What is Supply Chain Management
APICS defines Supply Chain Management (SCM) as “The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.”In my consulting experience, it depends upon the type of company you are talking to or working with as to where the supply chain emphasis lies. Retailers may focus on having merchandise on the shelf at the time the customer wants to purchase, not to be out-of-stock, nor sit with excess inventory that needs to be closed out at the end of the season. On the other hand, manufacturers are concerned about having raw material, components, packaging, labor, and capacity to meet customer demands in the most cost-effective and productive means possible. Inventory imbalances due to shortages or excess inventory, all impact customer on-time delivery promises. This imbalance negatively affects profitability, making the enterprise less competitive.
My view of SCM is the continuous flow of raw materials through production, storage and shipment to the ultimate consumer in the shortest possible time with productive value-added processes from manufacturing to wholesale/distribution to retail. The supply chain has become increasingly complex through globalization as we introduce longer international supplier lead times reducing our ability to immediately flex to the ultimate consumer’s needs. A vertically integrated company faces greater challenges with more of the supply chain within their ambit. They cannot blame suppliers for mismanagement or poor planning.
I subscribe to the philosophy of a demand driven supply chain. Strategic planning begins with Corporate identifying markets they wish to serve, and the products with which to satisfy those markets. If marketing determines a gap between the goal and projections based on past performance, then establish strategies to fill that gap with new markets, products, customers, or acquisitions. With marketing running the place, we call on our sales team to develop those markets, finding new customers and opportunities to expand the business. I believe in the mantra that we either grow or decline, but never stand still. Funding growth must be planned. Finance and accounting establish budgets and validate that our margin will support our growth strategy. The executive team and customers ensure that we remain competitively priced. Engineering or merchandizing (depending on the type of business) keeps our products or merchandise fresh and new, to stay ahead of competition and retain industry leader status. Human Resources insures we have the best team of highly trained and competent personnel, and looks ahead to bring on board qualified people, as needed. Too many executive management teams today are reluctant to invest wisely in Information Technology (IT) and use it as a powerful tool to provide the competitive edge the corporation needs. With the migration to social media, it is troubling if corporations are not fully engaged with their customers. Adaptation of smart phone and tablet technologies for all corporate team members is essential to be an in-touch and highly communicative team internally, and with suppliers and customers, as appropriate. When reviewing the content of this paragraph, you are correct to assume these are fundamental elements of Sales and Operations Planning (S&OP), a critical business process in your SCM strategy.
We clearly understand SCM is a three-legged stool; each leg representing a balance of people, process, and technology.
People: What do we want from our people? I was alarmed in watching a recent CBS 60 Minutes television program where they highlighted 3 million job vacancies in the US, with 500,000 in manufacturing being chased by 20 million unemployed. With such high unemployment numbers, it is disturbing to learn that many of the unemployed are not qualified to take on these manufacturing opportunities. I was particularly distressed to learn that many would apply to be a computer controlled machine operator, without a basic understanding of math, and inability to read a machine drawing. (I am biased because my grounding was in engineering). In addition, apparently even college graduates can’t always correctly construct a sentence in English without making grammatical errors. How do people function without basic computer skills such as being able to use applications like Word, Excel, email, and Google searches? In our SCM world, and in seeking qualified personnel, aside from standard characteristics of integrity, competence, communication skills, and experience, it certainly helps if applicants make the effort to get continuing education through one of several organizations such as APICS, Supply Chain Council, or Institute for Supply Management. We are attuned to the fact that corporations must remain profitable. Richly rewarding executives and shareholders while slashing salaries and wages of workers and contractors, may achieve the profit goal, but will hurt morale in the corporation. We need fairness, equity, balance, and pay-for-performance. That allows companies to achieve sustained long-term growth. The New York Times reported “Eric Isbister, the CEO of GenMet, a metal-fabricating manufacturer outside Milwaukee, …. doesn’t abide by strict work rules and $30-an-hour salaries, … the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour. The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. ‘It’s hard not to break out laughing,’ says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. ‘If there’s a skill shortage, there has to be rises in wages’ he says.” The 2010 Census Bureau poverty threshold figure for a family of 4 with children under 18 is $22,162/annum while the Health and Human Services 2011 figure is $22,350, both around $11/hour.
