Supply chain management (scm): integrated logistics management applied

DESCRIPTION

It studies, analyzes and evaluates the Applied Integral Logistics Management also known as Supply Chain Management, which is in charge of the Management of the Supply Chains or Supply. The current dynamics of business, changes in environments and conditions and the evolution of available resources and technologies make it necessary to permanently update the processes and procedures developed by the different functional and operational areas of said Chains, in complete alignment with the objectives and Organization strategies

OBJECTIVES

Provide the tools and knowledge that allow the effective insertion of logistics concepts and criteria within the Supply Chain. The structure of the program is aimed at the proposal and effective use of current management and operation tools, synchronizing and integrating developments and applications that allow the improvement of the integral logistics performance of the system, its content and scope being comprehensive to manufacturing, commercial and service companies. Knowledge will be provided that will allow defining and executing policies and strategies by designing, evaluating, selecting and directing operations, ensuring the most reliable solution, economical and viable.

Unit 1

supply-chain-management-scm-gestion-logistica-integral-aplicada-1

SCM

Introduction Definition of Logistics Supply Chain Management (SCM) Operational Areas of an Integrated Logistics System Functions of the Internal Supply Chain Logistics in the past and present Importance of Logistics

INTRODUCTION

To do a perfect logistics is to achieve the perfect product in the perfect customer, at the perfect cost with the perfect price, at the perfect time and with the perfect quality, and Supply Chain Management tries to achieve this by Managing the Logistics Process from the supplier from raw materials to the consumer's table.

The speed of return, the justification of the investment, the permanence in the market, the development of the competitive capacity, the recognition and loyalty of the target public, the sense of belonging and the commitment of permanent contribution of the official, are corporate objectives that are They are achieved with the intelligent and strategic application of comprehensive logistics or the effective professional practice of Supply Chain Management.

Agile and agile competition in national and international markets have led companies to the conclusion that to survive successfully, they must initiate communication, technology, materials and resources exchange relationships with suppliers and customers in an integrated way, to what has to use innovative approaches that jointly benefit all actors in the supply chain, with creativity of production strategy

DEFINITION OF LOGISTICS

In recent decades logistics has changed its scenarios very quickly, new techniques and concepts have emerged during this period and the acceptance of these ideas at least by the world's leading companies has been impressive.

It has been almost thirty years since Peter Drucker wrote his groundbreaking article entitled "The Black Continent of Economics." The implications of the title and the orientation of its arguments suggested that the management of a company knew little about the opportunities that existed to achieve the leverage of profits through logistics.

Physical distribution is the frontier of business today. It is the area where large-scale administrative results can be achieved. And it is still uncharted territory.

For many companies in the world, unfortunately, this is still true. For many others, however, the adoption of the concept of integrated distribution, and therefore of Logistics Management, has brought them many benefits.

Along with the increased interest in logistics, there has been a broadening of the concept definition.

Logistics territories have extended from supplier relationship management to demand management through intermediaries and the end customer.

Although technology is unique to each individual and to each company, there seems to be general agreement that the term logistics changes the individual concepts of material handling and physical distribution.

A logistics manager today will most likely adopt a definition of logistics in the following terms:

Logistics is the process of strategically managing the acquisition, transfer and storage of materials, parts and finished products from suppliers throughout the organization, in such a way that current and future profits are maximized through the delivery of orders that is effective in cost.

On the other hand, as a result and in accordance with its recent name change, the Council of Logistics Management has updated its definition of logistics:

Logistics is the process of efficient and cost-effective planning, instrumentation and control of the flow and storage of raw materials, inventories of in-process and finished products, as well as the flow of the respective information from the point of origin to the point of consumption, in order to meet customer requirements.

It is important to note that this definition includes both the internal and external flow of materials. It includes internal movements as well as movements from platform to platform. It places special emphasis on coordination and control of transportation and storage systems.

The first definition of "administration of physical distribution" of the aforementioned council emphasized the specific activities contained within the function, the last definition does not contain a list of those activities, but it is understood that they are many and diverse.

The Council of Supply Chain Management Professionals (CSCMP) defines "Logistics" as:

"Process of planning, implementing and controlling procedures for the efficient and effective transportation and storage of goods, services and related information, from the point of origin to the point of consumption in order to conform to customer requirements."

SUPPLY CHAIN MANAGEMENT

By Supply Chain or Supply Chain (in English, Supply Chain) is understood the complex series of processes of exchange or flow of materials and information that is established both within each organization or company and outside it, with their respective suppliers and customers.

Although in the body of knowledge there is a clear difference between "Supply Chain" and "Supply chain?", In daily practice that differentiation has been lost, so it is common to use both terms interchangeably. However, it is important to understand the precise definitions given by the Council of Supply Chain Management Professionals (CSCMP), the most important authority on the matter worldwide.

Internally, in a manufacturing company, the Supply Chain connects the entire Organization but especially the commercial functions (Marketing, Sales, Customer Service) of supply of inputs for production (Supply), productive (Production Control, Manufacturing) and storage and distribution of finished products (Distribution), with the aim of aligning internal operations towards customer service, reducing cycle times and minimizing the capital required to operate. The Supply Chain as well as all the The Organization's activities accepts the existence of innovative Philosophies and incorporates them into its work, so it is easy to find terms strengthened by them such as "Lean Supply Chain Management" or "Lean six Sigma Logistics".

The Anglo-Saxon term Supply Chain Management has now become such a common topic that it is difficult to find a distribution, marketing or transportation publication without an article that includes it (Ross, 1998).

This notable increase in recent years has coincided with a growing interest in companies' logistics activities; There has been an association between SCM and logistics that is still equivocal (Cooper, Lambert, and Pagh 1997).

Logistics involves the management of physical products and services, the financial flow and information derived from the point of origin to the point of consumption, while SCM also involves the management of key business processes from the supplier to the customer (Cooper et al.., 1997).

The Council of Logistics Management (1998) reaffirms this proposition by defining logistics as “the integral part of the SCM that plans, implements and controls the efficient flow and storage of raw materials, semi-finished products, finished products and the relative information from the from origin to consumption with the purpose of adjusting to the needs of customers ”.

Consequently, Supply Chain Management means

“The systematic and strategic coordination of traditional business functions within a particular company and throughout all those involved in the supply chain, with the purpose of improving the long-term performance of both each business unit and the global chain ”(Mentzer, Dewitt, Keebler, Min, Nix, Smith, and Zacharia, 2001: 22).

OPERATIONAL AREAS OF AN INTEGRATED LOGISTICS SYSTEM

Conceptually, an integrated logistics system of a company is made up of three operational areas:

Procurement Management Manufacturing Management Customer Management

Operational areas of an integrated logistics system

PROCUREMENT MANAGEMENT (SUPPLY)

Procurement or Supply Management is the logistics relationship between a company and its suppliers.

Supply

The supply side focuses on how, where and when raw materials for the manufacture of finished products are sourced and supplied.

