Supply Chain Management: Corporate Vision: Part II – Supply Chain Management Today
Part II of our series, Supply Chain Management: Corporate Vision, describes where SCM is today and how it’s leveraging technology to extend its value creating potential into the extended enterprise.
Supply chain and internal process management
A process is a sequence of work activities by employees and assets or steps that are needed to create an object in a specified state.(i) The purpose of process management is to determine the relevant techniques and tools applied to implement and improve process efficiency, reduce waste, reduces throughput cycle times, realize profits, and ensure process integrity to meet customer needs. One cannot manage a process if one cannot describe it properly. This requires an understanding of what managers and employees are doing and why. The CFO.University tool, the Process Redesign Workbook, is available here to help you document and improve your processes.
From another side, the process design which leads to the desired output is impacted by the characteristics of the product. The design can be functional or innovative. Unlike functional products, innovative products are characterized by a higher profit margin, unpredictable demand, high product variety and a short life cycle. Each category requires a different kind of supply chain(ii). The SCM process differs between and among enterprises depending on their product processes and market characteristics.
There are eight commonly identified supply chain processes that span the supply chain from end user through the original sources of supply(iii):
- Customer relationship management,
- Supplier relationship management,
- Customer service management,
- Demand management,
- Order fulfillment,
- Manufacturing flow management,
- Product development and commercialization and,
- Returns management.
Standardized processes make communication better between managers, and between managers and their subordinates.
Supply Chain and Just In Time (JIT) Inventory System
The adoption of the Just In Time system (JIT) and corporate culture have their impact on the supply chain process. According to Professor Kaplan, the three main factors that have led Japanese companies to reduce their inventory costs are:(iv)
- Reducing uncertainty in deliveries from suppliers (close coordination with suppliers)
- Tighter scheduling within the factory.
- Commitment to eliminate defects and machine breakdown.
Kaplan claims elsewhere in his article: « The goal of zero defects, the absence of rework, the regular and preventive maintenance of machines, and the operation of these machines without overload and well within their performance specifications, all contribute to a system that can operate at minimal, if not zero, inventory level»(v).
Enterprises can purchase inventories on a JIT basis only if activities throughout the supply chain are properly planned, coordinated, and controlled. Coordinating supply chains, however, can be difficult because supply chain partners do not always share accurate and timely information about their sales, inventory levels, and sales forecasts with one another. Some of the reasons for these challenges are communication problems, trust issues between the companies, incompatible information systems, and limited people and financial resource.(vi)
Supply chain management and extended enterprise
The term “extended enterprise” represents a business that is made up not only of its employees and its executive team, but also its partners, suppliers, customers and market. In other words, it is a network of relationships between a company and its employees, managers, partners, customers, suppliers, and markets. The extended enterprise can only be successful if all groups and individuals have the information they need to handle the business effectively at the right time. It also refers to a network of interconnected information. The company needs to know the conditions of its suppliers in real time. Its customers and partners need to be aware of the latest products or services as soon as they are available. Its board of directors and chief executive team need to have the latest financial information at their fingertips in order to make the pertinent decisions regarding the future of the enterprise and environment changes. Its objective is to provide supply chain data, including new technologies and methods that reduce costs or increase the value included in the product, in order to develop an environment in which all members of the value chain operate as a single entity. However, there is a considerable risk due to this close connection between the enterprise and its external environment. To mitigate it, managers digitalized their supply chain. However, the risky nature of digital supply chain systems is largely attributable to the fact that the successful implementation of these systems requires firms to adapt to the external environment and various outside parties, which are often beyond their control(vii).
E- supply chain management
E-supply chain management in a manufacturing context, is a series of Internet-enabled value-adding activities to guarantee products created by a manufacturing process can eventually meet customer requirements and realize returns on investment.(viii). It requires the use of technology by all organizational structures in a collaborative and not a separate way. It increases the speed of carrying out tasks. It improves the responsiveness and flexibility of the enterprise to be able to respond to the customers’ needs and to be more reactive with planned or unpredictable demand. It reduces the risk of losing an order, and it makes the enterprise more flexible and proactive because of its rich database management system (but which can be expensive).
Therefore, to make e-SCM success, it is necessary to implement a culture of change, introduce new information and communication techniques relating to the internal functions from the supplier channels to the customer channels, and to abandon the old classical methods. Performing tasks without delay and optimizing time management are two of e-SCM’s key benefits. For example, respecting deadlines is not only a commitment with the client, but it is a culture that must be established by managers and accepted by all employees in the enterprise. The different structures must be organized throughout the e-SC which is designed according to the business process. Application of e-SCM can reduce some problems in SCM through sharing of demand by customers with suppliers as part of efficient consumer response (ECR)(ix). This capability is more accessible with the development of new electronic tools that allow enterprises of different sizes to be more closely connected with their partners and collaborators.
Many companies outsource certain functions which are not a core competency of their business to seek more efficiency (notably amortization charges) and gain more flexibility compared to competitors. However, there may be problems with the availability of information at the right time, and an e-SCM can attenuate this problem.
The Internet has influenced the usage of supply chain models in three ways (x):
First, the Internet has facilitated increased use of enterprise resource planning (ERP) and advanced planning and optimization solutions (APS).
Second, the ability to obtain real time information and the access to large computer systems is enabling firms to develop detailed (high granularity) supply chain models that can be utilized to make real-time decisions.
Third, the Internet has created opportunities to integrate information and decision making across different functional units, thereby creating a need for supply chain models that go beyond a business unit to study the extended enterprise.
Part III in this series cover Supply Chain Integration and Decision Making
(i) DMITRY Ivanov, ALEXANDER Tsipoulanidis, JÖRN Schönberger, Ibid, p 49
(ii) MARSHALL L. FISHER, what is the right supply chain for your product? Harvard Business Review, 1997, p107
(iii) COKINS Gary, POHLEN Terrance & KLAMMER Thomas, Supply Chain Costing and Performance Management, 2nd edition, Wiley, New jersey, 2021, P28.
(iv) KAPLAN Robert, Measuring Manufacturing Performance: A New Challenge For Managerial Accounting Research, Article, The Accounting Review, Vol LVIII, N° 04, October,1983, P692.
(v) KAPLAN Robert, (Observation taken from Hayes (1981), Monden (1981) & Tsurumi (1982) Measuring Manufacturing Performance: Ibid, P692.
(vi) CHARLES T. HORNGREN, SRIKANT M. DATAR, MADHAV V. RAJAN, Cost accounting a managerial emphasis, 15th edition, Pearson education Inc, New jersey, 2015, P777
(vii) LING Xue, CHENG Zhang, HONG Ling and XIA Zhao, Risk Mitigation in Supply Chain Digitization: System Modularity and Information Technology Governance, article, Journal of Management Information Systems, Vol. 30, N° 01 Summer 2013, P326
(viii)LI. D, e-Supply chain management, WIT Transactions on State of the Art in Science and Engineering, Vol 16, WIT Press, chapter 10, edited by k.cheng Leeds Metropolitan university, 2005.
(ix) DARJAT Sudrajat, Electronic supply chain management, Article Binus University Business school, April 2017.
https://bbs.binus.ac.id/management/2017/04/electronic-supply-chain-management-e-scm/
(x) JAYASHANKAR M. SWAMINATHAN AND SRIDHAR R. TAYUR, Models for supply chain in e-business, article, Management Science, Oct., Vol. 49, No. 10, Special Issue on E-Business and Management Science, published by informs, October, 2003, p 1389.
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