Supply Chain Concepts: Objectives of a Supply

Chain
Supply Chain

A supply chain is a network between a company and its suppliers to produce and distribute a specific
product to the final buyer. This network includes different activities, people, entities, information, and
resources. The supply chain also represents the steps it takes to get the product or service from its
original state to the customer.

Supply chains are developed by companies so they can reduce their costs and remain competitive in
the business landscape.

A supply chain involves a series of steps involved to get a product or service to the customer. The
steps include moving and transforming raw materials into finished products, transporting those
products, and distributing them to the end user. The entities involved in the supply chain include
producers, vendors, warehouses, transportation companies, distribution centres, and retailers.

The elements of a supply chain include all the functions that start with receiving an order to meeting
the customer’s request. These functions include product development, marketing, operations,
distribution, finance, and customer service.

 A supply chain is a network between a company and its suppliers to produce and
distribute a specific product or service.
 The entities in the supply chain include producers, vendors, warehouses,
transportation companies, distribution centers, and retailers.
 The functions in a supply chain include product development, marketing, operations,
distribution, finance, and customer service.
 Supply chain management results in lower costs and a faster production cycle.

The objective of a supply chain

The objective of every supply chain is to maximize the overall value generated. The value of a supply
chain generates is the difference between what the final product is worth to the customer and the
effort of the supply chain expands in filling the customer’s request. For most commercial supply
chains, the value will be strongly correlated with supply chain profitability, the difference between the
revenue generated from the customer and the overall cost across the supply chain.

For most commercial supply chains, the value will be strongly correlated with supply chain
profitability, the difference between the revenue generated from the customer and the overall cost
across the supply chain.

For example, a customer purchasing a computer from Dell pays $2,000, which represents the revenue
the supply china receives. Dell and other stages of the supply chain incur costs to convey information,
produce components, store them, transport them, transfer funds, and so on.

The difference between the $2,000 that the customer paid and the sum of all costs incurred by the
supply chain to produce and distribute the computer represents the supply chain profitability. Supply
chain profitability is the total profit to be shared across all supply chain. Supply chain success should
be measured in terms of supply chain profitability and not in terms of the profits at an individual
stage.

Stages of Supply Chain

Supply chain management encompasses such a wide range of functions that it can seem
daunting, even to the most experienced international businessperson. However, the process can
be effectively modelled by breaking it down into several main strategic areas. One common
and very effective model is the Supply Chain Operations Reference (SCOR) model, developed
by the Supply Chain Council to enable managers to address, improve and communicate supply
chain management practices effectively. The SCOR model runs through five supply chain
stages: Plan, Source, Make, Deliver, and Return.

Stage 1: Plan
Planning involves a wide range of activities. Companies must first decide on their operations
strategy. Whether to manufacture a product or component or buy it from a supplier is a major
decision.

Companies must weigh the benefits and disadvantages of different options presented by
international supply chains.

Options include:

 Manufacturing a product component domestically

 Manufacturing a component in a foreign market by setting up international
production facilities
 Buying a component from a foreign supplier
 Buying a component from a domestic supplier

If companies are manufacturing products, they must decide how they will be produced.

Goods can be:

  Make to stock (produced and stored, awaiting customer orders);
 Make to order (constructed in response to a customer order);
 Configure to order (partially manufactured the product and completed it after
a firm customer order is received); or
 Engineer to order (manufactured a product to unique specifications provided
by a customer).

Sometimes, goods can be produced by a combination of these methods. Companies must also
decide whether they will outsource manufacturing. This operations planning is essential
because these decisions influence the supply chain.

Planning also involves mapping out the network of manufacturing facilities and warehouses,
determining the levels of production and specifying transportation flows between sites. It also
involves assessing how to improve the global supply chain and its management processes.

When planning, companies should ensure that their supply chain management strategies align
to business strategies, that communication plans for the entire supply chain are decided and
that methods of measuring performance and gathering data are established before planning
begins.

