Supply Chain Management the Concept

Supply Chain Management

The concept of the supply chain has enjoyed a large amount of attention in the business world, especially during the current economic crisis. In many ways, the supply chain can either make or break a business. It is therefore important to maintain a healthy supply chain in order to finally result in satisfied customers and a good bottom line for the company. The supply chain implies all the entities involved in the process ranging from raw material extraction to the final product bought by the customer. Some theorists go as far as including the "supplier of the supplier" and the "customer of the customer."

Supply chain constraints and optimization are important concepts when considering ways of improving lead and delivery times, as well as customer service. Constraints on the supply chain may entail problems such as effective communication, transport breakdowns, and other manufacturing or delivery problems. Rapid increases in the cost of products throughout the supply chain can also act as a constraint. To handle such difficulties, advanced planning and scheduling (APS) and enterprise resource planning (ERP) companies are often part of the supply chain. These companies provide technology by means of which the supply chain can be optimized by anticipating both predictable and unpredictable constraints. Such technology is important during the optimization process.

Lean manufacturing is another element of the supply chain that has enjoyed great attention since being highlighted by Eli Goldratt. According to Goldratt, manufacturing that ensured a surplus of inventory created an inefficient and lengthy manufacturing process. Lean thinking optimizes the supply chain by determining the customer's demands and providing goods and services accordingly. This makes for a much speedier process throughout the supply chain. Fewer goods are being extracted, manufactured, and delivered, which means less time and money involved in eventually providing it to the customer. In this way, the Goldratt system provides companies with the means to not only optimize their supply chains, but also to save a large amount of capital in the process. This type of supply chain management is however not without its challenges, as it requires absolute trust and open communication among the elements of the supply chain.

SUPPLY CHAIN Management: BEDROOM FURNITURE

In a company that supplies bedroom furniture, a network of suppliers are involved from the extraction process up to delivery to the customer. At the beginning of the supply chain, the raw materials may for example include products such as timber, cotton, polyester, as well as metals such as steel, iron and aluminum. These products are then delivered to companies that manufacture parts such as springs, hinges, mattress covers, and stuffing. The next step in the supply chain is to manufacture the products to be sold, including mattresses, bed frames, closets, and other bedroom furniture. The finished products are then delivered to the furniture company, which sells them to the public.

Supply chain management entails attention to constraints, and how these could be mitigated in order to optimize the supply chain. This requires a multi-faceted approach in terms of both logistics and business relationships. Technology plays a key role in optimizing these.

Optimizing Technology: Logistics

The first important step is for the company to define its perspective in terms of the supply chain. According to Pye Tait (2003), three perspectives are entailed in the supply chain: The individual company's perspective; the perspective in relation to a product or item; and the supply chain as entailing the functions of purchasing, distribution and materials management. These are all important perspectives when optimizing the supply chain process.

One of the greatest logistics challenges for the furniture industry is delivery times. Transport problems could cause significant delays in final delivery, which impacts upon customer satisfaction levels. Competition within the furniture market is a constraint that does not allow delays in delivery time. Goldratt's lean manufacturing principles provides several ways in which this constraint can be handled. Lean manufacturing provides quicker delivery times by focusing each manufacturing project upon customer demand. This strategy eliminates the problem of surplus products that will later have to be sold at a reduced price, meaning less revenue for the company. If all manufacturing companies across the furniture supply chain engage in lean manufacturing, this will mean less manpower and less manufacturing time, both of which save time and money. Products can then be provided to customers in much less time as well as a reduced price. The specific demands of customers are met, meaning more business for the company.

In terms of technology, ERP and APS resources are indispensable. These allow the company to quantify their needs in terms of customer demand, and to set up the rest of the supply chain accordingly. When a sales order is received, ERP software converts it to a work order. This creates a seamless environment for sales and manufacturing. Once again, this software creates a time saving environment for functions that would otherwise have taken a large amount of time, effort and money.

APS software provides a platform to use for effective decision-making. In terms of planning, the software makes an analysis of the alternatives that managers could consider. These "what-if" analyses then give an indication in terms of viability, and the best route to follow. Resource and performance constraints are also taken into account by APS systems. The effect of optimal APS use is significant for supply chains. According to Larry Lapide (2009), it could for example reduce the costs involved in supply chains, improved product margins, lower inventories, increased manufacturing, and higher returns.

The software also allows for electronic data interchange (EDI) connectivity, as used by Exemplar (Pye Tait Case Study, 2003). This connectivity platform allows the company to instantly connect with suppliers in the chain, with instant visibility of schedules and the possible necessity of fast reordering.

Other principles promoted by Goldratt include Just in Time manufacturing and Total

Quality Management. Proper materials management allows the elimination of buffer stocks in order to save space and costs. This also makes Total Quality Management easier by focusing attention on the projects at hand. In this way, the quality of the manufacturing projects on the product line is easier to manage, as time is not diluted by surplus stock awaiting attention.

Quality management is also easier and simpler when suppliers within close range of the final vendor are chosen. Lean manufacturing also means that the lean principle can be applied to the supply chain itself. Suppliers can be limited in order to ensure optimal communication, with the best product and service available in the range. Closer distances mean less travel time and faster delivery to the company.

Optimizing Technology: Communication

Communication within the supply chain is vital on two levels: within each company in the supply chain, communication and training should focus on creating a culture that is optimal for lean manufacturing. Each person involved in the process should be aware of the importance of lean manufacturing and lean "thinking." Effective communication among workers and managers is vital in order to ensure the success of lean manufacturing principles.

