to customers who want to
receive their products on schedule despite the increased complexity in the manufacturer’s supply chains.
Finally, they also have to maintain real-time visibility into their production cycle — from raw materials to
finished goods — to ensure the efficiency of their manufacturing processes.
Second, as companies expand sales into global markets, localization of existing products requires a significant
change in the supply chain as companies adapt their products to different cultures and preferences. There is an
inherent risk of losing control, visibility, and proper management over inventory , especially if enterprise
applications are not integrated. This requires managing diverse structures of data across geographies
effectively. For example: many manufacturers in Asia still handle trading partner communications via fax and
email while suppliers in North America and Europe have utilized EDI for decades. As technology matures,
suppliers in emerging markets may skip EDI altogether and move to a more modern API driven approach to
communication just as developing countries have skipped land lines in favor cell phones.
Supply chain practitioners need to ask if their enterprise technology is prepared to handle these diverse forms of
communication that arise from Globalization, and build a business case to stay prepared.

Key Issue #2: Fast-changing Markets


According to EduCBA, consumer behavior is affected by cultural, social, personal, and psychological factors
that are quickly being changed by technology and globalization. Social media is creating new pressures for
consumers to conform while putting pressure on enterprises to utilize these sources of information to respond to
changing preferences in order to stay interesting and relevant.
Like globalization, the fast-changing consumer market also brings with it supply chain management challenges:
First, products have shorter life cycles due to rapidly changing market demands. Enterprises are under pressure
to keep up with the latest trends and innovate by introducing new products, while keeping their total
manufacturing costs low because they understand that trends will not last for a long time. This also demands a
flexible supply chain that can be utilized for manufacturing other products and for future projects.
Second, aside from new products, companies also need to constantly update product features. Enhancing
product features requires enterprises to redesign their supply chain to accommodate product changes.
Finally, innovation presents a challenge in forecasting demand for new products. The constant innovation
necessitated by fast-changing markets also means enterprises will constantly have to anticipate demand for new
products. Enterprises need to create and maintain an agile supply chain that can respond well to spikes and dips
in demand and production needs.
Companies should be asking if they have all the data needed to make planning decisions to address challenges
created by fast-changing markets. For example, if stated lead times from suppliers are longer than actual times,
this will lead to higher inventory levels than are actually required and affect costly decisions around network
planning and optimization. Omni channel retail has reated silos of sales data that have to be blended and
harmonized to detect demand signals earlier in the planning process as well.

