Strategic supply chain management and logistics


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Strategic supply chain management and logistics

  1. 1. Table of contents:Task Contents 1 Explain the importance of effective supply chain management in achieving organisational objectives Explain the link between supply chain management and business functions in an organisation Discuss the key drivers for achieving an integrated supply chain strategy in an organisation 2 Evaluate the effectiveness of strategies used by an organisation to maintain supplier relationships Use information technology to create strategies to develop an organisation’s relationship with its suppliers Develop systems to maintain an organisation’s relationship with its suppliers 3 Assess how information technology could assist integration of different parts of the supply chain of an organisation Evaluate how information technology has contributed to the management of the supply chain of an organisation Assess the effectiveness of information technology in managing the supply chain of an organisation 4 Explain the role of logistics in supply chain management in an organisation Evaluate procurement practices in an organisation Discuss the factors that must be considered when improving logistics and procurement practices in an organisation 5 Plan a strategy to improve an organisation’s supply chain Assess how a supply chain improvement strategy will benefit overall business performance in an organisation Explain how barriers will be overcome in an organisation when implementing a supply chain improvement strategy
  2. 2. IntroductionSupply chain management operates at three levels; strategic, tactical and operational. At thestrategic level, company management makes high level strategic supply chain decisions that arerelevant to whole organization. The decisions that are made with regards to the supply chainshould reflect the overall corporate strategy that the organization is following.The strategic supply chain processes that management has to decide upon will cover the breadthof the supply chain. These include product development, customers, manufacturing, vendors andlogistics.Product Development: Senior Management has to define a strategic direction when consideringthe products that the company should manufacture and offer to their customers. As productcycles mature or products sales decline, management has to make strategic decisions to developand introduce new versions of existing products into the marketplace, rationalize the currentproduct offering or whether develop a new range of products and services. These strategicdecisions may include the need to acquire another company or sell existing businesses. However,when making these strategic product development decisions, the overall objectives of the firmshould be the determining factor.Customers: At the strategic level, a company has to identify the customers for its products andservices. When company management makes strategic decisions on the products to manufacture,they need to then identify the key customer segments where company marketing and advertisingwill be targeted.Manufacturing: At the strategic level, manufacturing decisions define the manufacturinginfrastructure and technology that is required. Based on high level forecasting and salesestimates, the company management has to make strategic decisions on how products will bemanufactured. The decisions can require new manufacturing facilities to be built or to increaseproduction at existing facilities. However, if the overall company objectives include movingmanufacturing overseas, then the decisions may lean towards using subcontracting and thirdparty logistics. As environmental issues influence corporate policy to a greater extent, this mayinfluence strategic supply chain decisions with regards to manufacturing.Suppliers: Company management has to decide on the strategic supply chain policies withregards to suppliers. Reducing the purchasing spend for a company can directly relate to anincrease in profit and strategically there are a number of decisions that can be made to obtain thatresult. Leveraging the total company’s purchases over many businesses can allow companymanagement to select strategic global suppliers who offer the greatest discounts. But thesedecisions have to correspond with the overall company objectives. If a company has adoptedpolicies on quality, then strategic decisions on suppliers will have to fall within the overallcompany objective.