Stage 2: Source
This aspect of supply chain management involves organizing the procurement of raw materials
and components.

Procurement is the acquisition of goods and services at the best possible price, in the right
quantity and at the right time.

When sources have been selected and vetted, companies must negotiate contracts and schedule
deliveries. Supplier performance must be assessed and payments to the suppliers made when
appropriate. In some cases, companies will be working with a network of suppliers. This will
involve working with this network, managing inventory and company assets and ensuring that
export and import requirements are met.

Stage 3: Make
This stage is concerned with scheduling of production activities, testing of products, packing
and release. Companies must also manage rules for performance, data that must be stored,
facilities and regulatory compliance.

Stage 4: Deliver
The delivery stage encompasses all the steps from processing customer inquiries to selecting
distribution strategies and transportation options. Companies must also manage warehousing
and inventory or pay for a service provider to manage these tasks for them.
The delivery stage includes any trial period or warranty period, customers or retail sites must
be invoiced and payments received, and companies must manage import and export
requirements for the finished product.

Stage 5: Return
Return is associated with managing all returns of defective products, including identifying the
product condition, authorizing returns, scheduling product shipments, replacing defective
products and providing refunds.

Returns also include “end-of-life” products (those that are in the end of their product lifetime
and a vendor will no longer be marketing, selling, or promoting a particular product and may
also be limiting or ending support for the product).

Companies must establish rules for the following:

 Product returns
 Monitoring performance and costs
 Managing inventory of returned product

Value Chain Process

A value chain is a business model that describes the full range of activities needed to create a
product or service. For companies that produce goods, a value chain comprises the steps that
involve bringing a product from conception to distribution, and everything in between—such
as procuring raw materials, manufacturing functions, and marketing activities.

A company conducts a value-chain analysis by evaluating the detailed procedures involved in

each step of its business. The purpose of value-chain analyses is to increase production
efficiency so that a company may deliver maximum value for the least possible cost.

Components of a Value Chain

In his concept of a value chain, Porter splits a business’s activities into two categories,
“primary” and “support,” whose sample activities we list below. Specific activities in each
category will vary according to the industry.

Primary activities consist of five components, and all are essential for adding value and
creating a competitive advantage:

(i) Inbound logistics

Functions like receiving, warehousing, and managing inventory.

(ii) Operations
Procedures for converting raw materials into finished product.

(iii) Outbound logistics

Activities to distribute a final product to a consumer.

(iv) Marketing and sales

Strategies to enhance visibility and target appropriate customers—such as advertising,

promotion, and pricing.

(v) Service

Programs to maintain products and enhance consumer experience—customer service,

maintenance, repair, refund, and exchange.

Support Activities
The role of support activities is to help make the primary activities more efficient. When you
increase the efficiency of any of the four support activities, it benefits at least one of the five
primary activities. These support activities are generally denoted as overhead costs on a
company’s income statement:

(i) Procurement

How a company obtains raw materials.

(ii) Technological development

Used at a firm’s research and development (R&D) stage—designing and developing

manufacturing techniques; and automating processes.

(iii) Human resources (HR) management

Hiring and retaining employees who will fulfill business strategy; and help design, market, and
sell the product.

(iv) Infrastructure

Company systems; and composition of its management team—planning, accounting, finance,

and quality control.

VALUE CHAIN PROCESS

Step 1 – Identify subactivities for each primary activity
For each primary activity, determine which specific subactivities create value. There are three
different types of subactivities:-

(i) Direct activities: Create value by themselves. For example, in a book publisher’s marketing
and sales activity, direct subactivities include making sales calls to bookstores, advertising, and
selling online.

(ii) Indirect activities: Allow direct activities to run smoothly. For the book publisher’s sales
and marketing activity, indirect subactivities include managing the sales force and keeping
customer records.