First of all, let's start from the etymological definition: the word supply derives from the Latin SUBMINISTRARE which means SUB (low) and MINISTRARE to serve, and is understood as "PROVIDE WHAT IS NECESSARY". Doctrinally, we can define Supply as an execution contract or tract successive, periodic and continuous intended for the delivery of material goods, in which the supplier or supplier (which may be a natural or legal person) is obliged to continuously or periodically deliver goods and the person who receives them "supplied" to pay the price According to its realization,We can point out that the Supply is a contract by means of which one party (supplier or supplier) undertakes to comply with periodic or continuous services against the other party (supplied) for a specified time or when the party supplied according to their needs requests them, in exchange for a price. Legally, (that is, in our Civil Code) it is understood that "for the Supply, the supplier undertakes to carry out in favor of another person, periodic or continuous provision of goods". The supply constitutes the agreement of wills destined to the delivery of material things in the form of a successive tract and for the payment of a price, that is, it is onerous.It is a contract of reciprocal and deferred benefits that produces the transfer of ownership to the extent that the object is consumable and that this transfer does not occur when an asset is provided in use or enjoyment; and it is of an onerous nature, however it can be agreed that it is free of charge without being denatured, In its main form, the Supply is a contract by which one of the parties is obliged to deliver to the other as the needs required, for an invariable price, despite their fluctuations in the market, the goods determined in the contract, to consume them or incorporate them into others, or transform them in order to manufacture other goods. of the parties is obliged by means of a price, to execute in favor of the other benefits (periodic or continuous) of things.There is a supply contract when a person is obliged to deliver or promises to deliver to another, at times fixed in advance or to be generally fixed in different periods, and by paying a price to be established on one or more prices for units, things owned and, eventually, only for its use or enjoyment, in quantity or extension according to the needs of the client or the possibility of production of the supplier, or other similar references; Therefore, being these uncertain in their occurrence, if the obligations of both parties do not occur, they will not be partially or totally fulfilled.It is a bilateral contract of reciprocal benefits, onerous, undoubtedly the most commercial of the contracts regulated by the Civil Code,conceived and treated tangentially by the humanist philosophical jus tradition that privileges the personal aspect over the patrimonial, without meriting the implications of the economic-social plane and commercial practice to define it as the delivery of goods or provision of services periodically or continuously on a regular basis. onerous or in exchange for a price and by exception it can be held free of charge. Finally, semantically, it is the provision consisting of providing what is necessary for a purpose or for the satisfaction of a specific need.Semantically, it is the provision consisting of facilitating what is necessary for an end or for the satisfaction of a specific need.Semantically, it is the provision consisting of facilitating what is necessary for an end or for the satisfaction of a specific need.

MANUFACTURING MANAGEMENT

It is the logistical relationship between the facilities of a company (between plant and warehouse or distribution center, between plant and plant, etc.). At this stage these raw materials are converted into finished products

CUSTOMER MANAGEMENT

It is the logistical relationship between the company and its customers. It ensures that the final products reach the consumer through a network of distributors, warehouses and retailers. It is said that the chain begins with the suppliers of your suppliers and ends with the customers of your customers.

Due to technological advances in manufacturing and distribution, the cost of developing new products and services is decreasing and time to market is accelerating. This has led to increased customer demands, local and global competition, and pressure on the supply chain.

To remain competitive, companies must reinvent themselves, so that the supply chain, sourcing, procurement and production planning, order fulfillment, inventory management and customer service, is a flexible, agile and effective operation, designed to deal with effectively meet contemporary challenges.

Currently the logistics company has had to change its entire internal structure, due to the great advances:

Warehouses: You should not pack large orders for the same site. You have to fulfill small orders for different places. So it must reorganize itself to classify orders. The distribution fleet: You must also adapt the truck fleet, since now you will not need large trucks to fulfill the order of a store, but you will be able to fulfill orders with smaller vehicles. Incorporation of advanced technological equipment: The store and the logistics company must have a very important flow of information and cooperation through the Internet, since at present, everything is based through the network.

In recent years, logistics management has been facilitated with existing software on the market, for small companies and large companies, these software allow the different areas of the company to communicate with each other.

For example

A company that receives an order via the Internet, arrives at the shopping area, it is redirected to the warehouse to see if the products are available and then if so, it is packaged and dispatched for transportation. All this is done by a computer network without The need for paperwork and the mobilization of personnel as was done before that these programs did not exist.

Although the term logistics can have exceptionally broad implications, the actual focus of the logistics function varies from company to company.

Finally, regardless of what is understood by logistics, it seems that a great agreement in which logistics activities are carried out with the purpose of meeting customer demand, whether their requirements take the form of service needs or adequate facilities for manufacturing. By incorporating the generic term “meet requirements”, the goal of any logistics effort can be conveyed accurately and successfully.

FUNCTIONS OF THE INTERNAL SUPPLY CHAIN

The functions that make up the Supply Chain internal to a manufacturing company are:

Products and Services Portfolio Management (PPS)	What is the offer that the company makes to the market. The entire Supply Chain is designed and executed to support this offering.
Customer Service (SAC),	Who is responsible for connecting the customer's need with the internal operation of the company. Transactional systems allow the organization to visualize the commitments derived from the orders processed, but in simple terms, If there is inventory to satisfy customer demand, SAC, passes its instructions directly to Distribution; If it is necessary to produce, pass its instructions to Production Control
Production Control (CP),	That, derived from the particular service policies that the company has and the Demand Administration, is in charge of scheduling internal production and, as a consequence, triggers the supply of inputs activity.
Supply (Aba),	That is responsible for providing the necessary inputs to meet the needs of Production (Raw Material and Materials) taking care of the delivery times of the suppliers and the inventory levels of inputs
Distribution (Dis),	That is responsible for safeguarding inputs and finished product (in some organizations only finished product), making it reach the Clients and / or their distribution network, which may or may not include other warehouses or Distribution Centers (DCs).

There is no consensus on whether or not these 5 functions should report hierarchically to the same Management / Directorate, but there is consensus in the sense that they must operate in coordination so that the internal Supply Chain (or internal Logistics) is efficient and effective.

Timing is very important in these chains so there is no waste, measured as inventory, time, or customer service failure. It helps to have a good forecast of demand so as not to cause overruns or shortages of finished products.

A failure in this prediction will cause a so-called bullwhip effect (also called the bullwhip effect). Therefore, it is said that the impact of an action in a supply chain is directly proportional to its delay in the propagation of communication.

LOGISTICS IN THE PAST

In its beginnings, logistics was nothing more than having the right product, in the right place, at the right time, at the lowest possible cost.

Logistics, as a semantic term and as an activity, dates back to the ancient times of Western civilization. The Greeks used two very close terms: Logic and Logistics. Logical reasoning used words and phrases, while logistic reasoning used mathematical symbols and numbers. For their part, the Romans always had a logistician in their armies, as the administrator of their material resources.

For some time, the term logistics was confused with those of strategy and tactics, until the Swiss general Henri de Domini, in the 18th century, pointed out the differences between these: «Logistics is the practical art of moving armies, detail material of the marches, the installation of the camps, in a word, the execution of the combinations of strategy and tactics ».

