BPSM 260: FUNDAMENTALS OF SUPPLY CHAIN MANAGEMENT (45/0 CF 3.

0)
Y2S2, Y2S1
INTRODUCTION

A SUPPLY CHAIN consists of the series of activities and organizations that materials move
through on their journey from initial suppliers to final customers. MATERIALS are all the
things that an organization moves to create its products. These materials can be both tangible
(such as raw materials) and intangible (such as information). Supply chain is thus a sequence
of activities and organizations involved in producing and delivering a good or service. The
sequence begins with basic suppliers of raw materials and extends all the way to the final
customer.

Suppliers’ suppliers

Direct suppliers

Final customers

Distributor

Producer

A simple product supply chain

Supply chains are both external and internal to the organization. The external parts of a
supply chain provide raw materials, parts, equipment, supplies, and/or other inputs to the
organization, and they deliver outputs that are goods to the organization’s customers. The
internal parts of a supply chain are part of the organizations function itself, supplying
operations with part and materials, performing work on products and or services, and passing
the work on to the next step in the process.

The Need to Manage Supply Chain

Supply chain management is being given increasing attention as business organizations face
mounting pressure to improve management of their supply chains. In the past, most
organizations did little to manage their supply chains. Instead, they tended to concentrate on
their own operations and on their immediate suppliers. Moreover, the planning, marketing,
production and inventory management functions in organizations in supply chains have often
operated independently of each other. As a result, supply chains experienced a range of
problems that were seemingly beyond the control of individual organizations. The problems
include large oscillations of inventories, inventory stockouts, late deliveries, and quality
problems. These and other issues now make it clear that management of supply chains is
essential to business success. The other issues include the following:

• The need to improve operations. During the last decade, many organizations adopted
practices such as lean operation and total quality management (TQM). As a result, they were
able to achieve improved quality while wringing much of the excess costs out of their
systems. Although there is still room for improvement, for many organizations, the major
gains have been realized. Opportunity now lies largely with procurement, distribution, and
logistics – the supply chain.
• Increasing levels of outsourcing. Organizations are increasing their levels of
outsourcing, buying goods or services instead of producing or providing them themselves.
As outsourcing increases, organizations are spending increasing amounts on supply-related
activities (wrapping, packaging, moving, loading and unloading, and sorting). A significant
amount of the cost and time spent on these and other related activities may be unnecessary.
Issues with imported products, including tainted food products, toothpaste, and pet foods, as
well as unsafe tires and toys, have led to questions of liability and the need for companies to
take responsibility for monitoring the safety of outsourced goods.
• Increasing transportation costs. Transportation costs are increasing, and they need to
be more carefully managed.
• Competitive pressures. Competitive pressures have led to an increasing number of
new products, shorter product development cycles, and increased demand for customization.
And in some industries, most notably consumer electronics, product life cycles are relatively
short. Added to this are adoption of quick-response strategies and efforts to reduce lead times.
• Increasing globalization. Increasing globalization has expanded the physical length of
supply chains. A global supply chain increases the challenges of managing a supply chain.
Having far-flung customers and/or suppliers means longer lead times and greater
opportunities for disruption of deliveries. Often currency differences and monetary
fluctuations are factors, as well as language and cultural differences. Also, tightened border
security in some instances has slowed shipments of goods.
• Increasing importance of e-business. The increasing importance of e-business has
added new dimensions to business buying and selling and has presented new challenges.
• The complexity of supply chains. Supply chains are complex; they are dynamic, and
they have many inherent uncertainties that can adversely affect the supply chain, such as
inaccurate forecasts, late deliveries, substandard quality, equipment breakdowns, and
cancelled or changed orders.
 • The need to manage inventories. Inventories play a major role in the success or failure
of a supply chain, so it is important to coordinate inventory levels throughout a supply chain.
Shortages can severely disrupt the timely flow of work and have far-reaching impacts, while
excess inventories add unnecessary costs. It would not be unusual to find inventory shortages
in some parts of a supply chain and excess inventories in other parts of the same supply
chain.

Structure of the Supply Chain

The simplest view of a supply chain has a single product moving through a series of
organizations, each of which somehow adds value to the product. Taking one organization’s
point of view, activities in front of it – moving materials inwards – are called upstream;
those after the organization – moving materials outwards – are called downstream. The
upstream activities are divided into tiers of suppliers. A supplier that sends materials directly
to the operations is a first tier supplier; one that send materials to a first tier supplier is a
second tier supplier; one that sends materials to a second tier supplier is a third tier supplier,
and so on back to the original sources. Customers are also divided into tiers. One that gets a
product directly from the operations is a first tier customer; one that gets a product from a
first tier customer is a second tier customer; one that get a product from a second tier
customer is a third tier customer, and so on to final customers. In practice, most organizations
get materials from many different suppliers, and sell products to many different customers.
Each product has its own supply chain, and there is a huge number of different
configurations. Some are very short and simple – such as a cook buying potatoes directly
from a farmer. Others are surprisingly long and complicated.
Supply chains diverge to meet demand from different types of customer.
Manufacturers of car components, for example, sell some products to car assembly plants,
some to wholesalers for garages doing repairs, some to retail shops for individual customers,
and some directly to customers through websites. Then the supply chain divides into separate
strands with the same product following alternative routes.
Benefits of supply chains
Supply chains are so complicated that you might wonder if there is some way of avoiding
them. Sometimes this is possible, when we move products directly from initial producers to
final customers – when, for example, farm shops sell vegetables directly to consumers, or
authors publish their works on the Internet. In general, though, there are very good reasons
for having a longer supply chain.
• Supply chains exist to overcome the gaps created when suppliers are some distance
away from customers. They allow for operations that are best done – or can only be
done – at locations that are distant from customers or sources of materials.
 • Supply chains allow for mismatches between supply and demand. The demand for
sugar is more or less constant throughout the year, but the supply varies with the
harvesting of sugar cane and beet. When there is excess supply, stocks are built-up in
the supply chain, and these are used after the harvests finish.
• Supply chains can also make movements a lot simpler.
• Producers locate operations in the best locations, regardless of the locations of their
customers.
• By concentrating operations in large facilities, producers can get economies of scale.
• Producers do not keep large stocks of finished goods, as these are held further down
the supply chain nearer to customers.
• Wholesalers place large orders, and producers pass on lower unit costs in price
discounts.
• Wholesalers keep stocks from many suppliers, giving retailers a choice of goods.
• Wholesalers are near to retailers and have short lead times.
• Retailers carry less stock as wholesalers provide reliable deliveries.
• Retailers can have small operations, giving a responsive service near to customers.
• Transport is simpler, with fewer, larger deliveries reducing costs.
• Organizations can develop expertise in specific types of operation.

SUPPLY CHAIN ACTIVITIES

Separate activities

Logistics is responsible for the movement and storage of materials as they move through the
supply chain. But what activities does this include? If you follow some materials moving
through an organization, you can see that the following activities are normally included in
logistics.

• Procurement or purchasing. The flow of materials through an organization is usually

initiated when procurement sends a purchase order to a supplier. This means that
procurement finds suitable suppliers, negotiates terms and conditions, organizes
delivery, arranges insurance and payment, and does everything needed to get
materials into the organization. In the past, this has been seen as a largely clerical job
centred on order processing. Now it is recognized as an important link with upstream
activities, and is being given more attention.

• Inward transport or traffic actually moves materials from suppliers to the

organization’s receiving area. This has to choose the type of transport (road, rail, air,
and so on), find the best transport operator, design a route, make sure that all safety
 and legal requirements are met, get deliveries on time and at reasonable cost, and so
on.

• Receiving makes sure that materials delivered correspond to the order, acknowledge
receipt, unloads delivery vehicles, inspects materials for damage, and sorts them.

• Warehousing or stores moves materials into storage, and takes care of them until they
are needed. Many materials need special care, such as frozen food, drugs, alcohol in
bond, chemicals that emit fumes, animals, and dangerous goods. As well as making
sure that materials can be available quickly when needed, warehousing also makes
sure that they have the right conditions, treatment and packaging to keep them in good
condition.

• Stock control sets the policies for inventory. It considers the materials to store, overall
investment, customer service, stock levels, order sizes, order timing and so on.

• Order picking finds and removes materials from stores. Typically materials for a
customer order are located, identified, checked, removed from racks, consolidated
into a single load, wrapped and moved to a departure area for loading onto delivery
vehicles.

• Materials handling moves materials through the operations within an organization. It

moves materials from one operation to the next, and also moves materials picked from
stores to the point where they are needed. The aim of materials handling is to give
efficient movements, with short journeys, using appropriate equipment, with little
damage, and using special packaging and handling where needed.

• Outward transport takes materials from the departure area and delivers them to
customers (with concerns that are similar to inward transport).

• Physical distribution management is a general term for the activities that deliver
finished goods to customers, including outward transport. It is often aligned with
marketing and forms an important link with downstream activities.

• Recycling, returns and waste disposal. Even when products have been delivered to
customers, the work of logistics may not be finished. There might, for example, be
problems with delivered materials – perhaps they were faulty, or too many were
delivered, or they were the wrong type – and they have to be collected and brought
back. Sometimes there are associated materials such as pallets, delivery boxes, cable
reels and containers (the standard 20 foot long metal boxes that are used to move
goods) which are returned to suppliers for reuse. Some materials are not reused, but
are brought back for recycling, such as metals, glass, paper, plastics and oils. Finally
 there are materials that cannot be used again, but are brought back for safe disposal,
such as dangerous chemicals. Activities that return materials back to an organization
are called reverse logistics or reverse distribution.

