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Supply Chain Management - Pre-requisite for Successful Integration

 

R. Balajivignesh MBA., M.Phil., M.A., (Ad & PR.,)

Lecturer, SNT Global Academy of Management Studies and Technology

Coimbatore – 641 105

 

S. Olichandra Devy (M.B.A., M.Phil., NET.)

Lecturer, SVS Institute of Management Studies

Coimbatore – 642 109

 

Abstract

 

Supply Chain Management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible.

 

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers, and attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration.

 

Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. Operating an integrated supply chain requires continuous information flows, which in turn assist to achieve the best product flows.

 

1. Introduction

 

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials transformation of these materials into intermediate and finished products and the distribution of these finished products to customers.

 

 2. Integration Process Through Information Technology

 

Information technology has enabled channel partners to trade goods, share information and integrate their processes, thereby reshaping the inter-organizational dynamics and resulting in more efficient channels.  Electronic integration of data and the automation of business practices has driven costs down and built sales by better satisfying consumer needs.  The role of technology was to link the supply chain by using industry standards Electronic Data Interchange (EDI) to communicate key business documents. Purchase orders, invoices, advanced shipment notification, and financial payment are just a few examples the electronic transmission of EDI.

 

2.1 E-Supply Chain Management:

 

E-business offers a great potential of enhanced supply chain efficiencies.  E- business helps the organizations to perform the following transaction with the help of net.

 

  • Disseminating information across the supply chain
  • Negotiation of price and other deals with customers and suppliers
  • Customers can place order from where they are
  • Customers can also have a track of their order
  • Customers order can be filled properly and making of timely delivery
  • Customers can make payment and the company can receive it easily

 

Today, companies are using the internet to conduct a wide variety of supply chain transactions. For example, Amzon.com helps people to select books of their choice.  Dell displays all its product information over the internet. Companies like eBay allow people to auction products over the internet. Most companies involved in e-business allow customers to pay over the internet using their credit cards.

 

An E-business allows a supply chain to gain profit through effective utilization of the following cost reduction opportunities.

 

(i)                 Allows manufacturers to reduce handling costs because of fewer supply chain stages.

(ii)               Allows firms to manufacture customized products.

(iii)             The Internet will save the cost and time for delivery.

(iv)             Reduce facility costs by centralizing all inventories and decreasing the number of facilities required.

(v)               Maintaining a reasonable buffer of unfilled orders reduces the peak load for order fulfillment and thus reduces resources requirement and cost.

(vi)             The ability to reduce safety inventory without hurting product availability can significantly increase supply chain profitability.

 

2.2 Use of Internet in SCM

 

Internet technology has reduced the cost and complexity of exchanging information and paradigm shift in the way we think about doing business. It helped information exchange open to all retailers, wholesalers and suppliers regardless of size. It enhanced end-to-end supply chain visibility, lower supply chain costs and inventory levels, access to new markets, global and local sourcing, reduced transaction costs.

 

2.3 Enterprise Resource Planning (ERP) in SCM

 

Enterprise Resource Planning (ERP) systems and supply chain systems has helped large companies to reduce inventories, shorten cycle time, lower costs and improve over all SCM. ERP-SCM systems are designed to streamline production schedule, slash inventories find bottle necks, respond quickly to orders and provide final market information.

 

Radio Frequency Identification (RFID) is an analog-to-digital conversion technology that uses radio frequency waves to transfer data between a moveable item and a reader to identify, track or locate that item. It is a technology, which uses an electronic transmitter to tag the items, and products, which have some unique identification and customer information. It helps in knowing exactly the position of goods at any point of time and can also develop process capture and act on their information. The data generated by RFID is huge and valuable. This information which is a real time enabler helps the executives at all levels of organization to make business decision.

 

2.4 Relationship between the Links

 

Supply Chain is a network of different types of links.  Strength of the Chain lies in the relationship between the links. Companies are now realizing the relevance and role of these links in success of the businesses. In other words suppliers are partners of the business, and organizations need not to be convinced that in today’s scale driven, technology intensive global economy, partnerships are the supply chain’s lifeblood. Organizations business success is increasingly relying on their suppliers. Suppliers play an important role in deciding the cost of production, therefore firms are seeking avenues to reduce cost, improve quality, and develop new processes and products faster than their rivals’ vendor can.

 

3. Partnering Channel Relationships

 

Building strong supplier partnerships requires a lot of hard work and commitment by both buyers and sellers.  Several key ingredients for developing successful partnerships are as follows:

 

  1. Building trust –find compromise solutions to problems, work toward achieving long-term benefits for both parties and in short go the extra mile.
  2. Shared vision and objectives – the partners focus must move beyond tactical issues and toward a more strategic path to corporate success.
  3. Personal relationships – Whoever is interfacing with the other company, they are the company.
  4. Mutual benefits and needs – mutual needs create not only an environment conducive for collaboration but opportunities for increased innovation.
  5. Both formal and informal lines of communication should be set up to facilitate free flows of information.
  6. Organizations prefer working with suppliers who have the technology and technical expertise to assist in the development of new products or services that would lead to a competitive advantage in the market place
  7. Both buyers and suppliers must be willing to continuously improve their capabilities in meeting consumer requirements of cost, quality, delivery and technology.

