Optimal Integration of the Supply Chain
In a global market, it is crucial to distinguish oneself from the competition; more and more, customers are basing their choices on customer service over cost and quality.
Supply chain management provides them with this tool for competitiveness. Company directors with foresight have realized that supply chain management affords them an overview of their business affairs which guides them in strategic decisions and helps them to identify client-related problems. The supply chain is the backbone of the business. It consists of a process that links all physical activities from purchasing and manufacture to distribution and customer service.
All these elements must be managed in concert. Good practices involve balancing and managing compromises. Cost reduction in one sector can increase costs in another. Reducing the number of warehouses for example, can lead to a rise in transportation costs and have an impact on customer service if not adequately managed. Satisfying client demands can only be achieved thanks to a structured cost management process. Today’s shareholders exert constant pressure on businesses to reduce operation costs while offering better service levels.
Supply chain optimization is governed by the following principles:
- Supply Chain performance measures: Implementing channel-spanning performance indicators. Measuring order fulfilment and customer profitability between partners.
- Customized logistics network: Implementation of a logistics network to serve specific customer segments, requirements and geographical regions. Client segmentation and analysis of individual profitability, adaptation of a strategy to balance service with profitability.
- Activity-based costing: Precise process mapping of logistics operations. Identification of cost and resource drivers. Business modelling, benchmarking of model. Development of decision models to perform product costing, client costing and sensitivity analysis.
- Collaborative forecast planning: Integration of planning processes through the entire supply chain. Sharing of sales and forecasting information through initiatives like Vendor Managed Inventory. Challenging the current manufacturing and transformation locations to reduce the demand variation sensitivity. Postponement of the ultimate transformation point in the supply chain.
- Strategic sourcing: Performing ‘make or buy’ analysis of non-core activities. Development of partnerships with principal suppliers. Supply models, analysis of purchasing policies, algorithms, forecasting and demand methods.
- Purchasing practices: Analysis of demand pattern and suppliers’ practices to minimize product handling. Implementation of drop-shipment practices and ordering quantity re-evaluation. Implementation of total cost practices to incorporate warehousing costs into volume deals. Establishment of supplier performance program.
- Integrated technology: Recognizing that information required to enhance the supply chain resides outside the company. Facilitating data exchange through e-commerce.