(iii) Quality assurance: Activities ensure that direct and indirect activities meet the necessary
standards. For the book publisher’s sales and marketing activity, this might include
proofreading and editing advertisements.

Step 2 – Identify subactivities for each support activity.

For each of the Human Resource Management, Technology Development and Procurement
support activities, determine the subactivities that create value within each primary activity.
For example, consider how human resource management adds value to inbound logistics,
operations, outbound logistics, and so on. As in Step 1, look for direct, indirect, and quality
assurance subactivities.

Then identify the various value-creating subactivities in your company’s infrastructure. These
will generally be cross-functional in nature, rather than specific to each primary activity. Again,
look for direct, indirect, and quality assurance activities.

Step 3 – Identify links

Find the connections between all of the value activities you’ve identified. This will take time,
but the links are key to increasing competitive advantage from the value chain framework. For
example, there’s a link between developing the sales force (an HR investment) and sales
volumes. There’s another link between order turnaround times, and service phone calls from
frustrated customers waiting for deliveries.

Step 4 – Look for opportunities to increase value

Review each of the subactivities and links that you’ve identified, and think about how you can
change or enhance it to maximize the value you offer to customers (customers of support
activities can be internal as well as external).

Cycle view of Supply Chain Process

Supply Chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. The processes in a Supply
Chain are divided into series of cycles, each performed at the interface between two successive
stages of a Supply Chain. Cycle view of Supply Chain is useful in making operational decisions
as role of each member of Supply Chain is clearly defined.
Key Issues in SCM
Key Issue #1: Globalization

Globalization presents several critical supply chain management challenges to enterprises and
organizations:

First, to reduce costs across the supply chain, enterprises are moving manufacturing operations
to countries which offer lower labor costs, lower taxes, and/or lower costs of transport for raw
materials. For some companies, outsourcing production involves not only a single country, but
several countries for different parts of their products.

However, outsourcing not only extends the production process globally, but also the company’s
procurement network. Having suppliers in different geographic locations complicates the
supply chain. Companies will have to deal with, coordinate, and collaborate with parties across
borders regarding manufacturing, storage, and logistics. Furthermore, they have to extend or
maintain fast delivery lead times to customers who want to receive their products on schedule
despite the increased complexity in the manufacturer’s supply chains. Finally, they also have
to maintain real-time visibility into their production cycle — from raw materials to finished
goods — to ensure the efficiency of their manufacturing processes.

Second, as companies expand sales into global markets, localization of existing products
requires a significant change in the supply chain as companies adapt their products to different
cultures and preferences. There is an inherent risk of losing control, visibility, and proper
management over inventory , especially if enterprise applications are not integrated. This
requires managing diverse structures of data across geographies effectively.
For example: many manufacturers in Asia still handle trading partner communications via fax
and email while suppliers in North America and Europe have utilized EDI for decades. As
technology matures, suppliers in emerging markets may skip EDI altogether and move to a
more modern API driven approach to communication just as developing countries have skipped
land lines in favor cell phones.

Supply chain practitioners need to ask if their enterprise technology is prepared to handle these
diverse forms of communication that arise from Globalization, and build a business case to stay
prepared.

Key Issue #2: Fast-changing Markets

According to EduCBA, consumer behavior is affected by cultural, social, personal, and

psychological factors that are quickly being changed by technology and globalization. Social
media is creating new pressures for consumers to conform while putting pressure on enterprises
to utilize these sources of information to respond to changing preferences in order to stay
interesting and relevant.

Like globalization, the fast-changing consumer market also brings with it supply chain
management challenges:

First, products have shorter life cycles due to rapidly changing market demands. Enterprises
are under pressure to keep up with the latest trends and innovate by introducing new products,
while keeping their total manufacturing costs low because they understand that trends will not
last for a long time. This also demands a flexible supply chain that can be utilized for
manufacturing other products and for future projects.

Second, aside from new products, companies also need to constantly update product features.
Enhancing product features requires enterprises to redesign their supply chain to accommodate
product changes.