• Location. Some of the logistics activities can be done in different locations. Stocks of
finished goods, for example, can be held at the end of production, moved to nearby
warehouses, put into stores nearer to customers, passed on to be managed by other
organizations, or a range of alternatives. Logistics has to find the best locations for
these activities – or at least play a significant role in the decisions. It also considers
related questions about the size and number of facilities. These are important
decisions that affect the overall design of the supply chain.

• Communication. Alongside the physical flow of materials is the associated flow of

information. This links all parts of the supply chain, passing information about
products, customer demand, materials to be moved, timing, stock levels, availability,
problems, costs, service levels, and so on. Coordinating the flow of information can
be very difficult, and logistics managers often describe themselves as processing
information rather than moving goods.

Effects on financial performance

As an expensive function, logistics has an impact on an organization’s overall financial

performance. We can give many illustrations of this, but will start with the effects on the
return on assets (ROA).

The return on assets is defined as the pre-tax profit earned by an organization divided by the
value of the assets employed.

• Return on assets = profits earned/assets employed.

This gives a measure of how well available resources are used and, in general, the higher the
value, the better the organization’s performance. Assets are usually described as current
(cash, accounts receivable, stocks, and so on) or fixed (property, plant, equipment, and so
on). Improving the flow of materials reduces the amount of stock. This clearly lowers current
assets, but we can argue that it also reduces fixed assets and increases profit.

• Current assets. More efficient logistics reduces the current assets through lower stock
levels. Reducing the investment in stock can also free up cash for other more
productive purposes and reduce the need for borrowing.
 • Fixed assets. Fixed assets include property, plant and equipment. Logistics is a heavy
user of these resources, and the warehouses, transport fleets, materials handling
equipment and other facilities needed to move materials through the supply chain
form a major part of fixed assets.

• Sales. By making a more attractive product, or making it more readily available,

logistics can increase sales and give higher market share.

• Profit margin. More efficient logistics gives lower operating costs, and this in turn
leads to higher profit margins.

• Price. Logistics can improve the perceived value of products – perhaps making them
more easily available, giving faster delivery or shortening lead times. More attractive
products can get premium prices.

As you can see, the first two points give lower assets, while the last three increase profits. All
of these effects raise ROA, and consequently affect other measures of performance, such as
share price, return on investment, borrowing, and so on.

1. SUPPLY CHAIN DESIGN

Supply Chain Design

Supply chain design aims to optimize the physical, financial, and information flows of a
supply chain to enhance business performance.

Supply Chain Design

Successful supply chain design is about deploying assets in ways that enhance profitability
and shareholder value. You need to consider market and sourcing strategies that will generate
the best financial performance. You must identify the optimal number of plants, warehouses
and distribution centers to maximize long-term profit.

It is important to understand exactly how and where to deploy assets for optimal operational
and financial performance. Personnel involved in supply chain design require a tool that
considers business objectives, resource constraints and subsequent financial impacts in
order to define an optimal supplier-to-customer supply chain structure – one that cuts costs
and increases profitability.

Overcoming the challenges of supply chain design

This includes:
 • Managing constraints and margins

There are many circumstances where the structures of the maximum profit and minimum cost
solutions will be different; their facility number, locations, sizes, product mix, supplier and
demand allocations will be different.

Conflicting concerns over costs and margins occur when a supply chain is supporting
multiple products with capacity constraints and varying profit margins. Similarly, if product
demands are highly variable, the lowest cost solution will not lead you to the highest profits.

Therefore employ techniques that maximize profits and identify the least-cost solution
required to meet particular goals.

• Managing risk

There is uncertainty and risk in demand, supply and lead times that companies need to factor
in when designing supply chains. Companies need to be able to adjust to unforeseen market
changes.

Supply chain design solutions help you to predict how alternative risk management strategies
will impact your performance and ability to react to market changes, before you commit time,
capital and other resources to implementing the strategies.

 The tools also enable you to make profitable decisions easily and perform 'what if' scenarios
to confirm or re-evaluate assumptions made during the initial design process.

• Balancing strategic objectives with operational objectives

Companies need to balance short-term outlooks with longer term plans and objectives. As a
result, supply chain design needs to provide you with detailed insights into how demand can
be met profitably.

Supply chain design solutions help you optimize long-term capacity plans for production and
warehousing as well as allocation of customers’ orders to warehouses and plants.

When designing your supply chain, attain the solutions you need to ensure that:

Opportunities to improve profits are identified

Supply chain cost are reduced while customer responsiveness is improved

Decision making supports the profitability of the entire company

Alternate strategies are compared quantitatively

Cost tradeoffs are modelled accurately

Design for Supply Chain (DfSC) is the process of optimizing the fit between supply chain
capabilities and product designs. It creates product configurations that address infrastructure
limitations and use supply chain capabilities as they evolve throughout the life of the product.
In today's supply chain, minimal component costs are still a competitive weapon, but the
supply chain that can offer the highest performance at the lowest overall cost is rapidly
becoming a far more valuable and sustainable differentiator.

The next time that you pop open a soda can, take a slightly closer look — not at the beverage
itself, but at the can that contains it. What you may not notice is that the soda can is a
quintessential example of product design for supply chain. When soft drink manufacturers
switched from cone top to flat top soda cans in 1957, the change made cans much easier to
stack, transport and store on shelves, resulting in tremendous costs savings for companies in
the industry.

The soda can revolution is an example of how product design for supply chain can drive

efficiency and costs savings into a business. Today, almost 50 years later, efficient product

design is not just a way of squeezing out cost savings, but a competitive weapon to be

leveraged for strategic advantage.

In supply chain management today, it is widely accepted that effective upstream operations

drive efficiency further down the supply chain — take, for instance, the degree to which

suppliers are beginning to help customers reduce supply chain volatility through strategies

such as vendor-managed inventories (VMI) and collaborative planning, forecasting and

replenishment (CPFR). Now, imagine taking a step even further upstream in the production

process — not just to the supplier of the product's components, but to the supplier of the

product's initial concept — the product development team (PDT). Design for Supply Chain

(DfSC) program extends the idea of end-to-end collaboration a step forward by taking a step

backward and optimizing production before it even begins. By applying a product lifecycle

management mentality as early on as the conceptual design stage, a product can be developed

from the ground up to be a truly supply-chain-efficient creation.

DfSC uses a series of supply chain management processes and techniques that increase

customer satisfaction, minimize total costs, and maximize the flexibility to address unplanned

events. It is the convergence of some of today's most innovative practices in the product

design and supply chain processes. It can be the answer to the question, "How do we stay

competitive in an increasingly commoditized market?" It is also quite possibly the next big

step in product development.

However, this is no small task. With rigorous financial requirements, as well as a plethora of

customer demands to bear in mind, PDT's are often already overwhelmed with product

design considerations. But, by examining the nine key strategies behind DfSC, and answering

the basic what, where, when, why and how of DfSC, we can help educate PDT's, and

ourselves, on how to design our products for supply chain efficiency. These strategies help a

PDT manage the development and support of complex products and services throughout the

entire lifecycle, from product design to product build to post-sale service.

While there are challenges to implementing Design for Supply Chain, there are also evolving

business means to support this type of integrated process. One such technology is service-

oriented architecture (SOA), in which the many parts that IT infrastructure needs to operate

this kind of process can be linked to support all of the interrelated functions involved. Those

who deploy DfSC techniques should consider all end-to-end factors within their business that

can help or hinder their success. Organizational culture, IT systems and information

availability are all things to consider when embarking on this journey to improve not only

the way your company designs new products but also to save cost and improve flexibility in

your supply chain from end to end.

• SUPPLY CHAIN STRATEGIES

Typically  the  aim  of the  supply  chain  strategy  is  to  achieve  objectives  such  as
delivering products  faster into  the market, minimizing  resource  investment,  reducing
specific costs reducing specific response and cycle times and pushing new product design
faster. Supply chain strategy supports the overall firm's competitive strategy by focusing on
driving down the operational cost and maximizing efficiencies. With the changing business
environment, it is critical that organizations manage their supply chains optimally to achieve
the highest returns now and in the future.
Strategy; is a fit, which a company (supply chain) has within its environment.  Strategy is a
master plan that delineates critical causes of action towards the attainment of supply chain
objectives and a blue print that defines the means of deploying resources to exploit present
and future opportunities.
Objectives of Devising Supply Chain Strategies

• To achieve the goodness of fit between strategy and all relevant aspects of a supply
chain internal and external situation.

• Help gain and secure competitive advantage.

• Improve the supply chain and management performance.

The need for supply chain management strategies
Supply chain strategies at the functional or operational levels derive from corporate or
business strategies. Information and advice provided by the supply chain management may
influence the framing or adjustment of corporate strategies. As a result, the need for a
procurement and supply chain management strategy depends on the following:

• The complexity of the supply market gauged by supply scarcity, pace of technology, rate
of material substitution, entry barriers logistics complexity and monopoly condition.

• The strategic importance of procurement and supply chain management as perceived by

the top management of a specific firm in a chain.
Supply chain strategies generally conform to one of six types. Choose the best one for your
organization, and you'll manage your business more effectively.

Supply chains encompass the end-to-end flow of information, products, and money. For that
reason, the way they are managed strongly affects an organization's competitiveness in such
areas as product cost, working capital requirements, speed to market, and service perception,
among others. In this context, the proper alignment of the supply chain with business strategy
is essential to ensure a high level of business performance.
The four elements of supply chain strategy
To paraphrase Michael Porter, while operational efficacy deals with achieving excellence in
individual activities or functions, supply chain strategy defines the connection and
combination of activities and functions throughout the value chain, in order to fulfil the
business value proposal to customers in a marketplace.

