Transforming

Businesses through Supply Chain Management.

Supply Chain Management is a cross functional approach for managing the movement of
raw materials into an organization and movement of the finished goods out of the
organization toward the end consumer.

Supply Chain Management is the process of planning, implementing and controlling the
operations of the supply chain with the purpose of satisfying the customer's requirement
as efficiently as possible. Supply Chain spans all movement and storage of raw materials,
Work-in-process, inventory and finished goods from the point of origin to the point of
consumption.

In short, Supply chain management integrates supply and demand management within

and across companies. Supply Chain Management is distinguished with Logistics while
sometimes it is considered to be interchangeable.

Supply chain management can be divided into 3 main flows.

1) The product flow

2) The information flow
3) The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well
as any customer returns or service needs.

The information flow involves transmitting orders and updating the status of delivery.

The financial flow consists of credit terms, payment schedules, and consignment and title
ownership arrangements. 

The supply chain management council defines supply chain management as

“Managing supply and demand, sourcing raw materials and parts, manufacturing and
assembly, warehousing and inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer".

What is Supply Chain?

Every product that reaches an end user represents the cumulative effort of multiple
organizations. These organizations are referred to collectively as the supply chain.
Supply chain activities cover everything from product development, sourcing,
production, and logistics, as well as the information systems needed to coordinate these
activities.
Scope of Supply Chain Management

Distribution Network Configuration: Number and location of suppliers, production

facilities, distribution centers, warehouses and customers

Distribution strategy: Centralized Vs decentralized, direct shipment, pull or push

strategies, third party logistics.

Information: Integrate systems and processes through the supply chain to share valuable
information, forecasts, inventory and transportation

Inventory management: Quantity and location of inventory including raw material,

work-in-process and finished goods service providers and customers.

Objective of Supply Chain Management

 To provide an uninterrupted flow of materials, supplies and services required to

operate the organization

 Minimize inventory investment and loss

 Maintain and improve quality

 Create relationships with competent suppliers

 Set standards for supplies

 Get supplies and services at lowest cost

 Achieve harmonious, productive working relationships with other departments

 Keep purchasing administrative costs low

 Improve the organization's competitive position

Supply Chain Strategies

VMI (Vendor-Managed Inventory) lets the vendor manage replenishment for a
company.
BTO (Build-to-order) or ATO (Assemble-to-order) present ways to organize production
and order fulfillment process from Push to Pull. These 'demand-pull' supply chains
anticipate and respond to changes in real time. The internet enables new speed of
execution, helping firms to be instantly responsive to the changing demands of their
customers.
Mass customization aims at building products and services tailored for the unique needs
of the customers.
Electronic Procurement, APO (Advanced Planning Optimization) and Demand Chain
Optimization introduce scientific optimization techniques to plan production and
distribution.
Electronic supply chain or E-business supply chain, a more recent concept, leverages
the Internet to collaborate, exchange critical information and execute key functions like
procurement, order fulfillment, logistics and invoicing.
GLOBAL SUPPLY CHAIN MANAGMENT

Multinational corporations are redesigning their organizational structure from a

hierarchic multi-domestic structure into a global network. Using the contingency theory
framework, we identify the reasons for this change, optimal structures and the potential
cost/benefits to be expected. In addition, we also indicate how supply chains learn and
adapt to the dynamic global environment. These findings can help practitioners gain a
better understanding of international supply chains and provide a theoretical model for
academicians to conduct future studies.