  3. 3. Task 1: Understand the relationship between supply chain management(SCM) and organisational business objectivesTask 1.1: Explain the importance of effective supply chain management inachieving organisational objectivesIn the ancient Greek fable about the tortoise and the hare, the speedy and overconfident rabbitfell asleep on the job, while the "slow and steady" turtle won the race. That may have been truein Aesops time, but in todays demanding business environment, "slow and steady" wont getyou out of the starting gate, let alone win any races. Managers these days recognise that gettingproducts to customers faster than the competition will improve a companys competitive position.To remain competitive, companies must seek new solutions to important Supply ChainManagement issues such as modal analysis, supply chain management, load planning, routeplanning and distribution network design.Companies must face corporate challenges that impact Supply Chain Management such asreengineering globalisation and outsourcing. Why is it so important for companies to getproducts to their customers quickly? Faster product availability is key to increasing sales, says R.Michael Donovan of Natick, Mass., a management consultant specialising in manufacturing andinformation systems. "Theres a substantial profit advantage for the extra time that you are in themarket and your competitor is not," he says. "If you can be there first, you are likely to get moreorders and more market share." The ability to deliver a product faster also can make or break asale. "If two alternative [products] appear to be equal and one is immediately available and theother will be available in a week, which would you choose? Clearly, "Supply Chain Managementhas an important role to play in moving goods more quickly to their destination.‖Task 1.2: Explain the link between supply chain management and businessfunctions in an organisationWilliams et al. (2002) stated organizational innovation would drive the changes of the wholeorganizational framework and that of employees, which further affects the operation of the wholesupply chain. The increasing requirements for the cooperation and the connection betweenbuyers and suppliers would cause strong effects to the organizational innovation (Lee, 1995).Atuahene-Gime (1996 a/b) also stated that supply chain management mainly concentrates on theadvantage and quality of the product innovation. As for service industry, the advantages ofinnovation in both service and quality are subject to a good supply chain management. Athaide etal. (1996) said that in the proceeding of both product innovation and technique innovation, thesupply.The type of the corporate culture affects the possibility of the individual innovation and theorganizational innovation. The bureaucratic culture restrains the individual innovation and the
  4. 4. corporations’ ability to make any transformation against competition. The supportive culture iseasiest to encourage the individual innovation, and can also make corporations happy to changefor improving their competences. The effective culture can encourage the individual innovation.However, its excessive emphasis on results will bring on the contrary conflicts among staff, andbecomes a big obstruction for the organizational transformation. Hurley and Hut (1998) said thatan organization would provide more resources to encourage more innovation and developcompetences if its culture stresses innovation.Task 1.3: Discuss the key drivers for achieving an integrated supply chainstrategy in an organisationAs companies increasingly use their supply chain to compete and gain market share, spendingand activity in this area are notably on the upswing. Technology and process upgrades atforward-thinking companies clearly show that supply chain excellence is more widely acceptedas an element of overall business strategy and that increasing value to customers is not justmanagement’s, but everyone’s business.The shift in how companies view their supply chain is taking hold. Examine how your companyviews its supply chain and consider your answers to these basic questions. Does leadership viewyour supply chain as a strategic competitive advantage? If not, are you considering outsourcingyour supply chain? Are the capacity strengths of your supply chain commonly known andunderstood by leadership of the company? If so, how do they impact growth, profitability andcustomer service?Hitachi Consulting works closely with leading manufacturing and distribution companies andhelps them address their business challenges. From our experience working with key companiesin food and beverage, consumer products, high tech and industrial manufacturing, there are sixkey trends causing significant impact and change to supply chain design and performance: Trend 1 – Demand planning Trend 2 – Globalization Trend 3 – Increased competition and price pressures Trend 4 – Outsourcing Trend 5 – Shortened and more complex product life cycles Trend 6 – Closer integration and collaboration with suppliers
  5. 5. Task 2: Be able to use information technology to optimise supplierrelationships in an organisationTask 2.1: Evaluate the effectiveness of strategies used by an organisation tomaintain supplier relationshipsEffective management of suppliers is one of the ways manufacturing companies can improvetheir performance. There are several important aspects of supplier management, they includesourcing strategies, the way relationships are management and the information exchange policiesadopted by manufacturers. Typically, it has been argued in the literature that close relationshipswith suppliers should be developed, in contrast to the traditional price-driven transactionalrelationship. In conjunction with this approach manufacturers should employ a single sourcingstrategy rather than multi-sourcing. This paper presents the results of a study (using a survey) ofsupplier management practices among German manufacturing companies. The research foundthat significant portion of the companies surveyed had experienced a change in their relationshipwith suppliers in the last few years. In the main relationships had become closer and the use ofpartnerships was in evidence. Although the companies had developed partnerships with some oftheir suppliers the majority of firms continued to prefer a multi-sourcing policy. The researchresults have implications for German manufacturing companies as they indicate the potential forimprovement through the greater adoption of best practices in the area of supplier management.Task 2.2: Use information technology to create strategies to develop anorganisation’s relationship with its suppliersAs search costs and other coordination costs decline, theory predicts that firms should optimallyincrease the number of suppliers with which they do business. Despite recent declines in thesecosts due to information technology, there is little evidence of an increase in the number ofsuppliers used. On the contrary, in many industries, firms are working with fewer suppliers. Thissuggests that other forces must be accounted for in a more complete model of buyer supplierrelationships.As firms try to increase their performance, the interface with suppliers has become a major pointof emphasis in the quest for additional efficiencies. This topic is enjoying increasing popularity,especially in view of the differences in customer-supplier relationships between Japanese andAmerican firms. For instance, superior supplier relations have been estimated to provide a $300-600 per car cost advantage to Japanese manufacturers. These trends are reflected in theinformation technology (IT) literature as well, which has identified the impact of IT on supplierrelationships as an important area for research, and has discussed these relationships in aninstitutional economics framework addressing the implications of firm size and the governancestructure of the relationship.
