Professional Documents
Culture Documents
MKRakesh
Ph.D scholar
Mahatma Gandhi Kashi Vidyapeeth
Varanasi
mkrakesh@rediffmail.com
Through the past decades we have seen an increasing rate of globalization of the
economy and thereby also of supply chains. Products are no longer produced and
consumed within the same geographical area. Even the different parts of a product may,
and often do, come from all over the world. This creates longer and more complex supply
chains, and therefore it also changes the requirements within supply chain management.
This again affects the effectiveness of computer systems employed in the supply chain.
A longer supply chain will often involve longer order to delivery lead times. Flaherty
[10] states, in accordance with the discussion in Section, that the consequences of longer
lead times will often be less dependable forecasts as these have to be made earlier,
reduced production flexibility, i.e. greater difficulties to adjust to order changes, higher
levels of inventory. Therese M. Flaherty. Global Operations Management. McGraw-Hill,
New-York, 1996.
The evident answer to the problem of longer lead times is to speed up the supply chain.
But a limit is often reached beyond which further effort to shorten lead times are futile,
especially in international supply chains. Another approach is to restructure the supply
chain. This simply means to reconsider the strategic level decisions priorly made. A third
approach identified by Flaherty [10] is changing coordination: The order, forecasting,
procurement, and information sharing procedures among the members of the supply
chain. We will dwell on the issue of coordination in the next section.
Globalization also brings foreign competition into markets that traditionally were local.
Local companies are thereby forced to respond by improving their manufacturing
practices and supply chain management. Bhatnagar et al. [5] states that attempts have
focused, among others, on reduction of inventory levels, and increased flexibility through
reduced lead times. Yet again we see how industry focuses on the issues of inventory
management and flexibility to maintain high levels of customer satisfaction.
Definitions
Supply chain management (SCM) is the process of planning, implementing and
controlling the operations of the supply chain as efficiently as possible. Supply Chain
Management spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point-of-origin to point-of-consumption
Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have
their own objectives and these are often conflicting. Marketing's objective of high
customer service and maximum sales dollars conflict with manufacturing and distribution
goals. Many manufacturing operations are designed to maximize throughput and lower
costs with little consideration for the impact on inventory levels and distribution
capabilities. Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a single,
integrated plan for the organization---there were as many plans as businesses. Clearly,
there is a need for a mechanism through which these different functions can be integrated
together. Supply chain management is a strategy through which such integration can be
achieved.
There seems to be a universal agreement on what a supply chain is. Jayashankar et al.
[25] defines a supply chain to be
A network of autonomous or semi-autonomous business entities collectively responsible
for procurement, manufacturing, and distribution activities associated with one or more
families of related products.
Lee and Billington [17] have a similar definition:
A supply chain is a network of facilities that procure raw materials, transform them into
intermediate goods and then final products, and deliver the products to customers through
a distribution system.
And Ganeshan and Harrison [12] has yet another analogous definition:
A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into intermediate
and finished products, and the distribution of these finished products to customers.
According to Wikipedia.org
Supply Chain Management (SCM): Supply chain management (SCM) is the process of
planning, implementing, and controlling the operations of the supply chain with the
purpose of satisfying customer requirements as efficiently as possible. Supply chain
management spans all movement and storage of raw materials, work–in–process
inventory, and finished goods from point–of–origin to point–of–consumption
(http://en.wikipedia.org/wiki/Supply_Chain_Management).
The definition one American professional association put forward is that Supply Chain
Management encompasses the planning and management of all activities involved in
sourcing, procurement, conversion, and logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers, and customers. In essence, Supply
Chain Management integrates supply and demand management within and across
companies. More recently, the loosely coupled, self-organizing network of businesses
that cooperates to provide product and service offerings has been called the Extended
Enterprise.
Logistics is that part of the supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services, and related information from the
point-of-origin to the point-of-consumption in order to meet customers' requirements.
“Efficient Management of the Supply Chain (source, make and deliver) in order to
maximize the value for money to the customer”.
In other words Supply Chain Management means integration and management of Supply
Chain organization and activities through coordinated and collaborative strategic
alliances, efficient business processes and high levels of information sharing to create a
value chain that would provide member organizations a sustainable competitive
advantage and in turn provide value for money to the customer. Instead of brand versus
brand or store versus store, it is now supply chain versus supply chain. In this emerging
highly competitive and dynamic environment, the ultimate success of the Business entity
will depend on management's ability to integrate the company's complicated network of
business relationships. The graphic will explain the process of Integration in the Supply
Chain network.
The broader view of SCM is depicted in the above figure in a simplified supply chain
network structure. This would explain the basic difference between Logistics and SCM.
Supply Chain is inter-company integration of business process and relationships and
where as Logistics is intra-company integration.
Experience shows that the gains to be made in cost, lead-time and quality through
working in partnership with customers and suppliers are significant. In industry after
industry one observes that:
50%-70% of total costs are supplier related (material versus direct labor or overhead
costs).
Supplier lead times are longer than one's own production lead times.
It goes without saying that the quality of your product depends on the quality of material
your supplier provides. With customers awarding more and more business based on total
price, quality and delivery, the whole process from one's supplier receiving raw material
to one's customer using the product has to be the target for breakthrough improvement.
Experience shows that customers use the products we produce in much more predictable
ways than then it first appear. We assume that a customer's order pattern is related to
his/her usage pattern. Often we do not look beyond the order pattern for information
about actual usage. Worse yet we tend to create wide swings and unpredictability in
buying patterns that would otherwise be stable and predictable.
The consumer products industry learned that it often incurred more costs than benefits
through consumer promotions. They trained consumers to wait for a sale, then buy and
stock product until the next sale. Swings in demand were amplified through the supply
pipeline adding cost as the bulge worked its way through the system. Retail stores
clogged backrooms with inventory or ran out of stock. Distributors added inventory to
cover unexpected demand. Manufacturers added finished goods inventory, increased
production through over-time, and put pressure on their suppliers to deliver more in
shorter lead-times. Wal-Mart broke the cycle with Every-Day-Low prices. A master in
logistics, Wal-Mart understood that it was more profitable to always offer the lowest
competitive prices to the consumer in return for more stable, predictable demand. The
more predictable the demand, the easier it is to synchronize activities to true customer
demand throughout the supply chain. The result is better on-time delivery, fewer stock-
outs, and higher customer satisfaction with less inventory, reduced administrative work
and lower overall costs.
Figure below shows us the relation ship between some of the components of supply
chain.
Delivery and lead-time.