Business interest in the logistics process came only after and partially as a result of the Second World War. Military historians have observed that foreign powers were victorious in war primarily because of their superior logistical capabilities. In Europe the Germans were denied access to the necessary fuel and their transportation and production capabilities were undermined by repeated air strikes. It was control over the supply lines that allowed the war to be won. Few would argue that the Allied troops fought harder or more bravely than their enemies. They simply exhausted the enemy by cutting off their necessary supply and productive capacity.

After this war it was recognized that logistical skills could be used in industry. Before that time, industrial companies had traffic managers, purchasing managers, and production managers, who rarely communicated with each other.

Little by little it was recognized that an integration between supplies, transportation, warehouse, inventory control and production could improve the profitability of any manufacturing company. It was later accepted that the same skills could help wholesalers and retailers.

Through logistics, industrial and commercial companies carry out tasks similar to those carried out in the military field:

Procurement of raw materials and equipment Proper delivery of products to consumers.

Despite the above, there are two differences between military logistics and business logistics: In the first, efficiency is not measured by financial success and reducing expenses is far from being a priority in times of war, while for logistics business this two aspects are decisive in its management.

The first began in 1950 and ended in 1964, entitled “Origin and a new direction”. In the postwar years, product proliferation and orderly marketing, two basic market trends, forced managers to seek new ways to help control distribution costs. Distribution management was born as a reactive stance., with the original impetus of reacting to market problems. Although the costs of physical distribution range from 10% to 30% of sales, and even more so in some companies, very few of them had the appropriate organizational structure to take advantage of a wide variety of exchange opportunities in the market. area of logistics or administration of physical distribution.

For example:

In the period from 1950 to 1964 the majority of physical distribution managers did not have the responsibility of inventory control, so there were no mechanisms that justified large inventories to save on transportation costs. The biggest challenge at the time was to capture the attention of top executives and focus it on the concept of physical layout.

However, such generalizations must be seen in their proper perspective. The first thing to keep in mind is the fact that logistics and distribution were not entirely new concepts in the 1950-1964 period and that some trade decisions that are now widely accepted are far from being what could be called " contemporary ”.

For example:

A book of readings prepared a good number of years ago by Norm Daniel and Deck Jones quoted a very interesting passage published in 1844 by Jules Dupuit, a French engineer, in which he explained how a shipper could make a trade-off between transporting by water or transport by land.

The text of the passage is as follows:

The fact is that land transport, being faster, more reliable and less subject to loss or damage, has advantages to which the business man places considerable value. However, it may be that the saving of 0.87 francs induces the merchant to use the channel; You can buy warehouses and increase your free float to have enough goods on hand and protect yourself against the slowness and irregularity of water transport, and if all tells you that saving 0.87 francs in transport cost will give you a head start of a few pennies will be decided in favor of the new route.

Thus, the concept of exchange of transportation for inventories was formally known at least in the mid-nineteenth century. And the exploitation of this basic exchange surely goes much further into the past.In the early 1960s, Peter Drucker, the so-called management guru, identified the problem and focused his attention on the challenges and opportunities offered by the field of management. logistics and distribution. In his memorable 1962 article "The Black Continent of the Economy," Drucker said:

We now know a little more about distribution than Napoleon's contemporaries did about the interior of Africa, we know that it is there and that it is large; that's it. There are many experts in the individual phases: transportation and storage, selling and consumer buying habits, labeling and packaging, factoring and insurance. But when a major government agency requested two or three distribution consultants, out of many people asked in industry, government, and even universities, no one was able to name a single qualified candidate.

Professor Drucker identified the challenge, and left it for others to accept and solve. For this reason, the years since the early 1960s have seen significant advancements and progress in the fields of logistics and distribution, and part of the credit must go to the relatively harsh and visionary evolution made by Drucker in those early years.

Epoch

Relevant Features

1956 - 65

A Decade of Conceptualization of Logistics.

Development of the total cost analysis of logistics operations.

Systems approach to the analysis of the interrelationships of the logistics system.

Greater concern for customer service at the minimum logistics cost.

Attention to distribution channels.

1966 - 70

Proof of Logistics Concept.

Fragmented development; Administration. of Materials / Physical Distribution.

Performance measurement systems encouraged local optimization, avoiding integration.

LOGISTICS IN THE PRESENT

Today this set of activities has been redefined and today they are a whole process.

The years after 1970 to the present have been one of the most exhilarating and intense times in the history of logistics and physical distribution. It was during this period that business people and teachers made a firm commitment to themselves and to their profession by accepting the challenge of doing anything to improve the professionalism and effectiveness of the logistics function in today's businesses.

Much knowledge was generated in this period, and it is important to consider the key areas in which it progressed. "Logistics Today" is the culmination of many comprehensive and effective efforts.

Bowerson refers to the era that began in 1965 as "The Maturing Years of Materials Handling and Physical Distribution." The emphasis placed on customer service during this period was the most important factor in the maturing of the physical distribution and logistics management. In addition to the fact that managers of physical distribution began to have a voice in inventory decision-making, it was recognized that a well-managed logistics operation could have positive effects on cash flow by reducing the length of the processing cycle of goods. orders and, therefore, shortened the recovery time of accounts receivable. Executives involved in physical distribution gladly took a proactive rather than reactive stance in decision-making.

Also in this period occurred the integration of material handling and physical distribution. The need to coordinate the movements of products and information both within its own limits and outside of them was recognized, and the result was a more effective and responsive organizational structure.

Along with computer equipment and information management systems, senior executives in the areas of physical distribution and materials handling began to gain ground and were recognized that their level of decision-making was truly executive. Thus, perhaps a helpful way of looking at this time and its results is to identify and study the events that left their mark.

Epoch	Relevant Features
1971-79 A Period of Changing Priorities.	Energy crisis prompted the move toward improving transportation and storage. Environmental / ecological concern impacts logistics operations. High capital costs and recession. Strong orientation towards the administration of materials due to the uncertainty in obtaining supplies. Computation prompted the development of logistics models.
1980's Technological Impact.	Liberation of transport fostered increased productivity through better coordination of distribution, manufacturing, and supplies. Microcomputer technology promoted decentralization and information exchange, bringing customers closer to the company. Revolution of the communication technology and barcode, promotes the coordination and integration of the elements of the logistics system.
1990's Towards the Future: Integrating Forces of Logistics.	Shorter and shorter product cycles. Increase in Market Segmentation and variety of options. Higher expectations in the level of customer service. Advances in process, product and information technology. Globalization of markets. Manufacturing and administration processes. The balance of power is shifting from producer to distributor. Increase in competitiveness in all dimensions and pressure on profit margins.

IMPORTANCE OF LOGISTICS.

The importance of logistics is given by the need to improve customer service, improving the marketing and transportation phase at the lowest possible cost.

Some of the activities that can be derived from logistics management in a company are the following:

Increase in production lines Efficiency in production, reach high levels The distribution chain must keep fewer and fewer inventories Development of information systems These small improvements in an organization will bring the following benefits Increase competitiveness and improve profitability of companies to tackle the challenge of globalization Optimize national and international commercial logistics management and management Optimal coordination of all factors that influence the purchase decision: quality, reliability, price, packaging, distribution, protection, service.Extension of the management vision to turn logistics into a model, a framework, a planning mechanism for the company's internal and external activities.The traditional definition of logistics affirms that the product acquires its value when the customer receives it on time and in the appropriate way, at the lowest possible cost.

