Transcript Supply Chain Principles and Applications

Supply Chain Principles and Applications
C W Poole
Presentation to the HEFMA
Conference 2010
What is supply chain management?
SOME DEFINITIONS
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Supply Chain Management (SCM) is the management of a network of interconnected businesses involved in the ultimate
provision of product and/or service packages required by end customers (Harland). Supply Chain Management spans all
movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of use
or consumption (supply chain).
Supply chain management (SCM) is the combination of art and science that goes into improving the way a company finds
the raw components it needs to make a product or service and deliver it to customers. The following are five basic
components of SCM.
A customer focused definition is given by Zokaei & Hines – ”Supply chain strategies require a total systems view of
the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery
to the consumer. As a consequence costs must be lowered throughout the chain by driving out unnecessary costs
and focusing attention on adding value. Throughput efficiency must be increased, bottlenecks removed and
performance measurement must focus on total systems efficiency and equitable reward distribution to those in
the supply chain adding value. The supply chain system must be responsive to customer requirements.”
The Council of Supply Chain Management Professionals (CSCMP), say that Supply Chain Management encompasses the
planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also
includes the crucial components of coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and
demand management within and across companies. More recently, the loosely coupled, self-organizing network of
businesses that cooperate to provide product and service offerings has been called the Extended Enterprise.
S C M basic principles
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A supply chain, as opposed to supply chain management, is a set of organizations directly linked by one or more of the upstream and
downstream flows of products, services, finances, and information from a source to a customer. Managing a supply chain is 'supply
chain management' (Mentzer et al., ).
Supply chain event management (SCEM) is a consideration of all possible events and factors that can disrupt a supply chain. With SCEM
possible scenarios can be created and solutions devised.
Supply chain management must address the following problems:
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Distribution Network Configuration: In the field of operations research, several types of optimal facility location problems and
algorithms have been proposed. Such problems typically minimize the logistics cost with given inter-node transportation cost and
facility location cost. But, when issues of controlling inventory to cope with fluctuating demands are taken into account, issues of facility
size become critical for each different for each location.
Distribution Strategy interrogates questions of operating control (centralized, decentralized or shared);
Trade-Offs in Logistical Activities: The former activities must be well coordinated in order to achieve the lowest total logistics cost.
Trade-offs may increase the total cost if only one of the activities is optimized.
Information: Integration of processes through the supply chain require the sharing of valuable information, including demand signals,
forecasts, inventory, transportation, potential collaboration, etc.
Inventory Management: Quantity and location of inventory, including raw materials, work-in-progress (WIP) and finished goods.
Cash-Flow: Arranging the funding flows, payment terms and methodologies for payment within the supply chain. (UKZN cash flow
issues)
Supply chain execution therefore calls for the effective managing and coordinating of the movement of
materials, information and funds across the supply chain. The flow is therefore bi-directional.
S C M activities functions and processes S C M
scope of application/practice
ACTIVITIES/FUNCTIONS
Supply chain management therefore takes a cross-functional approach, including managing the movement of raw materials or
services into an organization, certain aspects of the internal processing of materials into finished goods, as well as the
movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core
competencies to become more flexible, they reduce their ownership or control of raw materials, services sources and distribution
channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost
effectively.
The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of
daily logistics operations. Less control and more supply chain partners has led to the creation of supply chain management as a
discipline to deal with the complexities and the need for the adoption of systems concepts. The purpose of supply chain
management is thus to improve trust and collaboration among supply chain partners, improving inventory visibility and the
velocity of inventory movement.
Supply chain activities can be grouped into strategic, tactical, and operational levels that allows for organizations to see their business
processes from a cross-industry viewpoint.
Strategic Level
• Strategic partnerships with suppliers, distributors, and customers, creating communication channels for critical information and
operational improvements.
• Product life cycle management, so that new and existing products can be optimally integrated into the supply chain and capacity
management activities.
• Information technology supporting the operations throughout the chain.
The strategic level is directed to the long term needs requiring resource commitment.
S C M activities functions and processes
(continued)
Tactical Level
• Sourcing of contracts and other purchasing decisions.
• Production decisions, including contracting, scheduling, and planning process definition.
• Inventory decisions, including quantity, location, and quality of inventory.
• Transportation strategy, including frequency, routes, and contracting.
• Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise.
• Payment milestones.
The tactical level focuses on customer demand and satisfaction.
Operational Level
• Daily production and distribution planning, including all nodes in the supply chain.
• Production scheduling for each manufacturing facility in the supply chain.
• Demand planning and forecasting,for both inbound and outbound operations,
• Production operations, including the consumption of materials and flow of finished goods.
