Future Trends in Supply Chain Management

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Future Trends in Supply Chain Management

  1. 1. Future Trends in Supply Chain Management The practice of supply chain management is a very recent phenomenon, as many organizations are just now beginning to realize the benefits and problems that accompany an integrated supply chain. Supply chain management is an incredibly complex undertaking involving cultural change among most or all of the participants, investment and training in new software and communication systems, and a change or realignment of the competitive strategies employed among the participating firms. As competitive situations, products, technology, and customers change, the priorities for the supply chain also must change, requiring supply chains to be ever more flexible to respond quickly to these changes. As we look at the most recent practices and the future trends of supply chain management, a number of issues present themselves as areas that need to be addressed including the expansion of the supply chain, increasing supply chain responsiveness, creating an environmentally friendly supply chain, and reducing total supply chain costs. Expanding the Supply Chain As markets for the supply chain grow, so too must the supply chain. Today, U.S. firms are increasing their partnerships with foreign firms and building foreign production facilities to accommodate their market expansion plans and increase their responsiveness to global economic conditions and demand. The supply chain dynamic today is changing, and companies are now working with firms located all over the globe to coordinate purchasing, manufacturing, shipping, and distribution activities. While this global expansion of the supply chain is occurring, firms are also trying to expand their control of the supply chain to include second- and third- tier suppliers and customers. Thus supply chain expansion is occurring on two fronts: increasing the breadth of the supply chain to include foreign manufacturing, office, and retail sites, along with foreign suppliers and customers; and increasing the depth of the supply chain to include second- and third-tier suppliers and customers. With advances and improvements in communication technology, manufacturing, and transportation, more and more companies around the globe have the capability to produce and sell high-tech parts and products and move these quickly to world markets as demand develops. Trade agreements such as the European Union, the World Trade Organization, and the North American Free Trade Agreement have also facilitated the production and movement of goods between countries; and this
  2. 2. has enabled firms to easily expand their supply bases and their markets. New software tools and "market makers" such as Perfect Commerce and FreeMarkets Online, who bring buyers and suppliers together in e-marketplace reverse auctions, have also helped to expand supply chains considerably and easily, using the Internet. Over the past few years, a rapid expansion of the global marketplace has occurred; and this pace should continue as new market enablers, producers, customers, and transportation infrastructures come into the global picture. Additionally, as firms become more comfortable and experienced with their supply chain relationships with immediate suppliers and customers, there is a tendency to expand the depth or span of the supply chain by creating relationships with second- and third-tier suppliers and customers. This span expansion phenomenon is just now taking place in most industries and should continue to increase as the practice of supply chain management matures. In a survey of firms already practicing supply chain management, about one-third of the respondents stated that they practiced supply chain management with second-tier suppliers, while somewhat fewer practiced supply chain management with second-tier customers. Increasing Supply Chain Responsiveness Agile manufacturing, JIT, mass customization, efficient consumer response, and quick response are all terms referring to concepts that are intended to make the firm more flexible and responsive to customer requirements and changes. Particularly with the tremendous levels of competition in almost all avenues of business, firms (and their supply chains) are looking today at ways to become more responsive to their customers. To achieve greater levels of customer responsiveness, supply chains must identify the end customers' needs, look at what the competition is doing and position the supply chain's products and services to successfully compete, and then consider the impact of these requirements on the supply chain participants and the intermediate products and services they provide. Once these issues have been adequately addressed among the firms in the supply chain, additional improvement in responsiveness comes from designing more effective and faster product and service delivery systems as products are passed through the supply chain and by continuously monitoring changes occurring the marketplace and using this information to reposition the supply chain to stay competitive. 2
  3. 3. Saying these things is easy, but improving customer responsiveness requires firms to reevaluate their supply chain relationships, to utilize business process reengineering, to reposition warehouses, design new products and services, reduce new product design cycles, standardize processes and products, empower and train workers in multiple skills, build customer feedback into daily operations, and, finally, link together all of the supply chain participants' information and communication systems. So, very quickly, you can see that achieving high levels of customer satisfaction through responsiveness requires potentially significant changes not only in firm culture but also in the technical aspects of providing products, services, and information throughout the supply chain. This remains a significant and ongoing challenge for supply chain effectiveness. Today, Web-based systems are proving to be ideal for connecting supply chain members efficiently. One such tool is Formation Systems' Optiva 4.0, a Web-based product life cycle management platform that provides business intelligence and collaboration from product concept through introduction to improvement. It can be integrated within a supply chain to help products get to market faster. The Greening of Supply Chains Producing, packaging, moving, storing, repackaging, and delivering products to their final destinations can pose a significant threat to the environment in terms of discarded packaging materials, carbon monoxide emissions, noise, traffic congestion, and other forms of industrial pollution. As the practice of supply chain management becomes more widespread, firms and their supply chain partners will be working harder to reduce these environmental problems. In fact, relationships between companies in an integrated supply chain are much more conducive to taking a more proactive approach to reducing the negative environmental consequences of producing, moving, and storing products as they move through the supply chain. Over time, consumer sentiment toward environmentally friendly processes has tended to increase, making this topic one of concern for companies managing their supply chains. As mentioned in one study, 75 percent of U.S. consumers say their purchasing decisions are impacted by a firm's environmental reputation. Additionally, companies are finding that pollution control activities and waste reduction can reduce cost. Added to this increasing concern and awareness among the general public for environmentally friendly business processes is the growing cost of natural 3
  4. 4. resources such as wood products, oil, and natural gas. Strategies to successfully compete under these conditions include using recyclable materials in products; using returnable and reusable containers and pallets; using recyclable and reusable packaging materials; managing returns along the supply chain efficiently; designing effective transportation, warehousing, and break-bulk/repackaging strategies; and using environmental management systems from initial producer to final consumer in the supply chain. The benefits of these activities will include lower systemwide costs, fewer duplicate activities, marketing advantages, less waste, and, ultimately, better customer satisfaction. Reducing Supply Chain Costs Considering again the objectives of supply chain management, cost reduction is clearly high on this list of priorities. Cost reduction can be achieved throughout the supply chain by reducing waste as already described, by reducing purchasing costs, and by reducing excess inventories and non-value-adding activities among the supply chain participants. As supply chains become more mature, they tend to improve their performance in terms of these cost reduction activities through use of continuous improvement efforts, better supply chain communication, and a further integration of processes. As time passes, supply chain costs continue to decrease due to trial and error, increased knowledge of the supply chain processes, use of technology to improve information flow and communication, benchmarking other successful supply chains to copy what they are doing well, and continued performance measurement and improvement efforts. The purchasing function among supply chain participants will continue to be viewed as a major strategic contributor to cost reduction through better supplier evaluation techniques, value engineering and analysis in product design and production, standardization and reduction of parts and materials, and through make-or-buy decisions. Finally, the transportation and logistics function will also play a major role in cost reduction along the supply chain through better design of the distribution networks and more efficient use of third-party logistics service providers. 4

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