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Weekly UpdatesEXECUTIVE SUMMARY
An efficiently managed supply chain provides a competitive business advantage, but it requires a robust information technology infrastructure, Perhaps the most influential technology on the forefront of supply chain improvement is radio-frequency identification, which promises to give organizations the need for lower inventory levels and a host of additional benefits.
The need to compete effectively and even emerge with a distinct competitive advantage has forced companies to look continuously for ways of improving their efficiency. One major issue in this regard is supply chain management. A closer study of most successful businesses reveals that effective management of the supply chain is often cited as the most important reason for success. Indeed, efficient supply chain management not only offers sourcing, warehousing, and distributing products to cope with uncertain demand, but it also dramatically improves quality customer responsiveness, operational efficiency, and the bottom line.
An inefficiently managed supply chain often results in a substantial increase in operating costs. According to a study conducted by A.T. Kearney Consulting, inefficiencies in supply chains can waste up to 25 percent of a company's major operational costs. The study also found out that even in companies with profit margins of 3 percent to 4 percent, a 5 percent improvement in supply chain efficiencies focusing just on material flow can double profit margins.
To be successful, companies will not seek to achieve cost reductions or profit improvement at the expense of their supply chain partners, but rather, they will attempt to make the supply chain as a whole more competitive and efficient. Successful implementation of supply chain management has been credited with significantly lowering costs and risks and increasing technological innovation, profitability, productivity, and organizational competitiveness.
Implementing effective supply chain management requires a robust information technology infrastructure. IT helps companies coordinate inter-organizational activities, which is the central aspect of supply chain management. Many companies have integrated IT into their supply chain system in strategic supply chain collaboration. This process is known as collaborative planning, forecasting, and replenishment and is being used by companies such as Best Buy, Hewlett-Packard, and Anheuser-Busch.
Many businesses, especially leading retailers, have already begun preparations to implement a radio-frequency identification technology to their supply chains. Using radio-frequency signals, RFID provides the ability to identify and locate electronic data-carrying devices attached to items--from pallets to individual consumer items. This technology will be a major advance in the entire supply chain management process as it is applied from the simple task of moving goods from loading docks to complex tasks such as managing terabytes of data as information about goods on hand is collected in real time.
Supply chain background
The concept of a supply chain has been around for a long time. Its first known appearance was during World War II to aid the airlifting of food by British and U.S. forces. A supply chain is a set of three or more companies directly linked by upstream and downstream flows of products, services, finances, and information from a source to a customer. It works to bring the supplier, the distributor, and the customer into one cohesive process.
Most often, the terms value chain and logistics are used interchangeably with supply chain. However, there are distinctions:
* The value chain, like the supply chain, follows raw materials step by step through the transformation process to the end user, but it doesn't end there. It also focuses on packaging and post-purchase disposal. The main goal of the value chain is creating the maximum value at the lowest possible cost to the consumer. Therefore, supply chain management falls under the auspices of the overall value chain system.
* Logistics is a crucial tool for supply chain management, but it is just a part that helps in operating the supply chain. Logistics plans and organizes the movement of materials and goods from and to suppliers and customers. It also has a link with supply chain management processes, ensuring the accurate delivery of the right freight to the right places at the planned times. According to the Council of Logistics Management, logistics encompasses the planning, implementation, and control of the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption to meet customers' requirements.
Supply chain management
A well designed and implemented supply chain system helps businesses achieve important goals such as waste reduction, reduced processing time, flexible response to customers' demands, unit cost reduction, and higher value for the customer.
By minimizing duplication, harmonizing operations and systems, and enhancing quality through supply chain management, firms can reduce waste in their processes. An efficient supply chain coordinates the processes that transform inputs into outputs, resulting in a reduced order-to-delivery cycle time. Such a system is also capable of responding to order changes and the special needs of customers. All the goals of supply chain stated earlier, if achieved, will result in the improved quality of products, a reduction in price, and the enhancement of overall value to the customer. These goals, however, can be achieved only through intra-and inter-firm functional integration, sharing, and cooperation.
One good example in supply chain efficiency is Dell Inc. In 1996, Dell had about 15 days' worth of supply in inventory, which was about half the amount of its competitor Compaq. While Dell improved its supply chain efficiency and reduced its inventory to about four days' worth in 2001, Compaq held at about 24 days. Today, Dell has three days' of supply in its inventory.
With the mounting pressure of intense competition in their industries, companies are looking for ways to enhance their competitiveness and growth. In this regard, supply chain management has been an area of particular importance in many businesses.
The supply chain environment in the past decade has undergone a number of unprecedented changes that affected the entire business, including suppliers, manufacturers, and even customers:
* Security issues. As a result of the terrorist attack of Sept. 11, 2001, the U.S. government is imposing regulations on companies, in particular companies that do business overseas. Security checks at ports and borders can delay shipment by a significant amount of time. Halting shipments has an effect on all members downstream in the chain. Any delay will affect a company's profitability and ability to meet demand. Customers may have to increase inventories to adjust for security issues. Companies that operate on a just-in-time system need to pay particular attention to security issues if they import goods from overseas. The only apparent solution to the security-related supply chain challenge is full understanding of the policies and procedures.
* Partnership and trust. Relationships among supply chain members that are viewed as partnerships will often lead to a better competitive position. Mutual benefits such as agility, adaptability, and alignment can be received if there is openness and trust among members of the supply chain. Trust among partners can lead to agility and flexibility It can also lead to fast decisions, which reduces unproductive work. More often than not, trust emanates from a quality contract that includes clear objectives and expectations. Trust among supply chain members necessitates similar organizational culture. Ethical resemblances allow companies to align their ideals and work as partners.
* Innovation sharing. Access to company information is one of the main motives that prevents companies from forming supply chain partnerships. Companies fear releasing sensitive information that could turn a partner into a competitor. In spite of such fear, many businesses claim that 35 percent of their new innovations came from their suppliers. In fact, companies such as Toyota get 60 percent of their innovations through their supply chain. Supplier innovation could help increase competitive advantage in conjunction with the advantage of having a strong supply chain.
The role of IT
Managing the necessary coordination through the intelligent use of information technology has been recognized as an important part of supply chain management. IT enables the synchronization of value activities even under different geographical locations and helps create relationships that strengthen the supply chain.
Today, many companies use various supply chain software, such as enterprise resource planning software systems, to integrate and improve the coordination of business activities. An illustrative way to clarify the role of IT for supply chain management is the analysis of supply chain collaboration. Such collaborations allow firms to work as a network of businesses instead of single entities.
One of the key processes associated with supply chain collaboration is collaborative planning, forecasting, and replenishment. It requires companies to enlarge collaboration in order to include operational planning to execution through the use of technology.
In recent months, a new supply chain technology has been a topic of discussion among academicians and practitioners. RFID represents a major advance in supply chain management. In the pursuit to embrace such a new technological innovation, industry leaders and many other businesses are preparing for implementation.
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