Unit 2

Integrated logistics applied

IntroductionBusiness SkillsAdvantages of collective intelligenceThe Stewart PHV cycleMaterials controlObjectives of SCME ManagementBalance of functional objectivesOptimization of inventoriesStrategies for control systemsBenefits obtained by implementing SCMValidation of the benefits of SCM applicationBivariate correlation analysisModels structural

INTRODUCTION

Numerous authors have pointed out the importance of a comprehensive management of the supply chain for the achievement of a sustainable competitive advantage. In this sense, the gains are derived from the close collaboration between the members of the chain when planning and executing the operations that will be reflected in a higher level of efficiency in the use of the chain's resources.

BUSINESS SKILLS

The intelligent application of the Applied Integral Logistics Concept, was born from the practice of optimization systems, such as the KAIZEN system where excellence was sought, based on the principle of: "the greatest profitability at the least effort", applying it from each of the skills business.

Companies that subsist and grow at the pace of competitive demands, strive with a critical level in the permanent improvement of each of their business skills, recognizing the information of their process from an updated productivity analysis. No company would survive without the solid structure of each one of them.

These Business Skills are:

Management	Exercise leadership, make decisions, visualize value prospectively
Administration	Effective use of resources
Technology	Use of the technological resource of proven contribution
Investigation	Assertive use of current and verified information obtained
Logistics	The perfect product and process at the perfect customer at the perfect cost
Human capital	Selection, Induction, Training, Motivation, Evaluation
Marketing	Creation, Development and conservation of the target public

In each of these areas, which as an organizational skill, has the mission of preserving and maximizing the Creation of Value of the company, Integral Logistics acts, making part of the strategic process of Supply Chain Management, which must act permanently in this su compromised natural scenery.

Thus, a guiding entity is necessary, based on a strategic profit process, capable of aligning each function with business purpose and mission.

Collective intelligence, as a synergistic articulator of management by objectives:

Nothing depends on a single person, but everything is the result of a chain of "nodes" (people, teams, elements, etc.) that jointly interact permanently to achieve any objective, defined and understood in advance.

When we observe ants and other social insects, we immediately perceive that they are a network, in which each individual has specific functions within their community; but, at the same time, it has enormous flexibility to adapt at any time to different functions, which are not its own.

Ants are exemplary social organizations for their efficiency. For years, scientists have studied the efficiency of the social behavior of insects such as ants, bees, and wasps.

Recently those studies, related to the social behavior of these insects, are being applied to help solve logistics problems in companies like Mc. Graw Hill, Unilever and Capital One, Nestlé, Microsoft as reported in an article in Harvard Business Review.

According to studies carried out, social insects work without supervision. In effect, work teams organize themselves, and coordination comes from different interactions between individuals in the colony.

Although these interactions seem primitive (one follows the path followed by the other, for example), taken together they result in efficient solutions to difficult problems - like finding the shortest route to food, out of a thousand possibilities. The collective behavior that emerges from a group of social insects has been called "swarm intelligence," or collective intelligence. What makes this happen, from the business edge? The methodical and intelligent application of logical, practical and calculated processes of Integral logistics, today exposed by specialists in the concept of Supply Chain.

ADVANTAGES OF COLLECTIVE INTELLIGENCE

The advantages of collective intelligence, which must be imitated in a business organization of any kind, can be summarized as follows:

Flexibility	The group can adapt quickly to changes in the environment
Strength	When one or more individuals fail, the group can still carry out its tasks
Self-organization	The group needs relatively little or no top-down supervision or control

BASIC PRINCIPLES OF SCM

Segment	to customers in service needs and adapt the chain accordingly
Adjust	the logistics network to the service requirements and profitability of customer segments
Stay	on the lookout for market signals, technological evolution and consumer behavior
Administration	strategic supply and input sources, with benefits of mutual convenience
Develop	a technology strategy for the entire supply chain
Create	performance measurements for all links in the supply chain with criteria of reality, analysis and adjustment
To update	permanently all the tools (technical, production, administrative and marketing), to optimize the process

One of the main problems of any company is working effectively and profitably.

THE STEWART PHVA CYCLE

In each of these stages of the process execution algorithm, logistics acts as a Supply Chain of proven productivity:

To plan	Stage of the strategic design of the process
Do	Execution stage, schedule and actors
check	Audit stage in action, identification of shortcomings
Act	Assertive response measures for corrective measures

CONTROL OF MATERIALS

Supply Chain Management differs significantly from classical materials and manufacturing control in four respects:

- See the supply chain as a single entity instead of delegating and fragmenting the responsibilities between the different segments of the supply chain such as the functional areas of purchasing, manufacturing, distribution and sales. - The second aspect in which The management of supply chains is distinguished from the former: it demands strategic decision-making and is ultimately based on it. “Supply” is a goal shared by virtually every function in the chain and is of great strategic importance due to its impact on overhead and market share. - Supply chain management offers a different perspective on inventories, which are used as a balancing mechanism that comes as a last resort rather than from scratch. - Finally, supply chain management requires a new approach to inventory. systems: what is important is integration and not simply interrelation.

All these peculiarities and all the challenges of the business environment that underpin supply chain management point in one direction: up.

Only senior executives can ensure that the conflicting objectives of functional areas throughout the supply chain are reconciled and balanced, that inventories are used as a mechanism to deal with unavoidable residual imbalances, and, finally, that an integrated systems strategy is developed and implemented to reduce the vulnerability of the company.

Materials and logistics managers will continue to have important roles, but only senior executives can envision and recognize the importance of supply chain management and provide the impetus to take this new approach.

OBJECTIVES OF THE SCM MANAGEMENT

Within Supply Chain management we identify the following objectives:

Greater inventory turnover Better service to the market - customer Discover, maintain and develop the right market Assertiveness in the sale to the final market Minimize and maintain the cost factor as an important factor Rationalization of times and movements during the design, manufacturing, marketing and distribution cycle of products and servicesPlanning, organized and controlled with current prospects.

Implicit in these activities is the management of money flows, processes and products as satisfiers of needs. Throughout the entire supply chain, they maximize the value of the product / service delivered to the consumer and at the same time reduce the costs of the organization.

BALANCE OF FUNCTIONAL GOALS

The conflict between the objectives of the areas of marketing, sales, manufacturing and distribution is a fact in the life of companies.

The imbalances that result from these conflicts are structural in nature and have traditionally been overcome with the creation of inventories.

It is not necessary to object to the particular strategies of each of these functional areas. What is needed instead is to make a critical assessment of the opportunities to make tradeoffs or trade-offs between the important elements of those strategies, which have significant implications that intersect in functional areas such as:

The implications of a marketing strategy for demand characteristics, lead times, reliability, and responsiveness The implications of manufacturing strategies for lead times, flexibility, minimum batch sizes, and changes in systems The implications a product strategy has on variety, diversity, and likely demand.

Many companies are reluctant to accept the idea that they could achieve a better balance on the grounds that they are victims of their own structures, cultural factors and the environment.