Key Issue #3: Quality and Compliance


Aside from influencing consumer behavior, social media highlights the importance of having high-quality
products. According to research conducted by eMarketer, reading reviews, comments, and feedback is the top
social media activity that influences online shopping behavior. Furthermore, social media has not only raised
consumers’ expectations of product quality, but has also amplified the damages caused by product recalls. Thus,
enterprises are under increasing pressure to create high-quality products and to create them consistently. They
can do so by addressing quality at every level of the supply chain, such as raw materials procurement,
manufacturing, packaging, logistics, and product handling.
Product quality often goes hand-in-hand with compliance. Enterprises need to ensure that they meet local and
international regulatory standards in manufacturing, packaging, handling, and shipping of their products. Aside
from passing quality control and safety tests, enterprises are also required to prepare compliance documents
such as permits, licenses, and certification which can overwhelm them and their supply chain management
systems.
Emerging capabilities like IoT, Smart Packaging, and Block chain are changing how compliance is enforced
and measured. However, these innovations will produce streams of data that can’t be handled with the
enterprise technology of the past 20 years. Managers should carefully consider where these investments make
sense and asking IT if the business is utilizing platforms based on micro-services and big data to support these
heavy data lifting requirements.
Supply Chain Drivers and Obstacles
Supply Chain Drivers
Supply chain capabilities are guided by the decisions you make regarding the five supply chain drivers. Each of
these drivers can be developed and managed to emphasize responsiveness or efficiency depending on changing
business requirements.
The five drivers provide a useful framework for thinking about supply chain capabilities. Decisions made about
how each driver operates will determine the blend of responsiveness and efficiency a supply chain is capable of
achieving. The five drivers are illustrated in the diagram below:
1. PRODUCTION
This driver can be made very responsive by building factories that have a lot of excess capacity and use flexible
manufacturing techniques to produce a wide range of items. To be even more responsive, a company could do
their production in many smaller plants that are close to major groups of customers so delivery times would be
shorter. If efficiency is desirable, then a company can build factories with very little excess capacity and have
those factories optimized for producing a limited range of items. Further efficiency can also be gained by
centralizing production in large central plants to get better economies of scale, even though delivery times
might be longer.
2. INVENTORY
Responsiveness can be had by stocking high levels of inventory for a wide range of products. Additional
responsiveness can be gained by stocking products at many locations so as to have the inventory close to
customers and available to them immediately. Efficiency in inventory management would call for reducing
inventory levels of all items and especially of items that do not sell as frequently. Also, economies of scale and
cost savings can be gotten by stocking inventory in only a few central locations such as regional distribution
centers (DCs).
3. LOCATION
A location decision that emphasizes responsiveness would be one where a company establishes many locations
that are close to its customer base. For example, fast-food chains use location to be very responsive to their
customers by opening up lots of stores in high volume markets. Efficiency can be achieved by operating from
only a few locations and centralizing activities in common locations. An example of this is the way e-
commerce retailers serve large geographical markets from only a few central locations that perform a wide
range of activities.
4. TRANSPORTATION
Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks and airplanes.
Many companies that sell products through catalogs or on the Internet are able to provide high levels of
responsiveness by using transportation to deliver their products often within 48 hours or less. FedEx and UPS
are two companies that can provide very responsive transportation services. And now Amazon is expanding and
operating its own transportation services in high volume markets to be more responsive to customer desires.
Efficiency can be emphasized by transporting products in larger batches and doing it less often. The use of
transportation modes such as ship, railroad, and pipelines can be very efficient. Transportation can also be made
more efficient if it is originated out of a central hub facility or distribution center (DC) instead of from many
separate branch locations.
5. INFORMATION
The power of this driver grows stronger every year as the technology for collecting and sharing information
becomes more wide spread, easier to use, and less expensive. Information, much like money, is a very useful
commodity because it can be applied directly to enhance the performance of the other four supply chain
drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely
data generated by the operations of the other four drivers. An example of this is the supply chains that serve the
electronics market; they are some of the most responsive in the world. Companies in these supply chains, the
manufacturers, distributors, and the big retailers all collect and share data about customer demand, production
schedules, and inventory levels. This enables companies in these supply chains to respond quickly to situations
and new market demands in the high-change and unpredictable world of electronic devices (smart phones,
sensors, home entertainment and video game equipment, etc.).

Obstacles to Achieving Strategic Fit


Increasing Variety of Products: In the era of mass customization production variety is increasing.
The customers becoming increasingly demanding. Today’s customers are demanding faster fulfillment, better
quality, and better performing products for the same price that they are paying today.
The supply chain is getting fragmented. At one time vertical integration was the order of the day. But the
present trend is to concentrate on core competence and outsource more activities. Thus the supply chain is more
fragmented now.
Globalization is creating global supply chains and hence physical distance is increasing between a company and
its suppliers and a company and its customers.
While creating a strategy is difficult, executing it is much more difficult. Many companies understand Toyota
Production System now, but still find it difficult to implement and operate.

Supply Chain Strategies


Supply chain and logistics improvements are neither easy nor inexpensive. Better strategic and operational
investments and decisions in supply chain and logistics can help to reduce cost by 10% to 40%, and also to
grow overall corporate revenues through enhanced customer service and demand management.
A supply chain strategy is a plan for managing the flow of goods, services, and information from the point of
origin to the point of consumption. The purpose of a supply chain strategy is to align the supply chain with the
business strategy, enabling the organization to create value for customers and gain a competitive advantage in
the marketplace. In this article, we will discuss the components of a supply chain strategy and how
organizations can develop and implement an effective supply chain strategy.