Finally, innovation presents a challenge in forecasting demand for new products. The constant
innovation necessitated by fast-changing markets also means enterprises will constantly have
to anticipate demand for new products. Enterprises need to create and maintain an agile supply
chain that can respond well to spikes and dips in demand and production needs.

Companies should be asking if they have all the data needed to make planning decisions to
address challenges created by fast-changing markets. For example, if stated lead times from
suppliers are longer than actual times, this will lead to higher inventory levels than are actually
required and affect costly decisions around network planning and optimization. Omnichannel
retail has reated silos of sales data that have to be blended and harmonized to detect demand
signals earlier in the planning process as well.

Key Issue #3: Quality and Compliance

Aside from influencing consumer behavior, social media highlights the importance of having
high-quality products. According to research conducted by eMarketer, reading reviews,
comments, and feedback is the top social media activity that influences online shopping
behavior. Furthermore, social media has not only raised consumers’ expectations of product
quality, but has also amplified the damages caused by product recalls. Thus, enterprises are
under increasing pressure to create high-quality products and to create them consistently. They
can do so by addressing quality at every level of the supply chain, such as raw materials
procurement, manufacturing, packaging, logistics, and product handling.

Product quality often goes hand-in-hand with compliance. Enterprises need to ensure that they
meet local and international regulatory standards in manufacturing, packaging, handling, and
shipping of their products. Aside from passing quality control and safety tests, enterprises are
also required to prepare compliance documents such as permits, licenses, and certification
which can overwhelm them and their supply chain management systems.

Emerging capabilities like IoT, Smart Packaging, and Blockchain are changing how
compliance is enforced and measured. However, these innovations will produce streams of
data that can’t be handled with the enterprise technology of the past 20 years. Managers should
carefully consider where these investments make sense and asking IT if the business is utilizing
platforms based on micro-services and big data to support these heavy data lifting
requirements.

Logistics & Supply Chain Management

Logistics
Logistics is generally the detailed organization and implementation of a
complex operation. In a general business sense, logistics manages the flow
of goods between the point of origin and the point of consumption to meet
the requirements of customers or corporations. The resources managed in
logistics may include tangible goods such as materials, equipment, and
supplies, as well as food and other consumable items.

In military science, logistics is concerned with maintaining army supply

lines while disrupting those of the enemy, since an armed force without
resources and transportation is defenseless. Military logistics was already
practiced in the ancient world and as the modern military has a significant
need for logistics solutions, advanced implementations have been
developed. In military logistics, logistics officers manage how and when to
move resources to the places they are needed.

Logistics management is the part of supply chain management and supply

chain engineering that plans, implements, and controls the efficient,
effective forward, and reverse flow and storage of goods, services, and
related information between the point of origin and point of consumption
to meet customers’ requirements. The complexity of logistics can be
modeled, analyzed, visualized, and optimized by dedicated simulation
software. The minimization of the use of resources is a common motivation
in all logistics fields. A professional working in the field of logistics
management is called a logistician.

Types:
Procurement logistics consists of activities such as market research,
requirements planning, make-or-buy decisions, supplier management,
ordering, and order controlling. The targets in procurement logistics might
be contradictory: maximizing efficiency by concentrating on core
competences, outsourcing while maintaining the autonomy of the company,
or minimizing procurement costs while maximizing security within the
supply process.

Advance Logistics consists of the activities required to set up or establish

a plan for logistics activities to occur.

Global Logistics is technically the process of managing the “flow” of goods

through what is called a supply chain, from its place of production to other
parts of the world. This often requires an intermodal transport system,
transport via ocean, air, rail, and truck. The effectiveness of global logistics
is measured in the Logistics Performance Index.

Distribution logistics has, as main tasks, the delivery of the finished

products to the customer. It consists of order processing, warehousing, and
transportation. Distribution logistics is necessary because the time, place,
and quantity of production differ with the time, place, and quantity of
consumption.