  6. 6. Task 2.3: Develop systems to maintain an organization’s relationship with itssuppliersA natural approach to determining the optimal number of suppliers is to start from theassumption that a firm would benefit by increasing the number of its suppliers, therebybroadening its choice, but that technological considerations constrain this strategy. In thisperspective, the number of suppliers is limited by considerations such as the cost of setting up arelationship, search costs, and transaction costs, which can generally be summarized ascoordination costs.For example, in trying to determine the optimal number of suppliers for a given input, it may beassumed that suppliers product offerings are substitutes for one another, except that they differin some desirable feature, such as price, fit, or product characteristics. Interacting with eachsupplier entails a coordination cost. After surveying some number of suppliers, the buyer selectsthe product offering that provides the best value according to its set of criteria. The optimalnumber of suppliers is determined by trading off the cost of further searches against the expectedbenefit from identifying a better supplier. To illustrate these trade-offs, in this section we offer amodel for the optimal number of suppliers in the neoclassical tradition of Stigler (1951).For example, Consider a two-period setting with a buyer firm and N risk-neutral potentialsuppliers with identical production technology facing the same marginal cost, assumed to bezero. Supplier offerings differ in a product characteristic, which, without loss of generality, isassumed to be one-dimensional, providing to the buyer firm utility e distributed in the interval[0,1] according to a known density function fe; e can be thought of as a "fit" indicator. Supplierse can be discovered only after a relationship has been established between the buyer firm and thecorresponding supplier. The buyer firm faces an irreversible cost K for each supplier it doesbusiness with, which can be thought of as a coordination cost. In the first period, the buyer firmselects n suppliers from the N available suppliers as the suppliers it will do business with. In thesecond period, the buyer discovers the values of the fit parameters i.e. for the suppliers andpurchases from the supplier whose offering provides the "best match" (i.e., the highest e).
  7. 7. Task 3: Understand the role of information technology in supply chainmanagementTask 3.1: Assess how information technology could assist integration ofdifferent parts of the supply chain of an organisationToday companies are often not considered independent entities, but parts of multi-company,multi-echelon networks, i.e. supply chains, delivering goods and services to the final customer(Christopher, 1992; Lambert and Cooper, 2000). Supply chain management (SCM) literatureproposes that integrated control of these multi-company networks can provide significantbenefits (e.g. Cooper et al., 1997; Burgess, 1998; de Leeuw et al., 1999; Mason-Jones andTowill, 1999; Norek and Pohlen, 2001). The utilisation of information technology (IT), in turn, isconsidered an imperative requirement for managing these networks, and has been associatedwith significant supply chain efficiency improvements (e.g. Lee and Billington, 1992; White andPearson, 2001).Task 3.2: Evaluate how information technology has contributed to themanagement of the supply chain of an organisationSupply chain management (SCM) is concerned with the flow of products and informationbetween supply chain members organizations. Recent development in technologies enables theorganization to avail information easily in their premises. These technologies are helpful tocoordinates the activities to manage the supply chain. The cost of information is decreased due to
  8. 8. the increasing rate of technologies. In the integrated supply chain model (Fig.1) bi-directionalarrow reflect the accommodation of reverse materials and information feedback flows. Managerneeds to understand that information technology is more than just computers. Except computerdata recognition equipment, communication technologies, factory automation and otherhardware and services are included.Bi-directional arrow reflects the accommodation of reverse materials and information feedbackflows.Managers need to understand that information technology is more than just computers. Exceptcomputer, data recognition equipment, communication technologies, factory automation andother hardware and services are included.Task 3.3: Assess the effectiveness of information technology in managing thesupply chain of an organisationPrior to 1980s the information flow between functional areas within an organization and betweensupply chain members organizations were paper based. The paper based transaction andcommunication is slow. During this period, information was often over looked as a criticalcompetitive resource because its value to supply chain members was not clearly understood. IT
  9. 9. infrastructure capabilities provide a competitive positioning of business initiatives like cycle timereduction, implementation, implementing redesigned cross-functional processes. Several wellknow firms involved in supply chain relationship through information technology. Three factorshave strongly impacted this change in the importance of information. First, satisfying in factpleasing customer has become something of a corporate obsession. Serving the customer in thebest, most efficient and effective manner has become critical. Second information is a crucialfactor in the managers abilities to reduce inventory and human resource requirement to acompetitive level. Information flows plays a crucial role in strategic planning.
