Supply Chain Management for Beginners - Part II

Supply Chain Management for Beginners (Part I) primarily focused at the role of SCM in our daily lives. It brought into perspective how a supply chain drives even the simplest things and ensures the right product or service at the right time and place at an affordable price. It is now time to take a deeper view of the complexities & challenges involved in getting that coffee to the retailer near you and the newspaper to your doorstep.

In real life, rains are not good every year, machines and men do not perform the same everyday, lorries and trucks could breakdown or go on strike, raw material prices could be unstable, customer demand forecasts are inaccurate. It is in such a tough and rough environment that supply chains have to not just work but perform and excel. The purchase and production department of the company has to plan the optimum inventory level of raw materials to maintain such that production line impacts least when the supplies for raw materials fluctuate. At what point and in what quantity should a order be placed to a supplier? When supplies don't arrive on time, how long can the current inventory allow the production to continue without disruption? When 2 raw materials come from 2 different suppliers and 1 of them is delayed, what action must be taken? These are some of the key questions that need to be addressed. Else, it would lead to lost production time and under-utilised labour and machinery that can adversely impact on the rest of the supply chain.

Post production, finished goods inventory has to be maintained to address fluctuations in market demand. Central warehouses or distribution centres have to dispatch to regional warehouses on an ongoing basis depending on the forecast and actual demand. Any weak link in the supply chain will result in a stock-out. A stock-out is a huge cost to pay for in terms of lost sales and more importantly, a frustrated customer. Products such as garments which come in various sizes and colors have to distributed to stores in assortments to ensure variety to the customer. How many times have you liked a colour of shirt and did not find the right size? The challenge is to avoid such situations. Special category goods have to be handled separately. For instance, perishable items such as vegetables and fruits have a short shelf life. Hence the supply chains for these items have to be designed in such a way to source them locally and cut down transportation time as much as possible. Goods which have to be refrigerated need special equipment not only in retail malls and warehouses but also during transportation. All this and every activity in SCM adds to the cost. The benefit of the supply chain must exceed the costs of running the supply chain.

Other important dimensions are the various entities involved. Manufacturer, supplier, shipper, distributor, wholesaler - The entities depend on the company, product, environment and design of the supply chain. All these entities have to effectively communicate and collaborate for the performance of the supply chain. Hence management of relationships and partnerships play a key role in making the supply chain flexible.

SCM has gained a lot of traction since a last few years. Companies are adopting a strategic approach towards their SCM as never before. No stone is being left unturned to explore possibilities to improve efficiency and effectiveness of various SCM activities in order to drive down costs, improve customer satisfaction and beat competition. In India, ITC is a classic example of having built a supply chain with its tobacco business. It gives them access to thousands of street side paanwallahs across the country. This has played a key role in the company's 50% market share in the flavoured mint lozenges category with its Mint-O products. Another key initiative is the e-Choupal network, a rural supply chain system. The network of 5,000 e-Choupals across Indian villages lets farmers sell their produce directly. The entire wheat for Aashirwad atta is procured from e-Choupals. This gives the farmer a fair price and for the company the cost of dealing with a middleman is saved. This is not just a innovation in SCM, it is also a great contribution to the rural Indian society.

As the world gets flatter and the potential market place goes beyond boundaries of cities, countries and continents, an effective supply chain which can avoid bottlenecks and nurture innovations will differentiate the losers and winners.

Related Article:
Supply Chain Management for Beginners - Part I