To compete in the global market and the networked economy, companies should rely on effective supply chains. It is important to focus on the important areas of Supply Chain Management. They are Vendor Management, Productivity Improvement, Supply Demand Forecasting and Inventory Management. From Peter Drucker’s new management paradigms, it is known that, the concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize the entire business processes throughout a value chain of multiple companies. Development of Supply chain Networks was done in 21st Century and It changed the pattern of the business world.
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Supply Chain Management (SCM):
Supply chain management (SCM) is managing the network of Inter connected business, and it involves the ultimate provision of product and services required by the customers. There are many ways to define and describe Supply Chain Management. One of the famous definitions is the definition provided by the APICS Dictionary as “Design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, synchronizing supply with demand”.
Initially there was no Development in this area. But eventually, a lot of developments took place in Supply chain management. There were six major movements, which took place. They are Creation Era, Integration Era, Globalization Era, Specialization Era Phase 1, and Specialization Era Phase 2.
Creation Era (Early 1980s): The major attention was on the Japanese Practice of management. This era focused on few characteristics of Supply chain management like need for large-scale changes, re-engineering, downsizing, driven by cost reduction programs
Integration Era (1960s and developed through 1990s): This Era focuses more on the development of Electronic Data Interchange systems. After this, started focusing on the expansion of inter-based Collaborative systems. This era focused on Technical stuff.
Globalization Era (late 1980s): As the name of the Era indicates. This era concentrated more on Globalization. Many companies started to integrate global sources in their business. This increases the competitive advantage, added value and reduced the cost through global sourcing.
Specialization Era – Phase One: Outsourced Manufacturing and Distribution (1990s): As the name indicates, this era focused on specialization model. Basically, the model creates manufacturing and distribution networks and they are composed of multiple or individual supply chains in specific to products, suppliers or customers who work together to design, manufacture, distribute, market, sell, and service a product. The focus was on core competencies and adopt specialization model.
Specialization Era – Phase Two: Supply Chain Management as a Service (began in 1980s and went along till 2006): Even this Era concentrated or focused on Specialization Model. Supply chain specialization enabled companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity. Both the eras mainly concentrated on Specialization models.
Supply Chain Management 2.0 (SCM 2.0): This is software which is used in many companies to create, share and collaborate between supply chain managers. Web 2.0 is a trend in the use of the World Wide Web which is used to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is to help navigate the vast amount of information available on the Web in order to find what is being sought.
Supply Chain Management basically runs on seven major principles. They all were discussed by the experts of Logistics Practice of Anderson Consulting (no called as Accenture). It laid out a compelling case for excellence in Supply Chain Management. It gave out some excellent principles which will be helpful in Supply Chain Management. There are seven Principals. They are:
Principle 1: Separate the customers basing on the service needs into distinct groups and adapt the supply chain to serve these groups distinctly.
Principle 2: Customize the logistics network and meet the service requirements and profitability of customer segments.
Principle 3: Keep a track on the market signals and align the demand planning accordingly across the supply chain. Make sure to ensure the consistent forecasts and optimal resource allocation.
Principle 4: Differentiate product between the customer and speed conversion across the supply chain world.
Principle 5: Manage the sources of supply chain strategically in order to reduce the total cost of owning materials and services.
Principle 6: Develop a supply chain-wide technology strategy which supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.
For the short term, the system must be able to handle day-to-day transactions and electronic commerce across the supply chain and thus help align supply and demand by sharing information on orders and daily scheduling.
From a mid-term perspective, the system must facilitate planning and decision making, supporting the demand and shipment planning and master production scheduling needed to allocate resources efficiently.
To add long-term value, the system must enable strategic analysis by providing tools, such as an integrated network model, that synthesize data for use in high-level “what-if” scenario planning to help managers evaluate plants, distribution centers, suppliers, and third-party service alternatives.
Principle 7: Seventh principle is to adopt channel-spanning performance. It measures to gauge collective success and reaches the end-user effectively and efficiently.
Let us understand what happens when we translate the principles into practice. Companies that have achieved excellence in supply chain management tend to approach implementation of the guiding principles with three precepts in mind. They are
Orchestrate improvement efforts
Supply Chain management is very difficult to understand. So, the complexity of it makes it difficult to envision the whole, from end to end. But the trick is using a blue print. Many of the successful managers realize the importance to use the time and effort in developing the total perspective and idea and using it in form of a blue print for change that maps linkages among initiatives and a well-thought-out implementation sequence. The Blue print must have all the day to day operations and must coordinate the change initiatives and must cross company’s boundaries.