Accordingly, an organization's supply chain strategy is shaped by the interrelation among

four main elements: the industry framework (the marketplace); the organization's
unique value proposal (its competitive positioning); its internal processes (supply chain
processes); and its managerial focus (the linkage among supply chain processes and
business strategy). Although each of these elements includes multiple factors, only some of
those factors are relevant drivers for the formulation of a supply chain strategy.

• Industry Framework
"Industry framework" refers to the interaction of suppliers, customers, technological
developments, and economic factors that affect competition in any industrial sector. Within
this framework are four main drivers affecting supply chain design, all of them interrelated:
Demand variation, or demand profile

This influences the stability and consistency of the manufacturing assets' workload, and
consequently is a main driver of production efficiency and product cost.

Market mediation costs

Market mediation costs, as defined by Marshall Fisher, are costs associated with the
imbalance of demand and supply. Examples include product price markdowns to compensate
for excess supply, and lost sales when demand exceeds supply. These costs, which reflect the
unstable and fragile balance between lost sales and product obsolescence, arise from the
consequences of the degree of demand predictability.

Product lifecycle

This is continually getting shorter in response to the speed of change in technology, fashion,
and consumer product trends, affects the predictability of demand and market mediation
costs. Consequently, it pushes companies to increase the speed of product development and
to continuously renew their product portfolios.

Relevance of the cost of assets to total cost

This becomes critical in industrial sectors where business profits are highly correlated with
the asset-utilization rate. Companies fitting this profile must assure high utilization rates,
often to the detriment of working capital and service levels. In industries where the relevance
of the cost of assets is low, companies may choose strategies that focus on responsiveness. In
these cases, the asset-utilization rate falls between high and low, but responsiveness to
unexpected demand is high, increasing customer satisfaction and reducing market mediation
cost.

• Unique Value Proposal

The second element, the unique value proposal, requires a clear understanding of the
organization's competitive positioning in terms of its supply chain. A good approach to this is
the concept of "order qualifiers" and "order winners" described in 1995 by Alex and Terry
Hill. These concepts define, respectively, the minimum requirements for being considered as
a relevant option by customers, and the performance aspects that best differentiate the
company from its competitors and therefore help to win customer orders.

Recognizing the main "order winners" (in terms of product features and service) in a
company's value proposal allows the enterprise to shape the connection and combination of
the key drivers that must be incorporated into supply chain processes in order to ensure the
fulfillment of that value promise to customers.

• Managerial Focus
Before discussing the fourth element—internal processes—it is important to explain the
linkage and alignment between an organization's competitive positioning and its supply chain
processes. The connection between these two areas is governed by the decision-making
process and is driven by the supply chain's managerial focus.

This focus is the most important factor in ensuring coherence between supply chain execution
and a business's unique value proposal. Yet it also can be an area where organizations are
more likely to fail. Such failures mainly result from a standard managerial approach that
emphasizes efficiency-oriented performance indicators regardless of the competitive
positioning defined by the organization. This approach encourages companies to focus on
seeking local efficiencies that may conflict with their value proposal to customers, thus
creating misalignment between the supply chain and business strategy.

• Internal Processes
The fourth element, internal processes, provides an orientation that ensures a proper
connection and combination within the supply chain activities that fall under the categories of
source, make, and deliver. Among the many factors encompassed by this element, the most
important are asset utilization and the location of the decoupling point. The decoupling point
is the process in the value chain where a product takes on unique characteristics or
specifications for a specific customer or group of customers. There is a high degree of
interdependence between these two factors, and they in turn govern other factors:
When the business framework is characterized by a high degree of relevance of the cost of
assets to the total cost, and/or when the unique value proposal is oriented to low cost, the high
utilization of assets is mandated. Consequently, the location of the decoupling point should
be at the end of the transformation process, or at least at the output point for the most relevant
manufacturing asset in terms of cost.

Prior to the decoupling point, processes are "push," therefore the workload levelling is
smoothed by the forecast, the production cycle tends to be long in order to increase
production efficiency, and the asset-utilization rate is high.

After the decoupling point, processes are "pull," therefore asset utilization hovers around the
medium level, the workload is driven by demand and is therefore highly variable, and the
production cycle tends to be shorter in order to reduce the order cycle time and increase
customers' positive perception of service.

The largest portion of the inventory which is partially manufactured and ready to configure
according to customers' requirements is concentrated just before the decoupling point.

When the decoupling point is located farthest from the customer's end of the supply chain,
product customization increases, therefore demand buffering should be supported by excess
capacity. In addition, collaborative relationships with customers become more useful because
they help to reduce demand uncertainty.

When the decoupling point is located toward the customer's end, product customization
diminishes. Consequently, the minimum size of the order does not depend on the size of the
manufacturing batch, and minimum order size is governed by the relevance of transportation
cost to the total cost.

The Nine Key Design for Supply Chain Strategies

Optimize Levels of Product Integration: PDTs should determine the optimal level of
integration, or parts, that have been pre-assembled at an upstream supplier. This can be a
difficult decision because while integrated components can reduce the number of parts that
need to be managed in final assembly and allow for a reduction in assembly time (often by
limiting the number of physical interconnections on the manufacturing line), this bundling of
P/Ns can create additional supply risk in several ways.

It can make it more difficult to accurately forecast demand for the part because each
integrated component presents another demand variable that must be factored into the
forecast for the overall part.
Aggregate lead times may be increased for an integrated component. Take, for instance, a
case where there are two components, each with a lead time of one week. With two distinct
suppliers, the components can ship on the same day to arrive at manufacturing for assembly
within a week. For integration, the first component must ship to the supplier of the second
component before facing the standard lead time of one week, resulting in an extended
aggregate lead time.

To help with the decision, consider the degrees of commonality, modular design, universal
function and postponement that can be imbedded in the integrated part — a common building
block used across multiple offerings increases the value of disintegration by allowing
postponed features to use a shared supply. While maintaining a competitive part cost is
always an important factor, in some cases overall savings be realized even when an
individual part's cost is increased.

2. Leverage Industry Standards:  Use industry standard parts unless proprietary parts are
justified to create a competitive advantage. A standard part uses the vendor part number with
no unique marking or other requirements. Industry standard parts allow suppliers to pool
demand across the industry, rather than relying solely on their ability to forecast demand for
the unique part. In addition, industry standard parts allow for increased flexibility in sourcing
from other suppliers and facilitate the cost-effective disposal of excess inventory when
needed. Thus, unless the use of a unique part has a specific value add, industry standard parts
should be used whenever possible. The perception of greater control by placing unique
qualifications on industry standard components needs to be objectively evaluated.

Similarly, inventories of unique parts for original equipment manufacturer (OEM)

customization should also be carefully monitored. PDTs should consider in the design stage
what aspects of the product will and will not be available for OEM customization and design
so that the product is configured to be line-fit to postpone any OEM personalization as far
downstream as possible. Costs are minimized by not having to plan and maintain stocks of
unique high-value OEM inventory. Where possible, these OEM-specific inventories should
be owned by the OEM.

Minimize Premium Freight:  Premium freight and resources to expedite supply can often
compose a large portion of supply chain costs. In order to minimize these costs, DfSC
techniques should be used to reduce lead times on critical components while maximizing the
availability of alternate components in the event of a shortage. Long lead times result in
volume fluctuations at the back end. It is important to consider flexibility in suppliers and
integrated components. For example, when evaluating integration alternatives assess the
trade-off between a lowest-cost approach for accurately planned requirements and the real
need for low-cost flexibility to address unplanned events. The product should also be
designed for compatibility and commonality with predecessor components or for alternate
parts usage with other current products.

Also, the earlier suppliers can be provided with demand forecasts on a P/N level, the greater
their capacity to reserve production capabilities to meet demand and avoid the need to
expedite. Finally, engineering changes should be evaluated for their overall impact on the
supply chain. This is especially important when considering heavier components that will
have larger premium costs when expediting. Engineering changes later in the design process
also make it more difficult for suppliers to meet demand forecasts.

Design for Life Cycle:  Product should be designed to be supply chain friendly to potential
component or infrastructure changes through its lifecycle. These include events such as small
improvement to product design, cost improvements or commodity/technology/infrastructure
advances. PDTs should determine which of the product's components are likely to be
changed throughout the product's lifecycle and facilitate eventual change with minimum
impact in the supply chain. After deciding on the changes that are likely to occur, PDTs
should structure the product so that changes can be implemented with minimum disruption to
the supply chain.

It is also important for product design to proactively transition out old technology while
introducing new technology. Extended technology transitions add complexity and can be very
expensive when the older technologies become hard to supply. The product design must
consider forward and backward compatibility — not just from a customer viewpoint, but also
for component parts in the supply chain. Design teams should develop risk mitigation plans
for low-volume parts to avoid excess inventories or reduced service levels when the
technology is going end-of-life.

Configure the selected Supply Chain:  The role of a cross-functional product development
team should include selecting and configuring the supply chain, but not creating one. Supply
chains need to be established based on the company's strategic network plan, not individual
products. Market requirements (i.e., volume, complexity and customization) are key factors
in the best choice of supply chain.

There are several important considerations for supply chain selection. First, PDTs should
determine if the product best fits the run rate (high volume) or the enterprise (high
complexity) model. Second, design should determine what is unique about the product when
compared to the attributes of other products using the same supply chain model, and
configure the supply chain to address product specific requirements. Third, PDTs should
specify the geographic distribution of customers and how cycle time and inventory targets
will be achieved. Fourth, design teams should critically decide how many (few) options will
be required with the product. The ultimate in postponement is for customers to enable a
product to meet their specific needs. Fulfillment of options that go with the product need to
be developed to minimize supply chain complexity. The final selection consideration is if and
how a product will transition between different supply chains to maximize profitability for
the start-of-life, mid-life and end-of-life.