  10. 10. Task 4: Understand the role of logistics and procurement in supply chainmanagementTask 4.1: Explain the role of logistics in supply chain management in anorganisationBoth logistics and supply chain management are important and exciting areas that touch ourlives. Just imagine the different products that are bought and consumed by us every day. How dothey reach the customer and at what cost? In ancient times, international trade was dominated bybulky raw materials. Today, in-process and finished products (not raw materials) play a greaterrole in world trade. Owing to piling up of inventory and carrying cost, hospitals and factorieshave put in systems in place to arrest unnecessary purchases.Logistics management is that part of SCM that plans, implements and controls the efficient,effective, forward and reverse flow and storage of goods, services and related informationbetween the point of origin and the point of consumption in order to meet customer requirement.Logistics involves getting in the right way, the right product, in the right quantity and rightquality, in the right place at the right time, for the right customer at the right cost.Getting some of these Rs right may be easy for many, but getting all correct can be quite achallenge. For example, in both retail distribution and in high-value manufacturing, it is nowquite common to offer suppliers quite specific and narrow time windows within which to deliverfreight.Task 4.2: Evaluate procurement practices in an organisationToday, purchasing must be the most progressive group in the company. Your systems,techniques, and operational theories must be flexible and dynamic. The typical philosophy of―We have done it that way for 20 years, so it must be good,‖ or, ―We make money in spite ofourselves!‖ does not apply in modern procurement practices.Worldwide competitive pressures require greater contribution from the purchasing and supplymanagement functions, procurement practices and suppliers to improve the organization’srelative position on quality, price, technology, and responsiveness—that doesn’t mean sittingaround and waiting for it to happen!Here are some interesting general observations based upon recent purchasing analyses:  Each day, buyers spend hundreds of millions of dollars which can account for anywhere from 20-70% of an organization’s revenue, budget, or sales dollar.  An analysis of payments has shown that, in most companies, 50-60% of the numbers of checks to vendors are of payments of less than $500.
  11. 11.  These payments often represent less than 5% of the annual material expenditures.  The payments under $1,000 represent the disbursements and approximately 10% of the dollars.Task 4.3: Discuss the factors that must be considered when improvinglogistics and procurement practices in an organisationProcurement is a key activity in the supply chain. It can significantly influence the overallsuccess of an emergency response depending on how it is managed. In humanitarian supplychains, procurement represents a very large proportion of the total spend and should be managedeffectively to achieve optimum value. Procurement works like a pivot in the internal supplychain process turning around requests into actual products/commodities or services to fulfill theneeds. It serves three levels of users: 1. The internal customer. 2. Programs in response to emergencies and ongoing programs. 3. Prepositioning of stocks, for both internal customers and program needs.In collaboration with the warehouse function, products/commodities are mobilized and delivered.