Introduction
In the last two decades, competition has changed dramatically with the opening up of
trade barriers regionally and globally. Local companies in both developing and developed
countries are being now exposed to increased competition from a new set of competitors
that can exploit the comparative advantage of several countries simultaneously. Adding
to the local companies' problems is the growing volatility of the business environment
due to the larger number of international players, rapid changes in technology and shorter
product life cycles.
Firms have begun to implement two strategies in order to remain competitive: (i) by
seeking supplies and productions on a global scale, and (ii) reducing value-added
operations in-house via outsourcing and strategic alliances. By sourcing internationally
multinationals can take advantage of the unique conditions existing in the countries, such
as low wages, raw material availability, and proximity to markets. In addition, this
distributed system now gives firms the flexibility to react to the increased volatility in
technology and marketplace. It requires transformation of the organization and proper
management of supply chains to be successful.
Initially, American firms took their ideas from the US and transplanted them to overseas
locations, whereas Japanese firms invested in operations overseas to tap the local cost,
material availability and quality advantages. The European firms set-up multi-domestic
operations and let them develop their own products, services and supply system. Today,
most large American, Japanese and European Multinational Corporations (MNCs) are
now moving toward the twin strategy of global disaggregation and supply chain
management. In this research, we develop a model to identify why such strategies are
necessary today and the expected benefits to accrue by making such a transition.
The concept of managing the supply chain is not new. During the 1980s Michael
Porter described a model for operational effectiveness in which all of the firm’s activities
are looked at from the perspective of a value chain. He theorized that mastery of the
value chain would allow managers to understand how costs, quality, and value are
delivered from each segment of the organization. When properly managed, organizations
can forecast, produce, ship, and assemble a quality product or service efficiently.
Companies that excel in supply chain management can tailor products to meet customer
satisfaction. This skill offers the promise of a source of strategic advantage that others
less proficient at supply chain management cannot readily duplicate.
Many companies have adopted supply chain management principles for tracking
their products or services through the chain. However, since most companies do
tracking, this skill is not unique, and therefore, no longer offers a source of sustainable
advantage. Nevertheless, there are still methods to achieve resource-based advantage
through the supply chain. Developing capabilities such as teamwork among top
managers, organizational culture, relationships among other employees and relationships
with customers and suppliers are often taken for granted but can become a resource. He
contends that those companies that learn to develop their organizational social capital will
have a strategic advantage that is difficult to imitate.
.
Honda Manufacturing Company is among the industry leaders in attempting to increase
its competitive advantage by establishing relationships with members of its supply chain.
For example, in the past five years Honda has established networks of Honda managers
and their suppliers in order to encourage more effective partnerships. Have they been
successful? In this study, we survey the participants of these networks to determine their
perceptions of their partnership with Honda. Specifically, we inquire if the supplier team
members have acquired new skills and training; if they feel that they are more effective in
their jobs; if they are making suggestions to improve their workplace; if they feel more
satisfied at their jobs; and if they feel like part of the Honda team.

International Operations Structures

The structure of international operations can be viewed on a continuum of multi-
domestic, hybrid to global networks. On one extreme is a multi-domestic structure,
whereas on the other end is a distributed global network. Most multinationals do not
setup up operations at the extreme ends, but rather exist somewhere along the continuum.
Some firms are organized more closely towards a multi-domestic structure, while others
are closer to the organic global network form. The type of structure which is most
applicable is a function of the environment a business operates within.
If the environment is rather stable and closed, a multi-domestic structure would be the
most efficient form. Multi-domestic operations are designed to source, produce and
satisfy demand in only one country. This type of structure tends to be more hierarchic in
nature; with the various operations functioning somewhat independently of each other
and solely reporting to the headquarters.
As the environment becomes more open and correspondingly more dynamic, a hybrid
structure would be more effective. A hybrid structure would possibly entail transactions
of products, markets and information across two or three countries. For example, with the
lowering of trade barriers greater interaction between the subsidiaries is becoming the
norm. Such hybrid structures allow for example an operation in Mexico to supply
finished items to the Spanish and British markets, given the possible low labor cost
comparative advantage.
Finally, as trade barriers fall and the business environment becomes more open and
dynamic, a network structure would be the most adaptable for such conditions. On this
side of the continuum is a network structure, where the entire value chain is distributed
globally. This type of a network takes advantages of the different comparative advantages
among nations. By sourcing and producing on a worldwide basis and matching them with
the value chain activities of a multinational's operations provides a very effective and
flexible system. For instance, in building computer systems, the semiconductors might
come from Japan, software designs from the US, motherboards from Singapore, and the
final assembly performed in Mexico.

