Most people never think about supply chain operations. They know stuff gets made, transported, and sold; but, they have little interest in the details. Television shows like Science Channel’s “How It’s Made” and Discovery Channel’s “Dirty Jobs” piqued the interest of some; but, for the most part, people don’t really understand everything involved in getting the products they enjoy into their hands. Billal Chouli explains, “A supply chain is a network of suppliers, manufacturers, and retailers, as well as intermediaries including freight companies, warehousing companies, and brokers, who transfer goods, services, money, and information amongst one another. A supply chain is an end to end process which typically begins with the sourcing of raw materials and concludes with the sale of a good to the final customer.”[1] Although it’s accurate, that simple definition of a supply network and supply processes fails to capture the complexity of today’s modern supply chain. For example, a report published by Accenture and DHL notes, “The logistics behind global trade is highly complex as it involves many parties often with conflicting interests and priorities as well as the use of different systems to track shipments. … A simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, with more than 200 different interactions and communications among these parties.”[2]
The importance of supply chain management
Dealing with all that complexity requires sound supply chain management (SCM) strategies. Chouli observes, “Supply Chain Management concerns the strategy, planning, coordination, and execution of supply chain functions. Supply Chain Managers facilitate the sourcing, production, and logistics of products and services, to gain a competitive advantage and ensure the efficient flow of goods, services, money, and information.” Supply chain management is so central to any business’ operations, Lora Cecere (@lcecere), founder of Supply Chain Insights, insists, “The supply chain IS Business, not a department within a business.”[3] Companies are in business to make money; unfortunately, many people perceive supply chain operations as a cost center rather than a contributor to overall profits. Richard Wilhjelm (@wilhjelm), Vice President of Sales & Business Marketing for Traverse Systems, indicates supply chain professionals often ask him, “How can we be viewed more as margin contributor and less as a cost center?”[4] He writes, “The question isn’t surprising given the current economic environment. While as a whole the economy is performing extraordinarily well, there are underlying challenges the industry faces including intense competition, rising inflation, labor shortages, and soaring transportation costs due to capacity constraints and fuel increases. Add to that pile the uncertainty surrounding tariffs and it’s easy to see why senior financial executives remain cautious about future profit forecasts.”
Business leaders are slowly coming to the realization that supply chains can differentiate their companies from their competition. As a result, Kevin O’Marah (@komarah), Vice President and Distinguished Analyst at SCM World, observes, “For several decades now supply chain management has been on the rise. Having coalesced out of traditional support functions including purchasing, distribution and production operations late last century, the profession saw a surge in relevance with the arrival of extensive free trade and the internet. The combination of fast growing global supply bases and ubiquitous information gave birth to the idea of an ‘end-to-end’ supply chain demanding a sophisticated set of skills to manage.”[5] According to Wilhjelm, things aren’t going to get any easier for supply chain managers. He explains, “With the days of the long, slow, cheap supply chains coming to an end, supply chain professionals are suddenly thrust into the spotlight to perform what seems — on appearance alone — to be impossible. They must not only improve service levels while reducing costs but also contribute to top line revenue growth through in-store and in-stock availability. Gone are the days when procurement and merchant organizations alone competed for market share. Nowadays, supply chain organizations are also sales enablers in a fierce battle for consumers’ hearts and wallets.”
Improving supply chain management strategies
Sarah K. White (@sarahkwhite) writes, “Supply chain management is a critical focus for companies that sell products, services, hardware and software. The supply chain includes everything involved in the flow of goods from a business to its customers, clients or to other businesses. It’s not something that can be set up and left alone — your supply chain needs to be regularly evaluated so it stays efficient and productive for the business.” When evaluating your company’s supply chain management strategy, business consultant Dave Turbide (@daturbide) insists the two top priorities to keep in mind are customer service and the resources necessary to achieve great customer service. He explains, “Any business that serves customers must build its strategy around customer service. For any participant in the supply chain — including producers, distributors, suppliers and service providers — that means delivering products as ordered and on time. The second priority is to make the best of your resources to deliver that high level of customer service.”[7]
To develop great supply chain management strategies, White recommends companies use the supply chain operations reference (SCOR) model, first developed in 1996 by PRTM, which is now a part of APICS. She notes, “SCOR is endorsed by the Supply-Chain Council.” The SCOR model is based on six main management processes, which are:
1. Planning: “Planning processes include determining resources, requirements and establishing the chain of communication for a process to ensure it aligns with business goals. This includes developing best practices for supply chain efficiency while considering compliance, transportation, assets, inventory and other required elements of supply chain management.”
2. Sourcing: “Source processes involve obtaining goods and services to meet either planned or actual market demand. This includes purchasing, receipt, assay and the supply of incoming material and supply agreements.”
3. Making: “This includes processes that take finished products and make them market-ready to meet planned or actual demand.”
4. Delivering: “Any processes involved in delivering finished products and services to meet either planned or actual demand fall under this heading, including order, transportation and distribution management.”
5. Returning: “Return processes are involved with returning or receiving returned products, either from customers or suppliers. This includes post-delivery customer support processes.”
6. Enabling: “This includes processes associated with supply chain management such as business rules, facilities performance, data resources, contracts, compliance and risk management.”
Mastering those six functional areas will set the foundation for a great supply chain strategy.
Concluding thoughts
“Supply chain management isn’t easy,” Turbide notes. “There are a lot of factors that go into delivering good customer service, and each of them involves a tradeoff between speed and cost or availability and cost.” Great supply chain managers find just the right balance to ensure supply chains add to the bottom line of their company’s operations. The result is clear: Improve supply chain management to improve business.
Footnotes
[1] Billal Chouli, “What Is Supply Chain Management and Logistics?” Neurochain, 11 September 2018.
[2] Joe McKendrick, “5 Reasons to Blockchain Your Supply Chain,” Forbes, 19 March 2018.
[3] Lora Cecere, “Sage advice? Only for turkeys.” eft, 1 February 2013.
[4] Richard Wilhjelm, “Supply Chain: Cost Center or Margin Contributor?” Supply Chain Digest, 13 September 2018.
[5] Kevin O’Marah, “Is Supply Chain’s Star Rising?” Supply Chain @ MIT, 20 September 2018.
[6] Sarah K. White, “What is SCOR? A model for improving supply chain management,” CIO, 10 October 2018.
[7] Dave Turbide, “What’s most important in creating a supply chain management strategy?” TechTarget, October 2018.