Components of a Supply Chain Strategy

Alignment with Business Strategy


The first component of a supply chain strategy is alignment with the business strategy. A supply chain strategy
should be developed in conjunction with the overall business strategy, ensuring that the supply chain supports
the organization’s goals and objectives. This includes identifying the key drivers of supply chain performance,
such as cost, quality, delivery, and responsiveness, and developing strategies to optimize each of these areas.

Network Design
The second component of a supply chain strategy is network design. This involves determining the optimal
structure of the supply chain, including the number and location of facilities, the mode of transportation, and the
allocation of inventory. The goal of network design is to create a supply chain that is efficient, flexible, and
responsive to customer needs.
Supplier Management
The third component of a supply chain strategy is supplier management. This involves selecting and managing
suppliers to ensure that they meet the organization’s requirements for quality, cost, and delivery. Effective
supplier management includes developing strong relationships with suppliers, monitoring supplier performance,
and collaborating with suppliers to improve supply chain performance.
Demand Management
The fourth component of a supply chain strategy is demand management. This involves understanding customer
needs and developing strategies to meet those needs. Effective demand management includes developing
accurate demand forecasts, managing demand variability, and collaborating with customers to improve supply
chain performance.
Inventory Management
The fifth component of a supply chain strategy is inventory management. This involves managing inventory
levels to ensure that the right products are available at the right time and in the right quantity. Effective
inventory management includes developing accurate inventory forecasts, managing inventory variability, and
optimizing inventory levels to minimize costs and maximize service levels.
Logistics Management
The sixth component of a supply chain strategy is logistics management. This involves managing the movement
of goods and information through the supply chain. Effective logistics management includes selecting the
optimal mode of transportation, managing transportation costs, and optimizing the flow of goods through the
supply chain.
Performance Measurement and Improvement
The final component of a supply chain strategy is performance measurement and improvement. This involves
measuring and monitoring supply chain performance and using that information to identify areas for
improvement. Effective performance measurement includes developing key performance indicators (KPIs),
monitoring KPIs, and using the results to improve supply chain performance.

Developing a Supply Chain Strategy

Define the Business Strategy


The first step in developing a supply chain strategy is to define the business strategy. This involves identifying
the organization’s goals and objectives, as well as the key drivers of supply chain performance. For example, if
the organization’s goal is to provide high-quality products at a low cost, the supply chain strategy should focus
on reducing costs while maintaining quality.
Conduct a Supply Chain Analysis
The second step in developing a supply chain strategy is to conduct a supply chain analysis. This involves
analyzing the organization’s current supply chain to identify strengths, weaknesses, opportunities, and threats.
The analysis should include a review of the organization’s supply chain structure, supplier performance,
demand patterns, inventory levels, logistics performance, and overall supply chain costs.

Define the Supply Chain Strategy


The third step in developing a supply chain strategy is to define the supply chain strategy. This involves
identifying the key components of the supply chain strategy, including network design, supplier management,
demand management, inventory management, logistics management, and performance measurement and
improvement. The supply chain strategy should be aligned with the business strategy and should address the
key drivers of supply chain performance.
Develop an Implementation Plan
The fourth step in developing a supply chain strategy is to develop an implementation plan. This involves
identifying the resources required to implement the supply chain strategy, including people, technology, and
infrastructure. The implementation plan should include timelines, milestones, and performance metrics to
measure progress and ensure that the supply chain strategy is being implemented effectively.
Implement the Supply Chain Strategy
The fifth and final step in developing a supply chain strategy is to implement the supply chain strategy. This
involves executing the implementation plan and monitoring progress to ensure that the supply chain strategy is
achieving its goals and objectives. Continuous improvement should be built into the implementation process to
ensure that the supply chain strategy remains effective over time.