Inventory Costs
Warehouse cost
SCM Framework
A framework to understand the various issues involved in SCM is provided by the
pyramid structure for the SCM paradigm (fig.) the pyramid allows issues to be analysed
on four levels:
Strategic: On the strategic, level it is important to know how SCM can contribute to the
enterprises’ basic “value proposition” to the customers. Important questions that are
addressed at this level include: What are the basic and distinctive services needs of the
customers? What can SCM do to meet these needs? Can the SCM capabilities be used to
provide unique services to the customers? Etc.
Structural: After the strategic issues are dealt with, the next level question(s) that should
be asked are: Should the organization market directly or should it use distributors or other
intermediaries to reach the customers? What should the SCM network look like? What
products should be sourced from which manufacturing locations? How many warehouses
should the company have and where should be located? What is the mission of each
facility (full stocking, fast moving items only, cross-docking etc.)?
Functional: This is the level where operational details are decided. Functional excellence
requires that the optimal operating practices for transportation management, warehouse
operations, and materials management (which includes forecasting, inventory
management, production scheduling, and purchasing) be designed. These strategies
should keep in view the trade-offs that may need to be made for the overall efficiency of
the system. Achieving functional excellence also entails development of a process-
oriented perspective on replenishment and order fulfillment so that all activities involved
in these functions can be well integrated.
The SCM models used in practice lie in a continuum between two extreme models: on
one end of the spectrum lies the vertically integrated supply chain model in which the
organization has direct control over each and every component of the supply chain, while
on the other end of the spectrum lies the horizontally diversified supply chain model
(ideally) in which the number of participant is as large as the number of distinct parts of
the supply chain. In a vertically integrated supply chain system, the organization can
control every component of the chain and can make various changes to the system to
optimize the chain very easily. But in a horizontally diversified supply chain the tendency
will be to optimize only the functions that the organization is involved in, thus conscious
efforts must be made by the various participants in the supply chain for the integration of
their respective components in the supply chain. If an organization can be identified as
the major/dominant partner in the supply chain, then this organization has to take an
initiative in seeking the co-operation of the other participants in the supply chain.
The type and structure of the supply chain that is established depends on many factors,
some of the major factors are:
Geographical: If the supply chain is stretched across the globe then it may not be possible
to incorporate some of the principles of lean production like JIT delivery, flexible
manufacturing, and co-ordination among suppliers and customers. It can lead to uncertain
transportation schedules, unpredictable lead-time and may need larger inventory carriage.
Cultural: The difference in the “culture” of the participants in the chain (the difference
can be due to geographical factors or corporate practices) can lead to friction and distrust.
This may hamper the development of close ties.
Government Legislation: The laws of the country may prohibit the sharing of information
about some facet of the supply chain and thus, may lead to a restrictive participation by
one or more participant in the supply chain.
In order to understand these relationships well and to focus on the appropriate ones, one
should have explicit knowledge about the following:
Members of the Chain; Network Structure; and Flows (Information, Product and Cash).
In contrast, support group members are companies that simply provide resources,
knowledge, utilities or assets for the primary members of the supply chain. For example,
supporting companies include 3PL Companies, Integrators, Freight Forwarders, Banks
and IT networking companies and all others who participate in the chain to support the
Front enders or Focal companies. The same company can perform both primary and
supportive activities. Likewise, the same company can be performing primary activities
related to one process and supportive activities related to another process. An example
from one of the case studies is IT Company, which manufactures Hard Disk Drives
(IBM), is a member of Support group when their finished product is HDD. IBM is
considered as a Front ender when they are supplying their Computers. If we review the
case of Intel, it plays both the roles. They work with PC manufacturing companies
closely when designing the processors and also play the role of support function while
supplying the processors as a supplier. At the time of design development of the
processor Intel is adding value to the process and when they turn into supplier, they
become support group of the Supply Chain network of a PC manufacturing company. It
should be noted that the distinction between primary and supporting supply chain
members is not obvious in all cases. Nevertheless, this distinction provides a reasonable
managerial simplification and yet captures the essential aspects of who should be
considered as key members of the supply chain and make the job all the more easier.
The definitions of primary and supporting members make it possible to define the point-
of-origin and the point-of-consumption of the supply chain. The point-of-origin of the
supply chain occurs where no previous primary suppliers exist. All suppliers to the point-
of-origin members are solely supporting members. The point-of-consumption is where no
further value is added, and the product and/or service is consumed.
Network Structure:
Two structural dimensions of the network are essential when describing, understanding,
analyzing, and managing the supply chain. These dimensions are the horizontal structure,
the vertical structure. The horizontal structure refers to the number of tiers across the
supply chain. The supply chain may be long, with numerous tiers, or short, with few tiers.
As an example, the network structure for bulk cement is relatively short. Raw materials
are taken from the ground, combined with other materials, moved a short distance, and
used to construct buildings. Where as the Supply Chain of a detergent product is
different and lengthy. Consider a customer walking into any one of our departmental
stores looking for a detergent. The Supply Chain begins with the customer and his or her
need for detergent. The next stage of this supply chain is the Departmental store retail
store that the customer visits to purchase the detergent. These departmental stores must
be storing their products in their replenishment warehouses or warehouse managed by the
third parties or VMI warehouses provided by the supplier. This is the last stage of phase-
1 of the detergent supply chain. In the next stage we have the detergent manufacturer
(say, Proctor & Gamble (P&G)). P&G supply chain includes the raw material supply,
packing material suppliers, and service support suppliers.
The vertical structure refers to the number of suppliers/customers represented within each
tier. A company can have a narrow vertical structure, with few companies at each tier
level, or a wide vertical structure with many suppliers and/or customers at each tier level.
In the companies studied different combinations of these structural variables were found.
In one example, a narrow and long network structure on the supplier side was combined
with a wide and short structure on the customer side. Increasing or reducing the number
of suppliers and/or customers will influence the structure of the supply chain. For
example, as some companies move from multiple to single source suppliers, the supply
chain may become narrower. Outsourcing logistics, manufacturing, marketing or product
development activities is another example of decision making that likely will change the
supply chain structure. It may increase the length and width of the supply chain, and
likewise influence the horizontal position of the focal company in the supply chain
network. In the companies studied, the supply chains looked different from each
company's perspective. The reason for this is that the integration and management of
business processes across company boundaries will be successful only if it makes sense
from each company’s perspective.
Operating a supply chain requires continuous information flows among the supply chain
partners/participants, which in turn help to create the best product flows. The customer
remains the primary focus of the process. Achieving a good customer focused system
requires processing information both accurately and in a timely manner for quick
response systems that require frequent changes in response to fluctuations in customer
demand. Controlling uncertainty in customer demand, manufacturing processes, and
supplier performances are paramount to effective supply chain management.