6. Design for Demand & Supply Planning:  Designs that leverage DfSC techniques include
commonality, modular design, universal function and postponement "pool demand"
requirements. Pooling requirements on a common component reduce variability and improve
the ability to accurately forecast demand during lead time. Reducing part count is desirable,
but when attach rates are low it may be best to use postponement. Another consideration for
demand/supply planning is bundling hardware and services/terms and conditions could be
unbundled. Since services and terms and conditions (T&Cs) are not planned, bundling them
with hardware creates complexity for planning. Rather than bundling a product with
predetermined services, infrastructure systems should enable the addition of the right services
to hardware and software to be postponed until the end of the manufacturing process in order
to reduce complexity and give customers more flexibility in choosing exactly which services
they desire.

Minimize Inventory Costs:  The two key inventory costs to consider are carrying costs and
obsolescence risk. Carrying costs can be reduced when product has quick build-to-ship times
and favors a build-to-order (BTO) as opposed to a build-to-stock (BTS) supply chain model.
Also, designing to maximize the velocity of parts through the supply chain will reduce
inventory value and reduce cost take-downs while inventory is being held. Obsolescence risk
can be minimized using short lead times and easily reconfigurable components. Like carrying
costs, designing for high velocity movement will also help with obsolescence risk.
Configuring for customization at the end of the assembly line will minimize risk by
increasing flexibility. Finally, PDTs should configure product components for reuse into the
next product transition in the event that obsolescence does occur.

Optimize Order Management:  Product design should consider the facilitation of order
management and customer fulfillment. Product design should be adjusted to provide the
maximum level of flexibility to the customer with little or no additional internal cost. This
can be accomplished by using the DfSC techniques to facilitate postponement and unbundle
P/Ns, thereby reducing complexity and increasing flexibility and order management. PDTs
should also consider the ease of special order entry and manufacturing. The structure of the
bill of material needs to leverage the capabilities of the order management systems and
facilitate quick and accurate communication of requirements to manufacturing.
Minimize Warranty/Service Costs:  Warranty costs are minimized by a reliable, high quality
product with easy to diagnose faults and customer replaceable parts that have a high warranty
redemption value. Using the DfSC techniques can increase flexibility in terms of alternative
parts usage for service. A common part for warranty use may be beneficial even when
common parts for base unit manufacture did not make good business sense. Minimizing the
portfolio of parts that need to be stocked for service and warranty decreases expense and
improves service levels. This is especially important for those parts that have the highest
typical defect rates. Additionally, designs that integrate automated internal diagnostic
capabilities may increase component costs but vastly decrease overall costs through the
facilitation of easy defect assessment. The use of a serviceability assessment tool (SAT) to
provide a service cost estimate that can be a key decision point when gauging increased
component costs against service expenses.

The profitability of maintenance contracts can be maximized by product testing that identifies
both intrinsic and systemic failure modes, and then configuring the product and the supply
chain to cost effectively addresses them.

"The ability to design for supply chain is critical for organizations as they strive to achieve
the "perfect product launch." The perfect product launch concept involves managing the
development and support of complex products and services throughout the entire lifecycle
from product design to product build to post-sale service. By deploying product commonality
and reuse, our clients achieve supply chain efficiencies from reduced complexity, improved
product quality and better manufacturing design. With these design concepts in place, clients
can realize the benefits of being first to market and stronger profit margins while reducing
end-to-end costs."

— Mark Wilterding, Partner, IBM Global Business Services

The Focus of Strategic Supply Chain Management

Strategic supply chain management is more than just innovation for the sake of being
innovative. It's creating a unique supply chain configuration that drives your strategic
objectives forward. To get the most from your supply chain, you need to consider five critical
configuration components:

• Operations strategy

• Outsourcing strategy

• Channel strategy
• Customer service strategy

• Asset network
Your decisions around these components and how they play together define your supply
chain strategy. Until now, companies tended to either address these components informally or
make decisions about them in isolation--often as part of a functional strategy related to sales,
purchasing, or manufacturing. However, companies that view the supply chain as a strategic
asset see their components as interdependent--part of an integrated whole. Let's look at each
more closely.

• Operations Strategy
Your decisions about how you'll produce goods and services form your operations strategy.
Will you choose make to stock, make to order, engineer to order, or some combination? Will
you outsource manufacturing? Will you pursue a low-cost offshore manufacturing strategy?
Will you complete your final configuration outside the manufacturing plant and closer to the
customer? These are critical decisions because they influence and shape the whole supply
chain and the investments you make. Your operations strategy determines how your staff and
run your factories, warehouses, and order desks--as well as how you design your processes
and information systems.

• Channel Strategy
Your channel strategy has to do with how you'll get your products and services to buyers or
end users. These decisions address such issues as whether you'll sell indirectly through
distributors or retailers or directly to customers via the Internet or a direct sales force. The
market segments and geographies you're targeting will drive your decisions in this area. Since
profit margins vary depending on which channels are used, you have to decide on the optimal
channel mix--and who gets the goods in times of product shortages or high demand.

Market leaders use effective channel strategies to reap significant gains. Dell, with its direct-
sales model, and Wal-Mart, with its superstore model, offer compelling examples of how
channel choices can deliver a competitive advantage.

• Outsourcing Strategy
Outsourcing decisions begin with an analysis of your company's existing supply chain skills
and expertise. What is your company really good at? What areas of expertise are or have the
potential to become strategic differentiators? These are the activities you should keep in-
house and make even better. Consider outsourcing activities with low strategic importance or
that a third party could do better, faster, or more cheaply.
Outsourcing allows companies to go up or down quickly, build new products, or reposition
themselves in the marketplace-- all by leveraging the expertise and capacity of other
companies. This added flexibility and agility can make an enormous difference in today's
competitive global markets. Most important, though, outsourcing allows companies to focus
on their core competencies and enhance their competitive positioning.

Considerations in strategic supply chain management

The basic strategic considerations supply chain managers should pursue are:

• Evaluation of the supply chain formulation of strategy.

The organization should ask some 'what if' questions about the supply chain operation. It
should evaluate all elements from process, technology, organization, controls and metrics.
The evaluation should be specific to each element and objective and continuous with an aim
to improve.

• Supply chain management to focus on the customer

Supply  chain  management  should  span  all links in the supply  chain,  from  suppliers  to
the customers. The organization strategy is to ensure that the entire network is aligned to
achieve the same goals, serving the end customers’ needs and to the greatest extent possible,
delivering products that customers want when they want them and at the prices they are
willing to pay.

• Top management buy-in

The management of the supply chain should take a top down approach; initiatives should be
led and endorsed by the CEO. This is critical in securing senior management buy in and
ensuring that the strategy will yield good results.

• Control trade-offs between cost and service

Smart trade-offs between cost and service is critical in the effective design of the supply
chain network and to achieving the goal of satisfying the customer needs. An example is
overemphasizing on service can lead to excess inventory and capacity. Alternatively, if too
much emphasis is put on cost:  service elements, stock on hand, quality, and customer
satisfaction and on time delivery can suffer which can hurt sales. Supply chain design should
address what kind of inventory,  plants,  warehouses,  people,  capabilities  and  suppliers  are
needed,  where  they should be located or whether they should be owned or out-sourced.

• Ensure communication between key stakeholders

The objectives of business functions frequently conflict. This can weaken the supply chain
and affect the company performance. For example sales are dead set to meet targets
regardless of inventory implications, or manufacturing managers being entirely focused on
cost reduction while completely disregarding the effects on customer service. Open
discussions among business units and a management led initiative to achieve a carefully
crafted supply chain strategy are essential to ensure decisions are made to benefit the
corporation as a whole.

• Effectively handle customization

Customers are demanding more customized products and services.  Customization can be
expensive and wasteful complexity to the supply chain if not carefully planned for and
managed. More parts and product configurations mean more suppliers, more inventory, and
shorter production run times. Before introducing new complexity and cost to the supply
chain, evaluate the additional products and services to the customer and to the company.
Complexity can be controlled through effective product architecture and fully understanding
associated costs.

• Understand value of technology

Information technology should not be used to replace broken links in the supply chain.
Processes complimenting the companies supply chain management strategy must be designed
first then the right technological infrastructure that can support the strategy put in place.
Managers may be tempted to reduce the critical human element and rely only on software to
manage the supply chain. Software cannot understand the company's strategy or fully replace
knowledgeable hands on managers.
Conclusion
A highly efficient supply chain that offers the greatest flexibility and customer service at the
lowest cost can be a substantial differentiator against growing competition. By using Design
for Supply Chain techniques to optimize products in the design phase before manufacturing
even begins, or in some cases after it has begun, supply chain disruptions can be avoided and
costs of change minimized. The DfSC strategies and concepts outlined above will give any
product design team — whether designing for a high-tech server or a high-volume consumer
good — the basis for creating products that allow the supply chain to efficiently satisfy
customer demands.

• SUPPLY CHAIN CONTRACTS

To enable coordination, the supply chain resorts to contracts. In general, the goal is to write
contracts that induce coordination through appropriate provisions for information and
incentives such that supply chain performance will be optimized. This type of approach
recurs in a broad range of settings. We record that an important objective of supply chain
contracts is:

system-wide performance improvement. Another motive that is pursued by entering

into supply chain contracts is

sharing the risk arising from the uncertainty in the supply chain. Another contracting
motive is

facilitating long-term relationships.