Disposal logistics has as its main function to reduce logistics cost(s) and
enhance services related to the disposal of waste produced during the
operation of a business.

Reverse logistics denotes all those operations related to the reuse of

products and materials. The reverse logistics process includes the
management and the sale of surpluses, as well as products being returned
to vendors from buyers. Reverse logistics stands for all operations related
to the reuse of products and materials. It is “the process of planning,
implementing, and controlling the efficient, cost-effective flow of raw
materials, in-process inventory, finished goods and related information
from the point of consumption to the point of origin for the purpose of
recapturing value or proper disposal. More precisely, reverse logistics is the
process of moving goods from their typical final destination for the purpose
of capturing value, or proper disposal. The opposite of reverse logistics is
forward logistics.”
Green Logistics describes all attempts to measure and minimize the
ecological impact of logistics activities. This includes all activities of the
forward and reverse flows. This can be achieved through intermodal freight
transport, path optimization, vehicle saturation and city logistics.

RAM Logistics: Combines both business logistics and military logistics

since it is concerned with highly complicated technological systems for
which Reliability, Availability and Maintainability are essential, ex: weapon
systems and military supercomputers.

Supply Chain Drivers and Obstacles

Supply Chain Drivers
Supply chain capabilities are guided by the decisions you make regarding the five supply chain
drivers. Each of these drivers can be developed and managed to emphasize responsiveness or
efficiency depending on changing business requirements.

The five drivers provide a useful framework for thinking about supply chain capabilities.
Decisions made about how each driver operates will determine the blend of responsiveness and
efficiency a supply chain is capable of achieving. The five drivers are illustrated in the diagram
below:

1. PRODUCTION

This driver can be made very responsive by building factories that have a lot of excess capacity
and use flexible manufacturing techniques to produce a wide range of items. To be even more
responsive, a company could do their production in many smaller plants that are close to major
groups of customers so delivery times would be shorter. If efficiency is desirable, then a
company can build factories with very little excess capacity and have those factories optimized
for producing a limited range of items. Further efficiency can also be gained by centralizing
production in large central plants to get better economies of scale, even though delivery times
might be longer.

2. INVENTORY

Responsiveness can be had by stocking high levels of inventory for a wide range of
products. Additional responsiveness can be gained by stocking products at many locations so
as to have the inventory close to customers and available to them immediately. Efficiency in
inventory management would call for reducing inventory levels of all items and especially of
items that do not sell as frequently. Also, economies of scale and cost savings can be gotten
by stocking inventory in only a few central locations such as regional distribution centers
(DCs).
 3. LOCATION

A location decision that emphasizes responsiveness would be one where a company establishes
many locations that are close to its customer base. For example, fast-food chains use location
to be very responsive to their customers by opening up lots of stores in high volume markets.
Efficiency can be achieved by operating from only a few locations and centralizing activities
in common locations. An example of this is the way e-commerce retailers serve large
geographical markets from only a few central locations that perform a wide range of activities.

4. TRANSPORTATION

Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks
and airplanes. Many companies that sell products through catalogs or on the Internet are able
to provide high levels of responsiveness by using transportation to deliver their products often
within 48 hours or less. FedEx and UPS are two companies that can provide very responsive
transportation services. And now Amazon is expanding and operating its own transportation
services in high volume markets to be more responsive to customer desires. Efficiency can be
emphasized by transporting products in larger batches and doing it less often. The use of
transportation modes such as ship, railroad, and pipelines can be very efficient. Transportation
can also be made more efficient if it is originated out of a central hub facility or distribution
center (DC) instead of from many separate branch locations.

