RECENT DEVELOPMENT IN THE FIELD OF SUPPLY

CHAIN MANAGEMENT
Arjun K R

School of Management Studies

CUSAT, Kochi -22
E-mail: arjunkr520@live.com

Abstract: Supply chain management, in recent times, has emerged as the

basis in many industries (small or large) for creating the integrated relationship
between suppliers and customers. Due to continuous growth in last year in
supply chain management the environment has become competitive. So, in
order to respond to competitive pressures companies, need to know and
understand the new trends in SCM. This paper focuses the emerging trends
of SCM in current scenario, and it provides broader awareness of SCM
concepts. It addresses this need, by critically reviewing the current status of
SCM in Indian context and its point of difference with other countries like
China. Managing the Supply chain by making use of I.T. services has paved
a new way of confiscating the uncertainty and enhancing the customer service
and thus creating a competitive edge.

Keywords: Supply Chain Management, Vendor Management Inventory,

Collaborative Planning Forecasting and Replenishment, Cross docking, Radio
Frequency Identification, Advanced planning and scheduling.

1. INTRODUCTION

A third revolution (third wave) in supply chain management is upon us. Modern supply chain
management, leveraging engineering, math, and computers, started in the 1970s. Since then, it
has gone through two twenty-year periods, each with distinct characteristics, and each driven by
supply-side technology paradigms. In the past ten years, demand-side thinking has started to
play an increasing role. Now, a confluence of technologies, conspiring with customers and the
end-consumer, has established a breakpoint for the advent of the third revolution.

A. Past, Present and Future

Modern supply chain management, leveraging computers, can be characterized by three
significant periods, as shown in Figure 1. The first two of these falls into roughly twenty-year
stretches; the next period is just as likely to be on the order of twenty years. It is important to
note that there is significant overlap between each period and that they successively build on
each other. In the 1960s, the IBM 360 and its derivatives ushered in a period of widespread use
of computers and software for a whole host of business applications, starting with the
mechanization of back-office finance and human resource functions. This spread into supply
chain management (which was known as “logistics” at the time) in the mid to late 1970s for
inventory management and, ultimately, for planning and execution functions. The principal area
driving this was materials management, both inbound material requirements planning (MRP),
and outbound distribution requirements planning (DRP). These foundational concepts led
ultimately to the development and widespread deployment of enterprise resource planning (ERP)
systems. (In 1990, Gartner Group coined the term “Enterprise Resource Planning” to describe
next-generation MRP/DRP systems).

Businesses across the globe implemented ERP systems largely to automate mundane business
functions that could easily be standardized and described using rules; furthermore, these
business functions and rules were characterized as being fairly static. For example, finance
functions and associated accounting rules can be easily codified and are not prone to change
every week. ERP for manufacturing and supply chain management was based on the MRP/DRP
thinking that started in the 1970s. ERP began as bespoke in-house development, followed by
commercial off-the-shelf software (COTS) from software vendors. ERP packaged software
started to take off in the mid-1990s; many companies spent the next two decades implementing
such packages. Deficiencies of MRP/DRP thinking, coupled with the rapid growth of computing
power and memory, gave way to a new paradigm in the mid-1990s. This paradigm was based
on real-life business modelling, constraints, and optimization. This approach was still rules-
driven, but it was fundamentally based on a modelling paradigm which sought to describe the
real-world more accurately than the ERP approach. The ERP approach is good at describing
what happened, after-the-fact; the optimization paradigm sought to understand what was going
to happen and then prescribe a path that helped achieve a business objective. However, this
approach is still fundamentally rules-driven and has a reaction time that may be out-of-phase
with the real world. In fact, as time passed and change became more frequent and pervasive,
optimization had to be augmented with responsive control tower capabilities, which are prevalent
today. These capabilities are precursors to what is needed in the third wave of modern supply
chain management.

2. RECENT TRENDS IN SCM

A. Globalization
The business landscape is rapidly becoming more global. Largely due to improvements in
communications, globalization is dramatically impacting the way business is managed and
transacted, even on the most local levels. No area of a business is more affected by the trend to
a global business environment than the supply chain. Manufacturing, distribution, sourcing of
materials, invoicing and returns have all been significantly impacted by the increased integration
of a global customer and supplier base, and many companies find that existing processes and
technology are not flexible enough for this new business environment.

