Globalization presents several
critical supply chain management challenges to enterprises and
organizations:
First, to reduce costs across
the supply chain, enterprises are moving manufacturing operations to countries
which offer lower labor costs, lower taxes, and/or lower costs of transport for
raw materials. For some companies, outsourcing production involves not only a
single country, but several countries for different parts of their products.
However, outsourcing not only
extends the production process globally, but also the company’s procurement
network. Having suppliers in different geographic locations complicates the
supply chain. Companies will have to deal with, coordinate, and collaborate
with parties across borders regarding manufacturing, storage, and logistics.
Furthermore, they have to extend or maintain fast delivery lead times to
customers who want to receive their products on schedule despite the increased
complexity in the manufacturer’s supply chains. Finally, they also have to
maintain real-time visibility into their production cycle — from raw materials
to finished goods — to ensure the efficiency of their manufacturing processes.
Second, as companies expand
sales into global markets, localization of existing products requires a
significant change in the supply chain as companies adapt their products to
different cultures and preferences. There is an inherent risk of losing control,
visibility, and proper management over inventory , especially if enterprise
applications are not integrated. This requires managing diverse
structures of data across geographies effectively.
For example: many manufacturers
in Asia still handle trading partner communications via fax and email while
suppliers in North America and Europe have utilized EDI for decades. As
technology matures, suppliers in emerging markets may skip EDI altogether and
move to a more modern API driven approach to communication just as developing
countries have skipped land lines in favor cell phones.
Supply chain practitioners need
to ask if their enterprise technology is prepared to handle these diverse forms
of communication that arise from Globalization, and build a business case to
stay prepared.
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
Definition of SCM
Supply chain management (SCM of the
management of the flow of goods and services is defined as the movement and
storage of raw materials, of work-in-process inventory, and of finished goods
from point of origin to point of consumption.
Importance of SCM
1) Supplier Performance
The supply chain, as its name
suggests, is only as strong as its weakest link. Unfortunately some of the
links are unlikely to be under the direct control of your business
organisation. To some extent, your suppliers hold your business success (or
lack of success), in their hands. That’s why it’s essential to work in
collaboration, at least with primary suppliers, to try and minimise supply
chain uncertainty. Uncertainty in the supply chain costs money and impacts
customer service, making it a particularly disruptive factor in overall
business performance. Collaboration between your organisation and its key
suppliers is the only way to guard against supply bottlenecks and inventory
shortages, both of which can otherwise get in the way of business success.
2) Ethical Procurement and
Corporate Responsibility
Recent times have seen what might
almost be described as an explosion in the number of commercial brands
suffering tarnished reputations and revenue-loss, as a result of unethical
practices among their suppliers. Moreover, corporate responsibility issues like
this can impact any business, even if unethical supplier practices are
discovered two or three tiers deep in the supply chain. If yours is a small or
young enterprise trying to find its feet, public knowledge of association with
unethical suppliers might very well lead to financial disaster and business
failure, as customers react to what they perceive as your wrongdoings. If your
supply chain operates across international borders, out of sight must never be
out of mind as far as supplier management is concerned. Any performance
management program you implement should therefore focus on the integrity and
ethical responsibilities of your suppliers’ sources, as well as on service
performance and collaborative initiatives.
3) Supply Chain Service
Performance
Profitable revenue growth is a sure sign of business success, and one of
the most important factors driving profitable growth is customer service and
most importantly, customer satisfaction. Customer satisfaction is highly
dependent on the supply chain and to be successful, your business must manage
its supply chain with that in mind. That means the customer must be a primary
focus when considering supply chain strategy, network design and performance
management. To put that claim into some perspective, consider this data
revealed by Gartner from research conducted in 2014 The research found that by
this year (2016),
89% of companies expected to be
competing primarily on the basis of customer experience.
That should be sobering news for
any business not yet focused on supply chain excellence as a lever for business
success. The performance of your supply chain will absolutely impact customers’
perception of your business and the service they receive from it. The following
supply chain performance issues can all have a negative impact on customer
satisfaction and therefore, hamper the success of your business.
Origins and Foundations of SCM
In the 1940s and 1950s:The focus of
logistics research was on how to use mechanization (e.g., pallets and pallet
lifts) to improve the very labor intensive processes of material handling and
how to take better advantage of space using racking and better warehouse design
and layout. The "unit load" concept gained popularity and the use of
pallets became widespread. In the mid -1950s, this concept was extended to
transportation management with the development of intermodal containers
together with ships, trains, and trucks to handle these containers. This was a
prerequisite for the supply chain globalization that was to come much later.
