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An integrated supply chain, where every organisation is working together to produce the simplest and most cost-effective flow of resources, is of importance to every supplier since supply chain activities can account for between 5 to 20 per cent of sales. Many businesses have come to recognise that the future lies not with individual firms, but with networks of allied organisations and technology has evolved to offer greater potential for cooperation.
Management Standards
This checklist has relevance to the MSC National Occupational Standards for Management: Key Role A--Manage Activities.
Definition
Supply chain management is an effective tool for business process improvement. It begins with the source of supply and ends at the point of consumption. Supply chain management covers the flow of materials and information from suppliers, through a number of value adding processes and distribution channels, to the customer.
The aim of supply chain management is to achieve a balance between the goals of high quality customer service and low inventory and unit cost. It is concerned with a range of issues, including:
· purchasing
· the physical movement of materials
· materials management
· manufacturing management
· supplier management.
If properly designed and managed, supply chain management will:
· improve customer service
· achieve a balance between costs and service
· reduce costs throughout the supply chain
· improve relationships between buyers and suppliers
· provide a competitive advantage to all the organisations in the supply chain.
Supply chain management fails if:
· power is retained and wielded by one organisation in the supply chain
· strategic fit is lacking and management styles are incompatible
· there is a lack of willingness to cooperate to the benefit of all.
1. Gain an understanding of the marketplace
An understanding of the business environment is needed in order to determine where the supply chain management strategy can be applied to best effect. Identify the market characteristics of each product or service. Consider:
· customer needs
· pressures from suppliers
· the level of competitor activity.
Carry out a SWOT analysis (Strengths/Weaknesses/Opportunities/Threats) and look at your current position. Consider what other organisations are doing to compete on quality, service, delivery and value.2. Analyse your business
Summarise and review the existing core competences of the organisation. What business are you in? Which operations are core to the operation and which could be outsourced?
Combine the information on customer needs and strategic priorities to identify key business areas where an integrated supply chain management can have a benefit.
Analyse where you sit within the supply chain. Who are your suppliers and customers? Do you have good relationships with them? What level of cooperation currently exists?
3. Analyse your existing supplier base
Produce a list of the suppliers for each product area. Evaluate them against a set of performance criteria. These might include price, reliability, responsiveness, delivery arrangements, use of quality systems, and product specification.
How many suppliers do you need? Most organisations use far too many suppliers. The main causes of this are:
· the belief that being single-sourced is risky
· poor supplier performance forcing you to look for alternatives
· a growth in demand which cannot be met by an existing supplier
· the idea that competition between suppliers keeps the price down.
Having too many suppliers increases both the management task of controlling them and the associated administrative costs. Reducing the total and moving towards single-sourcing can produce such benefits as:
· lower administration costs
· more time to manage each supplier
· an improvement in the relationship between you and the supplier more responsive problem solving,resulting from a greater understanding of difficulties and requirements and better communication.
4. Categorise your suppliers with the aim of reducing the overall total
Use some criteria, such as underperforming, preferred and strategic. Look to working with each category to bring cost reductions to your business and to the supply chain.
Those that are underperforming are likely to bring few improvement ideas to the supply chain. Each represents a cost in terms of negotiation time and servicing. A substantial reduction in their number will free up time to spend on more productive supplier activities.
Enter into negotiations with preferred suppliers to explore the potential to reduce inventory, distribution, handling, and warehousing costs. Cost transfers may be negotiable in return for commitments to longer-term supply.
Give consideration to your customers. Are you a preferred supplier or a strategic supplier to them? Have you discussed inventory, distribution, handling and warehousing costs with them? Have you been offered a commitment to long-term supply?
5. Investigate supply chain partnerships
Partnerships are the natural next level in the evolution of the supply chain. Partnerships allow organisations to work together to take advantage of market opportunities and to respond to customer needs more effectively than they could in isolation. Partnering means:
· sharing risk with others and trusting them to act in joint best interests
· a strategic 'fit' between partners so that objectives match and action plans show synergy
· finding complementary skills, competences and resources in partners
· sharing information which may have been privileged or confidential involving suppliers at the earliest stages of design of a new product.
Establish a partnering champion within your organization--someone at senior level who will become responsible for laying the foundation of the partnership and making it work in the start-up phase.
The actions needed to move towards a partnership include:
· inviting participation to improve relationships and find mutual cost benefits
· encouraging the suggestion of ideas of benefit to both parties
· starting the process of developing trust.
This stage involves broadening these partnerships to include your suppliers' suppliers and your customers.
A process map of the entire supply chain can help. Use this map to explore total costs and movements. Does the map identify any areas of wastage?
Gaining real commitment from all members of the supply chain means that total costs can be kept to a minimum to the benefit of everyone. Allow plenty of time for a win/win scenario to emerge. Trust takes time to develop and can be quickly lost. Each organisation is responsible primarily for its own survival however and cannot always put the needs of others before its own.
7. Monitor the chain
Setting up a supply chain is only the first step. Ensuring that it operates as planned and delivers the benefits to all parties is a critical ongoing activity.
Ensure that appropriate measures and indicators are analysed on a regular basis to ensure that everything is working to plan, so that any shortcomings can be quickly identified and action taken if necessary. For example, delivery delays could be due to short-term problems, such as a strike at a port, or due to a potentially serious longer-term problem, such as materials shortages.
Performance indicators should help quantify the benefits of the chain in terms of reduced costs, reduced delivery times, improved quality, reduced administration and, above all, improved customer satisfaction.
Dos and don'ts of supply chain management
Do
· Look for long-term gain over short-term benefits.
· Aim for improvements in customer service.
· Strive for high levels of trust and cooperation.
Don't
· Forget to put your own house in order first.
· Ignore areas of potential conflict.
· Enter into partnerships without the genuine commitment from senior management in each organisation.
· Related checklists
· Deciding whether to outsource
· Effective purchasing
· Performing a SWOT analysis
· Strategic partnering
· How many suppliers do you have? How large should your supplier base be?
· What is your company's attitude to the supply chain?
· How do your supply chains measure up to the demands of customers?
· Do you have arrangements to work jointly with your suppliers to find improved ways of working?