Best Practices for Supply Chain Strategy

Collaborate with Suppliers and Customers


One of the best practices for supply chain strategy is to collaborate with suppliers and customers. By working
together with suppliers and customers, organizations can improve supply chain performance and create value
for all stakeholders. Collaboration can include sharing information, developing joint forecasts, and working
together to improve processes.
Use Technology to Improve Visibility
Another best practice for supply chain strategy is to use technology to improve visibility. This includes using
tools such as RFID, GPS, and real-time data analytics to track inventory levels, monitor transportation routes,
and optimize supply chain performance. Technology can also be used to improve communication between
suppliers and customers, enabling faster and more accurate decision-making.
Build Resilience into the Supply Chain
A third best practice for supply chain strategy is to build resilience into the supply chain. This involves
developing contingency plans for potential disruptions, such as natural disasters, geopolitical events, or supplier
bankruptcies. Resilience can be built into the supply chain by diversifying suppliers, developing redundant
transportation routes, and maintaining adequate inventory levels.
Develop a Culture of Continuous Improvement
Finally, a best practice for supply chain strategy is to develop a culture of continuous improvement. This
involves encouraging employees to identify opportunities for improvement and to implement changes that will
improve supply chain performance. Continuous improvement can be facilitated by developing performance
metrics, establishing cross-functional teams, and providing training and development opportunities for
employees.
Developing Supply Chain Strategy
Supply chain management is a critical component of modern business operations. A well-designed and
managed supply chain can provide organizations with a competitive advantage by enabling them to reduce
costs, improve quality, and enhance customer satisfaction. However, developing an effective supply chain
strategy requires a deep understanding of the organization’s business strategy, industry dynamics, and the needs
and preferences of customers. In this article, we will explore the key steps involved in developing a supply
chain strategy.
Step 1: Understand the Business Strategy
The first step in developing a supply chain strategy is to understand the organization’s business strategy. This
involves identifying the organization’s mission, goals, and objectives, as well as its competitive environment
and market position. By understanding the business strategy, supply chain managers can align the supply chain
strategy with the organization’s broader goals and objectives.
For example, if the organization’s business strategy is focused on differentiation, the supply chain strategy
should be designed to support the development and delivery of unique and high-quality products or services. On
the other hand, if the organization’s business strategy is focused on cost leadership, the supply chain strategy
should be designed to achieve operational efficiency and cost savings.
Step 2: Assess the Supply Chain
The next step in developing a supply chain strategy is to assess the current state of the supply chain. This
involves identifying the strengths and weaknesses of the existing supply chain, including the performance of
suppliers, manufacturers, distributors, and logistics providers. The assessment should also consider the costs
and risks associated with the supply chain.
One useful tool for assessing the supply chain is the supply chain maturity model. This model categorizes
supply chains into four levels of maturity based on their level of integration and sophistication:
 Level 1: Fragmented supply chain with little integration or coordination between stakeholders.
 Level 2: Coordinated supply chain with some integration and coordination between stakeholders.
 Level 3: Integrated supply chain with a high level of integration and coordination between stakeholders.
 Level 4: Agile supply chain with real-time integration and coordination between stakeholders.
By assessing the current state of the supply chain, supply chain managers can identify areas for improvement
and develop strategies to enhance the performance and efficiency of the supply chain.
Step 3: Define Supply Chain Objectives
Once the business strategy and the current state of the supply chain have been assessed, the next step is to
define the supply chain objectives. These objectives should be aligned with the organization’s business strategy
and should reflect the desired outcomes of the supply chain.
Some common supply chain objectives include:
 Cost reduction: The supply chain should be designed to minimize costs while maintaining quality and
service levels.
 Customer satisfaction: The supply chain should be designed to meet the needs and preferences of
customers, including timely delivery, quality products, and responsive customer service.
 Operational efficiency: The supply chain should be designed to achieve operational efficiency by
reducing lead times, inventory levels, and other inefficiencies.
 Risk management: The supply chain should be designed to mitigate risks, including disruptions, delays,
and quality issues.
By defining clear and specific supply chain objectives, supply chain managers can develop strategies and tactics
to achieve these objectives.
Step 4: Develop Supply Chain Strategies
The next step in developing a supply chain strategy is to develop strategies to achieve the defined objectives.
These strategies should be aligned with the organization’s business strategy and should reflect the strengths and
weaknesses of the existing supply chain.

