Wednesday, August 5, 2009

Supply Chain Management and Industry Best Practices

Leslie Satenstein / August 2009

What is a supply chain?

If your company builds a product for customers using parts purchased from suppliers, then in simplest terms you have a supply chain. A supply chain is the management of the links or nodes from various suppliers (vendors) to your customers. A supply chain therefore includes activities of CRM purchasing, logistics, warehouse management, finance, e-commerce and depending upon the industry, a lot more.

Before the advent of global communications and the internet, management best practices Supply chain was in it’s infancy and consisted mainly of knowing the lead times for delivery of products. Order management was by fax, delivery schedules uncertain, necessitating extra safety supplies to eliminate stock-outs. Today technology with high speed communication and globalization places greater importance on supply chain management. Supply chain management addresses the management of all the links/nodes and business concerns from the small manufacturer or reseller to the behemoth sized company with its multiple global distribution centers.

What is considered Best Practices

“To reduce costs and maintain customer satisfaction, most companies institute optimization exercises that lead to the best way to manage the links. Most of the time optimization activities deliver results within that enterprise. Too often, the activities of vendors and customers are not included in the optimization exercise. If a process is common across businesses generally, it would seem there is an opportunity for Best Practices” where all participants profit from optimization.

What are the elements that make up “Best Practices.”

Best Practices are the activities to ensure that the supply chain is operating as efficiently as possible and generating the highest level of customer satisfaction at the lowest cost. Best practices dictate that “Supply Chain Management” attacks three universal generalized business activities consisting of: strategic; operational; and tactical.

Strategic: This common business activity looks for opportunities to reduce costs while optimizing supplier and customer transportation delivery costs and lead-times. The strategic decisions take into account factors such as the size and location of manufacturing sites, long term supplier agreements, products to be sold and sales markets.

Operational: Every day decisions are made that affect how the products move along the supply chain links. Currently the weakest links in the supply chain process are vendors. Schedule changes to production are made due to vendor’s late deliveries, or parts problems, misunderstanding of purchasing agreements with suppliers, order changes or additions from customers and not the least, warehouse product movements. Delays are cumulative.

Tactical: Decisions focus on implementing measures that will reduce costs. Examples include best manufacturing practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effective transportation and implementing warehouse strategies to reduce the cost of storing and handling inventory. Newer technologies that complement bar coding include RFID tags for pallets, boxes and items, tight links to website e-commerce systems, employing Business Intelligence (BI) software for in-depth analysis of the nodes in the supply chain activities.

What are some of the concerns?

In every industry, a “Best Practice” is developed by a group of experts who share their knowledge and experience. They work to define the best method of operating a common process. For example, the consumer goods to retail industry pulled together under ECR. ECR or “Efficient Consumer Response” is a joint trade and industry body working towards making the grocery sector as a whole more responsive to consumer demand and promote the removal of unnecessary costs from the supply chain. The Global Commerce Initiative is there to develop and publish Industry Best Practices for common processes.

If a company expects to achieve benefits from their supply chain management process, they will require some level of investment in technology.

In the Best Practices area, two flaws that cause less then optimal “Best Practice” results are shrinkage and fraud. These two elements require due diligence and close scrutiny of new and even long term vendors to detect reasons for causing cost overruns and reducing “Best Practices” benefits.

ITMBS – How can we help?

ITBMS consultants have distribution and manufacturing experience in the field of supply chain and business practice optimization. ITBMS can work with you to improve existing business practices with your ERP system or to help you select a new ERP system that responds to your business requirements. Our skills include helping you adopt Internet technologies such RFID, warehouse layout and e-commerce web software.

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