|
Essentially SCM
is a set of practices aimed at managing and co-ordinating the
whole supply chain from raw material suppliers to the end
consumer. The objective is to develop synergy along the whole
supply chain rather than focusing on a particular business unit.
SCM is a
progression on internal programs such as total quality
management and lean production. These have often provided
substantial improvements by breaking down barriers between
departments and by efficiently managing the business processes.
It is logical, therefore, to look at the improvement potential
of cutting across companies and managing the whole supply
chain. The assumption is that there are important synergies to
be gained by managing the entire chain of supply and delivery.
The objective
of developing synergy is obtained through reduction of costs and
increasing the value provided. The most frequently cited
benefit of SCM is cost reduction of inventory levels. Not so
common is to find companies increasing the value provided
through the chain. Some few companies are innovating by using
new ways of ‘bundling’ products and services to increase the
value for the end consumer.
A common way of
visualizing the supply chain is to draw a streamlined pipeline
that processes raw materials, transforms them into finished
goods and delivers them to the end consumer. This may be an
over-simplification. Relationships throughout a supply chain
are in general many-to-many rather than one-to-one. A realistic
picture is more complex, with a multitude of relationships
between business units as in Figure 1. (I have taken the
business unit, rather than the corporation, as the basis for our
analysis. Business units are the building blocks of supply
chains.)
Most companies
have several suppliers and several customers. Often, business
units compete for customers and have common suppliers. In this
complex setting companies consider some relationships between
customers and suppliers as more important than others in order
to develop synergy. One of the first questions for a company to
consider should be with which customers and suppliers it should
develop new SCM practices.
There are many
new ways of doing business associated with SCM. Some we
consider best SCM practices are outlined below:
-
Reduction and consolidation of the customer base.
Some companies are selecting the customers they want to
develop. The objective is not to reduce sales but is more
a question of how to serve different customers. A typical
pattern is to ask small customers to buy through
distributors, thereby reducing the number of direct
customers and attached costs such as invoicing and debt
collection. (Phillips is a company that takes such a view)
-
Co-ordination of price and inventory policies to reduce the
amplification of demand variability-known as the ‘Fosters’
effect.
For
example, Procter & Gamble and Wal-Mart co-ordinate their
inventory policies based on a system of every-day low
price. The objective is to avoid the short-term demand
increases – and the amplification of the supply chain –
stemming from promotional campaigns and so on.
-
Sharing
of information between business units to achieve the
frequent, reliable deliveries necessary for just-in-time
manufacturing.
Sharing of
information enables significant reduction in stock levels,
stock-outs are more easily avoided as are stocks of obsolete
products subject to mark down.
-
Linking
computer systems to link processes.
With electronic data interchange, point-of-sale information
from checkout scanners in stores is transferred directly and
electronically to manufacturers’ order entry systems. EDI
enables cross-docking, by which products are shipped
directly to the retail stores, bypassing warehouses. The
consumer foods business is leading this practice, driven by
powerful retail chain.
-
Early
supplier involvement in product development.
Suppliers are involved early in the development stage of a
new product to optimize the efficiency of the whole supply
chain in making the new product. For example, when the
US
printer manufacturer Lexmark developed a new laser printer,
its supplier of moulded plastic frames, Minco, was involved
early in the process
-
Design
for supply chain.
Logistics is a central issue for SCM. Some companies are
designing products to improve logistics throughout the
supply chain. A good example is Hewlett Packard’s DeskJet
printer. It was designed so as to allow country-or
market-specific attributes, such as power supply or user
manual, to be added at distribution centers rather than at
the central manufacturing facilities. The result was a
restructuring of the distribution system and a substantial
reduction of total stocks in the system
-
Joint
problem solving.
By working together, customers and suppliers may often
achieve faster and better solutions to specific problems.
Automobile component manufacturers often have resident
engineers on customer promises to solve the technical
problems that may appear in the assembly process.
-
In-plant
representatives.
These exist
where a customer in-house position is created for a person
representing the supplier. This individual typically
resides full time in the customer’s purchasing office,
operates on the customer’s computer systems, uses the
customer’s purchase orders and places them with his own
company, the supplier. In effect, the supplier
representative is doing the customer’s planning for the
materials supplied, eliminating the need for the customer to
plan.
|
