Supply Chain is a vast
and dynamic subject with many domain areas each intertwined with hierarchical
relationships and is difficult to monitor, control and predict its inter and
intra relationships and its influence on business objectives and goals. The Goal
of Supply Chain Manager is to overcome these challenges and build a smooth and
seamless operational business model.
I would like to use A.G.
Lafley CEO of Procter & Gamble simple way of expressing the objective line
for Supply Chain. Supply Chain’s objective should be able to provide a
customer what they want, when they want at a competitive price while seamlessly
managing the complex backend and frontend integration process encompasses the
various domain areas of Buy, Make, Store, Deliver and Sell.
When you buy coffee or
even on other end a tire or any clothing’s, the end product has already gone
thru a series of steps right from procurement of raw materials à manufacturing process & schedulingàwarehouse inventory management & forecasting
and risk management àtransport & route
optimizationà retail shelf and
finally into your hands. Feel free to add the Product Return process for
additional complexity to the supply chain in reverse order.
This E2E process of
managing the process of goods and services is reflected in Supply Chain
Management involving some critical domain areas like Supply Chain Planning,
Inventory & Order Management, Logistics and Risk & Mitigation steps for
any disruptions.
Supply Chain Management
objective goals in any given enterprise has been to plan, monitor and control
efficiently the lowest order/purchase order cost; lowest landed cost; total
cost of ownership and demand driven supply management.
Supply Chain Industry
trends
My brief analysis on the
200+ number of Expo exhibit participants in this year’s 2015 Council of Supply
Chain Management Professionals (CSCM) shows that 75% of them provide services
in Supply Chain Solutions, Forecasts and Transportation & Distribution
areas while 13% in Manufacturing, Planning & Sourcing and another 12% in
Talent and Career. The reading and observation that I was trying to make is to
indicate the significant and dominant focus areas the industry is seeking help
in the Supply Chain.
Also most executives
would be looking forward from these exhibitors besides cost savings is how they
would be able to deliver value and improves their business outcomes in areas
such as Supplier Relationship Management, Performance Management, Risk Management, Sourcing & Procurement and Planning and building Master Data Management with Supplier Segmentation.
In this blog, I would
like to elucidate some solutions and strategies employed by practitioners and
supply chain leaders based on my experience, readings and understanding of
Supply Chain.
Supply Chain Integration
(SCI) Strategies:
Here are some potential
solution areas that many Supply Chain leaders and practitioners have been
employing strategically with their clients. Japanese industrial practices lead
the way in todays matured SCI strategies and they have professed that lot of
wastage (“muda” in Japanese) is mainly caused due to fragmented supply chain
configurations both within and among intra parties. The Value Based Management
(VBM) framework further accentuated the need to improve the bottom line and
thus SCI became an integral part of the corporate strategies.
SCI has seen many
improvements and innovations over the years like TPS (Toyota Production
System), JIT (Just In Time), EOQ (Economic Order Quantity), MRP (Manufacturing
Resource Planning), Continuous Replenishment that led to VMI (Vendor Managed
Inventory) and host others. However each company depending upon their business
model adopt either semi integrated or fully integrated approaches with levels
of integration from tight to being intensive within selected domain areas.
Relationship Management
Supplier Relationship
Management has moved on from being a mere transactional based relationship to
more collaborative arrangement to increase business value, reduce demand supply
complexities and importantly shift from lowest price to TCO (Total Cost of
Ownership). A relationship is always a continuously evolving one and many
companies constantly update their own profile with the suppliers who also may
be going changes either thru vertical or horizontal integration with mergers
and acquisitions and assigning newer prioritizations and preferences.
Supplier Stratification
& Integration Strategies
The global merchandise
trade (imports/exports) since 1990 has jumped from a mere 2.3 trillion dollars
in 1990 to 18.3 trillion dollars in 2014. Global sourcing is a key focus area
today for many organizations big or small and thus making SCM to constantly
reshape its relationship and realign its strategies.
The growth in trade led
many companies in the Supply Chain to build a strong relationship among its
suppliers, stratified and prioritized on a collaborative basis rather than
merely on transactional basis. In this relationship the capabilities of the
supplier is to be developed on a continuous basis to meet the proactive needs
of its customers.
This has also lead many
companies to focus on their core strengths and that also gave way to
“Outsourcing” paradigm both in products from “Make” to “Buy” and Services to
increase market share and create formidable global footprint while being
competitive.
This major alignment led
to the creation of Maturity Model of 3rd Party Service
Providers (3PSP’s) and OEM’s based on their capabilities. However there were
some major concerns that were expressed on this alignment mainly on disruption
of supplies and its associated risks. To addresses this risk, companies are
approaching in a phased manner rather than as a big bang approach.
- Internal Cross Functional Integration
- Backward Integration with first tier Suppliers
- Forward Integration with valued first tier Customers
- Complete forward and backward integration from suppliers to customers
Building Logical Sharing
Community for Logistics
SCM leaders have also
built LSC (Logical Sharing Community) with 3/4/5PL (Third party Logistics Providers)
to integrate and provide for logistical services. These collaborative
arrangement range from sharing of network infrastructure services, production
platforms, shared warehouse & distribution centers, shared transportation
agreements, vendor managed inventory (VMI) to building consortiums to provide
for better triangulation of the ecosystem and keep in abeyance the
Organizational inertia and keep the industry’s clock-speed ticking.