5. INFORMATION

The power of this driver grows stronger every year as the technology for collecting and sharing
information becomes more wide spread, easier to use, and less expensive. Information, much
like money, is a very useful commodity because it can be applied directly to enhance the
performance of the other four supply chain drivers. High levels of responsiveness can be
achieved when companies collect and share accurate and timely data generated by the
operations of the other four drivers. An example of this is the supply chains that serve the
electronics market; they are some of the most responsive in the world. Companies in these
supply chains, the manufacturers, distributors, and the big retailers all collect and share data
about customer demand, production schedules, and inventory levels. This enables companies
in these supply chains to respond quickly to situations and new market demands in the high-
change and unpredictable world of electronic devices (smartphones, sensors, home
entertainment and video game equipment, etc.).

Obstacles to Achieving Strategic Fit

Increasing Variety of Products: In the era of mass customization production variety is
increasing.

The customers becoming increasingly demanding. Today’s customers are demanding faster
fulfillment, better quality, and better performing products for the same price that they are
paying today.

The supply chain is getting fragmented. At one time vertical integration was the order of the
day. But the present trend is to concentrate on core competence and outsource more activities.
Thus the supply chain is more fragmented now.

Globalization is creating global supply chains and hence physical distance is increasing
between a company and its suppliers and a company and its customers.

While creating a strategy is difficult, executing it is much more difficult. Many companies
understand Toyota Production System now, but still find it difficult to implement and operate.

Supply Chain Strategies

Supply chain and logistics improvements are neither easy nor inexpensive. Better strategic
and operational investments and decisions in supply chain and logistics can help to reduce cost
by 10% to 40%, and also to grow overall corporate revenues through enhanced customer
service and demand management.
In response to such challenges, the Stewart School of Industrial and Systems Engineering’s
Supply Chain and Logistics Institute (SCL) established a Center of Focused Research in Supply
Chain Strategy. Faculty and students from ISyE bring a wide range of backgrounds and
methodology to the supply chain strategy research done in our partnerships with industry. This
work involves developing business and operational strategies for:

(1) Designing, synchronizing and optimizing global supply chains,

(2) Integrating people, process, and technologies to achieve supply chain objectives,

(3) Developing competitive advantage from outsourcing and collaboration, and

(4) Providing supply chain oversight and control. The Center is involved with a variety of
related projects.

Designing and controlling efficient and effective supply chains is an extremely important factor
in reducing costs and maximizing revenues in companies. In fact, developing strategies for
supply chain improvement is also a matter of survival in today’s highly competitive and global
environment. Join the Stewart School of ISyE in this exciting area of research that include:

 Designing, synchronizing and optimizing global supply chains

 Integrating people, process, and technologies to achieve supply chain
objectives
 Developing competitive advantage from outsourcing and collaboration
 Providing supply chain oversight and control

Best Practices in SCM

“The major trends in business right now — low-cost country sourcing, outsourcing,
customization, globalization — all create tremendous complexities in a supply chain,” said
Steve Matthesen, vice president and global leader for supply chain at Boston Consulting Group,
in a special business operations report. “In most cases, however, companies have not changed
how they manage this critical part of the business.”

According to the Indian Institute of Materials Management, “Business today is in a global

environment [and] companies are going truly global with Supply Chain Management (SCM)…
Companies have changed the ways in which they manage their operations and logistics
activities. Changes in trade, the spread and modernization of transport infrastructures and the
intensification of competition have elevated the importance of flow management to new
levels.”

The following best practices in supply chain management offer a critical look at best-in-class
manufacturers and what they are doing to implement the most effective supply chains.

1. Set up your supply chain council

Without an internal council of leaders in place, your supply chain may lack a clear strategy for
efficiency and functionality. There’s also a good chance an existing supply chain strategy will
not align with the company’s overall strategy if your organization doesn’t have a governing
body to synchronize the two. For example, if a company goal is to improve inventory turns,
your supply chain probably shouldn’t take in a container of raw material requiring about 12
months to consume. By supporting your supply chain with a council of executive leadership
and lower level management, your council can improve cross-functional communication and
demonstrate the value of an organized supply chain — two barriers to success that often hinder
operations without a supply chain council.