For example, historically, many companies have brought in container shipments from Asia
Pacific through the ports in southern California. As the volume of container shipments has
increased, all of these ports have experienced capacity issues relating to customs clearance and
transhipping. As a result, some companies are contemplating rerouting these inbound shipments
to alternate ports. This change may seem subtle, but a shift in logistics of this magnitude has far-
reaching effects on the overall cost and efficiency of the supply chain network. Dynamically
repositioning the point of entry for inbound container shipments can have a positive impact on
customs clearance times and access to increased transportation capacity, however, there can
be a negative impact as well. Better understanding the total landed cost and service implications
of alternate ports of entry can help improve supply chain costs and performance.

The right supply chain design is critical to managing the changes brought about by rapid
globalization. A well-thought-out supply chain network design can optimize the supply chain
network and the flow of materials through the network. In doing so, network design captures the
costs of the supply chain with a "total landed cost" perspective and applies advanced
mathematical technology to determine optimal answers to both strategic and tactical questions.

The following are strategic questions answered by a well-thought-out network design:

 Where should facilities be located?

 How many facilities should I have, and what capabilities should they have?

 What kind of capacity should they have?

 What products and services should they handle?

 Whose manufacturing and distribution orbit should they source?

 Which contract packers or contract manufacturers should I use?

 How to achieve operations synergies through integrating acquisitions?

B. Increased Competition and Price Pressures

Historically, price, product features and brand recognition were enough to differentiate many
products in the marketplace. With the continued commoditization of many products, companies
need better ways to distinguish themselves. In one case, a large global consumer goods
manufacturer saw prices around some of its commodity products drop as much as 60 to 80
percent. Product innovation and brand equity no longer allowed them to command a higher price
in the market. In order to continue to compete with that commoditized product the firm made
significant cost improvements with supply chain redesign and technology.

Companies are looking to their supply chains in two ways to help offset this trend. First, they are
looking at ways to reduce cost and are creating a more efficient value chain to remain cost
competitive. Second, companies are looking at ways they can provide value-added services to
meet the demands of more sophisticated customers.

Cost improvements around inventory management, logistics operations, material management

and manufacturing costs, including raw material and component acquisition can be found with:

 sales and operations planning

 transportation/distribution management

 improved product lifecycle management

  improved strategic sourcing and procurement

There are a number of ways suppliers can differentiate themselves and provide value and
additional services and capabilities to their customers. Here are a few:

 vendor managed inventory (VMI)

 radio frequency identification (RFID)

 labelling, packaging

 drop shipping

 collaboration

Companies should not only look to their supply chain to drive cost improvement but should
increase capabilities as a means for staying competitive. Streamlining processes with better
design, better collaboration across networks and new services will help your company stay
competitive and strengthen relationships with your customers.

C. Customer-centric Approach
The initial stages of customer centricity have emerged over the course of the past five years, as
topics like omni-channel have come to dominate the conversation. In this initial phase, there has
been a race to the top when it comes to service and fulfilment, coupled with a corresponding
race to the bottom when it comes to price and profitability. Retailers are on a collision course
with zero profitability as their eCommerce sales grow. eCommerce profit margins are negative
or zero for the vast majority of retailers. Consider a retailer with 3.5 percent net profit margin and
100 percent of its sales coming from traditional brick and mortar stores. If this retailer shifts its
business model to 90 percent in-store sales and 10 percent eCommerce sales and its
eCommerce sales have a negative 5 percent margin, its overall margin would erode to 2.65
percent from 3.5 percent (if eCommerce sales were breakeven, margin would erode to 3.15
percent). If the shift suddenly went to 20 percent eCommerce sales and then to 30 percent
eCommerce sales, the similar net margin would be 1.8 percent and 0.95 percent, respectively.
This dynamic is real; it needs to be taken seriously by all retailers and companies along the end-
to-end value chain.