Some common supply chain strategies include:


 Procurement strategy: The procurement strategy should focus on identifying and selecting suppliers
that provide high-quality materials and components at a competitive price. The procurement strategy
should also consider factors such as supplier diversity, sustainability, and risk management.
 Production strategy: The production strategy should focus on optimizing the production process to
minimize lead times, reduce costs, and improve quality. This may involve the use of lean manufacturing
principles, automation, or other process improvements.
 Inventory strategy: The inventory strategy should focus on minimizing inventory levels while ensuring
that sufficient inventory is available to meet customer demand. This may involve the use of just-in-time
(JIT) inventory systems or other inventory optimization techniques.
 Logistics strategy: The logistics strategy should focus on optimizing the transportation and distribution
of products to minimize lead times, reduce costs, and improve service levels. This may involve the use
of third-party logistics (3PL) providers, intermodal transportation, or other logistics optimization
techniques.
 Collaboration strategy: The collaboration strategy should focus on building strong relationships with
suppliers, customers, and other stakeholders in the supply chain. This may involve the use of
collaborative planning, forecasting, and replenishment (CPFR) or other collaborative initiatives.
By developing clear and specific supply chain strategies, supply chain managers can ensure that the supply
chain is aligned with the organization’s broader goals and objectives.
Step 5: Implement and Monitor the Supply Chain Strategy
The final step in developing a supply chain strategy is to implement and monitor the strategy. This involves
implementing the strategies and tactics developed in the previous step and monitoring their performance to
ensure that the objectives are being met.
To implement the supply chain strategy, supply chain managers may need to make changes to the
organization’s processes, systems, or infrastructure. For example, implementing a new procurement strategy
may require changes to the procurement process or the adoption of new procurement systems. Similarly,
implementing a new logistics strategy may require changes to the transportation and distribution systems.
Once the supply chain strategy has been implemented, it is important to monitor its performance to ensure that
the objectives are being met. This may involve the use of key performance indicators (KPIs) such as:
 Cost per unit
 Order lead time
 On-time delivery
 Inventory turnover
 Customer satisfaction
By monitoring the performance of the supply chain and adjusting the strategy as needed, supply chain managers
can ensure that the supply chain remains aligned with the organization’s business strategy and continues to
deliver value to the organization.

Best Practices in SCM

“The major trends in business right now — low-cost country sourcing, outsourcing, customization,
globalization — all create tremendous complexities in a supply chain,” said Steve Matthesen, vice president and
global leader for supply chain at Boston Consulting Group, in a special business operations report. “In most
cases, however, companies have not changed how they manage this critical part of the business.