The operational level is directed towards mitigating risk.
The importance of Supply Chain Management - organizations increasingly find that they must rely on effective
supply chains, or networks, to compete in the global market and networked economy. In Peter Drucker's
(1998) new management paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple
companies.
The evolution of S C M development
During the past decades, globalization, outsourcing and information technology have enabled many
organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in
which each specialized business partner focuses on only a few key strategic activities. This inter-organizational
supply network can be acknowledged as a new form of organization. (Likewise Toyota)
However, with the complicated interactions among the players, the network structure fits neither "market" nor
"hierarchy" categories. Traditionally, companies in a supply network concentrate on the inputs and outputs of
the processes, with little concern for the internal management working of other individual players. Therefore,
the choice of an internal management control structure is known to impact local firm performance (Mintzberg).
In the 21st century, changes in the business environment have contributed to the development of supply
chain networks. First, as an outcome of globalization and the proliferation of multinational companies, joint
ventures, strategic alliances and business partnerships, significant success factors were identified,
complementing the earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices.
Secondly , technological changes, particularly the dramatic fall in information communication costs, which are a
significant component of transaction costs, have led to changes in coordination among the members of the
supply chain network.
The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and
related standards published jointly by International Standard Organisation and the International
Electrotechnical Commission.
Computer applications for SCM
As supply chain management and organisations have become more far reaching and complex, so the need to apply
computerised applications has grown.
Supply chain management software embraces the tools or modules used to execute supply chain transactions, manage
supplier relationships and control associated business processes.
Supply chain management software is possibly the most fractured and fragmented group of software applications on
the planet. Each of the five major supply chain steps previously outlined comprises dozens of specific tasks, many of
which have their own specific software. Some software vendors have assembled many of these different chunks of
software together under a single roof, but no one has a complete package that is right for every company. For example,
most companies need to track demand, supply, manufacturing status, logistics (i.e. where things are in the supply chain),
and distribution. They also need to share data with supply chain partners at an ever increasing rate. While products from
large ERP vendors like SAP’s Advanced Planner and Optimizer (APO) can perform many or all of these tasks, because
each industry’s supply chain has a unique set of challenges, many companies decide to go with targeted best of breed
products instead, even if some integration is an inevitable consequence.
It’s worth mentioning that the old adage about systems only being as good as the information that they contain applies
doubly to SCM. If the information entered into a demand forecasting application is not accurate then the outcome will be
an inaccurate forecast. Similarly, if employees bypass the supply chain systems and try to manage things manually,
systems will provide an incomplete picture.
Business to Business (B2B) & E Commerce in S C M
B 2 B Supply Chain E-Basics A production supply chain refers to the flow of physical goods and associated information from the
source to the consumer. Key supply chain activities include production planning, purchasing, materials management, distribution,
customer service, and sales forecasting. These processes are critical to the success of any operation whether they’re
manufacturers, wholesalers, or service providers. Electronic commerce and the Internet are fundamentally changing the nature
of supply chains, and redefining how consumers learn about, select, purchase, and use products and services. The result has been
the emergence of new business-to- business supply chains that are consumer-focused rather than product-focused. They also
provide customized products and services. ( The UKZN - HHMI experience)
The traditional Supply Chain is a "Push" Model where the raw material suppliers are at one end of the supply chain. They are
connected to manufacturers and distributors, which are in turn connected to a retailer and the end customer. Although the
customer is the source of the profits, they are only part of the equation in this "push" model. The order and promotion process,
which involves customers, retailers, distributors and manufacturers, occurs through time-consuming paperwork. By the time
customers’ needs are filtered through the agendas of all the members of the supply chain, the production cycle ends up serving
suppliers every bit as much as customers.
E-Commerce Supply Chain "Pull" Model - Driven by e-commerce’s capabilities to empower clients, many companies are moving
from the traditional "push" business model, where manufacturers, suppliers, distributors and marketers have most of the power,
to a customer-driven "pull" model. This new business model is less product-centric and more directly focused on the individual
consumer and service . To succeed in the business environment, companies have recognized that there is an ongoing shift in
the balance of power throughout commerce – from suppliers to customers. In the”Pull” model, customers use electronic
connections to pull whatever they need out of the system.
B 2 B & E Commerce in S C M (cont.)
The old "push" model involves a linear flow of commerce that keeps many the supply chain players relatively isolated
from end users. With the new customer-driven pull model, it is no longer a linear process. The new supply chain has
each participant scrambling to establish direct electronic connections to the end consumer. The result is that
electronic supply-chain connectivity gives end customers the opportunity to become better informed through the
ability to research and give direction to suppliers.