D. Shortened and More Complex Product Life Cycles

Today many companies are under pressure to develop innovative products and bring them to
market more rapidly while minimizing cannibalization of existing products, which are still in high
demand. In order to meet the needs of both customers and consumers, companies need more
efficient product lifecycle management processes. This includes heavy emphasis on managing
new product introduction, product discontinuation, design for manufacturability and leveraging
across their entire product and infrastructure characteristics.
One chief benefit of product lifecycle management (PLM) processes and technology is helping
companies design products that can share common operations, components or materials with
other products, thereby reducing risks of obsolescence write offs, increasing cost leverage on
the purchasing of key materials and ensuring that infrastructure investments are optimally
utilized. Additionally, getting this right will help to improve your time to market. By focusing
product lifecycle management efforts in these areas, a company can buffer itself against the risk
of an unplanned cost increase, a poor new product launch, an unplanned obsolescence writes
off and can enhance the overall customer perception of the company as an effective innovator.

Typically, when companies begin the process of introducing new products to market, they
coordinate marketing, engineering, sales and procurement and develop sales forecasts to plan
products in the pipeline. Without a formalized product lifecycle process the end result isn't always
predictable. Recently, a U.S.-based major appliance manufacturer, struggling with sky-rocketing
product development costs and a cumbersome, manual development process, was looking to
implement a PLM initiative to help reduce the cycle time between development and entry to
market. While implementing a new PLM environment the company designed innovative,
common product development processes and selected a PLM solution to control engineering
document management, online mark-up and Web-based collaboration with suppliers and
contract manufacturers.

As a result, the company increased parts re-use, improved document retrieval time, reduced
design cycle time and ultimately reduced new product development cost by 15 percent. These
improvements helped the company grow revenue by 25 percent, mainly from an increased rate
of product introductions.

As the economy becomes more global, labelling and compliance to packaging requirements and
regulations have become critical to success. Without adherence to local packaging and labelling
regulations a product may violate local requirements, preventing it from being distributed and
sold in that market. Product lifecycle management technology processes can help ensure that
products being produced and targeted for specific markets are well-managed and are compliant.
Product lifecycle management tools and processes have helped consumer goods companies
with their efforts to try to continually drive demand through packaging and labelling innovation
and design. Implementation of an optimal PLM process and technology can allow a consumer
goods company to effectively produce and distribute products that are only targeted for regional
promotions or consumer preferences.

E. Collaboration Between Stakeholders in the Extended Supply Chain

As supply chains continue to develop and mature there has been a move toward more intense
collaboration between customers and suppliers. The level of collaboration goes beyond linking
information systems to fully integrating business processes and organization structures across
companies that comprise the full value chain. The ultimate goal of collaboration is to increase
visibility throughout the value chain in an effort to make better management decisions and to
ultimately decrease value chain costs. With the right tools, processes and organizational
structure in place collaboration provides key people throughout the value chain with the
information needed to make business-critical decisions with the best available information.
Great recent examples of collaboration have been seen in the expansion of sales and operations
planning processes that include upstream and downstream value chain partners as regular
participants. S&OP processes help maintain a well-coordinated and valid, current operating plan
in support of customer demand, a business plan and a strategy. The improved resulting operating
plan provides the management of each partner with a complete picture of forecasted demand,
supply capacity, corresponding financial information with financial implications and allows them
to make informed, critical decisions.

Companies that expand the usage of sales and operations planning have greater visibility across
their owner enterprise and respective value chain, gain the agility necessary to improve the PLM
process, improve promotional planning, minimize unnecessary build-ups of inventory, increase
revenue predictability and execute customer service expectations.

The S&OP activity enables information systems to connect the value chain participants around
key demand information, such as customer forecasts, and around key supply information, such
as supplier inventories and capacities.

Another recent example of collaboration is seen in the increased focus around RFID. Value chain
leaders are looking at functional areas to better integrate the supply chains of their partners with
themselves and RFID can serve as a means to quickly and efficiently ensure that critical product
information is communicated as products flow thru the value chain and ultimately to the
consumer.

Recent estimates show that major retailers can lose 3 to 4 percent of revenue per year due to
shelf stock-outs, while inventory is available somewhere in the value chain. Better coordination
of store-level product availability would have a significant impact to the entire value chain for
these retailers. Additionally, better visibility of retailer product availability can reduce overall
logistics costs as products move through the value chain to fulfil safe stock levels and ultimately
consumer demand.