The sharing of information among supply chain members with in the supply chain
network is a fundamental requirement for effective supply chain management. Decision
makers at all levels within the supply chain network are provided with timely and quality
information they need, in the desired format, regardless of where within the supply chain
this information originates. Fulfilling this requirement is a formidable challenge in front
of any organization. Most of the supply chains fail due to lack of quality information at
the right time. Differed decisions always lead to unacceptable results. Decisions are
differed due to lack of appropriate information. Recent developments in technology have
brought information to the forefront of resources from which forward-thinking firms can
cultivate genuine competitive advantage to meet the challenges at the market place.
These technologies provide the means for multiple organizations to coordinate their
activities in an effort to truly manage a supply chain. As the rate of these technological
advances increases, the cost associated with this information has decreased.
Simultaneously the speed with which this vital information can be made useful and
applicable in a variety of business situations continues to increase.
The below mentioned four Supply Chain enablers need to be in place if Supply Chain
optimization initiatives are to succeed.
Organizational Infrastructure
Technology
Strategic Alliances
Human Resources Partnership
Technology: All forms of technology to improve the efficiency of the Supply Chain.
Strategic Alliances: One cannot be good at every thing and physically be everywhere –
One has to relay on your partners and focus only on your core competencies to achieve
the corporate goal.
Inventory
Transportation
Facilities and
Information.
Having identified the Supply Chain Drivers, we have to identify the Obstacles also and
they are:
Product Proliferation;
Decreasing Product Life Cycles;
Demand variability;
Supply Chain fragmentation;
Globalization and;
Difficulty in executing new strategies.
Many obstacles, such as growing product variety and shorter life cycles, use and through
concepts and ever demanding customers have made it increasingly difficult for Supply
Chains to achieve strategic fit. Overcoming these obstacles offers a tremendous
opportunity for firms to use SCM to gain competitive advantage.
SCM encompasses a wide variety of interdisciplinary topics, such as supplier selection,
quality management across the supply chain, scheduling, logistics, information flows,
distribution channels, and customer satisfaction. It is vital to note that the SCM activities
should be integrated into a firm’s operations and corporate strategies so that firms can
gain competitive advantage and improve their performance in their respective industries.
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SCM Philosophies:
The integration at the business level with the suppliers, distributors, and customers
requires commitment of all the organizations within the supply chain at the top
management level. In addition, as it is presented on Total quality management (TQM) is
a crucial part of SCM. In a supply chain, activities are coordinated among the
constituents based on the information gathered from the end customers regarding the
products and services. In addition, each part of the chain is dependent on the others in
the areas of customer satisfaction and quick response. Many have highlighted the
importance of a shared strategy for the development of TQM and continuous
improvement in a supply chain.
SCM Challenge:
The challenge of supply chain management is to constrain plans with multiple constraints
such as materials, capacity (production and distribution), time and locations,
transportation, holding capacity, line and product sequencing, lot sizing of production
quantities, production changeovers and down times, ramp up curves when switching
between schedules or machines, campaign planning, multi-staging of production and
distribution, and bills of materials. The end result of all these constraints is
"combinatorial explosion”.
The potential benefits of implementing SCM are significant. Analysis shows that
time after time, industries after industry, the breakthrough improvement possible through
SCM are as follows:
Improvements %
Manufacturing throughput time 75-95
Supplier lead time 75-95
Cost of poor quality 50-75
Productivity 20-50
Inventory 50-90
Equipment changeover time 75-90
Space 40-80
Administrative process time 75-95
Every organization combines the elements of a successful SCM strategy in ways that are
appropriate to its business structure and organization culture.
Functionalities/Areas of SCM
Cycle time reductions: By considering constraints as well as its alternatives in the supply
chain, it helps to reduce cycle time.
Inventory costs reductions: Demand and supply visibility lowers the requirements of
inventory levels against uncertainty. Ability to know when to buy materials based on the
customer demand, logistics, capacity and other materials needed to build together.
Increase order fill rate: Real-time visibility across the supply chain (alternate routing,
alternate capacity) enables to increase order fill rate. Analysis of the supply chain
management can help to predict propagation of disturbances to downstream.
We all understand the importance of improving our supply chain, but very few people
have accurately defined the critical success drivers needed to achieve improvements.
Mary Lou Fox, senior vice president of consulting at Manugistics, suggests that success
depends on the several primary drivers, including the following:
While the first driver in this list is a given in most organizations, the importance of the
remaining drivers is very high. Organizations that promote the formations of "functional
silos" are less likely to achieve coordination within the various components of the supply
chain than organizations that work without functional barriers. This also necessitates the
integration of data across the enterprise so that, common information is shared by all
planners in the supply chain. The task of improving the supply chain can be extremely
complex and difficult. Various decisions integral to making improvements are
forecasting, purchasing, production, storage, and distribution. Forecasting initiates the
entire process of supply chain management in all environments of Assemble to Order
(ATO), Make to Stock (MTS) and Make to Order (MTO). One needs to know how much
to make and what to make before any of the other decisions can be triggered. A good
system will offer modules tailored to the decision being made, and will provide an end-
to-end solution starting with forecasting, planning, and scheduling, and ending up with
transportation planning.
It's important for organizations to have horizontal and vertical visibility into their supply
chains. Every decision involved in purchasing, producing, storing, and distributing goods
are interlinked. A change in any one dimension initiates a trickledown effect on the
remaining components in the supply chain. For example, planning for upcoming seasonal
builds impacts production, distribution, and materials. Matching a competitor's 20 percent
price cut impacts the entire supply chain of an organization. If a single production line in
a facility is down for a day, production must be rescheduled or moved across the
enterprise to avoid delays in meeting customer demands, etc. As a result, good supply
chain management systems need to be able to reconcile changes both horizontally and
vertically in a computationally efficient manner.
The success of any supply chain mainly depends on the capability to reengineer the
process in order to improve the productivity and look for cost innovations and reduced
lead times. A critical part of streamlining supply chains involves reengineering the firm’s
key processes to meet customer needs. Reengineering is a process aimed at producing
dramatic changes quickly. Hammer and Champy define it as the fundamental rethinking
and radical redesign of business processes to achieve dramatic improvements in critical
contemporary measures of performance such as cost, quality service, and speed.
Improvement through reengineering cannot be accomplished in a haphazard manner.
These changes must be supported at the top and driven through an overall management
plan. A typical reengineering process proceeds through four stages as explained in the
below given graphic:
Understanding the present condition and design the strategy keeping in view of the of
business objective;
Plan the process,
Operate the system,
And measure the performance.
