Inevitably, all companies belong to one or more supply chains and their performance in this context will increasingly depend on their success in a highly competitive world. However, not many companies give strategic value to the way they integrate and do not recognize the way they synchronize their operations with one another, to keep the end consumer satisfied without generating high costs and without passing them on to their partners in the chain..
But, how much do we need to Manage a Chain? This depends on several factors. But the most important are the complexity of the product, the number of Suppliers and Clients and the availability of materials. There are several dimensions to consider including the complexity of the chain and the length of the chain. It is obvious that in each company several chains with different characteristics are managed in reference to the previous points, which makes it more complex to define the relationships between the different entities.
Defining the relationships at each point in the chains can be different in each case and is the key to defining the types of relationships and therefore the strategies that will allow competitive advantages in the one-to-one relationship. Not all links should be integrated and coordinated in the same way. To clearly understand the type of relationship and how to define it appropriately, we must have explicit knowledge of:
- Members of the chain The structure of the chain Processes and Flows of Product, Information, Money and Decisions
Members of the chain
It includes all the members that in one way or another interact directly or indirectly from the point of origin to the point of consumption. A fairly complex network can be formed, however they can be classified into two groups:
- Primary, are those that add value directly to the product or service, and Secondary that provide resources, knowledge or assets to the primary members of the chain such as banks, logistics operators, Information Technology outsourcing companies, etc.
In some cases a company may be a primary participant in one process and a secondary or support participant in another process. The distinction between primary and support is not obvious in all cases, however it must provide important criteria to define the relationship in reference to the role they must play in each process.
The Structure of the chain
There are basically two essential dimensions to describe, understand, analyze and manage the supply chain, the Horizontal and the Vertical.
The Horizontal refers to the number of floors or stands (Tiers in English) throughout the entire chain of a product. In figure 1 we find an example of a simple chain of Napkins in which we find three levels or floors of Horizontal structure.
The vertical structure refers to the number of Suppliers and Clients in each floor or tier. A company may have a product group with a narrow Vertical structure with few companies on each floor and other products with many customers and suppliers on each floor. In figure three we see the example of the expanded napkin product in its Vertical structure resulting in 17 entities to be related in three floors or tiers.
These examples for obvious reasons show simple little complex structures, but in reality too complex structures can be reached with many entities to relate.
The structure of the chains is one of the factors that most determine their complexity.
Processes and flows
Supply chains are dynamic and immersed in a continuous flow of materials, information, money and decisions. Each organization runs different processes and interacts with other organizations on an ongoing basis.
The success of supply chains requires a drastic change in the way we currently work based on functions within an organization to work as an inter-business team, integrating activities in key processes that add value and that can be measured in speed, cost and service.
Figure 3 shows the difference in approach between the traditional work of managing the chains and the SCM approach.
The success of any chain depends on the ability to redesign processes to improve productivity, control costs, and reduce execution times. The processes must be analyzed and designed not only looking at how to integrate their activities to add value but, most importantly, how it effectively relates to the previous process and the next process in a way that contributes to improving the cost / service ratio. of the entire chain (See figure 2 of the article Administration of the demand of the 2nd edition).
The vast majority of inefficiencies in supply chains are generated by the links or relationships between different processes, especially those that have to do with more than one organization. Designing these inter-relationships well is key to the success of the Supply Chain Integration strategy.
Making a design with a holistic approach is key and this suggests taking into account at the same time the four flows that appear immersed in the Chains: Materials, Information, Money and Decisions (Remember the graph “Scope SCOR” of the second edition).
A process reengineering with a focus on Supply Chain Management is absolutely essential in companies that want to stay in the market. For this they must understand very well the ever changing conditions of the global market and design their strategy following the following cycle of four basic steps:
- Evaluate your Supply Chains Plan the redesign of your processes and flows Operate the new design Measure and improve
Although companies in one way or another have managed relationships with their business partners for years, they have not formalized a series of basic criteria to ensure that the optimum is earned throughout the chain (Remember the article "Global Optimums" of the first edition).