Multi-domestic Design
The optimum design for a closed and stable international environment is a hierarchic
model, with formal rules and regulations, centralized decision making and control,
servicing a single local market, downward communication using formal channels, and an
autocratic style of management. This type of a structure results in production orders and
flows that are handled in rather routine means to satisfy local demands. Operations and
logistics management activities are governed by corporate standards. Product costs are
usually reduced via learning the learning curve. Since routine procedures are followed,
the control of the workflow and decision making can be in the hands of centralized
management, and employees with specialized skills match the narrowly defined job.
An example of such types of structures would be the way Goodyear built factories in the
1960s and 1970s to accommodate the specific demands for various countries. Hence, a
plant in India would only produce to satisfy the local demand. No material or data flow
occurs between the similar sister plants in other countries.
Hybrid Design
Between these two extremes of hierarchic and organic designs lie a number of hybrid
forms that combine aspects of both to varying degrees. If the trade barriers have fallen
somewhat and the environment is more dynamic, design could be somewhat mechanistic,
but with management teams, project teams and task forces extending over a number of
subsidiaries. This type of a structure would be useful to solve problems that cannot be
settled through the formal mechanism. In addition, this type of interaction would allow
for new patterns of materials and information flows.
In this type of a structure, there are dedicated plants no duplication of operations.

Global Network Design

In a global environment that is truly dynamic with insignificant trade barriers, an organic
network organizational design would be recommended. This requires an informal
structure with flexible roles, implicit means of control, decentralized decision-making,
organic communication channels, and few standard rules and procedures. This results in
subsidiaries that do not have narrowly defined roles. Instead, they have the flexibility to
source items from a variety of suppliers locally or internationally. Because information
has to flow quickly between the different nodes, they have to be interdependent and use
informal channels of communication. The supply chain network has to make on the-spot
decisions constantly. It has therefore to trust and value those employees, units, suppliers
or strategic allies that make quick decisions, even if it means taking a risk. This requires a
growth-promoting climate, which encourages collective responsibility for decisions
throughout the entire supply chain.

Trends in global supply chain management

While there are numerous strategies used by companies to manage their supply chains on
a global basis, there are ten major trends that are driving innovative supply chain design
and configuration across all industries:

1) Globalization is accelerating, leading to large structural shifts for global supply chain
organizations and new challenges to successfully manage supply chain performance.
While past globalization initiatives focused on manufacturing and assembly, future
globalization will also target product and technology development.

2) Pressures to reduce cost and penetrate local markets are the two key drivers of
accelerated globalization.
3) Despite average cost reductions of 17% per globalization initiative, many companies
have difficulty realizing savings in management costs. The gap between planned and
actual benefits is caused by internal barriers that prevent full support of globalization
efforts, and external network partners that fail to achieve expected performance.

4) China and India continue to emerge as major targets for globalization, while Eastern
Europe is catching up as a top off shoring destination. Investments in North America and
Western Europe also remain strong as companies look to secure access to local markets
and key resources.

5) Product quality and safety, as well as supply chain delivery and security, are the most
critical concerns when expanding the supply chain globally. Four major risk mitigation
strategies--including the deployment of company resources at supplier locations--are
employed.

6) Major barriers to globalization include limited supply chain flexibility and the lack of
internal competency to manage partners. Better visibility and management across the
supply chain are important keys to overcome these barriers.

7) Environmental sustainability is a key consideration in the development of future

globalization strategies. Today, sustainability is mainly driven by the need for regulatory
compliance and satisfaction of customer demand. It is not yet considered a strategic
differentiator.

8) Acceleration of supply chain maturity, enabled by advanced supply chain practices,

appears to have reached a plateau. Among those surveyed, supply chain maturity differs
significantly across geographic regions and industries.

9) By 2012, the need for greater supply chain flexibility will overtake product quality and
customer service as the major driver for improving supply chain strategy. Many supply
chain leaders have developed effective strategies to improve global flexibility.

10) The COO agenda across industries and geographic regions is converging on
improving supply chain flexibility and performance.