All companies within the supply chain should therefore have the latest communication technology. Via email and the Internet, communication is instantaneous. Individuals can ask questions for clarification, and memos can be posted online for easy and instant access. Communication is a much easier and quicker process than in the past.

The same technology will also make the flow of information and goods across the supply chain much easier. Companies such as Exemplar (Pye Tait Case Study, 2003) for example communicate their exact requirements to their suppliers, thus saving time and effort in terms of daily inspections. Timber is for example required according to specific standards, which are communicated exactly. The same communication is issued in terms of order size requirements, with customer demand driving the manufacturing and supply processes.

In this way, goods are pulled through the supply chain, driven by downstream customer demand. The order size and requirements fluctuate according to these demands. In a supply chain driven by push factors, suppliers determine the rate of supply, which is usually at a fixed value.

Business RELATIONSHIPS WITHIN the SUPPLY CHAIN

Business Relationships with Suppliers

Communication entails relationships among managers and workers within each business on the supply chain, and also among the various companies. These relationships need to be based upon trust, transparency, and open communication. According to Pye Tait (2003), such communication is both a most vital element and one of the most challenging facets of effective supply chain management.

Relationships directly affect the way in which communication is disseminated. As seen above, the flow of information is a vital part of product flow across the supply chain. If information is not shared with complete transparency, the flow of products is not effective. In addition to adequate information systems, a relationship of trust among companies across the supply chain is therefore vital. Pye Tait (2003) notes that this is often difficult to establish as a result of competition within the furniture industry. Some organizations fail to disseminate or share information because of fear that such information will be divulged to competing organizations. This lack of trust within the supply chain has a rippling effect across the flow of goods and services, and should therefore be addressed with a high degree of priority. Trust must be built through a process of regular communication across the supply chain, which includes all parties involved in the flow of goods.

Communication can be established by a variety of means. In addition to electronic communication, face-to-face communication via meetings is also a good idea. Trust is easier to establish by means of personal meetings, where ideas and information can be shared among the various stakeholders. Trust can also be established and maintained by means of a contract stipulating that information is not to be shared with parties outside the supply chain or those who do not have a direct interest in the supply chain itself.

A long-standing relationship with suppliers will also create a basis of trust if goods and services supplied are of a consistently high quality. In order to ensure this, each company within the supply chain should share its specific requirements for the goods, services, and delivery times that they require. These requirements should also be consistent with the demands of customers at the end of the supply chain. APS and EPK systems are a useful way to organize and disseminate such information with efficient speed across the supply chain.

Through meetings, the needs of each company in terms of information technology should be established. A regular schedule for communication should be established in order to promote trust and information sharing among companies.

The purpose of communication and trust among supply chain companies is to match the demand for bedroom furniture products with the supply in order to establish a lean manufacturing paradigm. This can be done by means of a Materials Requirements Planning system, which allows suppliers to plan for future materials supply. Known future orders are recorded with forecasted orders to ensure the on-time delivery of sufficient materials. The amount and delivery requirements of these materials are determined by the system and communicated across the supply chain to ensure the smooth flow of products. The quality of these products is also determined by means of communication and regular inspection. While communication eliminates the need for daily inspection, it is suggested that a fairly regular inspection system be in place in order to ensure continuous quality.

In the past, business systems tended to function on the basis of competition, mistrust, and careful guarding of information. In the current business paradigm, the value of collaboration is increasingly recognized, particularly among the various parts of the supply chain. Through communication, all elements that constrain collaboration within the supply chain should be identified and managed in order to create a more open relationship of trust. Across the bedroom furniture supply chain, then, companies should understand that they collaborate in order to reach the common objectives: providing customers who require bedroom furniture with optimal quality within a reasonable time frame.

Each "link" in the supply chain then benefit from this collaboration and from sharing information in terms of design, engineering, problem-solving, and reaction to the marketplace and its demands (Pye Tait, 2003). The supply chain therefore needs to be mapped in order to understand the network of companies that collaborate to add value to the product on its way to the end customer.

Trust is established on the basis of both experience and confidence. A long-standing relationship more readily involves trust than one that has been established recently. Experience-based trust can therefore only be established in the long-term. Shorter-term trust is however possible via communication that promotes mutual confidence.

Confidence is promoted by means of regular communication on both the electronic and other platforms. Companies need to regularly meet and share their ways of adding value to the supply stream. Making this information visible established confidence in each company's ability to add such value. Consistently adding value further promotes trust. Another excellent way of promoting both confidence and excellence is by means of personnel training. Training needs should be established before a mutual agreement is reached among all parties in terms of the training required for personnel across the supply chain. Regular training also ensures that personnel can maintain the determined standard of value, as related to customer demands at the end of the supply chain.

Furthermore, personnel training is also a valuable way to establish lean manufacturing paradigms across each company. Personnel members need to be made aware of lean thinking principles, and how this is an advantage from a supply chain and business perspective.

Collaboration across companies involve more than technology and adequate management systems. It involves working with people. Personnel need to be aware of their role in making the supply chain a success. They also need to be aware of their integrated function within each company, and also within the supply chain; this will give them both meaning and satisfaction in the work that they do. This will inherently improve the quality and value of services and products delivered by the suppliers.

In terms of business relationships across the supply chain, these occur on both the personal and global level. Personally, a relationship of trust among personnel and management within each organization should be established. Each personnel member should be aware of the integrated and dependent nature of their work in terms of the rest of the supply chain as well as the individual company for which he or she works.