Armed with the facts collected in the first stage, reengineering teams identify areas for
improvement keeping in mind the business objective. This stage is very crucial and very
critical stage in the whole process. One should clearly understand and analyze the
present situation as well as the business objective in order to design the Supply Chain
strategy. Organizational energy needs to focus on the firm's mission statement, which
defines the business objective. The mission statement drives the business requirements in
the organization. A complete assessment is made of the firm's culture, strategies,
business practices, and processes. They analyze where value was added for the final
customer with particular emphasis on customer contact points and product information
transfers, which are currently ineffective or inefficient. After identifying improvement
points the creative phase of redesigning business process and information flow begins.
The outcomes of the creative phase will fundamentally change both the nature of the
work and how it is performed.
The operations will provide the vital information in the form of feed back about the
improvements and the performance should be measured against the benchmark
established at the time of strategy design to understand the progress and innovations. If
necessary, one should not hesitate to re-invent the wheel in order to improve the process
and in turn to achieve customer’s delight. This is a never-ending activity as long as there
is a buyer and a seller in the market place. Business community is becoming aware of the
emerging paradigm of supply chain competition. The successful integration and
management of key business processes across participating members of the supply chain
will determine the ultimate success of the single enterprise. Managing the supply chain
cannot be left to chance. For this reason, professionals are striving to interpret and
determine how to manage the company's supply chain network, and achieve the potential
of SCM.
In combination, the SCM definition and the new framework move SCM philosophy to its
next evolutionary stage. The process of implementing the SCM in any organization
involves identifying the supply chain members, with whom it is critical to link, what
processes need to be linked with each of these key members, and what type/level of
integration applies to each process link. The objective of SCM is not simply maximizing
the return on investment to the stakeholders of the company but the whole supply chain
network including the end-customers. Consequently, supply chain process integration and
reengineering initiatives should be aimed at boosting total process efficiency and
effectiveness across members of the supply chain.
This is considered as the next stage to Logistics Management. In order to conclude if the
Logistics Management is integrating various value adding activities with in the
organization, then the Supply Chain Management is integrating processes, flows and
activities with in the Supply Chain network, which includes various other companies who
participate in the network. The objective of Supply Chain Management is a cut above
Logistics Management.
For an extended period of time in the late 1970s and 1980s, the concept of Distribution
Requirements Planning (DRP) was offered as a complete supply chain management
solution. DRP provides the capability to model distribution bills, and translates time-
phased demand into supply requirements. It also obeys calendaring requirements for
shutdowns and closings. By itself, DRP does not solve the supply-planning problem. It
does, however, enhance the capabilities of the logistics network of an organization. There
is no one computation that will solve the entire planning and scheduling problem. It's not
possible to scale up a detail-driven solution to extend it across the enterprise in a
computationally efficient manner since the problem of planning and scheduling is
inherently intractable. Therefore, different computations exist for different zones of
planning. While designing scalable algorithms for the various planning and scheduling
levels, it's essential to apply a best of breed approach. This approach might be a hybrid of
mathematical programming techniques, goal driven heuristics, and rules based logic. But
be sure to apply the right tool at the right time, however, and keep abreast of the latest in
new search methodologies being researched in artificial intelligence and optimization.
With regard to the three-level planning areas, efficient algorithms are designed by
allowing for true mathematical optimality in the Level One area. In the Level Two area,
feasibility for all constraints is of primary importance given the extremely dynamic
nature of businesses over the shorter time horizon. Mathematical optimality can be
provided, but at a cost of computational time--which most users aren't willing to give up.
In the third level, certain problems are best solved by heuristic (line scheduling)
approaches. Developers of supply chain software cannot and should not be committed to
providing only one solution methodology, as this will not allow for best of breed
algorithmic approaches to solving the large enterprise-wide supply chain problem.
Decisions for supply chain management are classified into two broad categories --
strategic and operational. As the term implies, strategic decisions are made typically over
a longer time horizon. These are closely linked to the corporate strategy (they sometimes
are the corporate strategy), and guide supply chain policies from a design perspective. On
the other hand, operational decisions are short term, and focus on activities over a day-to-
day basis. The effort in these types of decisions is to effectively and efficiently manage
the product flow in the "strategically" planned supply chain.
Location Decisions:
The geographic placement of production facilities, stocking points, and sourcing points is
the natural first step in creating a supply chain. The location of facilities involves a
commitment of resources to a long-term plan. Once the size, number, and location of
these are determined, so are the possible paths by which the product flows through to the
final customer. These decisions are of great significance to a firm since they represent the
basic strategy for accessing customer markets, and will have a considerable impact on
revenue, cost, and level of service. These decisions should be determined by an
optimization routine that considers production costs, taxes, duties and duty drawback,
tariffs, local content, distribution costs, production limitations, etc. Although location
decisions are primarily strategic, they also have implications on an operational level.
Production Decisions:
The strategic decisions include what products to produce, and which plants to produce
them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets.
As before, these decisions have a big impact on the revenues, costs and customer service
levels of the firm. These decisions assume the existence of the facilities, but determine
the exact path(s) through which a product flows to and from these facilities. Another
critical issue is the capacity of the manufacturing facilities--and this largely depends the
degree of vertical integration within the firm. Operational decisions focus on detailed
production scheduling. These decisions include the construction of the master production
schedules, scheduling production on machines, and equipment maintenance. Other
considerations include workload balancing, and quality control measures at a production
facility.
Inventory Decisions:
These refer to means by which inventories are managed. Inventories exist at every stage
of the supply chain as either raw material, semi-finished or finished goods. They can also
be in process between locations. Their primary purpose to buffer against any uncertainty
that might exist in the supply chain. Since holding of inventories can cost anywhere
between 20 to 40 percent of their value, their efficient management is critical in supply
chain operations. It is strategic in the sense that top management sets goals. However,
most researchers have approached the management of inventory from an operational
perspective. These include deployment strategies (push versus pull), control policies ---
the determination of the optimal levels of order quantities and reorder points, and setting
safety stock levels, at each stocking location. These levels are critical, since they are
primary determinants of customer service levels.
Transportation Decisions:
The mode choice aspect of these decisions is the more strategic ones. These are closely
linked to the inventory decisions, since the best choice of mode is often found by trading-
off the cost of using the particular mode of transport with the indirect cost of inventory
associated with that mode. While air shipments may be fast, reliable, and warrant lesser
safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much
cheaper, but they necessitate holding relatively large amounts of inventory to buffer
against the inherent uncertainty associated with them. Therefore customer service levels
and geographic location play vital roles in such decisions. Since transportation is more
than 30 percent of the logistics costs, operating efficiently makes good economic sense.
Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling
of equipment are key in effective management of the firm's transport strategy.
Clearly, each of the above two levels of decisions require a different perspective. The
strategic decisions are, for the most part, global or "all encompassing" in that they try to
integrate various aspects of the supply chain. Consequently, the models that describe
these decisions are huge, and require a considerable amount of data. Often due to the
enormity of data requirements, and the broad scope of decisions, these models provide
approximate solutions to the decisions they describe. The operational decisions,
meanwhile, address the day-to-day operation of the supply chain. Therefore the models
that describe them are often very specific in nature. Due to their narrow perspective, these
models often consider great detail and provide very good, if not optimal, solutions to the
operational decisions.
To facilitate a concise review of the literature, and at the same time attempting to
accommodate the above polarity in modeling, we divide the modeling approaches into
three areas --- Network Design, Rough Cut methods, and simulation based methods. The
network design methods, for the most part, provide normative models for the more
strategic decisions. These models typically cover the four major decision areas described
earlier, and focus more on the design aspect of the supply chain; the establishment of the
network and the associated flows on them. "Rough cut" methods, on the other hand, give
guiding policies for the operational decisions. These models typically assume a "single
site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly
considering the site's relation to the others in the network. Simulation methods are a
method by which a comprehensive supply chain model can be analyzed, considering both
strategic and operational elements. However, as with all simulation models, one can only
evaluate the effectiveness of a pre-specified policy rather than develop new ones. It is the
traditional question of "What If?" versus "What's Best?”
Although current research in multi-echelon based supply chain inventory problems shows
considerable promise in reducing inventories with increased customer service, the studies
have several notable limitations. First, these studies largely ignore the production side of
the supply chain. Their starting point in most cases is a finished goods stockpile, and
policies are given to manage these effectively. Since production is a natural part of the
supply chain, there seems to be a need with models that include the production
component in them. Second, even on the distribution side, almost all published research
assumes an arborescence structure, i. e. each site receives re-supply from only one higher
level site but can distribute to several lower levels. Third, researchers have largely
focused on the inventory system only. In logistics-system theory, transportation and
inventory are primary components of the order fulfillment process in terms of cost and
service levels. Therefore, companies must consider important interrelationships among
transportation, inventory and customer service in determining their policies. Fourth, most
of the models under the "inventory theoretic" paradigm are very restrictive in nature, i.e.,
mostly they restrict themselves to certain well-known forms of demand or lead-time or
both, often quite contrary to what is observed.
Options:
There are four options available to combat the "explosion" effectively. They
include the following:
Throw up your hands in despair and do nothing. This is the easiest option, but will result
in the continued escalation of supply chain costs.
Use the coin toss principle. Some organizations use this principle to make every
decision arbitrarily. This process obviates the need for any planning or scheduling
software, but can be detrimental to the well being of the organization.
Boil the ocean. Some supply chain solutions are built by aggregating detail-oriented
solutions from the manufacturing realm. This implies solving for every decision at all
times. Every time there is a change in any one data point in the system, one needs to
resolve for the entire problem. This reasoning makes little sense from the perspective of
the decision-making cycles that exist in all businesses. While this process will lead to
generating optimal solutions at all times, there are still some problems. You will need
more economical, faster computers; otherwise you will be memory-bound, and you won't
be able to generate rapidly entire supply chain solutions that can scale large volumes in
real time.
Decision scope based planning. The supply chain problem is mainly a "calendaring"
game, intimately tied to the time-phased nature of decision-making cycles in the business
world. Be sure to examine the scope of the decision being made, as well as the authority
of the decision maker. This means solving the problem by providing tools to support
various levels of decision-making, namely those that are strategic, tactical, and
operational in nature. Since decisions made at each of these levels differ significantly, the
solution procedures embedded in these tools vary. These tools also should be configured
so that they are fully integrated, which will reduce implementation costs as well as time-
to-benefit.
A multi-level approach:
Therefore, we can conclude that in order to build an effective supply chain
management system that solves the entire business problem, scales for volumes, and
doesn't require high maintenance; a company needs to adopt a multi-level planning
approach.
An example of a multi-level approach would be a three level planner. At each
level, a series of decisions are
made based on the decision's scope and the associated timeline. That information is
passed on to the subsequent levels. The levels can be tied together at the data level, at the
algorithm level, or it can be a hybrid of both. Listed below are the decision levels that
might be found in an example of a three-level planner:
Level-One Decisions: These decisions are in the area of business planning, and they
have a long-term effect on the supply chain. Very often, detailed information is not
available or reliable. Senior management is frequently the decision maker and user of this
information. Quick response is not a requirement at this level since these decisions are
not made or revisited every day Examples of Level One decisions are dynamic sourcing,
capacity planning, and prebuilt planning.
Level Two Decisions: These decisions are in the area of tactical planning, and they have
a shorter life than Level One decisions. Detailed information is available, and the data
probably is very reliable. These decisions are constrained by Level One decisions with
some leeway to account for sudden changes in data. At this level, quick response is nice
to have, and occasionally is something you must have. An example of a Level Two
decision is one that needs to commit priority orders and obey commitments made in
Level One.
Level Three Decisions: These decisions are in the area of operational planning and
scheduling. The effect of these decisions reverberates throughout the next couple of days
or shifts, and they are constrained by Level One and Level Two decisions. Quick
response is an absolute necessity, and the concepts of Available to Promise (ATP) and
Capable to Promise (CTP) need to be designed to work upstream with the other levels.
Examples of Level Three Decisions are prevalent in the area of line scheduling, material
and inventory allocation, and transportation planning.
This three-level approach emphasizes the fact that supply chain management is a
series of business decisions characterized by distinct business models, which are largely
influenced by location topology, product granularity, and elapsed cycle time. The
challenge in building a layered system is to avoid the problem of the "deadly embrace,"
which occurs when a decision made at a higher level is completely redone at a lower
level and the upstream data isn't updated. When the data isn't updated, it causes
reconciliation errors both upstream and downstream. As a result, the trickle-down effect
should be observed and effective loop back mechanisms should be provided to navigate
between levels. A strong loop back mechanism also allows for complete integration of
the entire suite, which reduces the number of interfaces to maintain while implementing
the entire suite of supply chain tools. The fewer the number of interfaces, the easier a
system will be to maintain in the long term. It will also reduce the chances of a failed
batch or interactive runs.
Key factors:
While designing solutions to a problem, pay attention some key factors:
The information available and its associated detail. If an organization is trying to do a
long-term business plan--for example, 18 months out--it's highly possible that the
forecast numbers for SKU demand would either be unavailable or extremely inaccurate.