By entering persistent business partnerships, supplier and buyer can reduce transaction costs
since costly searches and renegotiations are reduced. Typically, a supply chain contract
should capture the three types of flows encountered between the members of a supply chain,
i.e., material, information, and financial flows.

Supply chain contracts generally have eight contract clauses including specification of
decision rights, pricing, minimum purchase commitments, quantity flexibility, buy-back
or returns policies, allocation rules, lead time, and quality.

• Specification of decision rights

Exemplary agreements are Resale Price Maintenance or Quantity Fixing. Although the buyer
typically chooses the order quantity and the retail price given the transfer payment specified
by the supplier, these mechanisms shift control to the supplier. Moreover, the issue of
assigning control to local or global entities may also be interpreted as an issue of decision
rights.

• Pricing
This contract category considers the financial component of the contract between the supplier
and the buyer. Often, the wholesale price, the franchise fee and quantity discounting fall into
this category.

• Minimum purchase commitments

Such an agreement requires the buyer to purchase a minimum quantity, either within each
single transaction, or cumulatively over a specific time horizon. The supplier may reduce to
provide an incentive to the buyer to agree to this arrangement.
 • Quantity flexibility
In this type of supply chain contract, the buyer is granted a certain degree of quantity
flexibility in the sense that the ultimate purchasing quantity may deviate from the initial order
quantity.

• Buy-back or returns policies

A buy-back clause specifies that the buyer may return a percentage of unsold goods to the
supplier. The buy-back price will typically be less or equal to the wholesale price. As in the
case of quantity flexibility, mismatches between the buyer’s purchase and the market demand
are only of interest when demand is assumed random.

• Allocation rules
This stream of contracting literature investigates the allocation of the supplier’s available
stock or production capacity among multiple buyers in a shortage scenario.

• Lead time
The lead time for delivery of the product from the supplier to the buyer may also be a
contractual clause. In traditional inventory models, the lead time is either treated as a fixed
constant or the realization of a random variable.

• Quality
Quality of the delivered product is a major prerequisite of any supply relationship. The
specific dimensions of quality may be specified within the supply chain contract.

• Horizon length
The horizon length specifies the duration for which the contract is valid.

• Periodicity of ordering
This contract term specifies how often the buyer can place orders. One distinguishes fixed
and random periodicity of ordering. The former term means that the buyer may place orders
only on predetermined dates (it is not essential that orders are non-zero). The latter one means
that orders can be placed any day of the week.
 11. Information sharing
This contract term specifies what type of information will be shared between buyer and
supplier.

• E-BUSINESS AND SUPPLY CHAIN

Business organizations must be cognizant of current trends and take them into account in
their strategic planning. Advances in information technology and global competition have
influenced the major trends. The Internet offers great potential for business organizations,
but the potential as well as the risks must be clearly understood in order to determine if and
how to exploit this potential. In many cases the Internet has altered the way companies
compete in the marketplace.

E-business or electronic business involves the use of the Internet (electronic technology) to
facilitate business transactions. E-business or e-commerce involves the interaction of
different business organizations. Applications include Internet buying and selling, e-mail,
order and shipment tracking and electronic interchange. In addition companies use e-business
to promote their products or services, and to provide information about them. Delivery firms
have seen their services increase dramatically due to e-business (e.g., UPS, FedEx and DHL).

Advantages of e-business

• Companies and publishers have a global presence and the customer has global choices
and easy access to information.

• Companies can improve competitiveness and quality of service by allowing access to

their services any place, any time. Companies also have the ability to monitor
customers’ choices and requests electronically.

• Companies can analyze the interest in various products based on the number of hits
and requests for information.
 • Companies can collect detailed information about clients’ preferences, which enables
mass customization and personalized products. An example is the purchase of PCs
over the Web, where the buyer specifies the final configuration.

• Supply chain response times are shortened. The biggest impact is on products that can
be delivered directly on the Web, such as forms of publishing and software
distribution.

• The roles of the intermediary and sometimes the traditional retailer or service provider
are reduced or eliminated entirely in a process called disintermediation. This process
reduces costs and adds alternative purchasing options.

• Substantial cost savings and substantial price reductions related to the reduction of
transaction costs can be realized. Companies that provide purchasing and support
through the Web can save significant personnel costs.

• E-commerce allows the creation of virtual companies that distribute only through the
Web, thus reducing costs. Amazon.com and other net vendors can afford to sell for a
lower price because they do not need to maintain retail stores and, in many cases,
warehouse space.

• The playing field is leveled for small companies that lack significant resources to
invest in infrastructure and marketing.

There are two essential features of e-business: the Web site and order fulfillment.
Companies may invest considerable time and effort in front-end design (the Web site), but
the back-end (order fulfillment) is at least important. It involves order processing, billing,
inventory management, warehousing, packing, shipping, and delivery.

Many of the problems that occur with Internet selling are supply-related. The ability to order
quickly creates an expectation in customers that the remainder of the process will proceed
smoothly and quickly. But the same capability that enables quick ordering also enables
demand fluctuations that can inject a certain amount of chaos to the system, almost
guaranteeing that there won’t be a smooth or quick delivery. Oftentimes the rate at which
orders come in via the Internet greatly exceeds an organization’s ability to fulfill them.

In the early days of Internet selling, many organizations thought they could avoid bearing the
costs of holding inventories by acting solely as intermediaries, having their suppliers’ ship
directly to their customers. Although this approach worked for some companies, it failed for
others, usually because suppliers ran out of certain items. This led some companies to rethink
the strategy. Industry giants such as Amazon.com built huge warehouses around the country
so they could maintain greater control over their inventories. Still others are outsourcing
fulfillment, turning over that portion of their business to third party fulfillment operators.

Using third party fulfillment means losing control over fulfillment. It might also result in
fulfillers substituting their standards for the company they are serving and using the fulfiller’s
shipping price structure. On the other hand, an e-commerce company may not have the
resources or the infrastructure to do the job itself. Another alternative might be to form a
strategic partnership with a “bricks and mortar” company. This can be a quick way to jump-
start an e-commerce business. In any case, somewhere in the supply chain there has to be a
bricks-and-mortar facility.

A great portion of e-business involves business-to-business (B2B) commerce rather than

business-to-consumer commerce. To facilitate business to business commerce, B2B
marketplaces are created.

B2B Market Enablers

Type Description

Financial Provide financial and other resources for Web-enhanced commerce.

Technology Provide software, applications, and expertise necessary to create B2B

marketplace.

B2B exchanges can improve supply chain visibility to trading partners from a single point of
access, facilitating the development of common standards and data formats for schedules,
product codes, location codes, and performance criteria. An e-business focusing on
transportation services can benefit from having an efficient hub for collaboration between
shippers and transportation providers, helping to translate customer shipment forecasts into
more predictable demand for equipment and enabling carriers to deploy their equipment more
effectively.

• FACTORS IMPACTING SUPPLY CHAIN OPERATION

Reduced Number of Suppliers

Companies, as part of their supply chain programs have significantly reduced the number of
vendors they buy from. Managers currently believe in establishing long-term
relationships with a few, highly reliable vendors rather than having multiple sources for every
purchased item.

Increase in Competition
The emergence of a global economy has dramatically increased the number of
competitors that offer similar products. As stated earlier, no corner of the world is immune to
international competition and this competition will only increase in intensity in the
foreseeable future. As a result supply chains will continue to grow in both directions:
backwards toward suppliers in other countries and forward toward new customers in these
same countries.

Shorter Product Life Cycles

Product life cycles continue to shorten in comparison to introducing products at an ever
increasing rate in the hope of gaining market and a competitive advantage. In order to
respond quickly to new product introduction - a company needs to have processes that can be
converted easily to new product requirements.  Flexibility also can be achieved by shifting
more responsibility onto supplier.

Increase in Supplier-Managed Inventories (SMI)

In order to decrease purchasing transactions and record-keeping, many firms now use a
concept known as supplier-managed inventories (SMI) or vendor-managed inventories (VMI)
for many of their cost  bolt. This approach is sometimes referred to as the breadline
method. (The term breadline comes from commercial bakeries where the Bremen or
salesmen determine the number of loaves of bread to deliver to each retail outlet on their
routes and who are also responsible for placing the bread on the retailer’s shelves. The retail
operations then receive credit for any unsold bread that is returned.) With this approach
minimum and maximum inventory level are established for each item. The firm’s suppliers
then are empowered to determine how often these items should be replenished. In addition,
the suppliers have direct access to the manufacturing floor, and usually restock the item at the
points where they will be used. This eliminates the need for stockroom. With this approach,
paperwork is reduced significantly because there is no punch orders noted. The receiving
function also will be reduced significantly, as the need for person to move the item from the
stockroom onto the manufacturing floor is eliminated.

• SUCCESSFUL SUPPLY CHAIN MANAGEMENT

Supply chain is the sequence of organizations – their facilities, functions, and activities –
that are involved in producing and delivering a product or service. The sequence begins with
basic suppliers of raw materials and extends all the way to the final customer. Facilities
include warehouses, factories, processing centers, distribution centers, retail outlets, and
offices. Functions and activities include forecasting, purchasing, inventory management,
information management, quality assurance, scheduling, production, distribution, delivery,
and customer service.