  12. 12. Task 5: Be able to plan a strategy to improve an organisation’s supply chainTask 5.1: Plan a strategy to improve an organisation’s supply chainThis strategy (as is shown in diagram) was developed using a multi-tiered approach. TheDepartment brought together subject matter experts from component agencies and divisionsincluding the USCG, CBP, TSA, DHS Policy, Science and Technology, Domestic NuclearDetection Office, Grants and Training, and Preparedness to create an initial draft of the strategy.This draft was then subjected to an extensive review process involving internal staff across theDepartment, interagency reviews with non-DHS agencies, consultation with the private sectorthrough advisory committees, including: the National Maritime Security Advisory Committeeand the Commercial Operations Advisory Committee, and consultation with international tradepartners, principally selected by volume of trade with the United States (e.g., APEC).After a final round of corrections, taking into account the recommendations and requests of thereviewers and consultants, the strategy subject to a formal review by DHS components andsubmitted for formal Department review.Following initial release, further consultation in developing the final strategy is anticipated with: The private sector through formal trade organizations (e.g., the World Shipping Council and Port Authorities, including coastal and inland ports). State and local stakeholders. International organizations, including the IMO, the WCO, the International Labor Organization, and the International Organization for Standardization.
  13. 13. Task 5.2: Assess how a supply chain improvement strategy will benefit overallbusiness performance in an organisationIt helps in the following ways: 1. Improved Supply: Chain Network: Supply chain management software provides complete, 360-degree visibility across the entire supply chain network. It allows users to monitor the status of all activities across all suppliers, production plants, storage facilities, and distribution centers. 2. Minimized Delays: Many supply chains – particularly those that haven’t been enhanced with a supply chain application – are plagued by delays that can result in poor relationships and lost business. With SCM software, all activities can be seamlessly coordinated and executed from start to finish, ensuring much higher levels of on-time delivery across the board. 3. Enhanced Collaboration: This type of instantaneous, unhindered communication and data-sharing will help keep all key stakeholders informed, so that supply chain processes can run as smoothly as possible. 4. Reduced Costs: Supply Chain Management software can help reduce overhead expenses in a variety of ways.
  14. 14. Task 5.3: Explain how barriers will be overcome in an organisation whenimplementing a supply chain improvement strategyBusinesses need effective tools for supply chain management. The supply chain is inherently isoftentimes unpredictable and always dynamic, and ineffective supply chain management meanspoor business performance and a lower bottom line. Conventional software solutions to thesupply chain management problem have proved moderately effective, but they have been unableto render data visible, manageable and accessible. The IBM Cognos SCPM solution provides anintegrated software application that enables supply chain managers to identify and remedy issueseffectively and efficiently, keeping information organized and at hand.Companies can use the IBM Cognos SCPM solution to connect supply chain data to otherenterprise applications, including finance, HR, CRM, and external data. In this way, IBMCognos SCPM not only improves the performance of a supply chain, it integrates an entirecompany into a single source of mission-critical information, effectively increasing not onlyperformance, but the value of existing IT resources. Employees throughout the organization canaccess IBM Cognos SCPM for accurate and current data needed to collaborate on issues andmake better business decisions. The benefits of IBM Cognos SCPM thereby become those of theentire organization.
  15. 15. References 1. Burgess, R. (1998), ―Avoiding supply chain management failure: lessons from business process re-engineering‖, International Journal of Logistics Management, Vol. 9, No. 1, pp. 15-23. 2. Kanji, G. K. (Ed.). (1995). Total quality management proceedings of the first world congress. Boundary Row, London: Chapman & Hall. 3. Kanter, R. M. (1989). When Giants Learn to Dance. (W. D. Hitt, comp.) New York: Simon and Schuster. 4. Sink, D. S. (1985, January). Strategic planning: A crucial step toward a successful productivity management program. IE, 52-60. 5. Sink, D. S., Morris, W. T., & Johnston, C. S. (1995) By What Method? Norcross, GA: Institute of Industrial Engineers. 6. Ala-Risku, T., Kärkkäinen, M. and Holmström, J. (2003), ―Evaluating the applicability of merge-in-transit: A step by step process for supply chain managers‖, International Journal of Logistics Management, Vol. 14, No. 2, pp. 67-81.