Courtney Black Electronic Journal Supply-Chain Management
World-class performance requires speed, quality, agility, and endurance. In a highly competitive race for world market domination, there are no silver or bronze medals. You win or you lose. This degree of performance doesn't simply happen, it requires years of commitment, conditioning, and a vision of a gold medal. Winners never give up. Mistakes are learned from, skills are honed, weaknesses are strengthened, barriers are overcome and the athlete becomes a relentless competitor. A vision of crossing the finish line in first place drives the athlete until the sweet smell of success is realized(http://www.rockfordconsulting.com/).
A supply chain is the process of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer. Managing the chain of events in this process is what is know as supply chain management. Effective management must take into account coordinating all the different pieces of this chain as quickly as possible without losing any of the quality or customer satisfaction, while still keeping cost down. The first step is obtaining a customer order, followed by production, storage and distribution of products and supplies to the customer site. Customer satisfaction is paramount. Included in this supply chain process are customer orders, order processing, inventory, scheduling, transportation, storage, and customer service. Success of a supply chain is the speed in which these activities can be accomplished and the realization that customer needs and customer satisfaction are the very reasons for the network. Reduced inventories, lower operating costs, product availability and customer satisfaction are all benefits which grow out of effective supply chain management. The decisions associated with supply chain management cover both the long-term and short-term. Strategic decisions deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities. Market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These factors change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly.
The Challenge Worldwide manufacturers will be faced with stiffer competition in most markets. Clearly the pressure is on to be the best, nothing less. They must concentrate on satisfying the demands of the market: designing and building the best quality product in the shortest time possible. Taking dramatic steps to become agile in the supply chain is necessary to be a manufacturing contender in the next century. Organizations must focus on moving information and products quickly through retail, distribution, assembly, manufacture, and supply. All physical and logical events within the supply chain must be enacted swiftly, accurately, and effectively. The faster materials, information, and decisions flow through an organization's supply chain, the faster it can respond to the demands of the market.
The next ten years will emphasize radical development of the corporate supply chain infrastructure, inducing major changes to the organization. The focus will be on quickly introducing new customized high quality products and delivering them with unprecedented lead times.
The end result will be a new effective organization capable of making swift decisions, and manufacturing and delivering products with high velocity, Large scale changes in the way we operate in the office, in the factory, with our suppliers, and how we market and move products to the end customer are required to achieve this degree of performance. Those successfully emerging from this radical transformation will be the winners and leaders: quick, and resourceful enterprises. These enterprises will be world-class competitors, organized to respond to a dynamic market with precision and unprecedented speed and agility in delivery and new product introduction. They will be capable of achieving world class quality, with substantially less nonvalue-added cost (http://rockfordconsulting.com/).
Six Keyholes To develop and implement supply chain agility, there must be an optimal balance in six key areas.
Ø Production
Ø Supply
Ø Inventory
Ø Location
Ø Transportation
Ø Information
Production
The strategic decisions included 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. 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 on 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(http://silmaril.smeal.psu.edu).
Supply
An organization must determine what their facility or facilities are able to produce, both economically and efficiently, while keeping the quality high. But most companies can not provide excellent performance with the manufacturing of all components. Outsourcing is an excellent alternative to e considered for those product an components that cannot be produced effectively by an organization's facilities. Companies must carefully select suppliers for raw materials. When choosing a supplier, focus should be on developing velocity, quality and flexibility while at the same time reducing costs or maintaining low cost levels. In short, strategic decisions should be make to determine the core capabilities of facility and outsourcing partnerships should grow from these decision(http://www.rockfordconsulting.com/).
Inventory
These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw materials, 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 o 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 set goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push vs. pull), control policies-the determination of the optimal levels of order quantities and reorder 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(http://silmaril.smeal.psu.edu).
Location
Location decisions depend on market demands and determination of customer satisfaction. Strategic decisions must focus on the placement of production plants, distribution and stocking facilities, and placing them in prime locations to the market served. Once customer markets are determined, long-term commitment must be made to locate production and stocking facilities as close to the consumer as is practical. In industries where components are lightweight and market driven, facilities should be located close to the end-user. In heavier industries, careful consideration must be made to determine where plants should be located so as to be close to the raw material source. Decisions concerning location should also take into consideration tax and tariff issues, especially in inter-state and worldwide distribution.