Many companies also find it difficult to make their objectives work at this level, in particular the objectives of the manufacturing area, in which positions are traditionally taken that prevent accepting global objectives and that management tends to consider as restrictions, in sharp contrast with the Japanese, who consider the manufacturing area as a weapon to compete.

The objectives of customer service are considered accepted and given in advance, as opposed to some delivery points and governing time that are considered fixed. Thus the traditional approach to managing these imbalances is based on inventories and complicated control systems.

However, supply chain management suggests a very different approach:

Directly attack imbalances and assess opportunities to minimize them.

In studies and diagnoses made to international companies, it has been found that the most important strategies of each functional area that affect logistics are actually negotiable.

It is possible, for example, that the reliability in the deliveries to the clients is exchanged for more convenient guiding times, that is to say a reliability of 99% in guiding times of 4 weeks can be accepted by the clients that a reliability of 85% to 90% in 2 week lead times. Still further, such supply policies are negotiable on some specific items based on volumes and prices.

In addition, one can object to the tendency of executives in the manufacturing area to take as a basis the longer delivery time by suppliers to set the governing times and also object to the attempts to protect manufacturing costs through the sizes of the suppliers. lots, particularly in low demand seasons.

Decisions at this level can be seen to have a fundamental and significant impact on inventory requirements. The consequence of not achieving a balance of objectives at this strategic level is the tendency to leave the weight of the solution only in the inventories, which inevitably causes higher working capital requirements and cost increases.

INVENTORY OPTIMIZATION

This type of approach (analyzing in detail the strategies of each functional area and trying to minimize structural imbalances) leads to a new definition of the role of inventory and supply policies.

Thus these policies become mechanisms by which unavoidable residual imbalances can be reconciled and cease to be the main instrument for managing supply chains.

However, the use of inventory as an asset will continue to be a strategic rather than an operational element. At this level, attention should not be placed on the rules for planning and defining production quotas or on the systems instruments, but on procurement and supply policies, customer services and the objectives of better performance in time on delivery, as well as on demand and supply decisions.

This is the only way that structural reductions in inventory requirements can be achieved. The better level of performance of the Japanese industry illustrates the opportunity to reduce the dependency on high levels of inventories of the logistics systems of many companies.

This better performance is not obtained by knowing how much there is and where it is, but by knowing why it is there?.. It is worth asking how many of the so-called inventory control systems today go beyond their mere status to delve into the areas of simulation and goal setting ?.

STRATEGIES FOR CONTROL SYSTEMS

Once a strategic frame of reference has been established, management and control mechanisms can be developed.

Only from this point should aspects related to the organization, instruments, techniques and support systems be determined.The basic architecture of most of today's systems is based on the traditional division of functional areas of the organization of a company. Supply chain: Purchasing system Production control system Distribution systems Order processing system This structure can work well when it comes to supporting the upward flow of data between different hierarchical levels within a functional area, but is not effective when it comes to to intercommunicate throughout the functional areas or the entire supply chain. The same is true in the so-called interrelationships (often synonymous with long meetings), which are, for now,the most commonly accepted means of promoting the necessary communication between functional areas.

The interrelated systems approach has several shortcomings, one of which, without being the last, is its hidden costs for indirect labor and the consequent delay and distortion in the transfer of information.

In addition, this approach causes strategic and management decision-making to be at very low levels, and even more, either directly or indirectly, the groups that make up each of the systems sell their services separately to the vice presidents or directors of the functional areas It is common that the client does not exist for the information of all the functional areas, despite the fact that the technology necessary to process this type of information has been available for some time.The end result is that the modules of the systems tend to repeat the existing segmentation in the organization without worrying about the integration of the entire chain.

Probably the best example of this problem is the interrelationship that occurs in master production schedules or master planning, which is currently one of the most critical tactical activities in any manufacturing company.

Until recently, the level of development of the support systems available to perform this function was minimal.

In fact, material requirement planning (MRP), which assumes the existence of a master schedule, has been done for some years now. Real-time order processing and complex systems for sales forecasts at the end of the chain they have also matured quite a bit.

However, the conversion process that encompasses ordering, forecasting, and material requirement planning occurs at the functional interface, and those conversions have lacked support systems.

What has been lacking is a single, global perspective of the entire supply chain: Who is responsible for fostering the interrelation of systems in a predominantly functional organizational structure?

It is here, the point at which the administration must point the way and establish provisions so that at all levels there is the integration of systems throughout the supply chain and not simply accept the traditional forms of interaction between them.

There is no question that the supply chain management approach places an additional workload on senior executives - it requires incorporating a logistics approach into the company's strategic decision-making mechanisms.

It calls for the rejection of inventories as an easy way out in solving imbalance problems and in trade or trade decisions. It involves a control systems approach that replaces traditional functional divisions and is likely to have important implications on aspects of the Long-term organization None of these implications is an easy challenge, but given today's competitive environment, it is of paramount importance that they are achieved.

BENEFITS OBTAINED BY IMPLEMENTING SCM

A series of theoretical benefits can be identified that are obtained when implementing SCM and that come from an improvement in the efficiency of the process, these are:

A reduction in the level of inventories throughout the canal (Cooper and Ellram, 1993; Christopher, 1998; Beamon, 1999; Lambert and Cooper, 2000; Otto and Kotzab, 2003).This reduction is a consequence of the greater coordination between the organizations involved. when adjusting productions to demand. The adoption of an SCM philosophy implies the management of the entire inventory of the channel, concentrating efforts on reducing those that are superfluous and dragging, as far as possible, the largest physical volume of stored products towards the primary links chain (Lambert and Cooper, 2000). The further back the inventory is in the chain, the lower the overall cost of maintaining it. A reduction in total costs in the supply chain(Cavinato, 1991; Shrank and Govindarajan, 1992; New, 1997; Christopher, 1998; Lambert and Cooper, 2000). This reduction is a consequence of the lower volume of inventories, which implies a lower cost of storage and capital investment, and also of higher labor productivity. A long-term time horizon(Cavinato, 1991; Cooper and Ellram, 1993; Christopher, 1998). The coordination relationships between the members of the chain from an SCM perspective are based on trust and commitment, which allows us to move to less detailed contracts. Less expensive contracts to write reducing transaction costs and the possibility of opportunistic behavior. Additionally, it allows the distribution of risks and rewards through a close relationship in the channel (Cooper and Ellram, 1993; Shin, Collier and Wilson, 2000). A decrease in the cycle time of the product from the raw materials of origin to the finished product that reaches the consumer(Cooper and Ellram, 1993; Christopher, 1998; Mentzer et al., 2001). The time required is reduced thanks to more efficient inventory management and the flow of information from the elements of the supply chain. Finally, there is an improvement in customer service thanks to the increase in productive flexibility, a reduction in the necessary assets and a lower cost of supply (Christopher, 1998: 43). Tan, Kannan, and Handfield (1998) point to customer relationship management as an important component in SCM practices.