 

4. Collaborative Planning and Scheduling

 

The gradual refinement of collaborative approach is a five level process which takes place as follows:

 

Level 1 focused on internal improvement

Level 2 starts to break down internal walls and works on corporate integration

Level 3 businesses start to take an external view with the selected business partners

Level 4 brings trading partners and suppliers into discussions about how to reach customers

Level 5 is a move toward truly automated connection between businesses.

 

The scheduling part is the more sensitive area where most care and importance should be given.  The scheduling is more or less like an education program that helps SCM people know about the importance that lies behind collaboration.  Development of communication structures that promote collaborative decision making, clear communication of partners’ goals and objectives, rigorous performance measurement, intercultural management training, change-management skills training, conflict resolution training, collaborative cultural integration workshops, cross-team training, leadership training, feedback provided on performance and behaviours, relationship development, continuous learning in new supply chain concepts, simulation based training, technology skills training, collaborative process mapping workshops, documented process between partners and collaboration on alternate supply chain solutions.  These are some of the training area if scheduled properly may lead to good supply chain management.

 

5. Supply Chain Leadership

 

Let us start the topic with some examples of how giants concentrate on their supply chain

 

Coco Cola recently started a retail school that will run on wheels to focus on training owners of small retail shops regarding stocking and movement of their soft drink products.

 

Dell Computers in 1994, was struggling second-tier PC maker.  Then Dell began to implement a new business model.  It converted its operations to build-to-order process, eliminated its inventories through a just-in-time system and sold its products directly to consumers.   Dell developed a supply chain mastery that went far beyond the simple pursuit of efficiency and asses productivity.

 

Baxter hospital-supply company, in the mid 1980s, mastered its supply chain by developing a powerful new type of partnership with its hospital customers.  The company developed a new strategy for managing its customers’ inventories within their hospital facilities. 

 

Procter and Gamble the company first partnered with Wal-Mart, through this system, P&G replenishes Wal-Mart’s facilities without purchase orders based on the retailer’s product movement data. 

 

5.1 Moving Toward Supply Chain Mastery

 

  1. Develop a fact base - the first step toward supply chain mastery is to develop a sound fact based involving both inter-company supply chain economics and market segment characteristics. 
  2. Engage your counterparts – in a successful project, the key functional counterparts from areas such as marketing, sales and finance need to be engaged from the outset.
  3. Top Management’s involvement  - in additional to involving counterparts functional department heads in the supply chain strategy design process, top management needs to be engaged from the out set.  Senior executives have important relevant experience that can be tapped. 
  4. Drive change in the other functions – the key to successful implementation of the new business model is to utilize a team approach.  The key functional counterparts must share common performance objectives that span their functional areas and be organized in a way that forces them to focus systematically and often on their joint progress.
  5. Create a roll out game – the key to rolling out a major supply chain innovations is to develop a systematic game plan.  A systematic rollout game plan involves four key steps. Identify opportunities, organize the initiative, map the market and systematically realign the business model. 

 

The supply chain masters who seize first mover advantage will create strong market share gains and lasting strategic benefits that competition simply cannot match.

 

6. Vendor Managed Inventory

 

A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributors inventory levels. The manufacturer has access to the distributors inventory data and is responsible for generating purchase orders.

 

The manufacturer receives electronic data (usually EDI or via the internet) that tells him the distributors sales and stock levels. The manufacturer can view every item that the distributor carriers as well as true point of sale data. The manufacturer is responsible for creating and maintaining the inventory plan. Under VMI, the manufacturer generates the order, not the distributor.  The benefits of VMI are numerous for both Manufacturer and Distributor.  The benefits are as follows:

 

6.1 Dual Benefits:

  • Data entry errors are reduced due to computer to computer communications. Speed of the processing is also improved.
  • Both parties are interested in giving better service to the end customer. Having the correct item in stock when the end customer needs it, benefits all parties involved.
  • A true partnership is formed between the Manufacturer and the Distributor. They work closer together and strengthen their ties.
  • Stabilize the timing of Purchase Orders - PO's are now generated on a predefined basis.

 

6.2 Distributors Benefits:

 

  • The goal is to have an improvement in Fill Rates from the manufacturer and to the end customer. Also, a decrease in stock outs and a decrease in inventory levels.
  • Planning and ordering cost will decrease due to the responsibility being shifted to the manufacturer.
  • The overall service level is improved by having the right product at the right time.
  • The manufacturer is more focused than ever in providing great service.

 

6.3 Manufacturers Benefits:

 

  • Visibility to the Distributors Point of Sale data makes forecasting easier.
  • Promotions can be more easily incorporated into the inventory plan.
  • A reduction in Distributor ordering errors (which in the past would probably lead to a return)
  • Visibility to Stock Levels helps to identify priorities (replenishing for stock or a stock out). Before VMI, a manufacturer has no visibility to the quantity and the products that are ordered. With VMI, the manufacturer can see the potential need for an item before the item is ordered.

 

Reference:

 

1. Sri.M. Gopalakrishnan, 2005, Materials Management Review, Volume:1, Issue:12,  pp11-16

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4. Logistics Management, Vol. 01, Issue 09, December 15, 2007, pp.14

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