Supply Chain Management: Goals, Strategy, and Efficiency

Overview of Supply Chain Management

Broadly speaking, supply chain management (SCM) is the coordination of a network of interconnected businesses that provide products and services to clients. It is a broad discipline that spans retail and manufacturing, covering the movement of raw materials, work-in-progress inventory, and finished goods from the point of origin to the final consumer. The process and interconnections between all points of manufacture can become complex depending on the nature of the product and the number of parts or suppliers required at each stage. The more complex the finished product — for example, missile components — the more complex the supply chain, inventory management, and longitudinal event coordination (Jongebloed, 2007).

Within SCM, an excess of supply materials — regardless of type or configuration — increases costs. A warehouse cannot identify the contents of a container without opening and inventorying it, requiring time and labor to sort. Similarly, a retail organization cannot determine what a delivery truck contains until it is unloaded and the contents re-inventoried. Often, the goods that arrive are not the ones running low in stock, and additional time and money must be spent warehousing the received materials while reordering what is actually needed. Time is money, and items not on shelves cannot be sold. What modern supply chain management therefore requires is both transparency and coordination between manufacturer and user — with only the necessary goods shipped and delivered (Perera, 2007).

The first strategic goal for ORUN is to minimize costly inventory. The core issue revolves around communications and procedures between different plant locations. The recommended approach is to change communication procedures to move toward real-time communications with plant management, so that supply-chain issues are eased and productivity across the company as a whole is enhanced.

The second goal is to improve overall supply chain management within the company. This builds on the communications improvements described above and calls for developing a master procedural framework for manufacturing, supply chain management, marketing, and financial reporting — one that aligns with both strategic and tactical goals. Technological solutions should be increased as necessary to maximize yield.

Goal 1: Minimizing Costly Inventory

The third goal is to ensure that demand requirements are met while avoiding stockouts and reducing overall costs. This requires revamping the initial inventory system through technology. A just-in-time approach should be developed with suppliers so that when a stocking-level alert is triggered, an order is automatically placed with the appropriate supplier based on delivery time.

Goals 2–4: Improving SCM, Meeting Demand, and Standardizing Practices

The fourth goal is to standardize business practices across plants with a given supplier. Using a strategic plan built around benchmarking — the continuous process of measuring products and services against the highest standards, toughest competitors, or national requirements — is one way to ensure continual quality. Under this model, purchasing is driven by firm needs, billing is automatically generated from the purchasing process, and inventories are tracked so that out-of-stock or back-ordered items are identified immediately. Transfers to and from departments are automated, and management always has a real-time picture of the operational situation. In a networked supply chain, vendors can be evaluated based on historical data and predictive models to ensure efficacy, while the accounting cycle may be compressed through the accuracy of monitoring, ordering, and payment. Warehousing activities become easier to predict, as do the human resources required to support proper supply.

The fifth goal is to increase supplier efficiency through real-time information on firm and planned orders and forecasts. Adopting a sense and respond supply chain paradigm offers significant advantages over traditional SCM approaches. It enables the manufacturer to more effectively track and monitor the entire fulfillment process from order entry to proof of delivery.

In essence, the "sense and respond" model — applicable across supply chain management, entertainment, broadcasting, and marketing — attempts to put the right part with the right organization (or the right message with the right individual) in order to reduce costs, stockouts, excess inventory, poor customer service, low advertising response rates, inaccurate deliveries, and inefficient time management on both ends of the supply chain. In this way, it represents a next-generation SCM model, using comprehensive data to move goods and services more robustly and efficiently on a timely basis — creating a win-win outcome for all parties involved.

Progress and issue resolution can be assessed through five key measures of effectiveness: (1) regularly comparing aspects of service and performance against top performers — those who exceed standards; (2) identifying gaps in performance and taking aggressive steps to address them; (3) using creative thinking techniques to bring fresh approaches to performance improvement and cost-management challenges; (4) ensuring that internal measurements are conducted and that a dedicated department tracks performance and enforces implementation of standards; and (5) continuously monitoring and reviewing progress, net benefits, and measurement criteria.