Supply Chain is a network of organizations and processes where a number of various enterprises collaborate along the entire value chain to acquire raw materials, to convert these raw materials in finished products and deliver finished goods to the customers.
Let’s think about this case: when during the week you go to the mall or supermarket to buy some items, from electronics to clothes, home appliances and other items, there is a high probability that they having been manufactured in China, South America, Mexico, North Africa, …
Considering the scenario above, companies are procuring materials at a global level, from different vendors, to supply raw materials to their factories located in different continents. After that, finished goods pass across different “chains of distribution network” involving hub, warehouses, distribution points, retailers, export procedures in order to finally arrive at the end customer. “Managing all mentioned activities in tandem with the management of demand and supply on a global scale can be defined Supply Chain Management”.
In a different way, SCM is the management of all the business processes and activities, involving procurement of raw materials, manufacturing, stocking, and distribution of Finished Goods.
Below are described main processes that are part of SC and relative management.
Customer Service process can be defined as the management of the interaction between a customer and the organization. It means managing the entire process order and be the main point of contact for the customer. It also involves solving all the potential criticalities customer can face from his order confirmation to the delivery of product or service. One of the key elements relevant to the creation of Brand loyalty is having a good customer service management.
On top of the Customer Relationship Management system of which CS is one element, the organization can “automatize” customer service but it’s important to remember that the human element is absolutely indispensable and not replaceable.
Forecasting and Demand Planning can be defined as the process that develops an estimate of the expected forecast of the market, considering together historical sales data, marketing intelligence from the Sales Team, trends and market requirements.
It has to synchronize as better as possible supply and demand, in order to increase the feasibility of the plan, reduce waste, demand variability, stock out, overstock, obsolescence etc… The scope of Demand Forecasting is to facilitate crucial business activities as budgeting, financial planning, sales and marketing plans, raw material planning, production planning, warehousing and distribution planning.
It drives the raw material planning process and facilitates the job of the Purchasing Department, in order for them to release suppliers Purchase Orders that are aligned with the business plan.
With a synchronized demand management process, between sales and planning, procurement can be defined as the process of getting products or services the company needs to fulfill the business model of the organization. Aligning procurement function with corporate strategy is only one part of the ultimate goal of procurement.
Procurement covers both acquisitions from external suppliers and from in house providers, after a make or buy decision and decides which type of sourcing is better to choose, from local, to continental or global one.
Some of the main activities of procurement are listed below:
- Order Management: involves all the aspects relevant to volumes of the order, frequency, timing, logistics conditions and all the activities relevant to inbound of purchase orders (good receipt, invoice, quality control, etc.)
- Make or Buy decision: based on the core business of the company, costs, capacity planning, and production are needed to define if make or buy raw materials/intermediate products.
In this case, a TCO (Total Cost of ownership) is recommended to take proper decision.
- Supplier selection and relevant evaluation of performances: assessment of new/different suppliers, preparation of contracts, single vs multiple sourcing, local vs global, etc.
Production planning is the function defining an overall level of output, called the production plan. Production plan has to link the firm’s strategic goals to operations: this process needs to satisfy many other activities regarding profit, productivity, lead time, KPI’s vs customers’ satisfaction. Production planning addresses the production and manufacturing modules within a company: it is a process that manages the resource allocation of employees, materials and production capacity.
Production can be scheduled in different ways, applying Lean Concepts:
- Make to stock
- Assemble to order
- Make to order
- Engineer to order
- Distribute to order
Strategic placement of the facility in terms of location can impact transportation costs and consequently the cost of the product.
Warehousing & Distribution
After production, finished good enters in the two final phases: warehousing and organization of the distribution to GDO, retailers, customers.
Layout of warehouse and network of distribution are two additional strategic processes to optimize the entire chain.
How could we try to optimize W&D management? Let’s try to mention some of the major ones, even if the below list is not exhaustive.
- Right layout in place means a more efficient warehouse: space should be organized as better as possible in order for the operators to access easily the products, knowing where products are stocked, how to stock products, which are the procedures in place for moving through the warehouse …
- It would be functional for the business that Warehousing Staff could process different orders simultaneously
- Fast-moving products should be prioritized: this will help all the staff in saving time during the picking phase
- ABC analysis should be run at least (it depends on the product) every 3 months in order to revise the rotation in the warehouse and put in place corrective actions, where needed.
- Data Collection Automatization will accelerate the entire process, “using system instead of excel file”
- Proactive Inventory Management activities are the ones that allows organization to have as less as possible discrepancies between physical and system data, low slow and non-moving inventory, low level of immobilized cash flow, obsolete stock…
- Use Lean concepts
After implementation of functional warehouse process management, creation of a distribution strategy allows organizations to determine the route that best meets their needs, as well as which customers to target and where, the better location to have hub, satellites, utilize 3rd party …
For some products could be the best to sell directly to the customer, for others it would be better to have intermediates taking care of the distribution process.
The correct implementation of this process enables management first to manage the reverse product flow efficiently and to identify opportunities to reduce unexpected returns, monitoring rules defined in terms of the return process.
The easiest way to organize an effective process returns management is to link customer service, planning, and logistics.
Sometimes no clear rules could bring a lot of returns stocked in the warehouse that most of the time, for different reasons, cannot be sold anymore becoming an additional cost for the organization.
The aim of this article is to allow organizations to have a clear understanding on how its supply chain is set up:
- Do you have an effective organization of the supply chain?
- Are the processes and procedures clear and shared with other department?
- Are roles and responsibilities clear in each process?
- Do you have an internal collaborative approach in your Supply Chain?
And we could go ahead for a while with questions: my advice now is to take a break, go around your organization and try to understand where you are today. After that, you can start thinking on how to set up or improve efficiently your supply chain management!
Remember: “You don’t have to get it perfect, you just have to get it going…”
Article written by Elena Marangon, Senior Supply Chain Consultant