In the 1960s and 1970s: Virtually
all transactions and record keeping were done manually. The computerization of
this data opened the door to a huge opportunity for innovations in logistics
planning, from randomized storage in warehouses to optimization of inventory
and truck routing. The technologies, particularly those from Operations
Research, that researchers had to this point only been able to examine in
theoretical models had now become much closer to reality. However, there were
still many difficult research issues to resolve in the transition from theory
to practice. In the late 1970s and early 1980s, this led to the creation at
Georgia Tech of the Production and Distribution Research Center, the Material
Handling Research Center, and the Computational Optimization Center. Each of
these centers was focused on a different aspect of what this new computer
technology made possible.
The 1980s marked the beginning of a
sea-change in logistics in the history of supply chain management. The emergence
of personal computers in the early 1980s provided tremendously better computer
access to planners and a new graphical environment for planning. This spawned a
flood of new technology including flexible spreadsheets and map-based
interfaces which enabled huge improvements in logistics planning and execution
technology.
In the 1990s and 2000s: The
logistics boom was fueled further in the 1990s by the emergence of Enterprise
Resource Planning (ERP) systems. These systems were motivated in part by the successes
achieved by Material Requirements Planning systems developed in the 1970s and
1980s, in part by the desire to integrate the multiple databases that existed
in almost all companies and seldom talked to each other, and in part by
concerns that existing systems might have catastrophic failures as a result of
not being able to handle the year 2000 date. In spite of some significant
problems in getting the ERP systems installed and working, by 2000 most large
companies had installed ERP systems. The result of this change to ERP systems
was a tremendous improvement in data availability and accuracy. The new ERP
software also dramatically increased recognition of the need for better
planning and integration among logistics components. The result was a new
generation of "Advanced Planning and Scheduling (APS)" software.
Current Trends In Supply Chain
Management
1. Changing Consumer Experience
Shopping isn't just about walking
into a store and buying things anymore. Today, shopping can be done from home,
from work or even from a phone. Many stores today offer shoppers the option to
buy online and pick up in store. For example, Macy's, a large American
department store, guarantees that online orders are ready for pick up in store
in four hours, however, on average, most orders are ready in just two hours.
Another retailer, Follett, which
operates university stores at more than 1,200 campuses in the US, says that 56%
of its online orders are picked up in store.
This quick service level requires
strict inventory management in order to avoid shortfalls. Companies need real
time inventory management capabilities and need to set safety stock levels that
will ensure items are available when customers order, but also won't take up
too much room at retailer locations.
In the future this trend could lead
to new delivery challenges, where customers may want instant delivery without
visiting the store. Retailers may have to figure out how to delivery orders in
real time depending on a customer's location at the time of purchase, whether
that be at home, in a coffee shop or a library. Amazon has already started
developing its response to this trend with Amazon Prime Air, a future service
that will allow it to deliver packages of five pounds or less to customers
within 30 minutes via drones. Amazon has not yet said when this service will be
available, but it has been testing drones in Canada, the UK and the
Netherlands. (The US has not given Amazon regulatory approval to test the
drones as of yet.)
Adapting to this trend will require
companies to come up with new innovations to create unique customer
experiences.
2. Growing Ecommerce
The links between the physical
world and the virtual world are shortening, which also renders some links in
the supply chain to be less relevant than they once were.
Online sales accounted for more
than half of total retail sales growth in 2015, according to data from the US
Commerce Department. Ecommerce sales in 2015 totaled $341.7 billion,
representing a 14.6% increase from the previous year. Total retail sales in the
US grew just 1.4% in 2015, and most of the growth came from the online arena.
In 2015, roughly 1.5 billion people bought something online and that number is
expected to continue increasing.
Selling straight to the customer online
cuts out several links in a company's supply chain. The supply chain can go
straight from a warehouse to a customer without following the traditional chain
through different distribution centers and retailers.
Being less reliant on retail stores
also means companies need to change their sales focus to consumers instead of
focusing on buyers or merchandisers from stores.
This also means changing
distribution and logistics processes. Distribution channels now need to reach
the end customer instead of retailers; and logistics processes must allow for
smaller orders instead of industrial size orders to stores. The tradition of
trucks delivering goods to stores each morning may little by little be replaced
with small deliveries to people's homes.
3. Crowding in Urban Centers
Today, 54% of the world population
lives in cities and that is expected to grow to 66% by 2050, according to the
UN DESA’s Population Division's World Urbanization Prospects. In 1950, only 756
million people lived in urban centers, and today that number is close to 4
billion.
There are also more "mega
cities" today than ever. The UN defines a "mega city" as an
urban center with a population of at least 10 million. In 1950, there were 10
mega cities in the world. Today there are 28; 16 of which are located in Asia,
four in Latin America, three in Africa, three in Europe, and two in North
America. By 2030, there will be 41 mega cities, according to UN predictions.