In the words of Tan et al. (1998), Tan (2001) and Arend and Wisner (2005), this SCM strategy "allows organizations to realize the advantages of backward vertical integration by overcoming its disadvantages" (Arend and Wisner, 2005: 403). The integration of key business processes between partners in an industry in order to add value to the customer, closely links consecutive elements of the value chain from primary suppliers through producers and reaching the end customer, making the processes more efficient and differentiated services (Arend and Wisner, 2005).

However, there does not have to be financial ownership between the different partners in the chain, nor should there be management inefficiencies and / or diseconomies of scale that would occur in a single company integrating all the processes in the chain.

The various efforts to empirically contrast the benefits of the SCM strategy throughout the literature have generally found favorable results for its implementation.

Thus, the particularized cases of companies such as:

Procter & Gamble, which has estimated savings of $ 325 million using a Continuous Replenishment Program and an Efficient Consumer Response system, Chrysler announced a cost reduction of $ 1.2 billion through its SCORE provider engagement program (Supplier Cost Reduction Effort) in 1997 (Shin et al., 2000)

VALIDATION OF THE BENEFITS OF THE SCM

The validity of the benefits of SCM is empirically contrasted through surveys directed at managers and middle managers based on two clearly defined methodologies (study carried out by Manuel Antonio Espitia Escuer and Alfredo López Campo (2005))

Bivariate correlation analysis Structural equation models.

Bivariate Correlation Analysis

Following this analysis can be cited:

The work of Armistead and Mapes (1993) who carry out an analysis of correlations between variables of results and integration in the supply chain on 38 companies participating in the Award for the Best Factory (Best Factory Audit) in the United Kingdom, El de Tan et al. (1998) where the impact of the practices on a set of performance measures such as market share, ROI, sales growth, level of customer service, product quality and general competitive position is validated on a sample of 313 North American companies members of the American Society for Quality Control (ASQC) The one by Basnet, Corner, Wisner and Tan (2003) on a base of 69 New Zealand manufacturing companies confirming a positive impact on product quality,the level of service and the competitive position of various practices attributable to SCM.

Structural equation models

Following the methodology of structural equations, the following can be outlined:

The works by Narasimhan and Jayaram (1998) that use a survey of 215 US manufacturing companies measuring the positive relationship between integrated supply chain and production objectives in terms of CostFlexibilityCompliance and Shin et al. (2000) carry out an evaluation of the impact of the SCM on the performance of the supplier and customer in a base of 176 manufacturing companies in the American automobile sector, In Byrd and Davidson (2003) the assessment focuses on the impact of the Technologies of the Information (IT) in the SCM and in the business performance of 225 companies with an IT department of more than fifty workers, En Dong,Carter and Dresner (2001) the central object is transferred from IT to Just in Time flexible production systems with a sample of 159 companies of industrial machinery, electrical equipment and transport equipment. Similarly, Wisner (2003) finds a positive relationship between SCM and business performance quantified through five measures and on a survey directed to 350 managers of manufacturing and service companies, both European and American, Giménez and Ventura (2003) analyze the gains in terms of competitive advantages derived from SCM for the sector of Spanish grocery stores on a sample of 64 companies with more than 30 million euros in turnover in 1999. These authors find a significant and positive relationship between external integration, between companies,and performance in terms of Service cost Transport cost Order process cost Breaks in inventories and Provisioning time Finally, Chen, Paulraj and Lado (2004) found a positive association between SCM and financial performance with three items for the construct: ROI, Profits As a percentage of sales Net profit before tax for the previous three years from a survey sent to 221 US manufacturing companiesProfit as a percentage of sales Net profit before tax for the previous three years from a survey sent to 221 US manufacturing companiesProfit as a percentage of sales Net profit before tax for the previous three years from a survey sent to 221 US manufacturing companies

Recent empirical analyzes have questioned the very existence of SCM and the benefits predicted from its implementation.

In this sense, Fawcett and Magnan (2002), based on 334 surveys directed to companies that are members of the National Association of Purchasing Management, the Council of Logistics Management or the American Production and Inventory Control Society in the United States, find contradictory results. Based on the empirical evidence obtained, there is a certain reluctance to jointly plan activities and transmit information due to the perceived threat of vertical integration. Arend and Wisner (2005) show with the data contained in a survey sent to 421 managers from North America, Mexico and Europe a negative and significant relationship between SCM and eight performance measures for small and medium-sized companies defined as those with less than 500 workers..

These measurements are:

Market share ROA Average selling price General product quality General competitive position Customer service Logarithm of sales and Last scale weighted by the first six measures and one-third of the log of sales Spekman, Kamauff and Myhr (1998: 648) affirm, after their empirical analysis on a sample of 132 managers of component companies of 22 supply chains of North America, South America and Europe previously identified, that “for a number of companies, talking is cheap and SCM continues to be only a part of today's jargon ”. Additionally, they emphasize that "supply chain partners continue not to share a common vision or react to the same set of measures." In the case of New Zealand manufacturing companies, Basnet et al. (2003:63) state that "although the results suggest that there is a knowledge of SCM, the adoption of new concepts is not very advanced". Apparently the profits described are not as high as one would expect or there is no tool to measure them properly.

There is, to our knowledge, no applied work that includes the effects of localization at the regional or sub-national level and we can only refer to the national level that of Bhatnagar and Sohal (2005).

In their analysis, they evaluate the role of location factors in the context of SCM through a survey of 420 companies from Singapore, Malaysia, Brunei, Indonesia, the Philippines and Thailand. The results obtained by these authors reflect a significant impact and positive for both specific public actions and infrastructures on business performance measured through qualitative variables.

Unit 3

Implementation of Supply Chain Management - SCM

Characterizing elements when implementing SCM The design, for the most part, of products specifically for each client The use in the production process of a flexible production system The existence of technological collaboration agreements with clients and The existence of technological collaboration agreements with suppliers Industry variables that affect Profitability Advertising intensity Intensity in R&D (Research and Development) Degree of business indebtedness Concentration in industry Variables of business behavior Degree of business internationalization Labor productivity Market share Examples of SCM implementation Alternatives to improve customer service Complemented strategies manufacturing and marketing

CHARACTERIZING ELEMENTS WHEN IMPLEMENTING SCM

To solve the situation of a company, the characterizing elements must be taken into account in the implementation of SCM in it. For this, it must be considered that the definition of SCM does not specify the question of what are the “signals” that one would expect to find in a company that has SCM implanted.

The characterizing dimensions of an SCM strategy:

The design, mostly, of products specifically for each client The use in the production process of a flexible production system The existence of technological collaboration agreements with clients and The existence of technological collaboration agreements with suppliers.

The design, mostly, of products specifically for each client

Designing specifically the products that the organization sells for each client implies a strategic orientation towards differentiation, a shift towards the last link in the chain to be managed and a determining factor in the entire production process.

In this sense, it can be affirmed that it is a practice to reinforce the link with subsequent links (Lambert, Cooper and Pagh, 1998; Lambert and Cooper, 2000; Mentzer et al., 2001; Fawcett and Magnan, 2002; Otto and Kotzab, 2003).

The use of a flexible production system in the production process

The use of flexible production systems is linked to the previous characteristic, since a specific product design requires a great need for changes in molds and dies on a regular basis.

However, the implementation of a flexible production system not only implies a tightening of the relationships with the later links but also with the previous ones.

