Supply chains have traditionally been managed via three distinct functions: purchasing or procurement, manufacturing or production, and logistics (warehousing and distribution). The ongoing challenge has been to integrate these functions into one seamless set of operations that would be cost-efficient but responsive to customer demand.
Supply chain executives in a number of firms I have consulted for would present lofty goals of customer service and reduced inventories, and then complain that the purchasing department, which has failed to coordinate with them, orders materials at a pace that is in conflict with their strategies.
Managers cannot ignore the changing times and the growing need for supply chain integration. I identify three such drivers: acceleration of new technologies, an increasingly competitive environment, and the continuing maturity of value-conscious consumers.
Technology. No organization will survive if it does not keep itself up to date with information technology (IT). And supply chains must be integrated before the benefits of such systems could be tapped. A large industrial client I spoke with, for instance, had haphazardly installed different hardware/software systems at each of its production sites. This resulted in sites being unable to communicate with each other; worse, they couldnít relay information effectively to the firmís headquarters. This meant that each site has to manually create reports outside the corporate IT system in order for the information to be sent within the targeted time frames. As consequences, factory inventory records couldnít be made available in real time; customer service suffered and working capital unnecessarily increased.
Competition. Companies have to ensure their supply chains are cost-efficient and customer responsive if they want to stay one step ahead of the competition. And sometimes, this competition comes from within. A major semiconductor firmís local plant significantly improved its production efficiencies versus a sister plant in Malaysia. The companyís executives decided to close down the latter and shift its production to the Philippines. The firm reapplied the improvements in its factory in the country to its plant in China and then shut the Philippine plant when it found out that its Chinese counterpart had much lower labor costs.
Value-Conscious Consumers. Value today no longer solely concerns quality; it is also about service. Consumers donít just want satisfaction, they want satisfaction now. If firms want to keep their customers, they would have to continuously improve their operations to ensure that most, if not all, products are available at most, if not all, times. And they would have to do this without increasing inventories or expense. A firm will in no way be able to deliver products to customers faster, in their required quantity and at the proper price with a fractured functional supply chain. To do so requires integration, which includes synchronization of operations.
The thrust toward integration is twofold:
Integrated Performance Measures. From the start, executives should look at performance measurement holistically. Overall measures for the firm should take into account the aims and strategies of the sales/marketing, operations, finance and human resources divisions. A companyís mission statement must be translated to concrete guidelines applicable to each supply chain function and aligned to a set of objectives. For instance, a policy on forklift turnaround time must agree with the goal to increase customer order responsiveness, which in turn corresponds to the firmís marketing targets.
Integrated Software. The challenge here lies not only in the software that will be used but in the quality and timeliness of the information that will be integrated. By focusing on getting relevant data to users at the right time, supply chain managers would reap the benefits of improving the information flow within the company. This in turn would provide the foundation for integrating supply chain operations.
In one fast-moving consumer goods firm, production planners found that they constantly required crucial up-to-date inventory information inputted by the outbound logistics group.
To solve this, planners transferred their offices next to the logistics managersí and asked for access to the logistics groupís warehouse management systems. It was only a matter of time before both departments realized they had Ďintegrated.í
Integration is a big challenge but it is not insurmountable. No firm has yet to claim that it has flawlessly integrated its supply chain, but many companies agree that streamlining their operations will enable them to cultivate new technologies, sustain their competitive advantage, and meet changing customer demands.
Jovy Jader is a management consultant and regional speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both local and international which have resulted to corporate-wide improvements in inventory, total cost, customer service, response time, quality, and on-time delivery. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. Should you have questions or comments email to email@example.com
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