According to the Indian Institute of Materials Management, “Business today is in a global environment [and]
companies are going truly global with Supply Chain Management (SCM)… Companies have changed the ways
in which they manage their operations and logistics activities. Changes in trade, the spread and modernization
of transport infrastructures and the intensification of competition have elevated the importance of flow
management to new levels.”
The following best practices in supply chain management offer a critical look at best-in-class manufacturers and
what they are doing to implement the most effective supply chains.
1. Set up your supply chain council
Without an internal council of leaders in place, your supply chain may lack a clear strategy for efficiency and
functionality. There’s also a good chance an existing supply chain strategy will not align with the company’s
overall strategy if your organization doesn’t have a governing body to synchronize the two. For example, if a
company goal is to improve inventory turns, your supply chain probably shouldn’t take in a container of raw
material requiring about 12 months to consume. By supporting your supply chain with a council of executive
leadership and lower level management, your council can improve cross-functional communication and
demonstrate the value of an organized supply chain — two barriers to success that often hinder operations
without a supply chain council.
2. Establish an appropriate and thoughtfully staffed supply chain structure.
Ideally, your supply chain will be staffed and structured in a way that maximizes effectiveness as well as
efficiency in order to bring the most benefit to your organization. Most organizations these days find that a
centralized strategy, implemented by specialized managers in their various business units is the most optimal
approach. Reportedly, this combination leads to more harmony between strategy and implementation, while
also resulting in the best service. In staffing your supply chain, you should be more focused on strategy than
simply transactional ability with your top leadership. These leaders should extend this strategic thinking toward
creating value using strong interpersonal skills (such as communication and relationship management)
internally as well as externally.
3. Identify areas where technology can help improve and streamline processes.
Approximately 79 percent of supply chain enterprises surveyed worldwide fault manually driven processes as
the cause for continued lack of supply chain visibility. Lack of visibility and another global concern, the
uncoordinated nature of supply chain processes can be solved with the automation provided by technology: “On
average, large companies report that their international supply chains are only 50 percent as automated as their
domestic supply chains. Overall, only 6 percent of companies report that they have highly automated end-to-end
and cross-functional processes.” Although improving efficiency in your supply chain is a key concern when
selecting software and technology, it’s backwards to structure your processes around technology. Instead,
review processes that are producing below standard to determine areas where technology can help improve, and
then select your software solutions to fit those needs. With appropriate technology in place, detailed reporting
data will be more accessible and accurate to better inform the supply chain council for performance measures as
well as strategic planning.
4. Maintain healthy supplier relationships
An important indicator of success in this industry is the health of your supplier relationships. These connections
should be maintained and cultivated on an ongoing basis, beyond the finalization of your deal. The best supplier
relationships are the ones with two-way communication between the buyer and seller. Your objectives should
include mechanism(s) to maintain the health of your relationship, goals for continuing improvement and value,
performance measurement and a platform for conflict resolution.
5. In procurement, look at total cost of ownership over price
Follow the example of best-in-class companies, and move away from the procurement practice of selecting a
supplier based completely on price. Instead, strategic sourcing involves understanding the total cost of
ownership/consumption (TCO) of a product or service. This makes more business sense when you remember
that the cost of acquisition for most products and services is only 25 to 40 percent of the TCO, while the rest is
comprised of operating, warehousing, and transportation costs, to name a few. Not surprisingly, your
procurement teams will need more collaboration with your suppliers in order to determine an accurate TCO.
6. Source suppliers strategically and with collaboration
Strategic selection of suppliers is at the heart of successful supply chain management, and adding a
collaborative element to strategic sourcing produces even better results. In a 2009 Industry Week article, J. Paul
Dittmann of the University of Tennessee noted that successful supply chains are proficient in five key pillars of
excellence: Talent, technology, internal collaboration, external collaboration, and change management.
Collaboration is at the heart. Take your sourcing beyond the purchasing department to engage your suppliers in
the decision-making process. Solicit their feedback on all areas of internal business or function that may affect
the success of your initiatives or processes. With collaborative strategic sourcing, you’ll enjoy streamlined
operations, reduced costs, and improved responsiveness.
7. Move contract management responsibility to the supply chain
Although potential savings are often negotiated during the procurement process, they are rarely fully realized.
This is most commonly because of a lapse in communication or lack of follow-through on contract compliance.
To combat this and actually realize those cost savings, best-in-class companies move contract management
under the supply chain. This allows the supply chain leader to leverage spend where there is greater opportunity
for reducing costs and mitigating risk, usually with services.
8. Optimize inventory for reduced cost
In any business, there’s a desire to reduce costs and improve the bottom line. This is especially true in times of
global economic downturn, like the one we’re currently subject to. In light of and in support of these efforts,
supply chain management should include a consistent look at optimizing inventory quantities. There’s a very
real cost of holding and storing inventory, and it’s almost always higher than the generally assumed 20 to 25
percent. In fact, “Research reveals that inventory holding costs could represent up to 60 percent of the cost of an
item that is held in inventory for 12 months,” as reported by Supply Chain Quarterly. To optimize your supply
chain inventory, include forecasting and demand planning.
9. Establish regular reviews to ensure efficiency and mitigate risk
Your supply chain council and leadership team members should be constantly reviewing procedures and
policies to ensure compliance, efficiency, and currency. This will help avoid process bottlenecks and help
streamline operations while mitigating the risk of theft, fraud, and the like. Risk mitigation in the supply chain
must adhere to some important steps: identifying all elements of risk, evaluating their probability of occurrence,
estimating the financial impact in the event of an incident, and prioritizing risks for appropriate monitoring and
prevention measures.
10. Be socially responsible and establish “green” initiatives
It’s no longer optional for your supply chain company to actively reduce its carbon footprint, instead, supply
chain organizations must become sustainable and socially responsible if they hope to thrive or even survive.
While the U.S. doesn’t yet have a carbon-trading regime, buyers are now considering environmental impact
when they choose suppliers. On a more general scale, social responsibility is also becoming more and more
significant in buyers’ estimation when making purchase decisions. A best-in-class supply chain organization
should have a measureable framework of policies and procedures designed to improve the workplace for the
greater good of employees, the organization itself, and also its community.
Obstacles of Streamlined SCM