Process: Process covers a broad swath and differs as you move from manufacturing through wholesale/distribution to retail (brick and motor or Internet). Recognize too that ideally you wish to succeed with a demand-pull philosophy. Begin by focusing on the ultimate consumer. A key component of demand planning is forecasting. Typically, we take several years of history and generate a forecast. We are interested in the trend (up, down or flat), and seasonality. This may not be as straight forward as it sounds because if we have fashion merchandise it may only be around for one season supported by promotional planning unless we adopt an everyday low price concept. We may be a make-to-order (MTO) producer where we forecast past capacity usage to help plan our available-to-promise (ATP) strategy. The good news is that we have practical techniques to link old to new product, and probably will get a greater degree of accuracy when working at a family of product, or aggregate level. We are aware that history does not repeat itself precisely, so we establish a collaboration mechanism to solicit field input. Without getting into detail at this time, suffice to say that ultimately we use forecasts for budget purposes, measuring to actual orders and allowing management to evaluate why we are outside a predefined tolerance. This allows us to take wise corrective action—and re-plan. This results in tighter control of the business. The forecast drives replenishment providing vendor, distribution network, and production requirements. We are able to increase our level of planning and scheduling for each of those disciplines. The more complex software strategies generally are in the area of manufacturing whereby we drive production with customer orders that meet the ATP criteria and where required forecast information helps expand our planning horizon. Process and technology strategies such as Advanced Planning and Scheduling (APS), Just-in-Time (JIT), Theory of Constraints (TOC), Lean and Flow manufacturing, all have a critical role with these techniques effectively employed. The net benefit to production facilities is the elimination of waste, and greatly increased utilization of all resources including materials, labor, and capacity. This results in a positive increase on the bottom line.
With thorough attention paid to planning and scheduling, execution and communication of the plan is vital to the overall success of the plan. Planning and execution time frames must be down to days, hours and minutes. Long range planning will go out months, quarters, and years. Plans and execution need to be in quantity and currency at both the detail and a variety of aggregate levels to satisfy all functional organizations within a company. Special attention must be focused on those limited products and customers that represent the majority of sales and profits. Metrics to support management in their timely ability to recognize out-of-control or out-of-stock situations are vital. Management by exception is essential when potentially weighed down by overwhelming levels of data. Support from Business Intelligence (BI) highlights management issues quickly. Knowing the capability of every supplier is crucial, or your company suffers from their inability to deliver the right product, in the right quantity at the right time to meet your quality standards.
Technology: Due to the nature and complexity of the supply chain: planning, scheduling, tracking, reporting, and communication functions, without timely support of technology, makes our ability to plan, and re-plan and communicate the revised plan in seconds, almost impossible. Most large corporations today use Enterprise Resource Planning (ERP) systems to manage their day-to-day operations. Many companies use proprietary products while some have homegrown systems. A few SME (Small and Medium Enterprises) have yet to embrace enterprise wide technology. See my November 2012 blog where I wrote extensively about the basic support provided by ERP systems. Here too I explain how significant opportunities are provided to improve function and operational performance by adding a best-of-breed add-on solution to the ERP system. Interestingly, the solution that powers most corporations for added enterprise function is Excel. Spreadsheets cannot compete with full function solutions provided by specialty purpose applications. I worked with a Fortune 100 company that hosted its Excel forecasting and collaboration information on a server with a manual operation to extract data, share with sales personnel, and attempt to consolidate feedback through a complex email exchange. Compared to available forecasting and Internet collaboration tools with current and timely information accessible on smartphones, tablets and PCs with significantly more sophisticated algorithms and aggregation and adjustment capabilities, leaves management at a serious disadvantage when trying to “make do” with a less than optimal approach. I can elaborate at length about the benefits of promotional planning that is superior to function available in enterprise or spreadsheet solutions, but that is only one of a slew of functional applications that addresses management’s needs depending on the organization within the supply chain. It is important to understand that to manage a successful corporation takes more than an accounting and payroll package, even though those are very important applications.
Every company is unique and different. Markets, products, customers, suppliers, business processes, management techniques are all peculiar to each company. That is the reason I don’t believe that a one-size-fits-all methodology to the supply chain works. A sound business process approach works to design and implement a solution. How does the corporation operate today, and how do they wish to operate in the future? Will management fully invest in education and training to understand the need for change, and how it will provide benefit to meet their desired strategy? With this informed approach, management is in a powerful position to solicit solutions that fit their corporate goals, strategies, and culture. What are management’s goals and challenges? Where is the company currently supported by effective technology, and where are they lacking in function. What will it cost to implement a more functionally rich solution, and can this be cost justified with a rapid return on investment? Are experienced internal resources available to manage the project and is management comfortable that external resources will add value to the process. At day’s end, it is all about delighting the customer, controlling costs, increasing revenues, growing profitability and making the company a fun place to work that fills all team members with pride to be a member of a successful organization.
How do i achieve growth?
The solution does not lie
in traditional transactional
ERP systems, which are
reactive in nature. You
need a decision-making
system like Planvisage