Systems; Supply chains: Towards Single Piece Flows

TRIMILLENNIUM MANAGEMENT:SUPPLY CHAIN
Towards Single piece Flows

By G.Raghuram

Supply Chain Management (SCM)can be viewed as a network of inter-related entities involved in the procurement, conversion, and distribution of goods and services. Globally, good SCM practices are viewed as an important focus area for the millennial organisation. There's no shortage of drivers for SCM. Firstly, consumers are moving in the direction of increased expectations of value addition, response-time sensitivity, reliability, cost-consciousness, and information sensitivity. Secondly, they are moving towards firms that have been able to decrease lead times and costs. Finally, there is a shift in the attitudes of managers, who now accept the need for integration and partnerships with complementary entities.

It is useful to view SCM as an evolution from logistics management, which primarily focuses on movement and storage issues. Therefore, extending the definition of logistics management as an activity, we define SCM from a firm's point of view as the design and operation of the physical, managerial, informational and financial systems needed to transfer goods and services from vendor to customer in an effective and efficient manner. Five fundamental features of millennial SCM stand out.

SINGLE ENTITY. The responsibility for a variety of planning and control functions across the supply chain has to be made to rest with a single entity. This will reduce administrative delays and improve empathy across the supply chain.

INVENTORY PERSPECTIVE. Traditionally, inventories were viewed as a buffer to reduce co-ordination requirements across activities, However, the concept of the inventory today is that of a buffer to be used as a last resort.

STRATEGIC DECISION MAKING. Decisions in the supply chain should be viewed as having strategic implications, rather than just operational ones. For example, rather than being concerned with sourcing trucks from the market, a company could consider long-term contracts with transporters. This facilitates smoother, and more reliable transport logistics.

SYSTEMS APPROACH. The supply chain, from vendor to customer, has to be viewed as a single integrated system. Traditionally, such efforts were aimed at developing better interfaces between marketing and production, or sourcing and conversion. While this facilitated smooth operational functioning, it ignored issues like outsourcing, which cut across both sourcing and conversion. The new integrated concept of the supply chain will make it possible for companies to address such issues.

DOING WHAT I CAN DO BEST. This has implications for outsourcing and building effective partnerships. In-sourcing should be preferred where logistics requirements are complex and the logistics supply, uncertain. Or else, the general norm in this business today is outsourcing.

From these fundamentals, we can identify 15 areas of SCM, which will help organisations develop the most appropriate and efficient supply chain tomorrow.

MINIMISE UNCERTAINTY. Supply uncertainty due to the unreliability of vendors, process uncertainty from internal processes, and demand uncertainty are some challenges facing SCM. Supply uncertainty can be addressed through many initiatives, like vendor development and certification and sharing production-planning information.

Process uncertainty is due to machine breakdowns and absenteeism, which can be reduced through good maintenance norms, or better technology. Demand uncertainty can be cut by forecasting techniques and better communication with customers.

REDUCE LEAD TIMES. Faster modes of transport, better planning practices, and advanced process technologies will cut lead-times in procurement, conversion, and distribution.

MINIMISE STAGES. In general, the number of stages that goods and services flow through add to SCM's complexity. The unification of tasks to reduce the number of stages makes decision-coordination easier.

IMPROVE FLEXIBILITY. Reducing set-up or change-over times in processes, and the use of flexible manufacturing and assembly techniques will raise the flexibility of the firm's response. Wherever possible, batch processes should be converted into flow processes.

IMPROVE PROCESS QUALITY. A prerequisite to effective SCM in the light of reducing inventories and wastage is doing things right the first time. The techniques for this include statistical process control, root cause analysis , and improvements in process capability.

MINIMISE VARIETY. A major cause for inventory is variety. One response is to modularise product-designs so that variety is offered in a controlled way, and some economies of scale can be exploited.

MANAGE DEMAND. Uncertainty and anticipated variations in demand should be dealt with by promotion and branding.

DELAY DIFFERENTIATION. Value addition through product-differentiation should be delayed as far as possible, so that precise customer needs can be met without holding stocks.

KNIT SUPPLIERS TOGETHER. In conventional assembly-systems, one source of delay is staging, where some components ready for assembly have to wait since matching components are not available. Vendors have to be so arranged that all the components required for an assembly are supplied to one stage, where they are assembled into matching sets.

FOCUS ON A CATEGORY. This is a well-known idea from classical economics and inventory theory, where items that account for a large part of the value, customers who are significant, and territories that are important receive special management attention.

MODIFY PERFORMANCE MEASURES. These need to move from being single operation-focused to multi operation-focused in the supply chain.

COMPETE ON SERVICE. The big opportunity in SCM for long-term competitive advantage lies in the service aspects of value delivery.

MOVE FROM FUNCTIONS TO PROCESSES. Improved supply chain practices will require organisations oriented around processes.

TAKE INITIATIVES AT AN INDUSTRY LEVEL. This is essential, especially while dealing with poor infrastructure. Industry-level initiatives in specific product-categories can focus on transport or warehousing inadequacies, and then developing shared appropriate service-providers to compensate for the inadequacy.

This will form the basis of managing supply chains effectively and efficiently in the 21st Century.

G. Raghuram is a Professor at the
Indian Institute of Management, Ahmedabad

Issue Contents Write to us Subscriptions Syndication