Characteristics of Supply Chain Management
Inventory
Managing the flow and level of inventory is a central focus of SCM and a major performance metrric to gauge success. In simplistic terms, the inventory level must be sufficient to provide acceptable customer service but low enough to minimize SCM costs. To maintain the balance between supply of and demand for inventory stock, the supply chain requires integrated management to avoid duplication among members of the supply chain.
Inventory visibility as it move through the supply chain is necessary to reduce or eliminate uncertainty, which eliminates safety stocks. This includes visibility of invotry being held in warehouses and other storage facilities as well as inventory in transit. The use of bar coding, RF tags and other related technologies provides an opportunity to reduce safety stock or buffer stocks, which usually is accumulated at the interface between organizations in the supply chain and frequently duplicated by both organizations.
Another important characteristic of effective inventory management is to attempt to pull it through the supply chain in response to demand as opposed to pushing out inventory in advance of demand, which tends to inflate inventory levels and lead to obsolete inventory and lower inventory turnover.
A number of companies, like Dell has been successful in implementing pull systems, which has had a dramatic impact upon their inventory turnover. Essentially, personal computers that are ordered via phone, fax or internet are assembled or produced after the order is received. Dell can frequently produce the customized computer in 48 hours or less and ship it to its customers.
Such strategy has a dramatic impact on finished goods inventory. In conjunction with the outbound strategy, there is a complementary Just In Time (JIT) arrangement with vendors on the inbound side. While it is not possible for all companies to produce products after they are ordered, for example, consumer food product companies, they are related to strategies, like postponement, that contribute to the same objective, that is lower pipeline or supply chain inventories.
Cost
Efficiency or lowering cost is an important objective of SCM. However, note that the focus has to be upon the cost at the end of the supply chain, which is in essence, the total cost or what is sometimes called the landed cost at the end of the pipeline.
This means that the companies that are part of a supply chain need to be cognizant of what impact their approach and activities have upon their vendors and/or their customers. Far too often, companies attempt to optimize their own costs, which may have a negative impact on their vendors or customers.
In some instance, companies are not just aware of the impact of their strategies or tactics. In today's environment, global supply chains are competing against global supply chains. Companies have to coordinate their supply chain activities by sharing information and using joint planning to accomplish the cost objective.
In essence, this builds upon systems theory and total cost analysis. Such outcome is far more difficult to achieve when you are dealing with several companies rather than one.
Information
Managing the information flow is a key factor for both efficiency and effectiveness in the supply chain. It must be in two directional flows to really maximize the potential of SCM. A key characteristic is sharing information up and down on the supply chain related to the flow and demand requirements. If information is shared, it can be potentially available on a real time basis. If the information also has a high level of integrity and accuracy, then it will significantly reduces uncertainty, which in turn reduces safety stocks and obviously lowers inventory.
As important as sharing real time information is to the successful management of supply chains, there is some reluctance in companies to share. This reluctance is usually based upon a fear that companies will lose competitive advantage if, for example, demand information or production information will inform competitors of what to expect and perhaps lost of sales. Often, such fears are not found upon logistical analysis. Even if there is some disadvantage to sharing information, the advantages may far outweigh the disadvantages.
The other barrier to sharing information is the complexity issue. Frequently, an abundance of data is collected by the technology of optical scanners, bar codes, computers and so on, but turning this plethora of data into useful information for decision making can be a challenge.
Consider the amount of data being collected everyday at all of the scanners at retail outlets. The amount of data collected is so overwhelming that it is very difficult to summarize, synthesize and manipulate it into useful form in a timely manner.
Nevertheless, much progress has been made with information sharing; more is likely to come in the future as we demonstrate the positive outcomes of such an approach. shared information of high integrity on a real time basis is the key to SCM success.
Customer Service
In the context of SCM, customer service is also a very important attribute of successful supply chains. In the final analysis, the success of today's global supply chains is the value that they add for their ultimate customers in terms of supply chain's landed cost/price and the related services that are provided. Information technology can play a significant role in facilitating customer service that provides the opportunity for a global supply chain to remain competitive and hopefully gain market share.
Customer service has 3 recognized levels from a supply chain and logistics perspective. The minimum level is reliable, on-time delivery and accurately filled orders. In today's environment, this basic level of service is necessary to retain customers. To increase sales with customers especially the large ones, it is necessary to be responsive to their special needs and requests. This second level may entail for example, scheduled deliveries, advance shipment notices, tailored pallet packs and so on.
To sustain and grow market share, the third and highest level of customer service is required, namely adding value to customers. Example of value-adding service may include vendor-managed inventory, collaborative planning and forecasting, supply chain visibility and so on.
The importance of existing and potential customers has to be evaluated to develop priorities for extending the highest two levels of customer service. Many companies find that a relatively small percentage of their customers generates a significant share of their sales. These "A" customers require priority type service which an effective supply chain partner should be able to provide.
Relationships
Collaboration among supply chain partners is another important ingredient to supply chain success and to the ultimate goal of integration, that is operating the whole supply chain as if it were a single organization. Concepts such as partnerships and alliance have become a part of the vocabulary of logistics and supply chain managers and indicate that the more traditional adversarial basis to business interaction has been changing.
The cooperative, collaborative approach is a recognition to some extent of the characteristic already discussed. However, supply chain relationships need to incorporate more than shared information and a focus upon total supply chain cost. Collaboration in planning strategy and tactics among supply chain partners is also required.
The cooperative planning for a supply chain approach needs to include an internal, cross function team and external efforts with vendors, carriers, distributors and so on. The reported successes of Collaborative Planning and Forecasting Requirements (CPFR) among supply chain members provide another example of the power of collaborative planning and information sharing among supply chain members.
In addition to the above, there is a need to share risks and rewards too. Most companies function in an environment where they attempt to minimize their own risk and maximize their own rewards, which that outcomes are achieved at the expense of other companies. Therefore, a win-win situation is important to materialize the objective of collaborative strategies.
