Every business delivers some product (goods and/or services) to its customers. To successfully achieve this, several things mut be done well and correctly. These include identification and sourcing of raw materials from external suppliers, processing of the raw materials internally, and delivery of the end-product to customers. The management of this ‘supply chain’ is critical to the survival, growth and success of any business operation and is the subject of our discussions beginning today.
Supply Chain Management is the handling of the flow of raw goods and services from external sources, processing them internally and delivering the finished goods and services to external customers. It involves all aspects of getting required input from suppliers to processing it internally and delivering output to customers.
Supply chain management covers everything from product conceptualisation to development, sourcing of input, production, inward and outward logistics as well as information systems for the coordination of all the activities. An optimised supply chain process makes it possible for a business to add value at every point through the following:
•Better predictions of customer demands
•Enhanced product development processes
•Increased procurement and production efficiencies
•Increased logistics effectiveness
• Improvements in quality of products
•Cashflow improvement, etc.
The elements of Supply Chain Management are as follows:
Clear Corporate Objective: A successful supply chain management drive must start with a clear corporate objective. This is about answering the why of the effort. The answer to the why are the reasons that justify the need for an efficient and effective supply chain management process. These include the importance as well as the benefits of the process. A statement of supply chain management objective might, for instance, be “… to ensure the timely production and delivery of required quality products to our customers at competitive prices.”
Planning: For a supply management effort to succeed and remain successful in an organisation, a supply chain plan must be developed. The involvement of senior management as well as key operatives is crucial to the development process. Involving senior management will demonstrate commitment and give teeth to the process. On the other hand, the involvement of middle-level operators will bring out details and latent ideas as well as give them a sense of ownership of the plan.
Company-wide Development: Supply process involves all parts of the business, from product development, market development, to production, finance and accounts, etc. Similarly, all levels of organisation from van drivers to general managers are involved in one way or another. Consequently, it is imperative that all sections and levels and of the organisation are involved as much as is necessary and possible in the planning process mentioned above.
Regular Reviews: Change is said to be the only constant in our lives today. Accordingly, supply chain plans must be regularly reviewed for two purposes. The first purpose is to ensure that the existing plan is being carried out well. If there are unwanted and controllable variances, they should be understood and addressed. The second purpose is to ensure that new developments, either internal or external to the organisation, are captured and incorporated into the plan.
Information-driven: A supply chain management plan is only as good as the information on which it is predicated. Thus, it is necessary that reliable information form the basis of the planning process. Where assumptions are to be made, they must be intelligently developed. Changes to fundamentals should be incorporated in the regular reviews mentioned above.
Use of Technology: The incorporation and use of technology in supply chain management is now a must for most organisations. The use of technology facilitates the flow of information on real time basis as well as the processing of large volumes of data. It is also used in the production, monitoring and controlling the flow of goods and services along the chain.
Beyond the elements mentioned above, most other functions of a business organisation impact and are impacted by supply management activities. As shown in the schematic above, the finance function is greatly impacted by the chain as payments have to be made to suppliers and collected from customers as may be agreed. The marketing function is, obviously, also impacted by the supply chain activities as raw materials have to be procured to be processed into final products in time to be delivered to customers as agreed.
There are also a few factors to be considered in developing a supply chain strategy that is required in developing the plan mentioned above. These include,
Sourcing: This is about the identification, evaluation, selection and management of supplier relationships.
Inventory Management: The management of inventory levels to meet production and marketing requirements.
Returns: Management of inward and outward returns.
Logistics: To cover the inward transportation, warehousing and outward transportation of raw materials, work-in-progress as well as finished goods, other consumables, spare parts, etc.
Cost Management: A fundamental objective of all supply chain management processes is cost management.
Customer Service: At the end, everything is about serving the customer profitably.
We have today introduced supply chain management responsibility, its benefits and elements as well as the factors to consider in formulating its strategy. Next week, we will continue with the interlinkages of strategy, plan, and procedures in supply chain management.