This leads us to promote an aggregate level of planning for long-range decisions.
Scope and authority of decision makers. Often, the use of various modules in supply
chain management software attracts different levels of users. A senior level logistics
manager rarely will be the primary user of line scheduling software, and a line
scheduler--in most cases--will not be a user of long-range planning tools. This means that
the tools should be built to suit a primary audience. The level of detail displayed or used
also should be modified accordingly, while keeping in mind the concept of loop backs
and the "deadly embrace."
The lasting impact of the decision. Opening and closing warehouses and manufacturing
facilities are decisions that have a lasting impact on the business. As a result, these types
of decisions need to be made with the entire supply chain in mind, since, ultimately, there
will be a trickle-down effect of these decisions on the rest of the manufacturing
components.
Response time required making the decision. Given the inherent drawbacks in
economical computing technology, as well as the processing speed of existing machines,
turn-around time to generate solutions becomes an important criterion in deciding the
inputs and outputs in a layer. It would be unacceptable for a line scheduler to have to wait
a couple of hours to generate an optimal schedule by using a complex mathematical
programming formulation of the scheduling problem. It's also essential that supply chain
solutions be integrated so that the task of maintaining the various interfaces is lessened.
The result will allow for optimal use of the implementers' time. A good solution must
also provide end-to-end visibility from forecasting all the way down to transportation
planning. Furthermore, it's essential to provide users with the ability to navigate through
the supply chain (i.e., to go through the various levels within and across the supply chain
in real time).
Cost, activity time, customer responsiveness, and flexibility have all been used as supply
chain performance measures either singly or jointly. Yet the measures used thus far
possess some significant weaknesses. Supply chain models have predominately utilized
two different performance measures: (1) cost and (2) a combination of cost and customer
responsiveness. Costs may include inventory costs and operating costs. Customer
responsiveness measures include lead-time, stock out probability, and fill rate.
Single Supply Chain Performance Measures:
The use of a single performance measure is attractive because of its simplicity. However,
one must ensure that if a single performance measure is utilized, this measure adequately
describes the system performance. It was earlier identified and evaluated various
individual supply chain performance measures. But significant weaknesses were present
in each of the performance measures evaluated, based on such criteria as inclusiveness,
universality, measurability, and consistency. Repeatedly, the most consistent weakness
for these performance measures was inclusiveness. In order for a measure to be
inclusive, it must measure all pertinent aspects of the supply chain. Consider an example
in which a company decides to use cost as the measure of supply chain performance.
Although the supply chain may be operating under minimum cost, it may simultaneously
demonstrate poor customer response time performance, or lack flexibility to meet random
fluctuations in demand.
Although cost as a resource measure is important, there are downfalls to relying on cost
as the sole performance measure. Many shortcomings were identified in traditional
management accounting. The problems include a lack of relevance of the cost categories,
cost distortions (especially overhead), and inflexibility, such as reports that are too late to
be valuable. Many pitfalls were also identified supply chain management and one
identified pitfall is the incorrect assessment of inventory costs. They identify two
commonly omitted inventory costs: (1) obsolescence and (2) rework due to engineering
changes. This problem is magnified by current cost accounting methods, such as
overhead calculations, and omitted inventory costs. Existing supply chain models have
typically restricted themselves to traditional cost measures, and have not yet utilized the
advantages of strategic cost management of the supply chain.
To realize its true potential, a supply chain must be considered not as a group of
autonomous organizations, but rather as a synergistic organism. Each part of the system
depends either directly or indirectly on all the other parts to function smoothly. Such a
system exists today in the most efficient, productive and advanced automotive production
facilities in the world. It is usually called lean production. For several years now we have
been inundated with information touting the great savings to be gained through
optimization of the "supply chain." The fundamental basis for such claims is valid;
improving operational performance should reduce lead times, stocking levels, and costs.
A recent report, however, found that the number of days of inventory in the supply chain
for the grocery industry-a leader in supply chain management-has increased over the past
ten years.
What could be going wrong? Are the theories just not practical for the real world? The
answer lies not in the theory, but rather in the execution. To better understand what's
happening, we must take a moment to consider exactly what the supply chain is. A
supply chain is represented by a number of organizations, from those who produce and
refine raw materials to those who process the resulting compounds into products or
components of products. A typical plastics supply chain, for example, might start with an
oil company, then extend to refiners and chemical companies, a plastics compounder, and
a molder. The final manufacturing organization-the one that brings all the components
together in a product ready for the consumer-must also be included. At the end of the
chain are the packaging and distribution channels that lead to the consumer and finally
the retail operation that presents and sells the merchandise.
The traditional approach has been to view the supply chain as a series of discrete
organizations functioning basically as stand-alone operations. Information passes from
one link of the chain to another in a haphazard fashion, with little or no consideration for
the need for accurate and timely data throughout the chain. To realize its true potential,
however, a supply chain must be considered not as a group of autonomous organizations,
but rather as a synergistic organism. Each part of the system depends either directly or
indirectly on all the other parts to function smoothly. How can individual
organizations develop an initiative that addresses such a wide range of requirements?
Such a system is not only possible; it exists today in the most efficient, productive, and
advanced automotive production facilities in the world. It's usually called "lean
production."
In the early 90s, integrated supply programs in which suppliers took a greater
responsibility for managing inventories and stock replenishments began to emerge. Often,
this involved sole sourcing and streamlining of the procurement process. Today's most
advanced supply-chain-management programs go further. They include a total
outsourcing or elimination of tool cribs, consigned or vendor-managed inventories, and
automated point of-use dispensing (and return) of high-use, high-cost, and mission
critical items.
Optimized systems rely on sophisticated software to manage and report on the flow
through the supply chain. The payoff for a well-conceived and properly executed
program can be dramatic. Case studies reveal that tool and supply use can be cut by 10%
to 20%. Stock outs, expedited orders, and emergency shipments can be virtually
eliminated. In addition, procurement costs can be reduced by 20% to 30%, inventories
can be reduced by over 50%, and inventory accuracy can be increased to near 100%.
The emergence over the last few years of supply-chain-management systems is more than
an extension of the MRP and ERP systems now in place. In a true supply-chain
management system, transaction monitoring keeps constant vigil over key events,
including use, inventory levels, orders, shipments, receipts, delays, and more. Decision-
support systems include predictive models that can assist all members of the supply chain
in forecasting demand and making adjustments in order size, shipping dates,
transportation means, and other dynamic variables as circumstances change. Third-
generation supply-chain management systems are now emerging. Enabling technologies
have been developed to bring supply-chain management to levels of efficiency that were
unobtainable just a few years ago. Advanced systems can now automatically control,
track, and manage the issuing and return of critical items at the point-of-use.
