What is Supply Chain Management?
Definition of Supply Chain (SC) Management [Fred A. Kuglin, 1998]:
The manufacturer and its suppliers, vendors, and customers that is, all links in the extended enterprise working together to provide a common product and service to the marketplace that the customer is willing to pay for. This multi company group, functioning as one extended enterprise, makes optimum use of shared resources (people, processes, technology, and performance measurements) to achieve operating synergy. The result is a product and service that are high quality, low-cost, and delivered quickly to the marketplace.
Definition of Supply Chain Management [William C. Copacino, 1989]:
Logistics and Supply Chain Management refer to the art of managing the flow of materials and products from source to user. The logistics system includes the total flow of materials, from the acquisition of raw materials to delivery of finished products to the ultimate user.
Thus, extended Supply Chain (SC) includes suppliers, manufacturers, carriers, distributors, retailers and customers and shall be viewed as an integrated economic and operating system.
Any SC is a complex system comprised of different companies with different objectives and operating in an enormously complex world market economy under numerous uncertainties. Can such a SC be optimized for the best performance possible given the complexity of the problem?
An honest answer is NO. There is no "green button" ultimate solution to such a problem. The technology for creating adequate and complete models simulating the operation of complex systems like SC has not arrived yet.
However, much can be done on the way to attaining the optimal performance. Industry studies report impressive results for those optimizing their SC management for better performance. They also report that most customers show dramatic gains from using SC planning technology:
Capacity utilization increased by 25%
Production cost reduced by 20%
Inventory reduced by 70%
Order-to-delivery time reduced by 50%
On-time order shipment increased to near 100%
SC Management vs. Traditional ERP
Are you using Enterprise Resource Planning (ERP)?
This technology presents a valuable approach to reengineering your SC. ERP applications contain capabilities such as inventory management, material planning, order processing, procurement, shop floor management and finance. ERP systems allow companies to streamline and integrate business processes by improving information flow between a company's departments as well as between the company and its SC partners.
The problem is that traditional ERP systems use a sequential approach to derive a plan. First, a Master Production Schedule (MPS) is created, which provides the basis for Material Requirements Planning (MRP). After this step, performance of Capacity Requirements Planning (CRP) is attempted. Unfortunately, such an approach considers materials and capacity as independent variables at each stage. This can result in plans that are infeasible.. To eliminate such a problem, MRP's logic advocates iterating this sequence multiple times to adjust for changes made at each step. Soon these actions become very confusing due to the complexity of the planning problem and the scope of product mix being planned. Consequently, the planner starts planning with more slack to protect the feasibility of his plan.
SC management takes classic ERP to the next step. The key advancements are integration and transparency of all components of the SC for efficient decision making.
The business processes of most companies are organized around the stages of production, people or organization structures. Many large corporations are organized by functional areas including purchasing, manufacturing, finance, logistics and sales/marketing. Information, control and management flow nicely within each of the functional areas.
****However, the value to the customer comes from moving information, products and services quickly and efficiently across functions from the supplier to the customer.****
Purchasing, procurement, transportation, warehousing, order processing, and inventory management must not only link together but must link horizontally with other enterprise functions (engineering, manufacturing) and with customers and suppliers. The focus must be on how the activities of one function impact and influence the activities of other functions and other companies.
Reducing costs and improving customer satisfaction can be achieved by integrating suppliers and customers into the supply chain based on the state-of-the-art information technology and business modeling techniques.
What Can Supply Chain Management Deliver to My Business?
Most companies, even today, are highly reactive when it comes to operating their most critical resource - the Supply Chain. Common practices include producing to overly inflated inventory targets, expediting production orders to meet critical customer needs, expediting raw material receipts to prevent production downtime, using costly overtime, and running to full capacity but not making the right product at the right time. Similarly, major strategic decisions, such as acquiring additional capacity, are often made without an in depth analysis of the situation which results in a misalignment of resources required verses resources available.
Supply Chain (SC) management can provide structured planning and scheduling solutions that use optimization, simulation and constraint based planning technologies to provide a full suite of demand, manufacturing, distribution, transportation and logistics planning products that address both strategic and operational planning needs.
Intelligent SC management presents the single greatest opportunity for increasing market share, cash flow and profits. It enables one to make informed decisions along the entire supply chain, from acquiring raw materials to manufacturing products to distributing finished goods to the consumer. Efficient SC management is about an integrated approach to planning, transacting, tracking and reporting on all resources, demand and supply within a company.
Any business activity can be put in the context of the classic resource optimization problem faced by companies all over the world: how to make the best possible use of costly resources. Making the right choices, redirecting resources to handle shortages and rearranging activity sequences can lower costs, reduce waste, shorten cycle times and expedite deliveries. They can make the difference between profit and loss.
Supply Chain Solutions
SC management methodology delivers integrated solutions to all critical business processes constituting the core of a company's operations:
- Demand management This sub-process is the operational management of demand information for planning purposes. The objective of the demand management process is to provide fast, accurate, and reliable delivery-date responses to customer orders as well as to understand the customer's buying patterns and develop aggregate, collaborative forecasts. Demand management is a sub-process that includes order capturing, customer verification, order promising, backlog management, and order fulfillment. The issue is not just forecasts, but how to generate forecasts, manage them and constantly reconcile new information with current forecasts, updating them on an as needed basis.
- Supply and distribution planning The objective of this sub-process is to optimally position enterprise resources to meet demand. Strategic planning, inventory planning, distribution planning, collaborative procurement & transportation planning, and supply allocation are all part of this sub-process.
- Production planning This sub-process ensures sufficient production capacity, raw materials and personnel are available to meet demand. It optimizes supply chain throughput and synchronizes production, material, and distribution resources on demand to generate a constraint-based plan.
- Production scheduling This sub-process determines what should be made, when, how much and on what production units. The scheduling systems improve both processes and inventory management. Driven by cost-based analysis, these systems determine the best production run sequences in order to balance the tradeoffs between customer demand and production efficiencies. They reduce variability in operations and predict future operational problems.
- Available-to-Promise (ATP) This sub-process is a mechanism supporting automatic commitments to most customer requests for products by looking for projected inventory and unallocated production capacity. The intelligent ATP process not only assesses and changes inventory levels, but also feasibly modifies production schedules in order to find the best solution to satisfy customer requests.
Some Benefit Areas from deployment of Supply Chain Management Applications:
Reduction in Inventory and Working Capital Having the Right Product in the Right Place at the Right Time - reduction of missed orders, back orders and misplaced inventory
Reduction in time and skill required to generate and update production plans and schedules
Continuous synchronizing of manufacturing and distribution activities;
Ability to quickly change your plan due to a contingency situation, e.g., a production line is unavailable for a week. How can the manufacturing resources be reallocated to meet all of the deadlines for deliveries to the customers?
Improved scheduling of transportation logistics with resultant cost savings;
Improved on-time delivery and subsequent customer satisfaction;
Reduced finished products inventories. Build to order, not build to stock
More rapid turns for reduced raw material inventories.
Decreased number of changeovers to reduce production cost.