The existence of technological collaboration agreements with clients

The peculiarities of the supply needs make it necessary to enter into long-term contracts in which the trust and reputation of the parties play a very relevant role, also on multiple occasions the supplier himself uses the same facilities of the client company in a pattern symbiotic behavior (Waters-Fuller, 1995; Lambert et al., 1998; Marbert and Venkatraman, 1998; Lambert and Cooper, 2000; Tan, 2001).

The existence of technological collaboration agreements with suppliers

Finally, the existence of collaboration agreements of a technological nature for the development of new products and / or processes with suppliers and customers represents another step in the comprehensive management of the supply chain (Lambert et al., 1998; Marbert and Venkatraman, 1998; Spekman et al., 1998; Lambert and Cooper, 2000; Shin et al., 2000; Dong et al., 2001; Otto and Kotzab, 2003) to the point that, as New (1997: 16) states “ it is impossible to use the term supply chain without the explicit reference to innovation ”.

Experiences in these dimensions occurs in some empirical works such as:

Flexible production systems (Spekman et al., 1998; Basnet et al., 2003; Arend and Wisner, 2005) Technological collaboration with suppliers (Spekman et al., 1998; Basnet et al., 2003) Technological collaboration with customers (Spekman et al., 1998; Basnet et al., 2003) and Specific Product Design (Spekman et al., 1998).

It should also be taken into account that in some cases, the measures used to identify the SCM strategy must be understood as proxy variables of a highly complex business reality with multiple characterizing qualitative features.

INDUSTRY VARIABLES AFFECTING PROFITABILITY

There is an extensive literature that has tried to identify the industry variables that affect the profitability or performance of organizations (some examples can be found in Porter, 1979 for leading and follower companies; Shepherd, 1972; 1986; 1990; Ravenscraft, 1983; Markides, 1995; Hitt, Hoskison, and Kim 1997; Mueller, 1999; and Qian, 2002 for US small and medium-sized startups).

From this set of variables, at least

The advertising intensity The intensity in R&D (Research and Development) The degree of business indebtedness The concentration in the industry.

Their choice responds to the repeated use of them in many works on the relationship between market structure and profitability and their significance differs from one author to another.

Advertising intensity

Thus, for advertising intensity there is a set of references that find a significant and positive relationship with business performance, interpreting in this way as another investment like the rest of the productive capital (Shepherd, 1972; Porter, 1979 for the leading companies; Geroski, 1982; Ravenscraft, 1983; Shepherd, 1986; Mueller, 1999) and others that do not find any significance (Porter, 1979 for follower companies; Ravenscraft, 1983 for business lines and for industry; Clarke, 1984; Qian, 2002).

The intensity in R&D (Research and Development)

On the other hand, and regarding the intensity of research and development activities, again there is a certain ambiguity in the empirical results analyzed, since studies with a significant and positive relationship have been revealed (Mueller 1999; Qian, 2002) and others with a negative relationship (Ravenscraft, 1983 for both business lines and industries).

The degree of business indebtedness

Looking now at the degree of business indebtedness, the most plausible approach is that provided by Jensen (1986) and later authors of agency theory. From this perspective, debt constitutes a disciplining element of managerial behavior towards greater investment efficiency and even entry into the governing bodies of financing entities.

Concentration in industry

Finally, the study of the impact of industrial concentration on business performance has traditionally played a fundamental role in the analysis of market structures and profitability, both in the construction of an adequate measure and in the empirical results. Thus, there have been positive and significant relationships (Shepherd, 1972; Porter, 1979 for leading companies; Ravenscraft, 1983 for industries; McDonald, 1999), negative and significant relationships (Porter, 1979 for follower companies; Ravenscraft, 1983 for lines of business) and even non-significant relationships (Geroski, 1982; Shepherd, 1986).

VARIABLES OF BUSINESS BEHAVIOR

The variety of variables in terms of business behavior is, as in the case of market structure variables, remarkably extensive. A set of them has been selected that, together with the constructed SCM variable, characterize our behavior modeling:

The degree of business internationalization The productivity of the labor factor The market share.

The degree of business internationalization

In the first place, the degree of business internationalization has shown, as Hay and Morris (1991: 238) point out, important but with a highly complex role in the structure-results relationship. Positive (Geroski, 1982; Ravenscraft, 1983; Daniels and Bracker, 1989; Qian, 1996; Mueller, 1999), negative (Geroski, 1982; Neumann, Bobel and Haid, 1983; Tallman and Li, 1996) and non-significant relationships (Pagulatos and Sorensen, 1976; Kumar, 1984; Hoskisson and Hitt, 1990) sow the related literature. As Hitt et al. (1997: 768) “the evidence of the implications on business performance of product diversification is not conclusive”.

The productivity of the labor factor

On the other hand, the productivity of the labor factor has been studied from a large number of academic approaches and far exceeds the objectives of this work simply to highlight that a positive relationship between productivity and business efficiency can be expected. This prediction is based on its character as a productive resource and, in multiple environments, a generator of sustainable competitive advantages.

Market share

Third, the market share of each company is significant in the market power it can exert in its strategic decision making. The relationship between market share and performance of organizations has been empirically contrasted in various studies: Ravenscraft (1983), for business lines, and Shepherd (1986) find a positive relationship, Markides (1995) shows a non-significant relationship while that Shepherd (1972) and Porter (1979) obtain a negative relationship.

Finally, the built industry model will include a measure of business risk, which is expected to positively affect the profitability obtained in a given period. The number of applied studies that include risk measures is considerably lower than in the previous measures, although the contributions of Neumann et al. (1979) and Markides (1995).

SCM IMPLEMENTATION EXAMPLES

Supply chain management opens up new vistas when it comes to diagnosing and correcting inefficiency.

Most importantly, the top management executives are involved in SCM; What were previously mere logistical issues are now strategic issues. Thus, the broader vision provided by supply chain management makes it possible to find solutions that directly reflect customer interest and the technological boundaries within which a company operates

This can be seen in two examples that describe the case of two companies.

Alternatives to improve customer service Complementation of manufacturing and marketing strategies

In both cases, the application of traditional techniques could have resulted in the familiar no-win exchange or sacrifice: the additional cost of having more capacity or inventory as a counterpart of having deficiencies in customer service, with real costs that are finally presented as losses of the company. However, from the broad perspective of SCM, it is clear that these are two problems that require different solutions.

ALTERNATIVES TO IMPROVE CUSTOMER SERVICE

This case was developed by the Booz-Allen Consulting Company in a multinational pharmaceutical company based in the USA. Said Company was facing problems in several of its divisions due to the growth of the market; These problems were compounded by customer demands for better service.

Each division defined its problems differently, but it was clear that none of the managers of each functional area could solve the problems independently. Finally, in four of the divisions the concept of SCM was used, but the application in two of them underscores the effectiveness of the approach.

DIVISION A

One division (A) produced a highly specialized pharmaceutical product whose lead times had grown to three years and fulfillment of deliveries performed so poorly that even the most senior executives had to deal with customer complaints.

