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Supply Chain Management

PricewaterhouseCoopers

Introduction

Today, organizations cannot compete as individual entities, due to the changing business world. Firms must rely on effective supply chains or networks to be successful in the global competition. Simply, a supply chain includes all the parties required (directly and indirectly) in fulfilling customers’ needs. A supply chain consists of a series of activities involving many organizations through which the materials move from initial suppliers to final customers. Parties include manufacturer, suppliers, transporters, warehouses, retailers and the customers themselves.

Supply Chain Management

‘The integration of key business processes from the end user through original suppliers that provide products, services and information that add value for customers’ (Acharya 1990) ‘Organizations that successively transform raw materials into intermediate goods, then to final goods and deliver them to customers’ (American Production & Inventory Control Society APICS). ‘An integrated management of a firm, its vendors and all its logistics service providers who contribute in the flow of materials (RM, WIP, FG) and related info from pt. of inception to pt. of consumption, with efficiency.’

SCM – Features

Single Entity – responsibility of planning and controlling functions should be handled by a single entity. It may be a group of dept. heads. This reduces delays and inefficiencies. Inventory perspective – traditionally stocks were built up to reduce coordination. However, SCM focuses on minimal inventory, giving emphasis on information, coordination, quality, flexibility and hence reducing uncertainties. Strategic decision making – such a annual contracts with transporters, constructing new warehouse etc. Systems approach – all the parties involved in an supply chain are part of an integrated system, rather than individual entities. The synergy is what makes all the difference.

Value Chain

In SCM, the value chain has the following flow –
       

Vendors – purchase raw material, Ship / vehicles – inbound transporters, Producers – manufacturers, Ship / vehicles – outbound transporters, Storage – distributors / warehouses, Outbound transportation from warehouses, Customers – shops, malls, showrooms, and Final Consumer

Value Chain
→ Value Flow

Value flows in the forward direction, in the form of goods and services. Each participant in the supply chain adds some value in the products, received from predecessor. Value addition may be in the form of quality, cost, availability, quick response etc. raw materials flow from suppliers / vendors to manufacturers, work-in-process flows between production centres, and finished goods flow from last production centre to warehouse / final customers Smooth flow of materials prevents any stock-outs / disruptions

→ Goods Flow
  

Value Chain
→ Cash Flow
  

Cash flows in the backward direction, against goods & value. End user pays the retailer, and retailer to wholesaler, Wholesaler pays to distributor, the distributor to producer and the producer pays to the suppliers.

→ Information Flow
 

The information flow in the supply chain is in both directions. Backward information includes customer feedbacks for quality, service etc. customer order, procurement quantity etc. Forward information includes quotations, order processing, invoices, shipping instructions, warranty certificate etc.

SCM – Functions / Importance
 Minimizing uncertainty – like vendors, processes, demand etc through measures such as vendor development, better communications with customers etc.  Reducing lead times – at stages of procurement, conversion, and distribution through better transportation facilities.  Minimizing number of stages – unification of tasks, reducing the number of stages minimizes complexity of business.  Improving flexibility – reducing set-ups & change-over times, gives flexibility in the manufacturing process. Small vehicles on shop-floor facilitate movement.  Process quality – reduction of inventories and wastage helps to improve the process quality.

SCM – Functions / Importance
• Minimizing variety – main reason for increasing inventory is variety. Standardization facilitates reduced inventories and the benefits of economies of scale. Managing demand – through appropriate promotion, branding Focus on important areas – special attention paid to items and areas that account for large part of the value, critical elements. Different supply chains – for different customer segments, products to suit specific requirements. Competitive advantage – long term advantage on service aspects of value delivery to the customer.

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Third Party Logistics (3PL)

Core competency is the name of the game. “To do what you are best at and leave the rest non-value added activities with the more suited firms.” Increasing competition led to the birth of ‘Outsourcing’. Companies have always used services of transporters for shipment of goods, warehousing etc. However, the entire package of services (i.e. transportation, distribution, warehousing, bills & order mgt., clearing agency) was not provided by many companies. Now, firms are offering all the above mentioned services (or even more) under one roof. This is the genesis of Third Party Logistics service providers (3PL).

 

3PL Services Offered –
• Logistics planning, • Customized solutions, • Warehousing mgt, • Shipment consolidation, • Carrier selection, • Rate negotiations, • Fleet management, • Logistics info. system, • Order processing, • Inventory management, • Multi-modal transportation, • Tracking shipments, • Re-labelling, re-packing, • Product assembly, • Freight forwarding, • Related consultancy etc.

3PL – advantages

Cost Reduction – 3PL agencies get the benefit of economies of scale. Hence, their charges are less costly. Maximise revenues – by outsourcing the logistics functions, companies are able to concentrate on their core areas and can utilize all their resources in activities which give max. returns. Minimizing uncertainties – of delivery, timeliness etc. Customer satisfaction – due to speciality services, wide network, and other useful information. Integration of all services under single entity facilitates better coordination and hence better quality services.

 

3PL – advantages

Access to world class technology – the companies get the benefits of world class capabilities, technologies, and higher skills, resulting to improved services. Investment released – company can release investments and invest into more profitable ventures. Eliminate labour problems – less labour to deal with, thus reduction in labour problems.