Supply chain management is the strategic coordination of business functions within a

business organization and throughout its supply chain for the purpose of integrating supply
and demand management. Supply chain managers are people at various levels of the
organization who are responsible for managing supply and demand both within and across
business organizations. They are involved with planning and coordinating activities, and
logistics. There are four supply chain management systems:
Supply chain management systems
• Push-based model (build-to-stock)
• Schedules based on best guesses of demand
• Pull-based model (demand-driven)
• Customer orders trigger events in supply chain

• Sequential supply chains

• Information and materials flow sequentially from company to company
• Concurrent supply chains
• Information flows in many directions simultaneously among members
of a supply chain network
Every business organization is part of at least one supply chain, and many are part of multiple
supply chains. Often the number and type of organizations in a supply chain are determined
by whether the supply chain is manufacturing or service oriented.

Supply chains are sometimes referred to as value chains, a term that reflects the concept that
value is added as goods and services progress through the chain. Supply or value chains are
typically comprised of separate business organizations, rather than just a single organization.
Moreover, the supply or value chain has two components for each organization: a supply
component and a demand component. The supply component starts at the beginning of the
chain and ends with the internal operations of the organization. The demand component of
the chain starts at the point where the organization’s output is delivered to its immediate
customer and ends with the final customer in the chain. The demand chain is the sales and
distribution portion of the value chain. The length of each component depends on where a
particular organization is in the chain; the closer the organization is to the final customer, the
shorter its demand component and the longer its supply component.

Supply chains are the lifeblood of any business organization. They connect suppliers,
producers, and final customers in a network that is essential to the creation and delivery of
goods and services. Managing the supply chain is the process of planning, implementing, and
controlling supply chain operations. The basic components are strategy, procurement, supply
management, demand management, and logistics. The goal of supply chain management is to
match supply to demand as effectively and efficiently as possible. Key issues relate to:

• Determining the appropriate level of outsourcing - Companies are taking a second

look at outsourcing, especially global suppliers. Business organizations outsource for
a variety of reasons. Often decisions to outsource have been based on lower prices
resulting from lower labour costs. Other reasons include insufficient capacity to
handle demand, high demand variability, and the need for a higher level of expertise
than is currently available in-house. Still another motivation for outsourcing is that it
enables an organization to operate with fewer assets, resulting in a higher return on
assets.

• Managing procurement.

• Managing suppliers.

• Managing customer relationships.

• Being able to quickly identify problems and respond to them.

• Managing risk - Concern over liability and risks are mounting, due in part to
problems with supplier quality that necessitated recall of items ranging from
 automotive parts, to food products, toys, and dog food. In addition, long lead times
with global supply lines and security issues increase the potential for disruption of
timely deliveries.

Business Value of Supply Chain Management Systems

• Match supply to demand.
• Reduce inventory levels.
• Improve delivery service.
• Speed product time to market.
• Use assets more effectively.
• Reduced supply chain costs lead to increased profitability.
• Increase sales.

An important aspect of supply chain management is flow management. The three types of
flow that need to be managed are:

• Product and service flow involves the movement of goods or services from suppliers
to customers as well as handling customer service needs and product returns.

• Information flow involves sharing forecast and sales data, transmitting orders,
tracking shipments, and updating order status.

• Financial flow involves credit terms, payments, and consignment and title ownership
arrangements.

Technological advances have greatly enhanced the ability to effectively manage these flows.
A dramatic decrease in the cost of transmitting and receiving information and the increased
ease and speed of communication have facilitated the ability to coordinate supply chain
activities and make timely decisions. In effect, a supply chain is a complex supply network.

TRENDS IN SUPPLY CHAIN MANAGEMENT

Several trends are having an impact on the way supply chains are designed and managed.
Among the trends are:

Re-evaluation of outsourcing. Companies are taking a second look at outsourcing, especially

global suppliers. Business organizations outsource for a variety of reasons. Often decisions to
outsource have been based on lower prices resulting from lower labour costs. Other reasons
include insufficient capacity to handle demand, high demand variability, and the need for a
higher level of expertise than is currently available in-house. Still another motivation for
outsourcing is that it enables an organization to operate with fewer assets, resulting in a
higher return on assets.

Risk management. Concern over liability and risks are mounting, due in part to problems with
supplier quality that necessitated recall of items ranging from automotive parts, to food
products, toys, and dog food. In addition, long lead times with global supply lines and
security issues increase the potential for disruption of timely deliveries.
Firms have sought to reduce costs and maintain competitiveness by off-shoring
operations and global sourcing to obtain lower costs. And they are increasingly turning to
approaches such as lean operations and Six Sigma to reduce waste and inventories in their
supply chains. However, longer and more variable lead times, coupled with leaner supply
chains, has increased complexity and made them more vulnerable to supply chain disruptions
such as quality and political issues, and natural disasters. Also information sharing carries
certain risks. These and other factors have made risk management an important aspect of the
amount of inventory at various points in their supply chains, thereby losing some of the
benefits of global sourcing.
Risks can relate to supply (e.g., supplier failure, quality issues, sustainability issues,
transportation issue, terrorism), costs (e.g., increasing commodity costs), and demand (e.g.,
decreasing demand, demand volatility, and transportation issues). Still other risks can involve
intellectual rights issues, contract compliance issues, competitive pressure, forecasting errors,
and inventory management. Risk management involves identifying risks, assessing their
likelihood of occurring and their potential impacts, prioritizing the risks, and then developing
strategies to manage those risks. Strategies can involve risk avoidance, risk reduction, risk
transference to another supply chain party, or some combination of these strategies. For
example, risk avoidance may mean not operating in another country, or not dealing with
another supplier or transporter. Risk reduction may involve increasing inventory levels at
various points in the supply chain. Risk transference may mean having contractual
agreements that make suppliers responsible for compliance with quality standards.

Inventory management. Inventories continue to draw the attention of management. Enhanced

visibility, record keeping, tighter control, and strategic positioning of inventories are being
emphasized. Also organizations are starting to recognize the benefits of cross-docking
(redirecting a shipment) and flow-through distribution.

Lean supply chains. Many organizations are turning to lean principles to improve the
performance of their supply chains. In too many instances, traditional supply chains are a
collection of loosely connected steps, and business processes are not linked to suppliers’ or
customers’ needs. Applying lean principles to supply chains can overcome this weakness by
eliminating non-value-added processes, improving product flow by using pull systems rather
than push systems, using fewer suppliers and supplier certifications programs, which can
nearly eliminate the need for inspection of incoming goods, and adopting the lean attitude of
never ceasing to improve the system.

Sustainability. Environmental issues are not a primary concern at this point, although
environmental groups may apply pressure in the near future as global warming and the
carbon footprint of supply chains come into play. One factor to consider is a report that
pollution from marine shipping causes about 60,000 premature deaths annually around the
world due to lung cancer and cardiopulmonary disease.

As a result of these current and possible future trends, organizations are likely to give serious
thought to reconfiguring their supply chains to reduce risks, improve flow, increase profits,
and generally increase customer satisfaction.

MANAGEMENT RESPONSIBILITIES
Generally speaking, corporate management responsibilities have legal, economic, and ethical
aspects. Legal responsibilities include being knowledgeable about laws and regulations of
the countries where supply chains exist, obeying the laws and operating to conform to
regulations. Economic responsibilities include supplying products and services to meet
demand as efficiently as possible. Ethical responsibilities include conducting business in
ways that are consistent with the moral standards of society.
More specific areas of responsibility relate to organizational strategy, tactics, and
operations.

Strategic Responsibilities
Top management has certain strategic responsibilities that have a major impact on the success
not only of supply chain management, but of the business itself. These strategies include:
Supply chain strategy alignment: Aligning supply and distribution strategies with
organizational strategy and deciding on the degree to which outsourcing will be employed.
Network configuration: Determining the number and location of suppliers, warehouses,
production/operations facilities, and distribution centres.
Information technology: Integrating systems and processes throughout the supply chain to
share information, including forecasts, inventory status, tracking of shipments, and events.
Products and services: Making decisions on new product and services selections and
design.
Capacity planning: Assessing long-term capacity needs, including when and how much
will be needed and the degree of flexibility to incorporate.
Strategic partnerships: Partnership choices, level of partnering, and degree of formality.
Distribution strategy: Deciding whether to use centralized or decentralized distributions,
and deciding whether to use the organization’s own facilities and equipment for distribution
or to use third-party logistics providers.
Uncertainty and risk reduction: Identifying potential sources of risk and deciding the
amount of risk that is acceptable.

Key Tactical and Operational Responsibilities

Tactical Responsibilities
Forecasting: Prepare and evaluate forecasts.
Sourcing: Choose suppliers and some make-or-buy decisions.
Operations planning: Coordinate the external supply chain and internal operations.
Managing inventory: Decide where in the supply chain to store the various types of
inventory (raw materials, semi-finished goods, finished goods).
Transportation planning: Match capacity with demand.
Collaborating: Work with supply chain partners to coordinate plans.

Operational Responsibilities
Scheduling: Short-term scheduling of operations and distribution.
Receiving: Management of inbound deliveries from suppliers.
Transforming: Conversion of inputs into outputs.
Order fulfilling: Linking production resources and/or inventory to specific customer
orders.
Managing inventory: Maintenance and replenishment activities.
Shipping: Management of outbound deliveries to distribution centers and/or customers.
Information sharing: Exchange of information with supply chain partners.
Controlling: Control of quality, inventory, and other key variable and implementing
corrective action, including variation reduction, when necessary.