Only 30 to 35% of orders were delivered on time. Consequently, customers had to accumulate inventories precisely when interest rates rose and the cost per square meter of warehouse increased. The manufacturing area considered that the causes of the problems were the unreliability of the forecasts and the long lead times in While this was partially true, that explanation ignored internal scheduling issues that caused deliveries to malfunction.

Traditional Solution - Division A

The traditional approach to solving these problems typically begins with an attempt to reduce overall lead times by eliminating bottlenecks that affect production capacity.

SCM Solution - Division A

Applying SMC indicates that the first step should be to analyze the benefits that would be obtained by shortening delivery times or improving reliability in deliveries.

Once management is shown that:

What the market actually requires is greater reliability in delivery (not necessarily short delivery times). The increase in reliability will lead to an increase in volume.

Then it becomes relatively easier to make the decision to invest in alternative solutions. The recommendation made by Booz-Allen was the following:

The first recommendation involved developing a better manufacturing system, one that is tied to forecasts and incorporates mechanisms that offer a certain level of protection against forecast deviations.

The results obtained were the following

Reliability in on-time deliveries increased to more than 95% in a period of 2 to 3 months Reducing inventories of orders in process by managing smaller safety inventories reduced the overall investment in inventories by 15 % in the first year and 30% the next, as market volume increased.

DIVISION B

The other division (B) had different problems

Externally

He was up against a group of resellers and distributors whose inventory policies were becoming increasingly complex.

As a result, this group was operating with lower inventory levels, ordering more frequently, and requiring that orders be fully filled from regional distribution centers.

Internally

The division faced conflicting views regarding its performance.

The marketing and sales area considered that the management had three problems: A stagnant market Strong competition Uncompetitive service levels The manufacturing area believed that it was all to blame: Poor forecasting Outdated distribution methods In addition to the fact that no one had proven that better service would increase sales. Meanwhile management was evaluated based on the profitability of its assets and was therefore reluctant to do more than squeeze inventories.

Traditional Solution - Division B

The traditional approach to solving these problems usually begins with an attempt to reduce raw material inventories and work orders to allow for additional investment in finished products.

SCM Solution - Division B

Applying SMC Management agreed to involve all groups from functional areas in problem solving and not assume that improved service was the best answer until cost implications could be assessed

An investigation of customer service in the commercial area indicated that service was becoming an important criterion in purchasing decisions and that there was a correlation between increased market share and high levels of service.

As a result of this, programs were initiated to improve sales forecasts and to design new distribution policies, as well as to develop new methods of plant production planning, at the same time that cost implications are measured against production goals. service.

All the programs were implemented and at six months the results obtained were the following

The level of service increased from 60% to 75% in order fulfillment with respect to management goals. Inventory turnover did not change and in fact it was expected to improve by 10% by the end of the first year. Management obtained a system that could respond quickly to market service demands as well as internal pressures to minimize inventories at certain points during the year.

COMPLEMENTATION OF THE MANUFACTURING AND MARKETING STRATEGIES

This case was developed by the Booz - Allen Consulting Company in a food and beverage company in the UK. The operation of the confectionery division of said company was carried out in a very special environment and market requirements. Not surprisingly, the application of SCM resulted in radically different solutions.

When the diagnostic study began, the company had almost three years in a global rebuilding process to improve its competitive position. The effects of this ambitious program, which included modernization and rational organization of production services, restructuring of the product range, and a new focus on marketing programs, were already beginning to be felt.

Market share was increasing Productivity in manufacturing was improving Inventory levels had been reduced The rational organization of the new product line, coupled with the introduction of variety in sizes, had provided the fulcrum for an advertising campaign that were capitalized on the brand's franchise.

All of this was visible in the financial statements: sales, profits and asset profitability were improving.

Although success was obvious, the administration felt that the structural issues had not been clearly addressed. His particular concern was one that the SCM could take care of.

The balance between manufacturing strategies and inventory investments as a means to meet market demands.

The Booz-Allen Diagnostic Study more accurately identified aspects of SCM, which validated management's concerns.

The high level of customer service and product availability were taken for granted by customers, without significantly influencing business. Forecasts at the item level and on a monthly basis were inaccurate (not uncommon for consumer products business).

The new manufacturing strategy dedicated to 4 main lines, had achieved cost reduction, but was much less flexible than the previous system based on about 18 different lines.

The results of the three-year program had a certain irony. The company had been successful in the rational organization of the product lines and in manufacturing, achieving fluidity in inventories; however, these successes were at odds with each other. All product stacks or flexibility had been removed from the system.

One obvious area for potential improvement was forecast accuracy; With a more traditional approach, the focus would have been on this area, probably without success, given the demands of consumers.

Perhaps a more obvious answer would have been to reinstall the security inventories that had recently been eliminated, but this option, regardless of the costs involved, was not very attractive for several reasons:

The first reason was that franchises relied heavily on quality, and chocolates and candies obviously taste better when they are not kept in a cellar for long. The second reason was that the EEC sanitary regulations on the coding of production and expiration dates were imminent, and it was to be expected that consumers would pay more attention to the age of the product (another reason not to adopt a strategy that implied the adding one month to SCM processes.

Strategically, the company faced the challenge of absorbing the high level of forecast error and its seasonality, while providing high levels of service to customers through a cost-effective combination of capacity, flexibility and inventories.

The challenge became even greater due to a constantly changing environment.

In particular, the constant variations in volumes and product mix, coupled with changes in interest rates and, therefore, in capital and inventory costs. One way alone would not be enough the company needed a structure within the company. which could make periodic evaluations and adjustments of capacity and inventory costs.

Together with management, the consultants developed a model with which all relevant elements, including forecast errors and inventory costs, could be converted to equivalent labor hours.

With this model, the company could determine the appropriate method to satisfy market demands; that is to say:

High inventories with less capacity Greater capacity with less inventories

The first appreciation of the stock showed that the environment was contrary to the increase in inventories, since investments would have had to be doubled to reach the desired level of customer service.

The solution was to stretch production capacity, especially by investing more in the packaging process. This basic strategic decision was complemented by a new focus on capacity-oriented production scheduling. Tighter controls were introduced into the scheduling system. on process changes and the consequent lost time, putting a limit on the number of decisions allowed on changes in the product mix in a short period.

The result was that forecasting errors no longer affected the manufacturing area as much, economically speaking, while maintaining supply and customer service targets.

These two cases offer only a small overview of the benefits that can be realized with the effective administration of SCM.

It is clear that such stewardship is far from being simple inventory manipulation and is more than just an improvement in materials handling, which can be inappropriate (not inappropriate) responses in an unstable economic environment. SCM requires a strategically supported approach, coupled with the involvement and commitment of directors.

And since SCM can provide the structure needed to meet the demands of today's uncertain economy, these executives may find that commitment well worth it.

BIBLIOGRAPHY

Supply Chain Management

Keith Oliver and Michael D. Webber

Booz, Allen & Hamilton

Clevelan, Ohio, USA

Manuel Antonio Espitia School

and Alfredo López Campo 2005

Supply Chain Management:

Business performance and regional effects

M @ n @ gement, 8: 1, 1-24.

Editors:

Martin Evans, U. of Toronto