2. Establish an appropriate and thoughtfully staffed supply chain structure.

Ideally, your supply chain will be staffed and structured in a way that maximizes effectiveness
as well as efficiency in order to bring the most benefit to your organization. Most organizations
these days find that a centralized strategy, implemented by specialized managers in their
various business units is the most optimal approach. Reportedly, this combination leads to more
harmony between strategy and implementation, while also resulting in the best service. In
staffing your supply chain, you should be more focused on strategy than simply transactional
ability with your top leadership. These leaders should extend this strategic thinking toward
creating value using strong interpersonal skills (such as communication and relationship
management) internally as well as externally.

3. Identify areas where technology can help improve and streamline

processes.

Approximately 79 percent of supply chain enterprises surveyed worldwide fault manually

driven processes as the cause for continued lack of supply chain visibility. Lack of visibility
and another global concern, the uncoordinated nature of supply chain processes can be solved
with the automation provided by technology: “On average, large companies report that their
international supply chains are only 50 percent as automated as their domestic supply chains.
Overall, only 6 percent of companies report that they have highly automated end-to-end and
cross-functional processes.” Although improving efficiency in your supply chain is a key
concern when selecting software and technology, it’s backwards to structure your processes
around technology. Instead, review processes that are producing below standard to determine
areas where technology can help improve, and then select your software solutions to fit those
needs. With appropriate technology in place, detailed reporting data will be more accessible
and accurate to better inform the supply chain council for performance measures as well as
strategic planning.

4. Maintain healthy supplier relationships

An important indicator of success in this industry is the health of your supplier relationships.
These connections should be maintained and cultivated on an ongoing basis, beyond the
finalization of your deal. The best supplier relationships are the ones with two-way
communication between the buyer and seller. Your objectives should include mechanism(s) to
maintain the health of your relationship, goals for continuing improvement and value,
performance measurement and a platform for conflict resolution.

5. In procurement, look at total cost of ownership over price

Follow the example of best-in-class companies, and move away from the procurement practice
of selecting a supplier based completely on price. Instead, strategic sourcing involves
understanding the total cost of ownership/consumption (TCO) of a product or service. This
makes more business sense when you remember that the cost of acquisition for most products
and services is only 25 to 40 percent of the TCO, while the rest is comprised of operating,
warehousing, and transportation costs, to name a few. Not surprisingly, your procurement
teams will need more collaboration with your suppliers in order to determine an accurate TCO.

6. Source suppliers strategically and with collaboration

Strategic selection of suppliers is at the heart of successful supply chain management, and
adding a collaborative element to strategic sourcing produces even better results. In a 2009
Industry Week article, J. Paul Dittmann of the University of Tennessee noted that successful
supply chains are proficient in five key pillars of excellence: Talent, technology, internal
collaboration, external collaboration, and change management. Collaboration is at the heart.
Take your sourcing beyond the purchasing department to engage your suppliers in the decision-
making process. Solicit their feedback on all areas of internal business or function that may
affect the success of your initiatives or processes. With collaborative strategic sourcing, you’ll
enjoy streamlined operations, reduced costs, and improved responsiveness.

7. Move contract management responsibility to the supply chain

Although potential savings are often negotiated during the procurement process, they are rarely
fully realized. This is most commonly because of a lapse in communication or lack of follow-
through on contract compliance. To combat this and actually realize those cost savings, best-
in-class companies move contract management under the supply chain. This allows the supply
chain leader to leverage spend where there is greater opportunity for reducing costs and
mitigating risk, usually with services.
 8. Optimize inventory for reduced cost

In any business, there’s a desire to reduce costs and improve the bottom line. This is especially
true in times of global economic downturn, like the one we’re currently subject to. In light of
and in support of these efforts, supply chain management should include a consistent look at
optimizing inventory quantities. There’s a very real cost of holding and storing inventory, and
it’s almost always higher than the generally assumed 20 to 25 percent. In fact, “Research
reveals that inventory holding costs could represent up to 60 percent of the cost of an item that
is held in inventory for 12 months,” as reported by Supply Chain Quarterly. To optimize your
supply chain inventory, include forecasting and demand planning.