Developing a Supply Chain Strategy

Understand the Business Strategy

The first step is for supply chain executives to clearly understand how the enterprise
chooses to compete. This is important not only for the obvious reason of working off the
“same play book,” but also for the reason that it forces the supply chain operation to see
itself as a customer facing entity serving the competitive goals of the enterprise—not
merely an operational department. Supply chain strategy is not simply a linear derivative
of the business strategy. At best, supply chain strategy can be the enabler of the business
strategy. If the business strategy is to be the low cost provider, the supply chain strategy
should support this. And just like when developing a business strategy, look to your core
competencies, focus, and means of differentiation when developing a supply chain
strategy. Being able to strategically source parts at an attractive price may support both
your supply chain strategy and business strategy, but only if you have the capabilities to
do so effectively. Look to your supply chain competencies and leverage what you do
well. You may want to focus on a particular market or segment in which to gain supply
chain efficiencies. Or you may want to differentiate your organization operationally by
providing lower costs to customers or providing services that other industry players are
unable to do.

Assess the Extended Supply Chain

The next step is to conduct a detailed, realistic assessment of the capabilities that exist
within the organization and even the extended supply chain. Begin by closely scrutinizing
your organization’s assets and evaluate how well they support the strategy. Old
machinery and disparate systems may mean high operational overhead and costly process
inefficiencies and redundancies – clearly not supportive of a low cost provider strategy. A
formal supply chain assessment by a non-biased outside party may assist you in better
understanding your operational strengths and opportunities for improvement. Look for a
firm that can provide you with operational benchmarks both inside and outside of your
industry in order to gauge core competencies. Once the assessment is complete, assemble
a team to review and prioritize recommendations, validate the opportunities, define the
risks, and the requirements for implementation. Ultimately, if there is a disparity between
the supply chain strategy and the operational assets, you may have to make capital
investments. Of course, the other alternative is to change your assumptions and alter your
strategy all together.

Develop an Implementation Plan

From this critical work emerges the “go forward” supply chain strategy – directly tied to
the business strategy, highly specific as to enablers and metrics, and with a defined set of
implementation requirements and contingencies. The development of an implementation
plan should include activities and tasks, roles, responsibilities, a corresponding timeline,
and performance metrics. Establish a sub-team to shepherd the execution and provide
project management responsibility to resolve issues and track status.
Development Considerations

Cooperate and Collaborate with Your Partners – Throughout the development

process remember to include your supply chain partners. While you don’t necessary need
to divulge the full details of your strategy, you can certainly communicate how you
would like to do business. Ideally, seek out mutual goals that both organizations can
execute on. Not only will you be one step closer to realizing your supply chain strategy,
you will learn more about the companies that you do business with. For example,
collaboration in product design may meet your need to stem R&D costs and also alert
you to new product concepts that you wouldn’t discover without working with your
customer.
Outsource Where Appropriate – Part of developing a supply chain strategy includes
evaluating opportunities to outsource areas that are not your core competency. If
someone else can do it cheaper, it may be worth outsourcing not only to drive down
costs, but also to focus more resources on the core competencies your organization does
well.

Executing Supply Chain Strategy

Performance Management

Execution involves closely following your implementation plan and applying good
project governance. You can improve your chances for success by managing performance
throughout implementation and beyond. Tracking performance allows an organization to
measure how successful it is in realizing the goals of a strategy. It also makes people
understand their contribution and responsibilities, creating a more cohesive, in tune,
organization. Performance management works best when people are rewarded for their
performance and reporting is conducted on a regular basis. Moreover, performance goals
should be used to communicate business expectations to outside entities as well. The
more the extended supply chain is involved, the more the supply chain strategy is
supported and reinforced.

Iterate the Cost – Benefit Evaluation Process

On a periodic basis (e.g., annually) you should formally revisit your supply chain
strategy. Did you meet the goals of the business strategy? Have the needs of your supply
chain partners changed? How has the industry changed i.e., new competitors, business
practices, products, technology? At this time, you may even want to reassess your supply
chain organization, if the changes are significant enough to warrant it. Also, use this
effort to look for new opportunities to further position your organization for success.
Keep Communicating with Your Partners

Executing a supply chain strategy means dealing with many different entities, both
internally and externally. Just as it is crucial to align the supply chain strategy with the
business strategy, it is equally important to execute in a manner consistent with these
different groups or stakeholders. The goals of your supply chain components and those
that you deal with must be similar and conducted at the same speed. Your organization
may be able to move at speeds other supply chain entities are unable to maintain,
resulting in misalignment and poor efficiencies. And some of your supply chain partners
may not have the resources to commit to realizing these goals. Good communication can
keep the extended supply chain in sync.