Supply Chain Management addresses the integration of suppliers, manufacturers, storage facilities, and retailers to produce and distribute goods and services to consumers in the desired quantities at the desired times.
While this might imply that all players have the same or similar goals, there are actually situations where those goals may not be consistent. For example, while a purchasing department might want flexible delivery times, warehousing operators will likely want to keep low inventory. Customers may want a large variety of merchandise from which to choose, but manufacturers may not have the capacity to deliver.
Very long lead times in a global supply chain system can result in merchandise that is no longer desired once it arrives. Additionally, shifting customer expectations, coupled with an increase in labor costs in developing nations, can impact pricing and logistics costs. Further, sustainability has become more important to consumers, resulting in the need for greater oversight and new manufacturing practices.
Organizational expectations can also impact how a company responds to their suppliers and customers. An increase in outsourcing, with suppliers having goals that differ from the organization, can cause conflict. An awareness of these differences can lead to better supply chain management and more reasonable expectations.
By streamlining the logistics system, companies can realize higher profitability levels while also better meeting customer needs. Companies can also better match supply to demand while recognizing that this is not the only area of uncertainty on which to focus. By addressing a shorter product life cycle, the impact of eCommerce, and the emergence of a more informed customer base, companies can adapt their supply chain systems to ensure a more effective and efficient process.
Advances in technology have enabled all players in the supply chain to communicate throughout the process. For example, suppliers, manufacturers, distributors, and retailers can all be aware of the flow of goods and information, leading to improved relationships and inventory management.
The bullwhip effect is caused by demand forecast updating, order batching, price fluctuation, rationing, and gaming.
Demand forecast updating occurs when all supply chain members individually revise their forecasts based on their received orders. As more individuals in the chain update their forecasts, the less the forecast will reflect actual demand. This problem can be mitigated by having departments share critical information and optimize inventory levels.
Order batching results from all members of the supply chain rounding their orders up or down depending on the constraints of their individual departments. Much like the issues with demand forecast updating, the more people in the process, the more the quantities actually needed becomes distorted. Again, communication across departments is essential, as is the need for a program and algorithm that measures accurate quantities needed.
Price fluctuations occur due to quantity discounts that encourage customers to make larger purchases than they require. This creates additional uncertainty when forecasting demand. Offering discounts only to customers with a history of making large purchases would enable companies to better plan for the future.
Rationing and gaming are when a seller limits quantities by only delivering a partial order. The buying responds by increasing the order quantity, which results in a distortion of what is being bought and sold. Honest business practices between buyer and seller and a relationship built on mutual trust can help mitigate this practice.
To review, read Causes of the Bullwhip Effect.
Lean practices are suitable for products that have a low variety and high volume. Agile practices, however, enable a company to respond quickly to changes in market demand. These variations require companies to determine how they choose to make trade-offs between responding to market changes or being efficient.
However, despite these differences, both practices need to collaborate with all departments across the supply chain. The relationship with suppliers is essential, and communication, common goals, and shared philosophies are needed throughout the process.
When choosing a supplier, an operations manager must determine if that supplier can deliver the quantities needed at an acceptable price. Of course, the merchandise quality must meet organizational standards, and the supplier must be deemed reliable. The organization's reputation and how they are to work with are also factors in the decision-making process.
Threats to productivity include losing production time due to a shortage of materials and losing money due to too much inventory. Just-in-time (JIT) production is when materials arrive at the production facility at the exact time they are needed. In this way, materials are not unused and inventory costs are reduced. Materials requirement planning (MRP) uses computerized systems to determine how much is needed for products and when those materials are needed.
To review, read Lean and Agile in Small- and Medium-sized Enterprises: Complementary or Incompatible?, Managing the Production Process in a Manufacturing Company, and Enhancing Pharmaceutical Procurement.
Supply chain optimization ensures that manufacturing and distribution processes are operating at their optimal levels. Companies must continually update and invest in their distribution channels to ensure that goods are delivered efficiently while also optimizing profits for the organization. This requires a balance of inventory, transportation costs, manufacturing, and supply chain management for all industries.
Companies can use statistical data to track trends and predict future demand. They can also manage unpredictability by setting safety stocks and levels. These strategies enable a company to determine how much merchandise is manufactured, where re-stocks are needed, and how to transport goods to replenish the supply.
To review, read Investment in Operations.
This vocabulary list includes terms that might help you with the review items above and some terms you should be familiar with to be successful in completing the final exam for the course.
Try to think of the reason why each term is included.