Collecting data in real time and linking usage to process variable (What job was the tool
used for? What machine was the maintenance part used on?) Provide the basis for new
types of analyses. Communications networks, including Internet-enabled systems,
transmit accurate, real-time data to any internal or external member of the supply chain
anywhere in the world. Electronic links can be established to existing MRP/ERP
accounting, inventory, and purchasing systems.
Suppliers, shippers and distributors can all be armed with the most current information
available from the shop floor. Analytical tools provide key members of the supply chain
with graphical reports so they can quickly analyze the flow of material and changes in
use patterns. This permits adjustments and intervention before supply chain problems
occur. These new technologies let manufacturing managers and all other members of the
supply chain work together more efficiently than ever before. In the years to come, the
competitive edge will go to manufacturers that successfully optimize the flow of
materials into their plants. Supply-chain-management technology will be their secret
weapon.
Today’s Supply Chain Managers have gone one step ahead in optimizing the Supply
Chains. The larger the Organization and the greater the number of external suppliers and
the Supply Chains are Complex. Organizations like General Motors have included
second tier and third tier suppliers also into their Supply Chain Network and closely
monitor the product movement. This strategy is rather called as a proactive thinking
process and nothing is left to chance. Supply Chain integrators are becoming
indispensable in these circumstances. The benefits of such a solution include reduced
lead times to market place, lower costs, low inventory levels, no productions stoppages
and productivity improvements. Today everything is measurable and particularly the
performance of a Supply Chain. One can set performance norms and compare the actual
performance in order to work on improvements. The accountability of all Stake holders
in the Supply chain has increased tremendously.
Postponement strategies:
Supply Chain Management has emerged as a key lever in creating value for today’s
companies as they seek to lower costs, increase asset productivity, and improve lead
times and customer relationships. The success of supply chain largely depends on the
people who manage and operate the Supply Chains. Today’s management faces many
serious questions about how to deal with ‘people issues’ in their organizations:
Indeed, the challenge of building and maintaining a high-performance talent base is a tall
one for many organizations, especially when you consider the enormous impact of the
digital economy and the wave of technology-driven change that has followed in its wake.
Yet, it is also one of the most critical topics on the minds of today’s management all
around the globe. According to one research, 80 percent of global leaders think ‘people
issues’ are more important than 3 years ago, and 68 percent believe that retaining and
developing existing talent has become more important than acquiring new blood.
The strategic fit that a company aims is achieved through balancing responsiveness and
efficiency in its supply chain that best meets the needs of the company’s competitive
strategy. To understand how a company can improve supply chain performance in terms
of responsiveness and efficiency, we must examine the four enablers of supply chain:
Organizational Infrastructure,
Technology,
Strategic Alliances,
Human Resources Management.
Globally, a high employee turnover rate and a tight labor market make hiring and
retaining the right person for a job, crucial. It takes more than just good intuition—it
requires defining, documenting and communicating what people do and how they do it.
The success of the Supply Chain mainly depends on the human resources. Ultimately,
hiring the wrong person could end up costing you more than you bargained for. In fact,
98 percent of all resumes contain some sort of fraud. In addition, turnover from hiring an
employee, who has misrepresented him/herself in person, or on paper, will cost a
company one and half times the salary of the individual in lost productivity lost job
activities and disruption of workflow. Research conducted by Columbia University
indicates that 73 percent of employee turnover is due to misleading job descriptions and
in some cases no job descriptions at all! If the organization is vague on job descriptions
or do not provide descriptions at all, it may be the basis for discrimination claims from
employees who don’t work out.
Gone are the days when people were hired to merely fill a void. Today, the tables have
turned. Employees want to work in an environment that makes them feel good about
themselves. They’re looking for direction, feedback and empowerment. If they are not
supported by management and allowed to flourish in their careers both employer and
employee lose. Job description is the first step in filling a position. If we go wrong here,
the entire process may go wrong and the objective will be defeated.
The Challenge:
The challenges faced by today’s Supply Chains are complex and today’s supply chain
needs constant improvements. Some of the challenges are:
Complex Customer expectations;
Complicating networks;
Increasing competition;
Demanding lead times.
The balancing and integration of these three tools will help the organizations to address
the above-mentioned challenges. If one looks at the three tools carefully, one can realize
the people play the important role. The right strategy depends on the people and people
and improvements select the right technology and the people develop innovations. And
finally people manage all the Strategies, technologies and people. The real challenge lies
in recruiting the right person for the right job and retaining. We often come across
situations similar to this:
"We need the best person for this job, but we don't want to be accused of favoritism …"
"I'm spending so much time on staffing that I don't have time to do the rest of my job"
"We keep hiring the wrong people, but I don't know why."
To find the right person for the right job, but who will also fit in with the team and the
organization. The two selection criteria are Eligibility and Suitability. Eligible
candidates are those who have all the technical abilities and the suitable candidate is the
right fit for the organization.
Areas of IT usage:
Sourcing
Manufacturing
Delivering
Supply Chain Optimization
Supply Chain Decision Making.
Strategic Tools:
Tactical Tools:
Business Process Optimization Tools:
i2 Technologies
Manugistics.
Operational Tools:
Enterprise Resources Planning:
SAP
BAAN
Oracle
JD Edwards.
Communication Tools:
Data Capturing
BAR CODING
RFID TAGS.
Data Communication:
EDI
Flat File transfers
XML
Internet
EDI is the tool that can enable businesses to achieve dramatic increases in speed, while
they realize at the same time the benefits of improved accuracy in the transfer of critical
information. Documents transferred directly from computer to computer move in orders
of magnitude more quickly than paper documents, with no loss of accuracy.
The importance of Information Flows and Technology
All these years, the decisions taken in the area of Supply Chain were going wrong
because of lack of accurate information about Inventory Pipe line; Customer
requirements; Customer behavior pattern; Vendor information and many other
knowledge databases. With advent of Information Technology and Internet, the flow of
information has revolutionized the Supply Chain and the industry as well as the customer
benefited immensely from this development. Today the manufacturer is able to find out
the vendors information and product (component) availability; the current inventory
levels; and Customer present demand. With this information the demand projections
have improved and the manufacturer is slowing shifting to pull system from the push
system.
If we review the broad spectrum of industries and their present Supply Chain style, we
will get to know that more and more industries are moving towards Pull System. The
below given table will explain the Supply Chain Style of few industries.
With the advent of Pull system, the transportation system was put under tremendous
pressure to perform and deliver the products on time and every time at a very competitive
price. This has triggered off new initiatives in the transportation system. As the volume
has increased but the size of the consignment has decreased. This has resulted in
consolidations to save costs and improve lead times. Companies like UPS and FedEx
have popularized the transportation of small consignments quickly and cost effectively.