Transportation
Strategic transportation decisions are closely related to inventory decisions as well as meeting customer demands. Using air transport obviously gets the product out quicker and to the customer expediently, but the costs are his as opposed to shipping by boat or rail. Yet using sea or rail often times means having higher levels of inventory in-house to meet quick demands by the customer. It is wise to keep in mind that since 30% of he cost of a product is encompassed by transportation, using the correct transport mode is critical strategic decision. Above all, customer service levels must be met, and this often times determines the mode of transport used. Often times this may be an operations decision, but strategically, an organization must have transport modes in place to ensure s smooth distribution of goods.
Information
Effective supply chain management requires obtaining information from the point of end use, and linking information resources throughout the chain from speed of exchange. Overwhelming paper flow and disparate computer systems are unacceptable in today's competitive world. Fostering innovation requires good organization of information. Linking computers though networks and the internet, and streamlining the information flow, consolidates knowledge and facilitates velocity of products. Account management software, product configurations, enterprise resource planning systems, and global communications are key components of effective supply chain management strategy.
Performance Drivers for Success Five performance levels of focus for change strategy: Velocity, Flexibility, Quality, Cost, and Service.
Velocity
Velocity is the rate at which raw materials, parts, components, finished products and information travel through the supply chain. As each element is able to move faster through the supply chain of events, lead times compress and less inventory is required to support demand.
Flexibility
Flexibility is the ability to adapt to new or changing demands in the market. I t includes design flexibility and production flexibility. Design flexibility is the company's ability to introduce new products and modifications to current products. Production flexibility is the company's ability to change product mix within short lead times, such as day to day.
Quality
Quality is the degree of excellence performed in designing, selling, producing, and delivering products and information. It is the conformance to requirements in measuring if the information, product, part or component does what it is supposed to do. Quality includes form, fit, function, reliability, consistency and accuracy.
Cost
Costs are the total cost of the conversion and movement through the supply chain per unit. The cost of adding value per unit is a measure of the productivity of he supply chain.
Service
Customer service is a quantitative as well as qualitative measurement. The quantitative approach is the more traditional method of calculating customer service used on a comparison of orders placed to orders shipped. The qualitative approach measures the customer's satisfaction with service received(http://www.rockfordconsulting.com/).
Just-In-time purchasing is a major element of JIT systems. The basic idea behind just-in-time purchasing is to establish agreements with vendors to deliver small quantities of materials just in time for production. This can mean daily, twice-daily, and sometimes hourly deliveries of purchased items. The critical elements of JIT purchasing are
Ø Reduced lot sizes.
Ø Frequent and reliable delivery schedules.
Ø Reduced and highly reliable lead times.
Ø Consistently high quality levels for purchased materials.
Each of these elements constitutes a major benefit to the purchasing firm, not the least of which is shorting the procurement cycle. The ultimate objective should be a single reliable source for each item and the consolidation of several items from each supplier. The result is far fewer suppliers in total. U.S. companies the have implemented JIT purchasing through fewer suppliers have obtained the following benefits:
Ø Consistent quality. Involving suppliers during the early stages of product design can consistently provide high-quality products.
Ø Savings on resources. Minimum investment and resources, such as buyer's time, travel, and engineering are needed when using a limited number of suppliers.
Ø Lower costs. The overall volume of items purchased is higher, which eventually leads to lower costs.
Ø Special attention. The suppliers are more inclined to pay special attention to the buyer's needs, since the buyer represents a large account.
Ø Saving on tooling. Buyers often provide tools to their suppliers. Concentrating on only one supplier therefore saves a great deal of tooling costs.
Ø The establishment of long-term relationships. Establishing long term relationships with suppliers encourages loyalty and reduces the risk of an interrupted supply of parts to buy plant; this may be the most important benefit of all(Chase,Aquilano,Jacobs. Production and Operations Management. Manufacturing and services.p.479-80).
References http://www.rockfordconsulting.com/ http://silmaril.smeal.psu.edu/ Chase,Aquilano,Jacobs. Production and Operations Management. Manufacturing and services. p.479-80.
Courtney Black
Yates Center
Business Management
Senior
Sutherlands http://www.sutherlands.com
For any comments or questions please contact me at blackcou@esuvm.emporia.edu