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Over the past decade, the business environment has evolved because of globalization. In each industry, there is an increasingly global supply chain, including providers of goods and services that add value upstream or downstream from the manufacturer. Concentrating on the areas in which your company can add the most value to that supply chain, and linking up with other businesses that add value to you can really improve your competitiveness. In fact, this is becoming one of the keys to success.
Strategies to overcome the impact of globalization
As sale prices get pushed down, profit margins are reduced. The market is now fragmented in size and geographic location. Here are some strategies to help your business adapt to the volatile environment and shorter time-to-market:
- Search for lower-cost sources of supply in more geographically dispersed locations - often in other countries like China and India
- Improve manufacturing methods to increase productivity
- Partially or totally outsource manufacturing
- Move activities from manufacturing to distribution
- Develop more products, options and features, faster
- Collect better demand information on shorter demand forecasts
- Reduce product development cycles
- Reduce the procurement cycle
- Increase manufacturing flexibility to produce more customized products in smaller and more precise quantities
- Improve processes and information systems
What is supply chain management?
In the simplest terms, your supply chain extends beyond your company's physical boundaries, to include all the partners who handle the materials, services, information and funds that move through your business. This can include:
- Suppliers
- Manufacturers
- Wholesalers
- Retailers and consumer intermediaries
- Third-party service providers
You will find a diversity of information in the supply chain flow: orders and delivery status updates, demand signals, forecasts, inventory, transportation, analyses, etc. It's also important to report events that can disrupt your supply chain early on in the process. The financial flow involves credit terms, payment schedules, consignment and title ownership arrangements, etc.
Supply chain management (SCM) means coordinating the movement and storage of information and goods by integrating operations with these partners. This movement occurs in 2 directions: from pre-production through to production and delivery to the customer, and during after-sales customer service and returns. Supply chain management can include the following specific activities:
- Managing demand
- Joint product development
- Procurement and Supplier Relationship Management (SRM)
- Outsourcing partnerships
- Manufacturing-flow management
- Suppliers/Client information technology integration.
What does SCM mean for your business?
In the past, you dealt with many suppliers. Each partner concentrated on their internal processes with little concern for the internal workings of other individual players. The choices you made had little impact on your business partners, and their choices had little impact on yours.
Today, that has changed. For instance, if you supply a large company like a big retail chain, they may insist that you use their electronic business system. If you don't, you may not be able to do business with them. Consequently, you have to modify your existing technology or acquire new technology. If the big retail chain changes its information systems, you also have to adapt or change yours.
Failure to adapt means facing decreased sales and lower margins, which can put your company's survival at risk.
Where do you begin?
Even if you are not improving your supply chain management, your competitors, suppliers and customers are. But where do you begin?
Improve collaboration
Are there opportunities for sharing information with your buyers and suppliers that will make production more efficient? Customers are constantly demanding new options and more customizations. Modifying your manufacturing processes to become highly flexible is one way to accommodate greater customization. Also, have you thought about working with customers and suppliers to develop new products? This allows each partner to benefit from the other partners' expertise and reduce time to market. Don't forget that greater internal collaboration - for example, between R&D and the supply chain, or between sales and the supply chain, etc. - can allow your business to adapt quickly and reduce the time to market.
Keep inventory levels low
Can you make decisions differently, regarding what you stock, make or buy? Can you shift from manufacturing to stock, to manufacturing just-in-time (JIT), or make-to-order? Are you able to cut your inventory based on the buying patterns of customers and vendors? If most of your products are customized, develop shorter cycle times to respond to market changes by processing orders on a just-in-time (JIT) basis in ever smaller lot sizes.
Outsource
Can you outsource more procurement of materials and components, and more services that traditionally have been provided in-house? Some companies even fully outsource manufacturing in lower-cost countries. The idea is that your company is more focused on activities where it has a distinctive advantage that adds value to the product or service. (This is called value-added manufacturing.)
Think partnerships
Can you make mutually beneficial business partnerships that will improve the efficiency of sourcing, making, delivering, and returning products?
As you source products and materials from outside suppliers, you will also need to develop your ability to perform other activities, such as resource planning, supply sourcing, negotiations, order placement, inbound transportation, storage and handling and quality assurance. You will also need to work with suppliers to coordinate scheduling, supply continuity, hedging, and to research new sources and programmes.
Procurement
Can you develop strategic plans with your suppliers and customers to support procurement? Can your purchasing functions work more closely with your marketing and product-development departments? With your supply chain partners?
Invest in technology
Would rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to quickly transfer requirements to suppliers improve your time to market? Do you have the know-how to implement new technology and utilize it?
How information technology can help
In this new environment, information technology is vital to:
- Capture and analyse data in real time: sales, production schedules, procurement requirements, purchase orders, shipments, deliveries, stock movement, etc.
- Quickly and easily transmit up-to-date information, such as orders and delivery status, inside and outside the enterprise, e.g. with key suppliers, manufacturers and end customers
- Share demand signals, forecasts, inventory, transportation, etc.
- Provide early reporting and alerting of events that can disrupt the supply chain
- Identify trends and opportunities to improve processes, operations, service, detect market opportunities, etc.
- Track operations in real time and identify bottlenecks
- Increase productivity by eliminating redundant or superfluous tasks, and by accelerating data entry and communications
- Reduce labour growth, waste and costs.
The following are the main types of information technology used by businesses to manage their supply chains:
- Enterprise Resource Planning (ERP) applications are replacing old accounting systems. They integrate accounting with Customer Relationship Management Systems, order processing, production planning and scheduling, production data capture, materials requirement planning (MRP), purchasing, receiving, shipping, inventory tracking and quality control
- Customer Relationship Management Systems (CRM) create and track business contacts, prospects, leads, customers, marketing campaigns, mass mailings, sales forecasts, customer service calls. They also track all communications with customers. These applications can be used as standalone applications or can be used to supplement the CRM features built into ERP systems
- Supplier Relation Management (SRM) is similar to CRM but tracks communications with suppliers
- Websites and Web-based applications are replacing faxes, emails and phone calls as self-service portals:
- Customers can access product and feature information. They can place orders, get shipment status information, and access customer support
- Suppliers can access product specifications, transmit invoices
- Auction sites to bid for best price.
- Electronic Data Interchange (EDI) with suppliers and customers automatically transmits purchase orders, order acknowledgements, advanced shipping notices, shipping status information, invoices, payments, etc.
- Warehouse Management Systems (WMS) can track all products in multiple warehouses and locations. They can track expected shipments that are incoming, being inspected, or being routed to various locations such as quality control (known as "QC hold"), storage or picking. It can also order picking waves and track packaging and shipments. These applications can be used as standalone applications or to supplement the WMS features built into ERP systems.
- Bar-coding can facilitate data entry during the manufacturing process and for shipping, receiving and warehousing. However, barcode technology only works when the product is in line of sight.
- Radio-Frequency Identification (RFID) is replacing bar code systems. A special tag on packages emits radio frequencies that are captured by sensors located in buildings and transportation vehicles. RFID allows you to track packages and their content, even if they are out of sight.
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