The blue print must have all the information; it requires rigorous assessment of the entire supply chain. It should have the information of supplier relationships to internal operations to the marketplace, including customers, competitors, and the industry as a whole. Basically, it should have information about relationships between everyone in the company. Current practices must be ruthlessly weighed against best practices to determine the size of the gap to close. Thorough cost or benefit analysis lays the essential foundation for prioritizing and sequencing initiatives, establishing capital and people requirements, and getting a complete financial picture of the company’s supply chain-before, during, and after implementation.
Recognize the difficulty of change
Change is always good. Most companies change programs which do a much better job of designing new operating processes and technology tools than of fostering appropriate attitudes and behaviors in the people who are important in making the change program work. People resist change and people do not like change, especially in companies with a history of “change-of-the-month” programs. People in any organization have trouble coping with the uncertainty of change, especially the real possibility that their skills will not fit the new environment. Many of them cannot get adapted to the new environment.
I think by implementing these seven principles of supply chain management, most of the companies can have significant change and can have good profits. The best prescription for ensuring success and minimizing resistance is extensive. It is always good for people to grab the attention. People love attention. So, visible participation and communication with the senior executives encourages them. This means championing the cause and removing the managerial obstacles that typically present the greatest barriers to success, while linking change with overall business strategy.
Many progressive and successful companies have realized that the traditionally fragmented responsibility for managing supply chain activities will no longer do. Some have even elevated supply chain management to a strategic position and established a senior executive position such as vice president-supply chain (or the equivalent) reporting directly to the COO or CEO. This role ignores traditional product, functional, and geographic boundaries that can interfere with delivering to customers what they want, when and where they want it.
Reaping the Rewards
By following the above, by doing it so will improve asset utilization, reduces cost, and creates price advantages that help attract and retain customer and thus enhance revenue.
Special effort and coordination is required by the overall Supply chain systems. Without any specific effort to coordinate the overall supply chain system it is difficult to reach a certain point. Each organization in the network has its own agenda and operates independently from the others. However, such an unmanaged network results in inefficiencies and Losses. For example, a plant may have the goal of maximizing throughout in order to lower unit costs. If the end demand seen by the distribution system does not consume this throughput, there will be an accumulation of inventory, and hence will have high or low food cost percentage.
Decision Variables in Supply Chain Management
In managing the supply chain, the following decision variables must be taken into account.
Location – Deals with facilities and sourcing points
Production – Information about what to produce in what facilities and areas.
Inventory – How much to order, when to order , Safety stocks
Transportation – mode of transport, shipment size, routing, and scheduling
For Example let’s consider the Beer Game
The Beer Distribution Game (The Beer Game) is a simulation game created by a group of professors at MIT Sloan School of Management in early 1960s to demonstrate a number of key principles of supply chain management. The game is played by teams of at least four players, often in heated competition, and takes from one to one and a half hours to complete. A debriefing session of roughly equivalent length typically follows to review the results of each team and discuss the lessons involved.
The purpose of the game is to meet customer demand for cases of beer through a multi-stage supply chain with minimal expenditure on back orders and inventory. Players can see each other’s inventory but only one player sees actual customer demand. Verbal communication between players is against the rules so feelings of confusion and disappointment are common. Players look to one another within their supply chain frantically trying to figure out where things are going wrong. Most of the players feel frustrated because they are not getting the results they want. Players wonder whether someone in their team did not understand the game or assume customer demand is following a very erratic pattern as backlogs mount and/or massive inventories accumulate. During the debriefing, it is explained that these feelings are common and that reactions based on these feelings within supply chains create the bullwhip effect.
Counter measures for Bullwhip Effect:
Theoretically the Bullwhip effect does not occur if all orders exactly meet the demand of each period. This is consistent with findings of supply chain experts who have recognized that the Bullwhip Effect is a problem in forecast-driven supply chains, and careful management of the effect is an important goal for Supply Chain Manager. Therefore it is necessary to extend the visibility of customer demand as far as possible. One way to achieve this is to establish a demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban. This model has been most successfully implemented in Wal-Mart’s distribution system. Individual Wal-Mart stores transmit point-of-sale (POS) data from the cash back to corporate headquarters several times a day. This demand information is used to queue shipments from the Wal-Mart distribution center to the store and from the supplier to the Wal-Mart distribution center. The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain. Better information leads to better inventory positioning and lower costs throughout the supply chain. Barriers to the implementation of a demand-driven supply chain include the necessary investment in information technology and the creation of a corporate culture of flexibility and focus on customer demand. Another prerequisite is that all members of a supply chain recognize that they can gain more if they act as a whole which requires trustful collaboration and information sharing.