1. Juggling multiple systems to complete the same task


When information is fragmented across different applications and tools, operational delays become inevitable.
For example, a team might end up checking several carrier systems for updates while sharing error-laden
spreadsheets via email.
Reconciling all of this data saps valuable time. It also complicates tasks such as procurement and supply
planning, producing considerable inefficiencies that drive up costs for workflows such as freight invoicing.
Ideally, such islands of information can be consolidated without having to resort to onerous manual processes.
Integrated supply chain solutions implemented by a trusted partner such as Inspirage will put you on the track to
a more cost-effective, scalable and transparent supply chain management solution.
2. Outsourcing logistics visibility to third parties
Outsourcing to third party logistics providers is unavoidable in some industries, not to mention a practical
necessity among large organizations with national or even global footprints. At the same time, ineffective third-
party partnerships can become a major drag on overall supply chain visibility, with cascading effects across the
whole enterprise.
Relying on outside help for logistics visibility creates issues similar to those we raised in the first item above:
Namely, time-consuming and expensive fragmentation. In contrast, having data points such as carrier
commonly available in a platform such as Oracle Transportation Management greatly simplifies transportation
management.
The results often speak for themselves. A more streamlined supply chain is both economical and easy to
manage, thanks to features such as centralized data repositories.
3. Working with outdated technology
Have you ever researched a product on a retailer’s website, checked to verify that it’s available at a specific
location, visited that store and discovered instead that the item is out of stock? There are many reasons for such
discrepancies, with lack of an up-to-date data near the top of the list.
While consumers regularly engage with organizations across multiple devices and platforms, companies do not
always possess the right tools to keep pace. Accordingly, they might have to lean on decades-old ERP systems
and complex customizations, which together contribute to difficulties in meeting product demand, allocating
costs for parts and ensuring that publicly viewable indicators of store stock (e.g., on an e-commerce site or in a
mobile app) are accurate.
4. Paying too much for essential services
As a result of these flaws and many others, many organizations end up with a supply chain burdened by costs
and incapable of adapting to evolving requirements. Overpaying for freight invoices is a prime example of a
pitfall opened up by inefficient supply chain management: much of the cost of paying for these items can be
eliminated with the right pairing of processes and tools.
The good news is that you have worthwhile options for modernizing your approach to supply chain
management. Inspirage is an end-to-end Oracle partner with a long track record of ensuring industry-
appropriate implementations that finish on time and on budget.

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