So we can use the following four criteria to guide a firm toward designing its competitive supply chains:
Build a competitive infrastructure.
The word infrastructure here means Business Processes that are defined as: Demand management, deliveries, manufacturing, supply, returns, accounts payable and accounts receivable.
How do you make these processes competitive? Focusing on the Client. All customers interact in a supply chain in terms of ordering a product, receiving it, returning it if it is defective, and paying for it therefore, a process map that defines each type of interaction in the cycle is a good tool to define infrastructure. A company makes its infrastructure more competitive when it simplifies its processes, reduces the number of interventions in the processes, and increases the speed of the information that must be transmitted between them and which is essential for planning.
Design all the relationships in your logistics network
To streamline logistics, you must know where demand and supply are geographically located. You design your supply chain by connecting all sources of supply to all destinations of demand and to all business partners who intervene with each other. Once the entire network has been understood, you can analyze volumes to determine strategic routes and modes of transportation. The Supply Chain works to optimize costs vs. Times developing and managing relationships with a preferred and reduced number of distributors and transporters.
The design of the logistics network can provide a significant competitive advantage. Lower freight, tax (import / export) and warehousing costs can mean significant savings. By reducing the total number of relationships or nodes in the chain, we can save logistics costs by consolidating cargo volumes and reducing the total number of routes. By capturing accurate, high-speed information at the point of sale, the need to store products throughout the chain can be replaced.
Synchronize supply on demand
A good Supply Chain must match the supply rate with the demand rate at each node. Synchronizes the mix of product that is in production and the mix that the client requests. If any link in the chain overproduces relative to market demand, inventory is accumulated. But when a link produces less than what is demanded, the coverage of the total chain is affected, in which case, one of the partners will be the restriction of the system. The supply chain achieves its best execution in the Throughput (Speed at which the chain generates money through sales), when each of the partners exactly matches the Throughput of the system restriction. Synchronizing the supply chain is the secret to improving customer service without increasing inventory investment.
Production only builds and the logistics channel only moves what the firm has sold. The customer demand is the one that pushes inventories through the Channel, but again the system depends on the precision and speed of the information provided by each partner in the chain. For example Quaker creates a promotional package related to a recent sporting event. The entire supply chain (including the retailer, the distributor, the distribution center and the plant) must be able to synchronize to equalize the time of the promotion. On the other hand, Quaker will experience a surge in hidden supply chain costs due to overtime, freight forwarding, and warehouse space. This can end in poor customer service and lost profits.
Measure your performance globally
A broad supply chain in a company transcends local departments, the cross-functional team, the divisional structure, the corporate business climate and even the National culture. Still, frequently, performance measures continue to be strictly defined in terms that optimize local operations and reward individual execution.
Measures Guide behavior. In this way, in order for a group of business partners that make up a supply chain to synchronize and optimize, it is necessary to align and define the same execution measures. This is the Achilles heel of the Supply Chain Administration. This makes it necessary for you to build a lot of trust among your partners and make great efforts in managing relationships across different business and national cultures.
The Supply Chain Council established a global metric repository for all processes in the chain in its SCOR (Supply Chain Operational Reference Model).
These can be adopted and implemented to measure and improve individual and chain performance. There is no need to invent the wheel with local metrics.
Summary:
The number of nodes or relationships that define the chain should be minimized. The business processes that define the supply chain interactions to deliver, return and pay, should be simplified and streamlined.
The back and forth logistics network should be built around a select and small number of distributors and carriers, and where possible the volume should be maximized across the routes.
All partners must agree to plan and control so that supply is synchronized to customer demands. All chain partners must understand how their execution can be the restriction of the chain and that successful execution depends on the precision and speed with which each one handles the information.
Finally, partners must agree on global implementation measures, from the customer's perspective.
When the chain is well understood and configured, a basic fact is recognized: "The fortune of a company, which is only one link in the chain, depends on the synchronized execution of the other partners."
Download the original file