Methods intended to reduce uncertainty, variability, and lead time:
Vendor Managed Inventory (VMI)
Just In Time replenishment (JIT)
smooth the flow of products
coordinate with retailers to spread deliveries evenly
reduce minimum batch sizes
smaller and more frequent replenishments
eliminate pathological incentives
every day low price policy
restrict returns and order cancellations
order allocation based on past sales instead of current size in case of shortage
Different Software’s can be used by different Companies. Aramark uses software called Prima. It’s basically user friendly software. Aramark developed this software. The software has many features. The software is developed out of creativity. I am sure that many of the companies use this software. Features of this software are
1. New recipes can be added
2. Recipes can be edited.
3. Define and validate the specifications of the items
4. Identify appropriate HACCP procedures
5. Calculate meal component contributions
6. Verify nutrition analysis
This software is used to take care of the Supply Chain Management stuff. This is used everywhere in Aramark. The person who uses the software enters the Invoices and posts them to the inventory. He makes sure that the Invoices are paid. He then takes the print outs of the Inventory count sheets and will plug the numbers once he is done with Counting. By using this software one can get to know the correct food cost percentage. This Software is developed so creatively.
Many creative software were developed to solve supply chain management problems, few of the software’s are
Role of Creativity of Management in Supply Chain Management:
There are many Supply Chain Management Problems. We can put an end to these problems using Creativity. The major Supply Chain Management Problems are Distribution Network Configuration, Distribution Strategy, Trade-offs in Logistical Activities, Information, Inventory Management, etc.
Distribution Network Configuration: One has to take good care of ware houses, production Facilities etc. When the organization or the company is large, It will be difficult to maintain all these things. The manager is responsible for this stuff. He should take care of all the ware houses, Production facilities and make sure everything Is going on good and there is no old stock left. He should order products and items from the same company. The manager should take care of the relationships between customers and the management.
Distribution Strategy: This mainly deals with the transportation. Few products wil be shipped from different places, and the shipping cost will be more. Some times when the manager orders for less products, the shipping cost will be more than the price of the products. So, the manager should think creatively to avoid these freight charges. The manager should think creatively and try to reduce the cost by selecting good mode of transportation, which actually reduces the money.
Trade offs in Logistical Activities: The target is to get the lowest Logistics cost. Trade-offs can Increase the cost. The creative way to put an end to this problem is to Order truck full of items rather than ordering half load truck items. By this way, can reduce the cost a bit.
Information: Information plays a major role in Supply Chain Management because decisions are taken by making assumptions, by forecasting and by fore seeing the facts. It is really required to think and take a creativitive decision and required to think creatively to reduce the cost.
Inventory Management: Inventory management plays an important role, because Supply chain depends upon the Inventory Management. Inventory must be counted by only one person every time and at the same time. This gives the approximate food cost. Raw materials must be taken care of. Correct amount of raw materials should be ordered and must be made sure that they are not wasted. Finished products are also important.
Cash flow: Cash flow is very important. Payment terms and everything should be taken care of the manager creatively.
Another creative Method to do good in Supply Chain Management is:
Types of SP
Vendors receive POS data from retailers, and use this information to synchronize production and inventory activities at the supplier.
The retailer still prepares individual orders, but the POS data is used by the supplier to improve forecasting and scheduling.
– Example: Milliken and Company: The lead time from order receipt at Milliken’s textile plants to final clothing receipt at several of the department stores involved was reduced from eighteen weeks down to three weeks.
Continuous Replenishment: Vendors receive POS data and use it prepare shipments at previously agreed upon intervals to maintain agreed to levels of inventory.
– Wal-Mart, Kmart
Advanced Continuous Replenishment:
Suppliers may gradually decrease inventory levels at the retailer’s store or distribution center as long as service levels are met. Inventory levels are thus continuously improved in a structured way.
Vendor Managed Inventory (VMI):JITD
– VMI Projects at Dillard Department Stores, J.C.Penney, and Wal-Mart have shown sales increases of 20 to 25 percent, and 30 percent inventory turnover improvements
Requirements for Effective SP:
1. Advanced information systems
2. Top management commitment
3. Information must be shared
4. Power and responsibility within an organization might change (for example, contact with customers switches from sales and marketing to logistics)
5. Mutual trust
6. Information sharing
7. Management of the entire supply chain
8. Initial loss of revenues
Important SP Issues:
1. Inventory ownership:
2. Retailer owns inventory
3. Supplier owns the goods until they are sold
4. Performance measures: Fill rate, inventory level, inventory turns
1. Communication and cooperation
2. When First Brands started partnering with Kmart, Kmart often claimed that its supplier was not living up to its agreement to keep two weeks of inventory at all times. It turned out that this was due to the fact that the two companies employed different forecasting methods.
