The complexity of business leads companies to consider new structures in Supply Chain, which is called Supply Chain Management (SCM). The need for information exchange and integration of the different parts of the SC is raised.
The SCM advocates the synchronization of the purchasing, production, warehouse and distribution stages.
This is a competitive advantage for those who assume it. Companies seek a comprehensive solution to their problems through SCM, relying on Information Technology.
Integration into the SC can provide profit growth through increased product quality, product availability, and improved customer service.
The importance of Information Technology (IT) to manage information systems that meet the different needs throughout the SC are essential when studying the different trends existing today. The biggest problem is in the different national standards that must be harmonized.
It is also observed that the SCM has in recent times some E-Commerce requirements that make logistics companies consider new strategies. To compete in E-Commerce, companies have to standardize their business processes. Allowing each affiliate to conduct their business in accordance with local corporate culture standards is highly costly and inefficient.
Traditionally, the integration of CS involved the exchange of information and materials between the different functions of a company. Today, with new technologies, new links appear between companies and integration can be spoken of as the exchange of information between partners in a SC.
Instead of making decisions separately, decisions will be made jointly with each other. The key to achieving integration lies in the way in which IT investments are implemented. The optimal implementation is the one in which the new technology is introduced at the same time that the company develops its strategy in the SC, reviewing its organizational capacity and implementing the change.
In other words, a concurrent implementation of the new mentality and of the IT that will make it possible to put the new ideas into practice, or what is the same, a parallel implementation of IT solutions and business solutions. This requires a great deal of coordination and collaboration on the part of all members of the organization. It is useless to install some revolutionary applications in the management of the SC if the interested parties do not know how to use them optimally.
Of all the fronts that I have analyzed, this relationship of the supply chain with information technologies is strengthened, as a way to establish fundamental competitive advantages in business development.
It is palpable in most studies the concept that the most successful organizations have built an internal collaborative culture, moving away from old centralized structures.
Companies need to review their capabilities and identify the differences that exist between these current capabilities and the capabilities they need to possess. These are basically four:
- Alignment of SC's own strategies with the complete business strategy Technological competence Ability to move away from operations in functional sites Adopt a real process orientation and change capacity combined with the ability to institutionalize change.
Companies, by adopting a supply chain integration strategy.
A CS integration strategy must combine eight fundamental principles:
- Segment customers based on service needs.
In this way, companies can control the cost of service levels and anticipate the benefits of each group of customers (great importance of IT).
- Plan according to market demand signals Design and Differentiate always keeping the customer in mind. It is no longer advantageous to offer standard products and services, but flexibility in the design of products and processes that allows differentiation based on market demands Production connected with the customer Strategic provision. Traditionally, the lowest cost supplies were sought in the search for economies of scale. Today they are looking for quick answers and higher quality Adapt the logistics network to the consumer.
The logistics networks must adapt to the needs of the service, benefiting the customer segments. This creates networks at many levels, offering services to specific segments.
- Technological Strategy for the entire SC.
Traditional systems were independent for each of the functions, with no relationship between them.
- Coordinated action measures for the entire SC.
Outsourcing of services throughout the SC takes on a fundamental character; Faced with internationalization, companies make alliances for the distribution of their products. In principle, they claim to be ready to take on the alliance with Third-Party Logistics (3PL), but complain that there are no strong logistics companies that meet their globalization needs by offering a wide range of services beyond national borders. The generalized development of 3PLs goes through the definition of the needs and expectations of its potential clients, for which it is important to strengthen relationships, talk and work with them, with the perspective of creating added value and high quality standards in a service very differentiated. For all the above, my final degree project is based on the 3PL, since today,contracts with logistics providers are for the most part limited to transport and storage activities, but the need for SC integration forces these providers to change their business structures, and from this point of view Third Party Logistics is a fundamental piece.
However, in all the research streams it is noted that the adoption of an outsourcing strategy causes a series of consequences.
Among them, the requirement of quality control of the services provided by the new partners is considered as a strategic imperative.
The assemblies or components that are added to the product affect its cost, quality, and utility, and the same can be said for value-adding activities through design, transformation, and other engineering processes.
It is of little use for an organization to try to create products with added value and high quality standards, if its suppliers or distributors are not acting in the same direction. The image of the product that reaches the final consumer will be distorted by the lack of control at any stage of the process. In conclusion, this fact once again underlines the need for coordination at all levels among the participants in the SC.
Suppliers must work with buyers to determine those parts of the process that can be performed most efficiently and effectively given their production capacity.
Buyers should be concerned with continually monitoring the quality that their suppliers are offering them, extending certifications, offering rewards, setting aggressive improvement targets, helping to develop their capabilities, and involving them in the production process.
Although this practice has not yet become widespread, some leading companies are signing outsourcing contracts with a single supplier, which is called “Sole Sourcing”.
The cost and time savings are notable, along with other advantages such as greater control over the outsourcing process and the ability to focus all the organization's energies on its generic competencies. In an outsoucing process in which the company goes to the market to find a competitive supplier, an RFP (Request for Proposal) is usually carried out, with a huge expenditure in both human and monetary resources, and a loss of precious time to dedicate it to own activity. When a company adopts a Sole Sourcing strategy, an RFI or Request for Information is prepared, which simplifies the procedures with considerable savings and the advantage that the process can be carried out confidentially.
RFI allows companies to compare vendors based on technology, capabilities, processes, and references, until they find the ideal candidate. With this single supplier, the relationship becomes closer and deeper, with a common vision of the future for both partners.
The integration of the SC introduces the concept of strategic outsourcing, and with it appears a new figure within the organization: the Chief Resources Officer (CRO), whose job is to manage outsourcing.
