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Lesson 38 SUPPLY CHAIN
Supply chain includes all the activities associated with the flow and transformation of goods from the raw materials stage all the way to the end user. Supply chain can be broken into three parts, that is, upstream activities, internal activities and downstream activities. Upstream activities relate to materials/services or the input from suppliers Internal activities relate to manufacturing and packaging of goods Downstream activities relate to distribution and sale of goods to distributors/customers
Fig. 1 below shows a simple example of supply chain of a milk processing unit. Note that milkmen supply milk to the processing facility. The processing business has ordered a corrugate paper company to supply boxes/paperboard for packaging. The paper company receives its raw material from a lumber company for manufacturing boxes. The lumber company also supplies paper to label printing business for making/printing paper labels. These are upstream activities. The boxes and labels should be available to the processing business at the packaging stage. The milk processing unit processes the milk, packages it in boxes and attaches labels to them. These are internal activities. The packaged milk is sent to distributors who distribute the same at different stores from where customers purchase. These are downstream activities.
Supply Supply
ChainChain
Supplier of unprocessed milk
Lumber Company Corrugate Paper Co.
Label manufacturing
Processing Facility Packaging^ Distributors^ Stores^ Customers
The Milk Processing Unit
Processed milk
Labels
Packaged milk
paperboard
Boxes
Unprocessed milk
Fig. 1 Supply chain management
Engaging and negotiating with suppliers can be extremely beneficial. The process of taking active role in working with suppliers to improve products and processes is called supply chain management. Today, firms are reaching beyond limits of their own organizational structure. They are creating new network form of organization among the members of supply chain. Supply chain management is now used to add value in the form of benefits to the ultimate customer at the end of supply chain. It has become important for a business to work to establish long term relationship with at least small number of capable suppliers.
Internet technologies and supply chain
Internet is a very quick and effective tool of communication. On the other hand, communication is also a very critical element in supply chain management. Using internet technology: suppliers can share any information about changes in the customer demand; suppliers can have immediate notice of any changes in product design; drawings/specifications of a product can be quickly provided to the suppliers and vice versa; processing speed of a transaction can be increased;
cost of handling a transaction can be reduced; docsity.com
chances of errors in entering transaction data are reduced;
Probably, the only disadvantage of using internet technology in a supply chain is that sometimes it may prove to be costly. However, in ultimate analysis, the advantages override the cost factor.
With the help of supply chain management software, one can not only manage the internal processes but also processes of other members of the supply chain. Therefore, it can be predicted that when and how much of certain product would need to be produced.
Examples of technology use in supply chain
A typical example of the use of technology in supply chain management is a company which is well-known worldwide as the largest producer of commercial aircrafts. It makes a big effort to keep its production on schedule. Most commercial airplanes require more than 1 million individual parts and assemblies and each airplane is configured according to specific needs of the purchasing airline. Timely availability of these parts must be ensured otherwise entire production schedule would be disturbed.
In 1997 the company had to stop its two assembly operations for several weeks due to errors in production and scheduling system causing it a huge financial loss. Thereafter, it decided to invest in information systems in every element of its supply chain. Involving its suppliers in the process, it began the use of EDI and internet technology, so that the suppliers could supply the right part or assembly at right time to prevent production delay. Now, the suppliers could get engineering specifications and drawings before the start of manufacturing using a secure internet connection, and plan their own business activities, accordingly. Also, members of the supply chain could have the knowledge of the completion of milestones and any changes in production schedule. In two years time, this approach resulted in reducing half the time needed to complete individual assembly processes. Thus, instead of waiting for 3 years the customer airlines could now have the ordered airplane ready for delivery in 10-12 months. Furthermore, the company launched a spare parts web site for ordering replacement parts. The site allowed customer airlines to register and order for replacement parts through browsers. Soon, the site was processing 5000 transactions per day at much lower cost as compared to orders cost through phone, mail, or fax. It also improved customer service in the sense that most parts could now be delivered the same day or the next day.
Another example is of a famous computer selling brand. It realized that by increasing the amount of information about its customers it was able to reduce amount of inventory it should hold. It decided to share this information with other members of the supply chain by allowing its top suppliers to have access to a secure web site which informed them about its latest sales forecasts, planned product changes or any warranty claims etc. It also provided information about its customers and their buying pattern. Thus, it helped suppliers to plan their own production in a much better way.
The above examples show how members of supply chain can work together to reduce inventory, increase quality of product, reduce production cost and increase process speed.
Supply chain and ultimate consumer orientation
Primary objective of supply chain is to help each company to meet needs of the consumer at the end of supply chain. This approach is called ultimate consumer orientation. In 1995, a company dealing in the business of production of tiers in America adopted a different approach by shifting its focus on tire dealers from ultimate customers. It created an extranet that allowed tire dealers to access tire specifications, inventory status and promotional information on the web. Thus, it gave opportunity to dealers to access product information directly and immediately. It also saved money since a web page is less expensive than answering thousands of phone calls daily by the company. This initiative provided a better service to dealers, so dealers using this extranet were not likely to recommend to customers a tire from the competing business.
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