9. Establish regular reviews to ensure efficiency and mitigate risk

Your supply chain council and leadership team members should be constantly reviewing
procedures and policies to ensure compliance, efficiency, and currency. This will help avoid
process bottlenecks and help streamline operations while mitigating the risk of theft, fraud, and
the like. Risk mitigation in the supply chain must adhere to some important steps: identifying
all elements of risk, evaluating their probability of occurrence, estimating the financial impact
in the event of an incident, and prioritizing risks for appropriate monitoring and prevention
measures.

10. Be socially responsible and establish “green” initiatives

It’s no longer optional for your supply chain company to actively reduce its carbon footprint,
instead, supply chain organizations must become sustainable and socially responsible if they
hope to thrive or even survive. While the U.S. doesn’t yet have a carbon-trading regime, buyers
are now considering environmental impact when they choose suppliers. On a more general
scale, social responsibility is also becoming more and more significant in buyers’ estimation
when making purchase decisions. A best-in-class supply chain organization should have a
measureable framework of policies and procedures designed to improve the workplace for the
greater good of employees, the organization itself, and also its community.

Obstacles of Streamlined SCM

1. Juggling multiple systems to complete the same task

When information is fragmented across different applications and tools, operational delays
become inevitable. For example, a team might end up checking several carrier systems for
updates while sharing error-laden spreadsheets via email.

Reconciling all of this data saps valuable time. It also complicates tasks such as procurement
and supply planning, producing considerable inefficiencies that drive up costs for workflows
such as freight invoicing.

Ideally, such islands of information can be consolidated without having to resort to onerous
manual processes. Integrated supply chain solutions implemented by a trusted partner such as
Inspirage will put you on the track to a more cost-effective, scalable and transparent supply
chain management solution.

2. Outsourcing logistics visibility to third parties

Outsourcing to third party logistics providers is unavoidable in some industries, not to mention
a practical necessity among large organizations with national or even global footprints. At the
same time, ineffective third-party partnerships can become a major drag on overall supply
chain visibility, with cascading effects across the whole enterprise.

Relying on outside help for logistics visibility creates issues similar to those we raised in the
first item above: Namely, time-consuming and expensive fragmentation. In contrast, having
data points such as carrier commonly available in a platform such as Oracle Transportation
Management greatly simplifies transportation management.

The results often speak for themselves. A more streamlined supply chain is both economical
and easy to manage, thanks to features such as centralized data repositories.

3. Working with outdated technology

Have you ever researched a product on a retailer’s website, checked to verify that it’s available
at a specific location, visited that store and discovered instead that the item is out of stock?
There are many reasons for such discrepancies, with lack of an up-to-date data near the top of
the list.

While consumers regularly engage with organizations across multiple devices and platforms,
companies do not always possess the right tools to keep pace. Accordingly, they might have to
lean on decades-old ERP systems and complex customizations, which together contribute to
difficulties in meeting product demand, allocating costs for parts and ensuring that publicly
viewable indicators of store stock (e.g., on an e-commerce site or in a mobile app) are accurate.

4. Paying too much for essential services

As a result of these flaws and many others, many organizations end up with a supply chain
burdened by costs and incapable of adapting to evolving requirements. Overpaying for freight
invoices is a prime example of a pitfall opened up by inefficient supply chain management:
much of the cost of paying for these items can be eliminated with the right pairing of processes
and tools.

The good news is that you have worthwhile options for modernizing your approach to supply
chain management. Inspirage is an end-to-end Oracle partner with a long track record of
ensuring industry-appropriate implementations that finish on time and on budget.