Logistics Operations, Effects of Supply Chain Management - Assignment Example

Logistics Operations Supply chain management – Definition and key issues If today you are not in a company which is impacted by Supply chain management or an environment of continuous replenishment and think that it won’t affect you in any way you are probably wrong. In fact it will impact you sooner than later. Appearing in various industries the concept is quickly moving into smaller companies. It is better one starts to know what it is and what it means to oneself. SCM or Supply Chain Management is a dynamic paradigm and is swiftly driving through companies. While most of the SCM relates to large companies supplying large retailers or grocers the attention as such received by SCM is quite phenomenal today. If you consider additionally the global perspective involving customers, competitors and suppliers then the magnitude of the supply chain is very significant and huge. Let us consider what this SCM all about is. Actually SCM is a reverse of prior practices where manufacturers supplied products to customers as the manufacturers wanted to. But today customers tell the suppliers how and when they wanted their inventories to be delivered. The key driver behind SCM is to remove the inefficiencies, excessive costs and excess inventories from the supply pipeline, which extend from the customer back through his suppliers and through his suppliers’ suppliers and so on backwards. By this method of having the whole thing being driven by the customer, it is hoped that inventories, caused by uncertainties and slow responses, will be totally eliminated. While sales incentives exist to take care of major suppliers carrot of category management or similar such programs, logistics is the key to the ultimate success of Supply Chain Management. The five key issues of Logistics Effectiveness are core to Supply Chain Management: a) Movement of Product b) Movement of Information c) Time / Service d) Cost e) Integration, both internal and external, both organizations and systems. Supply chain management essentially requires a logistics model based on quick order to delivery response. A model which directs its focus from the vendors doors through to delivery to customer’s premises. The model must in fact meet the customer’s most demanding as well as specific requirements. Demanding the use of processes and technology it requires responsiveness and organizational flexibility as well as internal and external teamwork. Forward-buying is a common practice for causing inefficiencies, excess inventories and high costs. At the surface of it, it looks as though it is buying at a low price. But when it comes to reality, this practice leads to additional, higher costs and negative impact throughout the supply chain and is very inefficient. It strains the responding capability of suppliers while also straining the handling of products by the distribution department of the customers. Therefore forcing excess sales through the supply chain, the hidden costs of manufacturing and distribution valleys, while the huge peak caused by the forward-buy remains significant. It creates for both the supplier and the customer an operational and cost inefficiency. So supplier chain management is all about what the customer wants and demands and not what the supplier is capable of doing at the moment. Though customer requirements vary from customer to customer they do have consistencies with respect to logistics such as: a) Quick response to orders from order receipt through shipment to invoicing b) Complete and accurate orders and no backorders c) Delivery windows or appointments d) Special shipment preparation as to packaging, marking, labeling, stenciling, slip sheets or pallets etc. e) Bar coding f) EDI g) Carrier Selection Effects of Supply Chain Management: The initial benefits of supply chain management, is accrued to the customer who incidentally is also the initiator of the supply chain. He earns the reduction in inventories by driving out excess inventories which he must purchase, store and be responsible for. The impact of supply chain management to the supplier may in fact be more difficult to classify, initially as benefits. Though varying, they may include the following: a) Fewer orders initially while the customer draws down excess inventories b) More frequent but small orders c) Not the customer but vendor carries inventories d) Increase in warehousing costs for picking smaller and more orders e) Increase in freight costs for shipping smaller and more orders f) Penalties for not meeting the customer’s requirements g) Possible loss of business for not meeting the customer’s requirements h) In order to satisfy the need for information and technology providing the base for SCM responsiveness, incurring additional capital expenditure Achieving success in Supply chain Management in fact dictates new ways of doing business for suppliers. Instead of following a standard way or standard practice of doing business there should be a customized way of doing business with each customer involved. In fact if a company has one hundred customers then there might be one hundred customer practices. Viewing business this way challenges traditional management concepts. There are many impediments to Supply chain success. Emphasis currently is on the initial customer-supplier