The transportation industry very quickly and efficiently responded to the challenges
thrown at them by the Industry. The requirements of each organization are unique and
different from the others. This has resulted in witnessing concepts such as
consolidations; cross-dock; cross-dock merging; multi-modal etc. Flow of information
also helped the transportation industry to large extent. GPS is very effectively used to
track-n-trace the movement of goods from origin to destination and are able to project the
ETD (expected time of delivery) more accurately. This also helps the production lines to
work with just required inventories and avoid excess inventory.
Today’s world is called the “Global Village”, the entrepreneurs are willing to travel
distances to put up their manufacturing facilities in order to save money. We have seen
the dominance of Mexico, China, Malaysia and India specializing in cost effective
production centers. This was made possible due to quick and efficient transportation
system, which is able to deliver the product to any corner of the world with a very
competitive lead-time. The below given graphic would give you an understanding how
the information flow in the transportation industry has helped the supply chain.
Each step of the process has a lead-time. One of the primary objectives of improving
supply chain management is to increase the information flow rate and thereby decrease
the overall lead-time of the decision making process. This is done by attacking each
process element separately, analyzing the cause of lead-time then implementing
improvements.
Other factors
Other factors which influenced the Supply Chains performance to large extent are
Customer Services; Liberalized Government Policies; Strategic/Collaborative Alliances;
Information Sharing. Finding the right SCM strategy for an organization can be very
difficult because of the great variety of products, customers, services in the business
community today.
While the value chain and marketing approaches propose generic ideas and capabilities,
proponents of the supply chain approach go a step further and identify specific activities,
backed by detailed processes that can improve a firm’s competitive advantage and
success. Supply chain management encompasses end-to-end management of a product or
service. Note that when all the supply chain categories are linked together they form The
Supply Chain Management System.
Figure: Key categories of the supply chain: Together they form the Supply
Chain Management System
Activities/functions
Supply chain management is a cross-functional approach to manage the movement of raw
materials into an organization, certain aspects of the internal processing of materials into
finished goods, and then the movement of finished goods out of the organization toward
the end-consumer. As organizations strive to focus on core competencies and becoming
more flexible, they have reduced their ownership of raw materials sources and
distribution channels. These functions are increasingly being outsourced to other entities
that can perform the activities better or more cost effectively. The effect is to increase the
number of organizations involved in satisfying customer demand, while reducing
management control of daily logistics operations. Less control and more supply chain
partners led to the creation of supply chain management concepts. The purpose of supply
chain management is to improve trust and collaboration among supply chain partners,
thus improving inventory visibility and improving inventory velocity.
Several models have been proposed for understanding the activities required to manage
material movements across organizational and functional boundaries. SCOR is a supply
chain management model promoted by the Supply Chain Management Council. Another
model is the SCM Model proposed by the Global Supply Chain Forum (GSCF)[2]. Supply
chain activities can be grouped into strategic, tactical, and operational levels of activities.
Operational:Daily production and distribution planning, including all nodes in the supply
chain. Production scheduling for each manufacturing facility in the supply chain (minute
by minute). Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers.
Sourcing planning, including current inventory and forecast demand, in collaboration
with all suppliers.
Inbound operations, including transportation from suppliers and receiving inventory.
Production operations, including the consumption of materials and flow of finished
goods.
Outbound operations, including all fulfillment activities and transportation to customers.
Order promising, accounting for all constraints in the supply chain, including all
suppliers, manufacturing facilities, distribution centers, and other customers...
In the 21st century, there have been a few changes in business environment that have
contributed to the development of supply chain networks. First, as an outcome of
globalization and the proliferation of multi-national companies, joint ventures, strategic
alliances and business partnerships, there were found to be significant success factors,
following the earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing"
practices.[4] Second, technological changes, particularly the dramatic fall in information
communication costs, which are a paramount component of transaction costs, have led to
changes in coordination among the members of the supply chain network (Coase, 1998).
Six major movements can be observed in the evolution of supply chain management
studies: Creation, Integration, and Globalization (Lavassani et. al., 2008a), Specialization
Phases One and Two, and SCM 2.0.
1. Creation Era
The term supply chain management was first coined by an American industry consultant
in the early 1980s. However the concept of supply chain in management, was of great
importance long before in the early 20th century, especially by the creation of the
assembly line. The characteristics of this era of supply chain management include the
need for large scale changes, reengineering, downsizing driven by cost reduction
programs, and widespread attention to the Japanese practice of management.
2. Integration Era
This era of supply chain management studies was highlighted with the development of
Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s
by the introduction of Enterprise Resource Planning (ERP) systems. This era has
continued to develop into the 21st century with the expansion of internet-based
collaborative systems. This era of SC evolution is characterized by both increasing value-
added and cost reduction through integration.
3. Globalization Era
The third movement of supply chain management development, globalization era, can be
characterized by the attention towards global systems of supplier relations and the
expansion of supply chain over national boundaries and into other continents. Although
the use of global sources in the supply chain of organizations can be traced back to
several decades ago (e.g. the oil industry), it was not until the late 1980s that a
considerable number of organizations started to integrate global sources into their core
business. This era is characterized by the globalization of supply chain management in
organizations with the goal of increasing competitive advantage, creating more value-
added, and reducing costs through global sourcing.
b) Procurement process
Strategic plans are developed with suppliers to support the manufacturing flow
management process and development of new products. In firms where operations extend
globally, sourcing should be managed on a global basis. The desired outcome is a win-
win relationship, where both parties benefit, and reduction times in the design cycle and
product development are achieved. Also, the purchasing function develops rapid
communication systems, such as electronic data interchange (EDI) and Internet linkages
to transfer possible requirements more rapidly. Activities related to obtaining products
and materials from outside suppliers requires performing resource planning, supply
sourcing, negotiation, order placement, inbound transportation, storage, handling and
quality assurance, many of which include the responsibility to coordinate with suppliers
in scheduling, supply continuity, hedging, and research into new sources or programmes.
Companies are not in business to solve the world of environmental problems. Yet,
managers are starting to look at environmental problems as business issues where many
can gain sustained competitive advantage. Companies charting green supply chain
strategies are finding that both the buyer and seller can benefit through shared cost
savings, among other things. Successful strategies consider the entire life cycle where
opportunities for improvement are noted at each stage of the product life cycle, from raw
material sourcing through manufacturing, use, and product end-of-life. The following
guidelines can help companies get ahead of the green curve and transform GSCM into a
business value driver, rather than a cost center: