If you are not in a company being impacted right now by Supply Chain Management or by Continuous Replenishment and do not think that Supply Chain Management affects you, then you are wrong. If it does impact you now, it will. The concept is appearing in various industries and is moving to moving into smaller companies. Start to understand what it is, and what it means to you. Supply Chain Management is a dynamic paradigm driving through companies. Articles on supply chain management appear in many different publications, national and international, with different target audience. While many of the stories relate to large companies who supply large retailers or grocers, the attention SCM is getting is phenomenal. Add in the global impact of customers, competitors and suppliers; and the magnitude of the supply chain is very significant.
What It Is All About. Supply Chain Management is a reverse of prior practices where manufacturers supplied product to customers and they wanted to. Now customers tell suppliers how and when they want their inventory delivered. The driver behind Supply Chain Management is to remove inefficiencies, excess costs and excess inventories from the supply pipeline which extends from the customer back through his suppliers and through his suppliers' suppliers and so on back. By having the program driven by the customer, it is hoped that inventories, caused by uncertainties and slow response, will be significantly eliminated. While there are sales incentives to major suppliers with the carrot of category management or similar programs, the success of supply chain management rests with logistics.
The Five Key Issues of Logistics Effectiveness are core to Supply Chain Management--
- Movement of Product
- Movement of Information
- Time / Service
- Cost
- Integration, both internal and external, both organizations and systems
The customer requirements may vary by customer, but they do have certain consistencies to logistics--
- Quick response to orders from order receipt through shipment to invoicing
- Complete and accurate orders / no backorders
- Delivery windows or appointments
- Special shipment preparation as to packaging, marking, labeling, stenciling, slip sheets or pallets, etc.
- Bar coding
- EDI
- Carrier selection
Effects of Supply Chain Management. The initial benefits of supply chain management accrue to the customer, the initiator of his supply chain. He earns the reduction in inventories by driving out excesses inventories which he must purchase, store and be responsible for. The impact of supply chain management to the supplier may be more difficult to classify, initially, as benefits. They may vary, but may include--
- Fewer orders initially while the customer draws down excess inventories.
- Small and more frequent orders.
- Vendor carries inventory, not the customer.
- Higher warehousing costs for picking smaller and more orders.
- Higher freight costs for shipping smaller order and more orders.
- Penalties for not meeting the customer's requirements.
- Possible loss of business for not meeting the customer's requirements.
- Additional capital expenditure to satisfy the need for information and technology to provide the base for SCM responsiveness. Supply chain management success dictates new ways of doing business for suppliers. There is no "standard" practice; no "standard" way of doing business. Instead, there is a practice for each customer. If a company has one hundred customers, he may have one hundred customer practices. Adjusting this way challenges traditional management concepts. Impediments. There are impediments to supply chain success. Emphasis is presently on the initial customer-supplier link. It is not coordinated through the supply chain. Instead as the effects ripple through the supply chain, it is more like a "whisper down the lane" impact, where suppliers are not clear as to their role and what they must do. Responding to supply chain demands is not easy. There are issues which must be recognized and dealt with, such as--
- Accounting Silos. Supply chain management is a leading-edge technique. Yet the traditional cost measurements used by companies goes back to the Model A. Meeting Generally Accepted Accounting Principles is one thing; measuring the costs and benefits of logistics and supply chain management is something quite different.
- Logistics has a difficulty with having its costs properly identified, captured and measured properly. Some costs, such as freight, show on the P&L. Some, such as inventory, show on the balance sheet. And the driver to supply chain management, service, does not appear on any financial document. As a result, suppliers may have difficult seeing the cause-effect of supply chain management to them and the gain-sharing benefits as you progress with it. Activity-Based Costing is the closest approach to measuring the effects of supply chain management on an organization. With ABC, you can develop cost information based on the activities required to the logistics service.
- Functional Silos. Supply chain management is a process which requires integrated teamwork. Its goal is customer order-response- satisfaction. Yet traditional organizations, with their responsibilities and goals, may not be teamwork enhancers. Each function may have its own internal goals which run counter to effective logistics performance necessary for supply chain management success. Look at the underlying driver of supply chain management, the customer. In developing a tailored process to meet the needs of each customer, who is responsible for it? Sales--after all, it is one of their customers? Logistics, since they are on the front-line for making supply chain management work? Manufacturing who must be able to adapt to the dynamics of point-of-sale or other production drivers? Or consider that the company uses tools such as MRP to drive its production planning; yet supply chain management is a pull, not a push approach. How does this shift in a company's practice be absorbed? Who is responsible then for a company's supply chain management? The answer is everyone in the company is responsible; yet the organization has often dictated that one group be responsible.
- Reactionary Practices. Since supply chain management is a process, it takes time, focus and discipline to make the necessary changes to the way a company does business. It is not reacting to an order; it is responding to a customer. "Fighting fires" and other reacting events are anti-process and, while it seems like it is customer-focused, it is not. Instead reacting to crises and other emergencies keeps a company for doing what must be done to implement the needed process for supply chain management. At the end of day of crises, the company is often no closer to implementing the necessary integrated process.
- Tactical versus Strategic Role for Logistics. Supply chain success depends upon logistics. To develop the necessary programs for supply chain management, the logistics organization must be involved in the planning activity from the beginning. Other groups cannot meet without logistics, decide what logistics must do, give logistics orders and think there will be supply chain success. If that approach is used, then the likelihood of meeting the customer requirements and implementing the technology and teamwork needed will likely not be there.
- Unclear Mission. Supply chain management requires a rethinking of the company and the logistics mission. Is it customer or is it cost? These can be conflicting goals. Saying the mission is service, then measuring it by cost can cause organizations to lose focus on what must be done. Supply chain management is a new concept and requires a reassessment of the what the company is doing, where it is going and how it wants to get there. Conclusion. Supply chain management is here. It is not about shipping orders; it is not about making product then pushing it out the door. Supply chain management is about developing a process to respond to the different requirements of each customer. Customers are driving suppliers' practices. Being successful requires logistics effectiveness. Customers, competitors and vendors are global. This is an exciting challenge and opportunity for companies who see the potential and make it happen[Via Email Forward]
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