Adopting an outsourcing strategy represents a staggering number of services, contracts, relationships, and global risks and benefits that need to be actively managed by an individual or group with leadership skills. The CRO is configured as the connection point between the entire strategy, implementation and management of relationships with subcontracted partners. Due to the nature of its function, the CRO must possess a series of capacities such as: experience in managing different businesses; experience in managing costs, projects, contract negotiations; political and cultural awareness; imagination, and knowing how to adapt to changes comfortably. The CRO becomes the key to the success of an outsourcing relationship, since it will control and coordinate it for the entire duration of it.The CRO is also given another role: finding new partners and agreements in those markets that your company wants to enter.
Storage is generalized in the production / distribution chain: on the one hand, postponement strategies cause the delay in the production, assembly or design of products until the customer's order is received. For the efficient execution of these processes it will be necessary to have a global perspective of the CS.
I think that in the study of this strategy there could be a field of research, in the sense that the whole process could be improved if a new strategy is studied that can reduce this time even more.
Supply Chain Management also makes the JIT system general and strategies are adapted to make it work. One of them, the establishment of Consolidation Centers in the hands of third parties that combine the transport of goods from different manufacturers. The continuous movement of goods reduces inventory and warehouse costs.
A fundamental part of the new SCM is the so-called CMR or Customer Relationships Management. The goal is total interaction with the customer at all levels. The information provided by the CMR will serve to better understand your needs and to be able to create suitable products and services to satisfy them. The client is thus integrated into the SC, and as a fundamental part of it. The SC acquires a bidirectional structure and not just unidirectional: the information flow must circulate in an upward direction throughout the SC.
To achieve the synchronization and integration of the SC advocated by the SCM there is an important ally: ERP (Enterprise Resources Planning) solutions that allow the different divisions of a company, and this company with its suppliers and distributors, to share information.
The role of an ERP is to manage transactional data and maintain files where this data appears.
The main problem with these applications is that their focus is clearly internal: they focus on the internal operations of an organization. This is insufficient when looking for tools that facilitate integration with all SC partners.
The success factors of a modern ERP solution are: involvement and support of management, through motivation and training of end users; identification of the specific needs of the company so that the system can satisfy them; minimum implantation times, and continuous adaptation. A good ERP system needs to have connections to production execution systems, SCM and advanced planning systems, product data management and sales configuration systems, advanced search systems, and CRM systems. Companies like SAP supply the software packages with some success. This company is obtaining exclusive contracts with important multinational companies. One of the services it offers is “mySAP.com”, an ERP application through an Internet portal.
Each user has a home page adapted to the function they perform, and they only have to follow the steps that it indicates, in accordance with what they have defined as “best practice” or best practice.
A whole new terminology linked to E-Commerce appears with increasing force: B2B, or business-to-business, to refer to business carried out from company to company; and B2C, or business-to-consumer, meaning the operation carried out with the final consumer.
The requirements of both businesses are very different. B2C is at a higher level of implementation than B2B. The latter has an important role to play in the integration of the CS. There are initiatives of B2B commerce portals between various companies with the aim of improving their commercial transactions. The services provided by these portals can range from product offering, acquisitions, sales, online order management, collaboration, financial services, etc. `Transora.com´ is an example of these portals, and it has been created by fifty large food, beverage and consumer goods companies.
The aforementioned is but one more example of the importance that IT is acquiring in the management of the supply chain and of the existing synergies between SCM and E-Commerce.
I should also mention the new concept that is beginning to emerge in today's business environments: Fourth Party Logistics or 4PL.
Companies and suppliers create a new type of relationship or alliance. The 4PL is an integrator of the SC: it advises, designs, builds and executes global solutions, combining its own experience with that of complementary service providers. The 4PL represents the evolution of SCM, combining the capabilities of 3PLs, technology service providers and business process managers to create solutions valid for the entire organization.
The 4PL concept differs from the traditional outsourcing concept in two ways: on the one hand, it offers a global solution; on the other hand, it offers measurable and sustained value thanks to its ability to influence the entire SC. Traditionally, 3PLs have focused on operational issues such as implementation and execution, while managers and consultants have focused on the strategic end of SC solutions.
But the 4PL can offer global solutions by coordinating the four levels of work in the SC:
- Invention: synchronization of the planning and execution of the solutions through the SC, allowing collaboration between its participants. Transformation: concentration on specific functions such as sales, operations planning and distribution management. Implementation: realignment of the entire business process, integration of technology and transfer of operations to 4PL. Execution: The 4PL undertakes its operational tasks for the multiple functions and processes of the SC.
With all this, the 4PL brings the organization closer to integration, achieving the benefits that this entails, such as shareholder value through growth in profits, reduction of operating costs, lower working capital and reduction of fixed assets.
Who are the 4PLs? A large number of consulting firms claim that they cannot fit into the category of charterers or 3PLs, as neither are capable of performing SCM work on their own. Only consultants, acting as 4PLs, have the necessary experience to manage resources, technology and processes.
3PLs cannot achieve the desired efficiencies and savings in the SC because they lack the optimal combination of technology, warehouse capabilities and transportation services, and the 4PL is in the best position to integrate different logistics services.
These statements arouse controversy among logistics companies. Although it is true that consultants have been developing tasks that bring them closer to what the 4PL concept means, the 3PLs affirm that the parties must select the technology and implement it. The only role that the consultants have not yet assumed is that of managing the logistics providers and the operation of the SC itself. The question is: who can better organize 3PLs and the SC function: consultants or managers of organizations? There is probably more than one answer to this question. In any case, the creation of new 4PL models could be interesting as a line of research, since there is little research on it today.