link. Supply chain does not coordinate this. As the effects travel down the supply chain, the suppliers are not clear as to what their role is and what they must do. It is not so easy to respond to supply chain demands. Several issues such as outlined below exist which must be directly dealt with. a) Accounting Silos – Though supply chain management is a leading edge technique, the traditional cost measurements used by companies goes back to the Model A. In fact meeting generally accepted accounting principles is one thing while measuring the costs and benefits of logistics and supply chain management is something quite different. b) Logistics has a specific difficult in having its costs identified, captured and measured properly. Certain costs, such as freight, show on the P&L. Others such as the inventory show on the Balance Sheet. And Service, which is the key driver of supply chain management, does not appear on any financial document at all. So suppliers may have difficulty seeing the cause-effect of supply chain management to them and gain-sharing benefits as the progress is made with it. To measure the effects of supply chain management on any organization the best approach is activity-based costing. With this method of costing one can develop cost information based on the activities required to the logistics service. c) Functional Silos – The process of Supply chain management required integrated teamwork. The goal of supply chain management is customer order-response satisfaction. Yet some of the traditional organizations with their individual goals and responsibilities may not be enhancers of teamwork. The internal goals of each function may run counter to effective logistics performance necessary for supply chain management success. Just look at the customer who is the underlying driver of supply chain management. It is sales, which is responsible for meeting the needs of each customer and any tailored process being developed for the same has to consider this angle. Even if the companies are using MRP, a tool which drives its production planning, supply chain management is still a pull and not a push approach. If the question arises as to how does this shift in a company’s practice be absorbed or then who is responsible for a company’s supply chain management then the clear answer is that everyone in the company is responsible, yet it is an irony that organizations dictate that one group be responsible for it. d) Reactionary Practices – Being a process by itself supply chain management takes time, focus and discipline to make the necessary changes to the way a company does business. It is not about reacting to an order but it is more about responding to a customer. Reacting events such as fighting fires and other events are anti-process, and while on the surface of it seems it is customer focused, it is not. Instead it keeps a company going by reacting to crisis and other emergencies while tending to what must be done for the process of supply chain management. Though at the end of the crises the company is no closer to implementing the necessary integrated process. e) Tactical versus Strategic role for Logistics – It is very evident that supply chain success depends on logistics. In order to develop the necessary programs for supply chain management the organization concerned with logistics should be involved in the planning activity from the very beginning itself. Other groups cannot meet in the absence of logistics, or decide what logistics must do, or just issue orders to logistics and think that there will be supply chain success. If the latter approach without the active participation of logistics is used then the likelihood of the customer requirements being met and the implementation of technology and teamwork needed is not likely to happen. f) Unclear mission – Supply chain management requires rethinking of the company and the logistics mission. Is it customer or is it cost? There could be conflicting goals. Purporting the mission to be service and then making measurements by cost can render the organization to lose focus miserably on what must actually be carried out. Supply chain management is a new concept and hence requires a reassessment of what the company is doing, where it is heading and how it wants to reach its destiny. Besides the above today’s increasingly challenging global marketplace poses some more key strategic trends and issues in supply chain management. Some of them are outlined below: a) The effects of globalization b) Issues of Infrastructure c) Mergers, acquisitions and alliances d) Safety and Security e) Leveraging Human Capital f) Responding to customers g) Exploiting Technology Traits of Supply chain Excellence Some companies do well irrespective of their size or industry. They are always found to be successful whether they deal with low value merchandise or high value merchandise or whatever. While certain other firms seem to struggle for ever. The discernable difference very often you will find is how well the company does supply chain management. Supply chain excellence does not happen by accident. Firms with excellent and enduring supply chains have done it as part of their operations and strategy. They acknowledge the fact that it is shrewd business to be a leader in supply chain management. They understand the importance of supply chain management as a key