Logistics is a critical
discipline in the supply chain and covers various functions including
procuring, warehousing and distribution of products effectively utilizing
appropriate channels to its end customers.
3/4/5 PL parties are
defined from the perspective of degree of responsibilities that they perform
with their core competencies in managing, controlling and utilization of their
own or contracted assets for a smooth flow of products across different
functions of logistics.
Reverse logistics is
also another growing area that relates to the functions required to address the
Goods Returns, Repairs, Recycle or dispose of products in effective way.
There are defined goals
in Logistics like Response time, Inventory expenses, Shipment consolidation
with continuous improvement for which strategies are built and often times as
coordinated planning efforts with suppliers & customers in the integrated
supply chain systems.
One of the key
strategies professed by implementers is to build near real-time information
sharing system with improved collaboration to track the movement of products
with RFID (Radio Frequency Identification) and GPS. This is to helps meet its
objectives of lower cost, lower inventory, reducing stock outs, reducing
pooling risks and providing consistent ordered deliveries to its customers.
Performance Management
Performance metrics
which were focused on financial perspective has moved more towards
understanding in totality as business model called SCM. Practitioners have created
Metric Maturity models utilizing standardized frameworks like SCOR™ with its
550 metrics that are hierarchical, controllable and coherent in nature and that can be
integrated with different SCM domains to meet the Corporate goals and
objectives.
Utilizing BI (Business
Intelligence) tools, enables the business users to build these holistic and
integrated metrics as dashboards and scorecards with drill down capabilities to
its sub metric levels and also get a view point across various constructs or
dimensions to its lowest grain. Companies utilize these insights to identify
bottlenecks and opportunities to put forward strategies for growth and
competitiveness.
Supply Chain Risk
Management
The 2011 Tsunami and the
unfortunate nuclear leak event happened at Fukushima Daiichi, in Japan and the
shutdown of several manufacturing plants within its 20km area as non-inhabitant
area, had destructive consequences on the supply chain for thousands of global
companies. For months the global shortages for many industries for components
produced in these affected regions led to severe shortages of end products to
B2B and B2C customers leading to loss of billions of dollars on sales and lost
opportunities.
Many of the Supply chain
Managers re-emphasized on three aspects of disruptions management.
·
Controlling, Managing
disruptions and prevent the reoccurrences
·
Monitoring disruptions and predicting before
they occur
·
Action plan for any major and minor disruptions
Some of the mitigation
steps that were advanced by implementers was to relocate from high risk zones
to safer ones, analyzing the disruptions and modeling them for reducing the
disruptions impact, creating extra capacity in the system and flexibility in
the supply chain with interchangeability of the products.
A new set of data
metrics were created called KRI (Key Risk Indicators) to identify and monitor
trends and predictions for any disruptions and take necessary mitigation steps.
There is lot of research that is currently being undertaken by many academicians
and industry to identify and understand the relationships on major events and
model them, so they would be able to predict the events even before they occur,
so the impacts of potential disruptions are mitigated.
Forecasting
Forecasting in Supply
Chain is an important tool that is used by Supply Chain integrators to predict
and manage the vagaries of uncertainties that are often systemic in nature in
different domain areas such as sourcing risk, production costs and customer
demand.
These forecasting tools with specialized software enables the customers
to build Qualitative, Time Series, Causation and Simulated scenarios to help
and evaluate different options. Indicators help in the study of forecasts and its influence on planning aspects in supply chain by establishing and building performance and error
measures.
The quality and accuracy
of these forecasts has greater dependencies on its depth and width of
historical data used in many of its Time Series, Causation and Simulated
scenarios. Inaccurate forecasting is a crushed success, because when production
level and supply levels are not in line with customer demands in a given time
window, companies get crushed with higher inventory carrying costs and
obsolescence or lost opportunities.
Analytics
Supply Chain Managers
have to wrestle with many global economic challenges of instabilities,
uncertainties besides unpredictable customer demand volatility. The shorter
product life cycles, supply chain disruptions, and limited visibilities to real
time metrics add to their woes in today’s Operational environment. It becomes
very imperative that Business Analytics with performance metrics utilizing
their ERP systems with different modules like Inventory, Order Management,
Warehouse, Finance, Procurement, Manufacturing, Logistics, Supply Chain
Planning, Marketing and Sales needs to be deployed in near real time to provide
the required information for planning, forecasting and execution.
It is also observed from
various research and surveys that companies which have built Analytics are 3
times more likely to outperform the companies who have just adopted analytics
and 5 times more with companies who rely on intuitions and business processes
alone.
Integrators emphasize
that Analytics needs to be employed across different domain groups not
necessarily all at one go, but with a clear roadmap to deliver real business
results and value rather than as mere technology platform or set of tools. Some
integrators may just focus primarily on S&OP (Sales & Operation
Planning) an integrated business management process area and mature it before
moving into other areas but again it depends upon individual company’s maturity
levels in the analytics space.
A road map for Business
Analytics should built to identify and mature along the line from being just a
Descriptive Analytics (Insights to show how are we doing) to Diagnostic
Analytics (Why are we doing, what we are doing), Predictive Analytics (What is
likely to happen) and finally Prescriptive Analytics (What should we be doing)
as a step ladder across time lines and value proposition axis.
Conclusion:
Today’s data driven
Supply Chain companies with their nimble Integrated Suppliers are more likely
to overshoot the older giants if they are slow in adopting and
adapting these newer frontiers in an orchestrated manner.
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