Ultimately, customers have a direct voice in the functioning of the supply chain resulting in greater efficiency that
benefits both customers and manufacturers. Companies can better serve customer needs, carry less inventory and
become more responsive to their markets more quickly. Thus E-commerce continues to impact supply chain
management in a variety of key ways.
By making more information available about the commercial side of companies, businesses will make their web site
a place where customers will not only get detailed information about the services the company offers, but also
where they can actually conduct business directly with the company. Ultimately, web sites can provide a universal,
self-service system for customers. Customers can manage the increasingly complex movement of products and
information through the supply chain.
E-commerce will help companies deliver better services to their customers, accelerate the growth of the ecommerce initiatives that are critical to their business, and lower their operating costs. E-commerce will also allow
users to establish an account and obtain real-time information for the end customer to track progress and to
perform other supply chain management and decision support functions.
S C M application in Facilities Management
THE APPLICATION OF SUPPLY CHAIN MANAGEMENT IN THE DELIVERY OF FACILITIES MANAGEMENT SERVICES
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The application of SCM to Facilities Management is still a nascent science and largely confined to academic analysis and
debate and limited esoteric research.
SCM is seen to help organisations to execute strategic purchasing for sustainable market position in a rapidly changing and
competitive environment. Facilities would seem able be more effectively managed by adopting strategic alliances in SCM
with FM suppliers through faster service delivery, increased flexibility with better service efficiency and cost savings.
Limitations and future implications – Very little literature is available on SCM in FM, underlining the current limited
application and a need for care in considering the appropriatness of use of critical aspects that can be adopted to ensure
success of SCM in the context of FM service delivery.
Construction supply-chain management offers new approaches to reduce the cost of and increase the reliability and speed of
facility construction. Supply-chain management takes a systems view of the production activities of autonomous production
units (subcontractors and suppliers in construction) and seeks global optimization of these activities. Limited studies in
construction suggest that poor supply-chain design regularly increases project cost by ten percent (Bertelsen, 1993), and this
estimate is probably conservative. Thus whereas current construction methods tend to support the fragmentation that
plagues construction, supply-chain management promises an engineering basis to design, plan, and manage construction
projects in a collaborative manner. The need for improved linking of costs to production performance places priority on
research and client and supplier cash flow.
S C M application in Facilities Management (cont)
Turnkey Project Management versus S C M - For years organisations have struggled to deliver effective projects on-time and
within budget, particularly in the complex construction arena. But with today's challenges to achieve more with less, organisations
have to justify, plan, monitor and control their projects and programs more closely than ever before. (The accidental project
manager can be a very expensive way of executing key initiatives). Organisations can no longer count on having the right people
with the right experience using the right approach available at all times. In order to stay competitive and effectively deliver on
strategy, many organisations work with P M Partners as an external project management partner to offer significant value to their
business. This service places the end-to-end responsibility of running key projects with PM Partner professionals across the
project supply chain in a structured but efficient and effective manner, optimising the resources, considering the complex and
ever changing economic environment and most importantly, ensuring the entire process is as transparent as possible through a
robust system of communication and control.
In Conclusion
The full use of Supply ChainManagement Principles and practice for facilfities management is seemingly a long way from direct
application he immediate future; however the potential is clearly there. A parallel with SCM applications can however be drawn
with our construction projectsand project management, especially in terms of large scale Turnkey Project management as
indicated.
Thank You
Acknowledgements and References
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Wikipedia definitions on S C M
Mentzer, J.T. et al. (2001): Defining Supply Chain Management, in: Journal of Business Logistics, Vol. 22, No. 2, 2001, pp. 1–25
Harland, C.M. (1996) Supply Chain Management, Purchasing and Supply ...
Scott Fernie & David Root - SUPPLY CHAIN MANAGEMENT - THEORETICAL CONSTRUCTS FOR CONSTRUCTION, Management Research Unit,
Department of Civil and Building Engineering, Loughborough University,
Keivan Zokaei & Peter Hines, Achieving Consumer Focused Supply Chains, International Journal of Physical Distribution & Logistics Management, Vol.
37,
www.supply -chain.org
Supply Chain Management Best Practices By David Blanchard
The Application of Supply Chain management in the Delivery of Facilities Management Services – M N M Noor & S Kumpaisal (Liverpool John Moores
University)
Construction Supply-Chain Management: A Vision for Advanced Coordination, Costing, and Control - Dr. William J. O’Brien1, Assistant Professor,
Department of Civil Engineering, University of Florida