F. Digitization of everything and internet of everything

The most exciting, and perhaps most hyped, area of technology associated with supply chain
management is the digitization of everything and the internet of everything (IOE). (Some use the
term internet of things (IOT), but IOE is used here because it includes both things and people
connected to the cloud). This offers promise in a whole host of areas associated with supply
chains, not the least of which is that the computer models against which supply chain
management decisions are made will increasingly be synchronized with the physical world such
that the digital and the physical will converge into one. What this means is that the computer
models against which supply chain decisions are made today may or may not represent the
physical reality of what is going on in the supply chain at any given point in time. There is a
latency between the physical supply chain and the computer models for decision making, leading
to sub-optimal decisions. In the future, computer models will continuously process digital signals
– representing the state of capacities, inventory, and movements, essentially causing the
physical world to converge with the digital world (the computer models). This will require supply
chain software solutions to become increasingly real-time. For example, today trucks can send
digital location and other information in real-time, either via onboard computers or through
smartphone apps. This information can be used to provide much more precise synchronization
between manufacturing, warehouses, stores, and, ultimately, end consumers.

G. Convergence
Convergence is happening everywhere in the supply chain. For example, B2B companies are
increasingly taking on the characteristics of B2C companies, such that these traditional lines of
delineation are becoming blurred. Business customers increasingly expect the same level of
flexibility, choice, and service that is provided to consumers. In this sense, the solutions that are
needed for serving consumers are the same solutions needed for serving businesses. However,
a more general trend is that convergence is occurring across two dimensions: business process
and time. For example, in the past, companies may have had a demand process, a supply
process, an S&OP process, and a channel management process (in the CPG industry, the
channel process may be account teams collaborating with retailers on promotions,
replenishments, and inventory). These individual processes were typically supported by separate
technologies with integration between them. In the future, this is going to be a single process,
converged around a single technology. Furthermore, on the time dimension, in the past there
was strategic planning, tactical planning, operational planning and operational execution. In the
future, companies will be able to “telescope” directly from strategic planning down to operational
execution and vice versa. This trend is occurring today and will continue to occur at all
intersection points of business process and time along the end-to-end value chain. Convergence
is leading to what JDA calls “the seamless supply chain.”

H. Outsourcing
As many companies step back and examine their core competencies some realize that
outsourcing parts or all of a supply chain can be advantageous. With marketplace improvements
around (1) information mediums and systems (2) cost and quality of global manufacturing and
distribution and (3) product design capabilities companies are gaining additional synergies by
outsourcing all or parts of their supply chain.

There can be significant economic benefits from outsourcing all or part of your supply chain
operation, but without the right systems, processes or organizational management structure the
risk to success can increase to frightening levels. In an outsource-heavy environment,
companies need to put more controls and systems in place to compensate for the fact that the
supply chain capabilities no longer reside onsite. In an outsourced supply chain environment,
the need for information, controls and excellence from the information workerbecomes a high
priority.

The optimally outsourced supply chain, either in its entirety or just a component, relies heavily
on:

 superior supply chain network design

 inclusion of that outsource partner in the information chain

  establishment of control mechanisms to proactively monitor the various components of
the supply chain

 information systems to connect and coordinate the supply chain as seamlessly as

possible

A failure to excel at any one of these components can result in breakdowns affecting the entire
supply chain.

I. Demand Planning Begins at the End of the Cycle

As sources and capacities for manufacturing have increased, more companies have moved
away from focusing efforts on plant-level production planning and are adopting more of a
demand-driven focus of trying to influence and manage demand more efficiently. Rationalizing
what your company is best at selling, making and delivering, and aligning the sales force with
that mindset, is critical to adopting a demand-driven model. The demand driven approach can
help a company create a more customer-focused mindset, without sacrificing operational
efficiency. Ultimately, a demand-focused approach to planning can significantly improve demand
planning and management efforts and help overall costs and customer service efforts.