• SUPPLY CHAIN PERFORMANCE MEASUREMENTS

Performance Measures for Supply Chain Management

Companies must always be concerned with their competition. Today's marketplace is
shifting from individual company performance to supply chain performance: the entire
chain's ability to meet end-customer needs through product availability and responsive, on-
time delivery. Supply chain performance crosses both functional lines and company
boundaries. Functional groups (engineering/R&D, manufacturing, and sales/marketing) are
all instrumental in designing, building, and selling products most efficiently for the supply
chain, and traditional company boundaries are changing as companies discover new ways of
working together to achieve the ultimate supply chain goal: the ability to fill customer orders
faster and more efficiently than the competition.
To achieve that goal, you need performance measures, or "metrics", for global supply
chain performance improvements. Your performance measures must show not only how well
you are providing for your customers (service metrics) but also how you are handling your
business (speed, asset/inventory, and financial metrics). Given the cross-functional nature of
many supply chain improvements, your metrics must prevent "organizational silo" behavior
which can hinder supply chain performance.

CREATING AN EFFECTIVE SUPPLY CHAIN

Achieving an effective supply chain requires integration of all aspects of the supply chain.
The goal is to have a cooperative relationship among supply chain partners that will facilitate
planning and coordination of activities. To accomplish this, there must be:

Trust. It is essential for major trading partners to trust each other, and feel confident that
partners share similar goals and that they will take actions that are mutually beneficial.

Effective communication. Effective supply chain communication requires integrated

technology and standardized ways and means of communicating among partners.

Information velocity. Information velocity is important; the faster information flows (two-
way), the better.

Supply chain visibility. Supply chain visibility means that a major trading partner can
connect to any part of its supply chain to access data in real time on inventory levels,
shipment status, and similar key information. This requires data sharing.

Event management capability. Event management is the ability to detect and respond to
unplanned events such as delayed shipment, or a warehouse running low on a certain item.
An event management system should have four capabilities: monitoring the system, notifying
when certain planned or unplanned events occur, simulating potential solutions when an
unplanned event occurs, and measuring the long-term performance of suppliers, transporters,
and other supply chain partners in the supply chain.

Performance metrics. Performance metrics are necessary to confirm that the supply chain is
functioning as expected or that there are problems that must be addressed. There are a variety
of measures that can be used, that relate to such things as late deliveries, inventory turnover,
response time, quality issues, and so on. In the retail sector, the fill rate (the percentage of
demand filled from stock on hand) is often very important.

Supply Chain Performance Measures

Financial Operations Order Suppliers Inventory Customers

fulfillment
Return on Productivity Order Quality Average Customer
assets Quality accuracy On-time value satisfaction
Cost Time to fill delivery Turnover Percentage
Cash flow orders Cooperation Weeks of of customer
Profits Percentage Flexibility supply complaints
of
incomplete
orders
shipped
Percentage
of orders
delivered on
time

Creating an effective supply chain begins by conducting a thorough analysis of all aspects of
the supply chain. Strategic sourcing is a term that is sometimes used to describe the process.
Strategic sourcing is a systematic process for analyzing the purchase of products and
services to reduce costs by reducing waste and non-value-added activities, increase profits,
reduce risks, and improve supplier performance. Strategic sourcing differs from more
traditional sourcing in that it emphasizes total cost rather than purchase price. Total cost
includes storage costs, repair costs, disposal costs, and sustainability costs in addition to
purchase price. It also seeks to consolidate purchasing power to achieve lower prices, relies
on fewer suppliers and collaborative relationships, works to eliminate redundancies, and
employs cross-functional teams to help overcome traditional organizational barriers.
Strategic sourcing looks at current procurement in terms of what is bought, where and
from what suppliers it is bought, and what other sources of supply are available; a sourcing
strategy then is designed to minimize a combination of costs and risks. The process is
repeated periodically. A system for tracking results and making changes when needed is also
established.

Challenges to Creating an Effective Supply Chain

• Barriers to Integration of Separate Organizations.

Organizations, and their functional areas, have traditionally had an inward focus. They set up
buffers between themselves and their suppliers. Changing that attitude can be difficult. The
objective of supply chain management is to be efficient across the entire supply chain. There
are two difficulties in achieving this objective:
• Different components of the supply chain often have conflicting objectives. For
example, to reduce their inventory holding costs, some companies opt for frequent
small deliveries of supplies. This can result in increased holding costs for suppliers, so
the cost is merely transferred to suppliers. Similarly, within an organization,
functional areas often make decisions with a narrow focus, doing things that
“optimize” results under their control; in so doing, however, they may suboptimize
results for the overall organization. To be effective, organizations must adopt a
systems approach to both the internal and external portions of their supply chains,
being careful to make decisions that are consistent with optimizing the supply chain.

• For supply chain management to be successful, organizations in the chain must allow
other organizations access to their data. There is a natural reluctance to do this in
many cases. One reason can be lack of trust; another can be unwillingness to share
 proprietary information in general; and another can be that an organization, as a
member of multiple chains, fears exposure of proprietary information to competitors.

• Getting CEOs, Board of Directors, Managers, and Employees “Onboard.”

CEOs and boards of directors need to be convinced of the potential payoffs from supply
chain management. And because much of supply chain management involves a change in the
way business has been practiced for an extended period of time, getting managers and
workers to adopt new attitudes and practices that are consistent with effective supply chain
operations poses a real challenge.

• Dealing with Trade-offs.

Authors Hau Lee and C. Billington list a number of trade-offs that must be taken into account
in structuring a supply chain.
• Lot size - inventory trade-off. Producing or ordering large lot sizes yields benefits in
terms of quantity discounts and lower annual setup costs, but it increases the amount
of safety stock carried by suppliers and, hence, the carrying cost. It also can create the
bullwhip effect. It is caused by the way inventories are replenished at various points
along a supply chain. For a variety of reasons, organizations tend to periodically order
batches of an item from their suppliers. This creates “lumpy” demand for suppliers
and, hence, high-variability demand, which causes suppliers to carry relatively large
amounts of safety stock. Starting with the final customer and moving backward
through the supply chain, batch sizes tend to increase, thereby increasing the level of
safety stock carried. What is so striking about this phenomenon is that any demand
variations that exist at the customer end of the supply chain get magnified as orders
are generated back through the supply chain.

• Inventory - transportation cost trade-off. Suppliers prefer to ship full truckloads

instead of partial loads in order to spread shipping costs over as many units as
possible. This leads to higher holding costs for customers. Solutions include
combining orders to realize full truck-loads, downsizing truck capacity, and shipping
late in the process along with cross-docking. Cross-docking is a technique whereby
 goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck
and immediately loaded on one or more outbound trucks, thereby avoiding storage at
the warehouse completely. Wal-mart is among the companies that have used this
technique successfully to reduce inventory holding costs and lead times.

• Lead time – transportation cost trade-off. Suppliers usually prefer to ship in full
loads, as mentioned previously. But waiting for sufficient orders and/or production to
achieve a full load increases lead time. In addition to the preceding suggestions,
improved forecasting information to suppliers might improve the timing of their
production and orders to their suppliers.

• Product variety - inventory trade-off. Higher product variety generally means smaller
lot sizes, which results in higher setup costs, as well as higher transportation and
inventory management costs. One possible means of reducing some costs is delayed
differentiation, which means producing standard components and subassemblies,
then waiting until late in the process to add differentiating features. For example, an
automobile producer may produce and ship cars without radios, allowing customers to
select from a range of radios that can be installed by the dealer, thereby eliminating
that variety from much of the supply chain.

• Cost- customer service trade-off. Producing and shipping in large lots reduces costs,
but it increases lead times, as previously noted. One approach to reducing lead time is
to ship directly from a warehouse to the customer, bypassing a retail outlet. Reducing
one or more steps in a supply chain by cutting out one or more intermediaries is
referred to as disintermediation. Although transportation costs are higher, storage
costs are lower.

• Small Businesses.
Small businesses may be reluctant to embrace supply chain management because it can
involve specialized, complicated software as well as sharing sensitive information with
outside companies. Nonetheless, in order for them to survive, they may have to do so.
• Variability and Uncertainty.
Variations create uncertainty, thereby causing inefficiencies in a supply chain. Variations
occur in incoming shipments from suppliers, internal operations, deliveries of products or
services to customers, and customer demands. Increases in product and service variety add to
uncertainty, because organizations have to deal with a broader range and frequent changes in
operations. Hence, when deciding to increase variety, organizations should consider this
trade-off.
Although variations exist throughout most supply chains, decision makers often treat the
uncertainties as if they were certainties and make decisions on that basis. In fact, systems are
often designed on the basis of certainty, so they may not be able to cope with uncertainty.
Unfortunately, uncertainties are detrimental to effective management of supply chains
because they result is various undesirable occurrences such as inventory buildups, bottleneck
delays, missed delivery dates, and frustration for employees and customers at all stages of a
supply chain.

• Response Time.
Response time is an important issue in supply chain management. Long lead times impair the
ability of a supply chain to quickly respond to changing conditions, such as changes in the
quantity or timing of demand, changes in product or service design, and quality or logistics
problems. Therefore, it is important to work to reduce long product lead times and long
collaborative lead times, and a plan should be in place to deal with problems when they arise.

Benefits and possible drawbacks of potential improvement to a supply chain

Problem Potential Improvement Benefits Possible

Drawbacks
Large Smaller, more frequent Reduced holdings Traffic
inventories deliveries, cross-docking costs congestion,
increased
ordering costs,
increased
supplier costs
 Large lead Delayed differentiation Quick responseMay not be
times Disintermediation Quick responsefeasible
May need to
absorb functions
Large number Modular construction Fewer parts to Less variety
of parts keep track of,
simpler ordering
Cost, quality Outsourcing Reduced cost, Loss of control
higher quality,
fewer internal
problems,
remaining
operations more
focused
Variability Shorter lead times, better Better able to Less variety
forecasts, reduction in match supply and
product/service variety demand

Effective supply chains are critical to the success of business operations. Development of
supply chains should be accorded strategic importance. Achieving an effective supply chain
requires integration of all aspects of the chain. Supplier relationships are a critical component
of supply chain management. Collaboration and joint planning and coordination are keys to
supply chain success. In that regard, a systems view of the supply chain is essential.
Many businesses are employing principles of lean operations and six sigma methodology
to improve supply chain performance. However, lean supply chains can increase supply chain
risk and may necessitate increased inventories to offset those risks.