Steps in SP Implementation:
2. Credit terms
3. Ordering decisions
1. Develop or integrate information systems
2. Develop effective forecasting techniques
3. Develop a tactical decision support tool to assist in coordinating inventory management and transportation policies
Advantages of SP:
Fully utilize system knowledge
Consider the partnership between White-Hall Robbins (W-R), who makes over-the-counter drugs such as Advil, and Kmart. W-R initially disagreed with Kmart about forecasts, and in this case, it turned out that W-R forecasts were more accurate because they have a much more extensive knowledge of their products than Kmart does.
Decrease required inventory levels:
1. Improve service levels
2. Decrease work duplication
3. Improve forecasts
Disadvantages of SP:
1. Expensive advanced technology is required.
2. Supplier/retailer trust must be developed.
3. Supplier responsibility increases.
Examples of SP:
Successes and Failures:
Western Publishing-Golden Books:
– Western Publishing is using VMI for its Golden Books line of children’s books at several retailers.
– POS data automatically triggers re-orders when inventory falls below a reorder point.
– This inventory is delivered either to a distribution center, or in many cases, directly to the store.
– Ownership of the books shifts to the retailer once deliveries have been made.
– In the case of Toys R Us, the company has even managed the entire book section for the retailer, including inventory from suppliers other than Western Publishing.
– Extra sales, increased costs to Western
VF Corporation’s Market Response System:
– The VF Corporation, which has many well known brand names (including Wrangler, Lee, Girbaud, and many others), began its VMI program in 1989.
– Currently, about 40 percent of its production is handled using some type of automatic replenishment scheme.
– This is particularly notable because the program encompasses 350 different retailers, 40,000 store locations, and more than 15 million replenishment levels.
– VF’s program is considered one of the most successful in the apparel industry
– Spartan Stores, a grocery chain, shut down its VMI effort about one year after its inception.
– One problem was that buyers were not spending any less time on reorders than they did before
– This was because they didn’t trust the suppliers enough to be able to stop carefully monitoring the inventories and deliveries of the VMI items, and intervening at the slightest hint of trouble.
Spartan Stores (continued)
– Suppliers didn’t do much to allay these fears. The problems were not with the suppliers’ forecasts; instead, they were due to the suppliers’ inability to deal with promotions, which are a key part of the grocery business.
– Since they were unable to appropriately account for promotions, delivery levels were often unacceptably low during these periods of peak demand
Third Party Logistics:
Outside firms perform materials management and logistics functions
Long term commitments and multiple functions of 3PL:
Advantages of 3PL:
1. Focus on core strengths
2. Provides technological flexibility
3. Provides flexibility in geography
4. Workforce size
5. Additional services
6. Resource flexibility
Disadvantages of 3PL:
1. Loss of control
2.3PL employees may interact with customers
3.3PL’s address this with uniforms, logos, etc
4. Sharing of confidential info
1. Simmons and Ryder Integrated Logistics
2. On site rep, all logistics managed by Ryder, JIT manufacturing
3. Rapid delivery of spare parts
4. 67 warehouses
5. Sophisticated software for inventory and rapid delivery
Parts are shared across the distributor network. Specialized service requests are steered to appropriate dealers or distributors. Trust, Pledges, Guarantees from the manufacturer and Advanced information systems are required.
Disadvantages of Distributor Integration:
Incentives for dealers – are they giving away competitive
Advantages of Distributor Integration:
Skills and responsibilities are taken from some dealers/distributors.
Cooper, M.C., Lambert, D.M., & Pagh, J. (1997) Supply Chain Management: More Than a New Name for Logistics. The International Journal of Logistics Management Vol 8, Iss 1, pp 1-14
Halldorsson, Arni, Herbert Kotzab & Tage Skjott-Larsen (2003). Inter-organizational theories behind Supply Chain Management – discussion and applications, In Seuring, Stefan et al. (eds.), Strategy and Organization in Supply Chains, Physica Verlag.
Kaushik K.D., & Cooper, M. (2000). Industrial Marketing Management. Volume29, Issue 1 , January 2000, Pages 65-83
“Collaborative forecasting management: fostering creativity within the meta value chain context”
Source: SUPPLY CHAIN MANAGEMENT-AN INTERNATIONAL JOURNAL, Published: 2008
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Source: JOURNAL OF BUSINESS LOGISTICS, Published: 2008
“A process and tool for supply network analysis”
Source: INDUSTRIAL MANAGEMENT & DATA SYSTEMS, Published: 2004
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Source: INTERNATIONAL JOURNAL OF INFORMATION TECHNOLOGY & DECISION MAKING, Published: JAN 2010
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Source: JOURNAL OF THE ACADEMY OF MARKETING SCIENCE, Published: FEB 2010
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