Advanced demand planning systems and proper strategies can also help uncover data and
identify trends buried in a company's information systems. Companies should conduct an
enterprise-wide internal Demand Review to gather information from all aspects of the
organization. Goals are then set to gain consensus on what will be sold each month for each
product line or category and the resulting revenue. Of course, the driver of the Demand Review
process is continuous improvement of forecast accuracy.

Critical to the success of any Demand Plan is having all stakeholders, including sales, marketing,
finance, product development and supply chain agree upon a consensus Demand Plan. It's
important for all participants to discuss factors affecting customer demand patterns (such as new
or deleted products, competitors or market conditions), the aggregate demand plans and
associated revenue plans. Once all demand for products and services has been recognized, the
information is consolidated into one Demand Plan.

Demand planning is a key input to the larger sales and operations planning (S&OP) process and
can have a significant positive impact on new product introductions, inventory planning and
management, customer service, supply planning efficiency and sourcing strategies. Demand
planning success is often tied to organizational structure. Companies with dedicated resources
focused around demand planning and forecasting yield stronger results and drive more value to
their company. Organizations that focus part-time on demand planning and forecasting efforts,
however, often yield sub-standard results. With the strategic importance of demand planning,
companies need to be committed to this from both a resource and technology perspective.
J. Cloud and web-scale IT
The cloud has already emerged as a dominant technological force in all aspects of companies,
including supply chain management. The third wave will increasingly be characterized by web
scale IT, which means the scale of the web that is available to consumers will increasingly be
available to corporations. The tip of this iceberg is mobility and user experience. Enterprise
software user experience will have to be completely reimagined in order to drive higher levels of
productivity and to move to a self-training paradigm that millennials are accustomed to with their
personal apps. In the past several years, companies have started down the path of web-scale IT
through leveraging infrastructure-as-a-service from the likes of Amazon, Microsoft, Google, and
IBM. The next phase is to leverage these technologies as a platform-as a-service. JDA has
partnered with Google because it is a technical engineering company built from the ground up
for the cloud. It provides a platform of capabilities for building native software-as-a-service
(SaaS) capabilities, and also has programmatic access to a host of value-add capabilities, not
the least of which is search. For example, a company can understand the most popular attributes
that are searched for associated with the products they sell and can then use analytics to add
value to replenishment planning, inventory deployment, and demand planning.

K. Artificial Intelligence
Artificial intelligence (AI) in supply chain consists of technologies that seek to emulate human
performance. Typically, it does so by learning, coming to its own conclusions, appearing to
understand complex content, engaging in natural dialogs with people, enhancing human
cognitive performance or replacing people in the execution of nonroutine tasks. AI can be
deployed to improve supply chain functional and cross-functional performance. Although the
interest in AI in the supply chain has increased over the past year, its application is still nascent.
Early adopters report promising benefits from limited scope pilots but have yet to embark on
broader AI projects. Reaching the Plateau of Productivity in supply chain in 10 years or more will
require technology maturity as well as organizational and cultural readiness and talent
availability. AI solutions make sense of structured and unstructured data and can interact with
humans through written or conversational natural language. AI technologies rely on machine
learning techniques to identify patterns and make predictions. It continues to refine its findings
and strategies through self-learning from new data and its previous performance, to recommend
decisions or execute actions. Artificial intelligence supports organizations’ vision for broader
supply chain automation. The level of automation could be semiautomated or fully automated
(aka autonomous) with a mix, depending on the circumstances. Through self-learning and
natural language, AI solutions can help automate various supply chain processes such as
demand forecasting, production planning or predictive maintenance. Along with automation
comes augmented human decision making, because the human is then no longer involved in the
decision making because it is automated. For example, AI can augment current risk mitigation
by analysing large sets of internal and external data, continuously identifying evolving patterns,
and predicting disruptive events and potential resolutions.

Examples:

■ Improving order delivery and service levels by using AI capabilities to determine the routes a
company should take to optimize deliveries
■ Optimizing shipping replacement parts by applying AI algorithms and notifying users of a
potential equipment failure prior to it occurring, as a safety measure

■ Enhancing customer services by leveraging AI-based applications for dynamic supply chain
inventory optimization to reduce lead times and operating cost

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