• ENTERPRISE RESOURCE PLANNING AND SUPPLY CHAIN MANAGEMENT.

Business organizations are complex systems in which various functions such as purchasing,
production, distribution, sales, human resources, finance, and accounting must work together
to achieve the goals of the organization. However, in the functional structure used by many
business organizations, information flows freely within each function, but not so between
functions. That makes information sharing among functional areas burdensome. Enterprise
resource planning (ERP) is a suite of integrated software modules and a common central
database that collects data from many divisions of firm for use in nearly all of firm’s internal
business activities. Information entered in one process is immediately available for other
processes. It is the integration of financial, manufacturing, and human resources on a single
computer system. ERP represents an expanded effort to integrate standardized record
keeping that will permit information sharing among different areas of an organization in
order to manage the system more effectively.
ERP software provides a system to capture and make data available in real time to
decision makers and other users throughout the organization. It also provides a set of tools for
planning and monitoring various business processes to achieve the goals of the organization.
ERP systems are composed of a collection of integrated modules. There are many modules to
choose from, and different software vendors offer different but similar lists of modules. Some
are industry specific, and others are general purpose. The modules relate to the functional
areas of business organizations. For example, there are modules for accounting and finance,
HR, product planning, purchasing, inventory management, distribution, order tracking,
finance, accounting, and marketing. Organizations can select the modules that best serve their
needs and budgets.

Module Brief Description

Accounting/Finance A central component of most ERP systems. It provides a range
of financial reports, including general ledger, accounts payable,
accounts receivable, payroll, income statements and balance
sheets.
Marketing Supports lead generation, target marketing, direct mail, and
sales.
Human Resources Maintains a complete database of employee information such
as date of hire, salary, contact information,, performance
evaluations, and other pertinent information.
Purchasing Facilitates vendor selection, price negotiation, making
purchasing decisions, and bill payment.
Product Planning Integrates information on forecasts, orders, production
capacity, on-hand inventory quantities, bills of material, work
in process, schedules, and production lead times.
 Inventory Identifies inventory requirements, inventory availability,
Management replenishment rules, and inventory tracking.
Distribution Contains information on third party shippers, shipping and
delivery schedules, delivery tracking.
Sales Information on orders, invoices, order tracking, and shipping.
Supply Chain Facilitates supplier and customer management, supply chain
Management visibility, and event management.

An important feature of the modules is that data entered in one module is automatically
routed to other modules, so all data is immediately updated and available to all functional
areas. However, implementations are costly and time consuming, often lasting many years,
and requiring extensive employee training throughout the organization.

Enterprise Systems: Firms use enterprise systems, also known as enterprise resource
planning (ERP) systems to integrate business processes in manufacturing and production,
finance and accounting, sales and marketing, and human resources into a single software
system. Information that was previously fragmented in many different systems is stored in a
single comprehensive data repository where it can be used by many different parts of the
business.

For example, when a customer places an order, the order data flow automatically to other
parts of the company that are affected by them. The order transaction triggers the warehouse
to pick the ordered products and schedule shipment. The warehouse informs the factory to
replenish whatever has been depleted. The accounting department is notified to send the
customer an invoice. Customer service representatives track the progress of the order through
every step to inform customers about the status of their orders. Managers are able to use firm-
wide information to make more precise and timely decisions about daily operations and
longer-term planning.
• To implement, firms:
• Select functions of system they wish to use.
• Map business processes to software processes.
• Use software’s configuration tables for customizing.
 • Business value of enterprise systems
• Increase operational efficiency.
• Provide firm wide information to support decision making.
• Enable rapid responses to customer requests for information or products.
• Include analytical tools to evaluate overall organizational performance.

Supply Chain Management Systems: Firms use supply chain management (SCM) systems
to help manage relationships with their suppliers. These systems help suppliers, purchasing
firms, distributors, and logistics companies share information about orders, production,
inventory levels, and delivery of products and services so they can source produce, and
deliver goods and services efficiently. The ultimate objective is to get the right amount of
their products from their source to their point of consumption in the least amount of time and
at the lowest cost. These systems increase firm profitability by lowering the costs of moving
and making products and by enabling managers to make better decisions about how to
organize and schedule sourcing, production, and distribution.

Supply chain management systems are one type of inter-organizational system because they
automate the flow of information across organizational boundaries. Such systems make it
possible for firms to link electronically to customers and to outsource their work to other
companies.
Information and Supply Chain Management
• Inefficiencies cut into a company’s operating costs
• Can waste up to 25 percent of operating expenses

• Just-in-time strategy:
• Components arrive as they are needed
• Finished goods shipped after leaving assembly line
• Safety stock
• Buffer for lack of flexibility in supply chain
• Bullwhip effect
• Information about product demand gets distorted as it passes from one entity
to next across supply chain
Customer Relationship Management Systems: Firms use customer relationship
management (CRM) systems to help manage their relationships with their customers. CRM
systems provide information to coordinate all of the business processes that deal with
customers in sales, marketing, and service to optimize revenue, customer satisfaction, and
customer retention. This information helps firms identify, attract, and retain the most
profitable customers; provide better service to existing customers; and increase sales.

Knowledge Management Systems: Some firms perform better than others because they
have better knowledge about how to create, produce, and deliver products and services. This
firm knowledge is unique, difficult to imitate and can be leveraged into long-term strategic
benefits. Knowledge management systems (KMS) enable organizations to better manage
processes for capturing and applying knowledge and expertise. These systems collect all
relevant knowledge and experience in the firm, and make it available wherever and whenever
it is needed to improve business processes and management decisions. They also link the firm
to external sources of knowledge.

Intranets and Extranets

Enterprise applications create deep-seated changes in the way the firm conducts its business,
offering many opportunities to integrate important business data into a single system. They
are often costly and difficult to implement. Intranets and extranets deserve mention here as
alternative tools for increasing integration and expediting the flow of information within the
firm, and with customers and suppliers.
Intranets are simply internal company Web sites that are accessible only by employees. The
term “intranet” refers to an internal network, in contrast to the Internet, which is a public
network linking organizations and other external networks. Intranets use the same
technologies and techniques as the larger Internet, and they often are simply a private access
area in a larger company Web site. Likewise with extranets. Extranets are company Web
sites that are accessible to authorized vendors and suppliers, and are often used to coordinate
the movement of supplies to the firm’s production apparatus.

Global supply chain issues:

• Global supply chains typically span greater geographic distances and time
differences.
• More complex pricing issues (local taxes, transportation, etc.).
• Foreign government regulations.
• Internet helps companies manage many aspects of global supply chains.
• Sourcing, transportation, communications, international finance
• Supply chain management systems
• Push-based model (build-to-stock)
• Schedules based on best guesses of demand
• Pull-based model (demand-driven)
• Customer orders trigger events in supply chain
• Sequential supply chains
• Information and materials flow sequentially from company to company
• Concurrent supply chains
Information flows in many directions simultaneously among members of a supply chain
network

Operations Strategy
Acquisition of technology on the order of ERP has strategic implications. Among the
considerations are a high initial cost, a high cost to maintain, the need for future upgrades,
and the intensive training required. An ERP team is an excellent example of the value of a
cross-functional team. Purchasing, which will ultimately place the order, typically does not
have the technical expertise to select the best vendor. Information technology can assess
various technical requirements, but won’t be the user. Various functional users (marketing,
operations, and accounting) will be in the best position to evaluate inputs and outputs and
finance must evaluate the effect on the organization’s bottom line. Also, it is important to
have a member of the purchasing staff involved from the beginning of negotiations on ERP
acquisition because this will have major implications for purchasing.
The real-time aspect of ERP makes it valuable as a strategic planning tool. For example,
it can improve supply chain management, with stronger links between their customers and
their suppliers, and make the organizations more capable of satisfying changing customer
requirements.
Because ERP tracks the flow of information and materials through a company, it offers
opportunities for collecting information on waste and environmental costs and, hence,
opportunities for process improvement.

Business value of ERP Systems

• Integration across all business processes – To realize the full benefits of an ERP
system it should be fully integrated into all aspects of your business from the
customer facing front end, through planning and scheduling, to the production and
distribution of the products you make.

• Automation enhances productivity – By automating aspects of business processes,

ERP makes them more efficient, less prone to error, and faster. This enables rapid
 responses to customer requests for information or products. It also frees up people
from mundane tasks such as balancing data.

• Increase overall performance – By integrating disparate business processes, ERP

ensures coherence and avoids duplication, discontinuity, and people working at cross
purposes, in different parts of the organization. The cumulative positive effect when
business processes integrate well is overall superior performance by the organization.

• Quality Reports and Performance Analysis – Analysis on ERP will enable you to
produce financial and boardroom quality reports, as well as to conduct analysis on the
performance of your organization. This includes analytical tools to evaluate overall
organizational performance thus providing firm wide information to support decision
making.

• Integrates across the entire supply chain – A best of breed ERP system should
extend beyond your organization and integrate with both your supplier and customer
systems to ensure full visibility and efficiency across your supply chain.