differentiator positioning themselves uniquely in the market and against competition. They are well aware that SCM can drive sales, profits, market share and capital expenditures with inventory. If supply chain management is not a dominant factor in the company strategy or operations during good or bad times then the company will experience wide swings during economic changes. They may try to get the sales or orders through when the economy is strong but they will be unsure what to do when the economy is weakened. Supply chain management is always dealt with in terms of freight cost. One can visually see the amount of dust collected on most products in their warehouses. They in fact are unsure of how often their inventory turns or if they really can and when. Lacking an activity based costing breakdown of inventory and cannot distinguish inventory turns for products that are domestically purchased or those that are sourced offshore. Having product stock outs and not able to meet customer demands or fill timely, complete orders, they have too much capital tied up inventory with low turns. They expect different results but repeat the same mistakes of not having a proper supply chain management practice. The best in supply chain management have consistent traits that set them apart. a) Strategy: This is the starting point. Firms with best supply chains have a valid corporate strategy around which the supply chain is built. This drives planning, tactical design, milestones and other steps in strategy development and implementation. One must have a direction to what you are doing to deal in a global business environment. The best have a supply chain management strategy that enables them to plan the tactical operations and to prioritize suppliers, customers and products. Strategy sets the platform for supply chain execution. Supply chain leaders understand that supply chain management is a process that is company wide and extends beyond it too. They are fully aware that SCM is about the flow of products and information and that supply chain extends from suppliers through to store shelves or to customer depots and warehouses. The strategy is long term, recognizes globalization and has a focus on growth. Also the strategy must be dynamic enough. Also the resistance to change within companies is fully anticipated, acknowledged and appreciated. Which means that supply chain management must be a facilitator of change, be agile and able to recognize, incorporate and adapt to drive towards the changes required. b) Metrics: As we all know results do matter. But at the same time right measures matter too. They know how well the supply chain is or is not performing as demonstrated by the key performance indicators. A poor way to direct, manage and measure supply chains is through financial measures. A perfect order for both customers and suppliers is the best metric for an overall evaluation as shown by good supply chain executives. c) Lean: The best know that lean supply chain management is more than warehouses and transport topics. It must include the total supply chain, both domestic and especially, international. They stay focused on adding value as defined by the customer, using the pull which complements the SCM, keeping a customer focus, and removing the waste of inventory and time. d) Technology: Technology is used as a process enabler. It is appreciated that without a strong process, many of benefits accrued from technology are lost or reduced. Technology is very vital for complete supply chain visibility from purchase orders to delivery orders, and not just in warehouses or where a truck or container is. Technology is applied as a tool for collaboration. e) Supplier performance: Supply chain success also depends on supplier performance. Havoc can be wrecked on revenue, inventory and profitability due to the lack of proper supplier performance. Instead of letting suppliers control business, companies and supply chain must control suppliers. Conclusion Supply chain management is here to stay. It is not about shipping orders nor is it about making a product and pushing it out the door. Supply chain management is to meet each customer’s requirement uniquely by developing a responsive process. Customers are in fact driving supplier’s practices. Being successful requires logistics effectiveness. The global nature of customers, competitors and vendors throws an exciting challenge and opportunity for companies who can see the potential and make it happen. References Branch, A. (2008) Global supply chain management and international logistics. London: Routledge. Bowersox, D., Closs, D. and Cooper, M. B. (2006) Supply chain logistics management. 2nd ed., London: McGraw Hill. Chopra, S. and Meindl, P (2007) Supply chain management. 3rd ed., Harlow: Financial Times Prentice Hall. Christopher, M. and Peck, H. (2003) Marketing logistics. Oxford: Butterworth Heinemann. Craig, Thomas, December/ January 1999, Supply Chain Management, An overview, Web, Viewed on March 12, 2009, Emmett, S. (2008) Excellence in supply chain management: how to understand and improve supply chains. Cambridge: Academic Press. Gadde, L. and Hakasson, H. (2001) Supply network strategies. Chichester: John Wiley Grant, D., Lambert, D., Stock, J. and Ellram, L. (2005) Fundamentals of logistics management. 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