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306 Assignment #1

How does the proper control of the Supply Chain &

Operations add to company profitability?

Supply Chain and Operations Management is an essential element to

operational efficiency. SCM can be applied to customer satisfaction and

company success, as well as within societal settings, including medical

missions; disaster relief operations and other kinds of emergencies; cultural

evolution; and it can help improve quality of life. Supply chain management

is critical to business operations and success for the following reasons:

Boosts Customer Service

SCM impacts customer service by making sure the right product assortment

and quantity are delivered in a timely fashion. Additionally, those products

must be available in the location that customers expect. Customers should

also receive quality after-sale customer support.

Improves Bottom Line

SCM has a tremendous impact on the bottom line. Firms value supply chain

managers because they decrease the use of large fixed assets such as

plants, warehouses and transportation vehicles in the supply chain. Also,

cash flow is increased because if delivery of the product can be expedited,

profits will also be received quickly.

Supply Chain Management has following major functions:

Inventory management

Transportation service procurement

Materials handling

Inbound transportation

Transportation operations management

Warehousing management

Customer service performance monitoring

Order processing/customer service

Supply Chain Management budget forecasting

Supply Chain Management becomes a tool to help accomplish important corporate

strategic objectives:

reducing working capital,

taking assets off the balance sheet,
accelerating cash-to-cash cycles,
increasing inventory turns, and so on.

Five areas in which supply chain management can have a direct effect on corporate

value are:

* Profitable growth: Supply chain management contributes to profitable growth

by allowing assembly of "perfect orders," supporting after-sales service, and getting

involved in new product development. The bottom-line numbers give the answer.
* Working-capital reductions: Increasing inventory turns, managing receivables


payables, minimising days of supply in inventory, and accelerating the cash-to-cash


all are affected by supply chain execution.

* Fixed-capital efficiency.: This refers to network optimisation--for instance,


that the company has the right number of warehouses in the right places, or


functions where it makes more economic sense.

* Global tax minimization: If companies look at assets and sales locations,

transfer pricing, customs duties, and taxes.

* Cost minimization: This largely focuses on day-to-day operations, but it also

may involve making strategic choices about such issues as outsourcing and process


Time and inventory are two important, interrelated issues that drive the need for

best practices. Success with these practices also creates inventory yield

maximization opportunities. There is a window of opportunity to get the maximum

price and the maximum yield for products. Hit that window, and companies enjoy

higher pricing and profit margins. Leaders understand this in using best practices.
Following points are important to drive a profitable growth using controls on supply

chain and operations:

1. Inventory Management

Inventory management is the Gordian Knot of supply chain management. No one

knows how to untie it, and it cannot be cut. The inventory quandary applies to all

inventories-finished goods, raw materials, parts and components, MRO and work-in-

process. It includes new products and existing products. It covers all types of

businesses-manufacturers, distributors, wholesalers, retailers and others in about

every industry. There is a dichotomy of views. Sales wants 100% customer

satisfaction and to make sure that there is always inventory on hand to meet each

order. Finance wants to carry fewer inventories to free up capital for other needs.

Given the vagaries of sales patterns, supplier lead times, and production sizes, the

"answer" is dynamic. When sales are booming, inventory may not be as scrutinized

as it is when sales are slow and inventory is sitting in warehouses and plants.
Poor inventory turns are signs of many problems. Inventory must move quickly;

turns should be high. Inventory that sits and does not sell consumes available

working capital and limits applying that capital to the business. Products must flow

from suppliers or manufacturing sites to customers. Being inventory rich and cash

poor is not a sound approach. Inventory is key to profitability. Inventory velocity

turns assets into profits. The faster inventory moves and turns, the greater the

profitability. Inventory is the key issue to supply chain management success.

Customers demand that their orders be shipped complete, accurate and on-time.

That means having the right inventory at the right place at the right time.

2. Supplier Cash Control

A great deal of insight can be found in the supply and payment agreements with

suppliers. There are a number of elements to consider, including how you can avoid

purchasing unnecessary stock (through automated order placement), avoidance of

costs for corrections in orders and supplies and the optimisation of the payment

behaviour of suppliers. Ongoing partnerships with vendors often contain a lot of

automatic processes that have to be analysed and optimised critically.

3. Operating Expenses Control

For many organisations, a great deal can also be improved on the operations side of

things. There can be reasons for incorrect supplies occurring, and instead of simply

correcting the relevant order, its important to search for the point in the process

where the error arose in order to prevent the same mistake from happening again.

4. Customer Cash Control

When improving the profitability of customer relationships and orders, the

measurability of order processing and optimising settlement of payments is crucial.

By continually measuring whether the right product in the right quantity is delivered

to the right place at the time required by the client, supply processes can be further

optimised and costly errors avoided. However, a factor that is at least as important

in order to save costs is the settlement of payments with clients. Reducing the term

between ordering and payment, solving late payments, making missing payments

visible and invoicing for them can save a great deal.

5. Compress cycle time.

Supply chain cycle time runs from the time the need for a product--new or

replenished--is determined and goes until it is delivered to the customer or to the

store. The length of global supply chains adds to time and the challenge to

compress. Safety stock inventories are a buffer against uncertainty. Long cycle

times add to the uncertainty-and in turn the amount of inventories carried and

working capital tied up.


Following are the salient features of Apple supply chain which helps them become one
of the most profitable companies in the world:

focusing on making great products using ground breaking innovation

supplying products that are not seasonal and have a life cycle of more than 12
reducing the number of warehouses to one centralized location in California

synchronizing data between the central warehouse and its own stores and
customers, making operations more efficient and cost-effective

outsourcing manufacturing and as a result reducing the manufacturing cycle time

reducing the number of key suppliers involved in manufacturing, shipping and


requesting price reductions and asking suppliers to relocate closer to Apples


reducing the number of skus to approximately 26,000, to simplify and

help develop more accurate demand forecasts

Extraordinary inventory management


Walmart has been able to assume market leadership position primarily due to its

efficient integration of suppliers, manufacturing, warehousing, and distribution to

stores. Its supply chain strategy has four key components: vendor partnerships,

cross docking and distribution management, technology, and integration. Walmarts

supply chain begins with strategic sourcing to find products at the best price from

suppliers who are in a position to ensure they can meet demand. Walmart

establishes strategic partnerships with most of their vendors, offering them the

potential for long-term and high volume purchases in exchange for the lowest

possible prices.

Wal-Mart has adopted cost leadership strategy to achieve competitive advantage in

the market. Wal-Marts supply chain management strategy has provided the

company with several sustainable competitive advantages.

Lower product costs

Reduced inventory carrying costs

Improved in-store variety and selection

Highly competitive pricing for the consumer

Due to its enormous size and large number of stores worldwide, Wal-Mart has
the tremendous bargaining power with its suppliers and thus it purchases
products at lower prices.