An Introduction To Supply Chain

8/7/2019 An Introduction To Supply Chain

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AN INTRODUCTION TO SUPPLY CHAIN

A supply chain is a network of facilities and distribution options that performs the functions

of procurement of materials, transformation of these materials into intermediate and finished

products, and the distribution of these finished products to customers. Supply chains exist in

both service and manufacturing organizations, although the complexity of the chain may

vary greatly from industry to industry and firm to firm.

Below is an example of a very simple supply chain for a single product, where raw

material is procured from vendors, transformed into finished goods in a single step, and

then transported to distribution centers, and ultimately, customers. Realistic supply chains

have multiple end products with shared components, facilities and capacities. The flow of

materials is not always along an arborescent network, various modes of transportation may

be considered, and the bill of materials for the end items may be both deep and large.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing

organizations along the supply chain operated independently. These organizations have

their own objectives and these are often conflicting. Marketing's objective of high customer

service and maximum sales conflict with manufacturing and distribution goals. Many

manufacturing operations are designed to maximize throughput and lower costs with little

consideration for the impact on inventory levels and distribution capabilities. Purchasing

contracts are often negotiated with very little information beyond historical buying patterns.

The result of these factors is that there is not a single, integrated plan for the organization---

there were as many plans as businesses. Clearly, there is a need for a mechanism through

which these different functions can be integrated together. Supply chain management is a

strategy through which such integration can be achieved.Supply chain management is typically viewed to lie between fully vertically integrated

firms, where the entire material flow is owned by a single firm, and those where each

channel member operates independently. Therefore coordination between the various


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players in the chain is key in its effective management. Supply chain management is a well-

balanced and well-practiced relay team. Such a team is more competitive when each player

knows how to be positioned for the hand-off. The relationships are the strongest between

players who directly pass the baton, but the entire team needs to make a coordinated effort

to win the race.

SUPPLY CHAIN MANAGEMENT

An Evolving Concept

Supply Chain Management (SCM) has emerged as one of the principal areas on

which leading edge companies are focusing to increase market share, profitability,

competitive advantage and shareholder value. While the term "Supply Chain Management"

is widely used, there is not general agreement as to the definition and scope of the SCM

concept. In fact, during the last several decades, the term itself has evolved from

"Distribution" to "Logistics" to "Supply Chain Management."

WHAT IS SUPPLY CHAIN?

Definitions from well-respected references have varied during the past decade. For

example, Supply Chain Yearbook 2000 described SCM as, "A chain of processes that

facilitates business activities between trading partners, from the purchase of raw

goods and materials for manufacturing to delivery of a finished product to an end

user."

APICS-The Performance Advantage, offered this definition in January 1999: "The

global network used to deliver products and services from raw materials to end

customers through an engineered flow of information, physical distribution and cash."

This is a little change from the 1997 definition, Logistics Management offered, describing

SCM as, "The delivery of enhanced customer and economic value through


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synchronized management of the flow of physical goods and associated information

from sourcing to consumption."

The definition evolution continues as European Logistics Association, in 1995

suggested SCM was, "The organization, planning, control and execution of the goods

flow from development and purchasing through production and distribution to the final

customer in order to satisfy the requirements of the market at minimum cost and

minimum capital use.

SUPPLY CHAIN OBJECTIVE

The objective of the supply chain is to support the flow of goods and materials from

the original supplier through multiple production and logistics operations to the ultimate

consumer. Supply chain management is the planning and control of this flow to speed time

to market, reduce inventory levels, lower overall costs, and, ultimately, enhance customer

service and satisfaction

The time has come when companies can no longer afford to look at their operations

in a vacuum. What they now need is the ability to collect comprehensive, accurate, and

timely information over the entire supply chain. By analyzing this information, they can

better understand how changing conditions affect their businesses. Making informed

business decisions this way helps organizations accomplish their business goals while also

helping them use information for competitive advantage.

DESIGNING THE SUPPLY CHAIN

Essentially a company wants a supply chain that not only meets customers needs

but also provide an edge against competitor. This requires an organized approach to

designing a supply chain. There is a sequence of four decisions.


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Delineate the Role of Distribution with In theMarket

A channel strategy should be designed with in the context o an entire marketing mix.

First the firms marketing objectives are viewed. Next the role assigned to product, price,

and promotion are delineated. Each element may have a distinct role or two may share

assignment. A company must decide whether distribution will be used defensively or

intensively. If defensive, a firm will strive distribution as good as. With an offensive strategy,

a firm uses distribution to gain an advantage over competitors.

Selecting the Type of Channel

Once the distributions role in the overall marketing programme has been agreed on,

the most suitable channel for the companys product is determined. Firms may rely on

existing channel or may use new channel to better serve existing customers, reaching new

customers, and gain an edge on competitors. A firm needs to decide whether middle man

used in the channel and if so which type of middleman.

Choosing Specific Channel Members

The last decision is the selection of specific firms or brands of middleman to

distribute the product. For each type of institution, there are numerous specific companies

from which to choose.

When selecting specific firms to be part of a channel, producer must assess factors

related to market, product, and company as well as middleman. Another key factor is

intensity necessary to serve its target market well. Two additional factors are whether the

middleman sells the market that the manufacturer wants to reach and its product mix,

pricing strategies, promotion and customer service are all compatible with the producers

needs.

THE BASIC LINKS OF SCM


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For most of the last century, the supply chain__ a company links to manufacturers

suppliers, distributors, and customer__ was an inflexible series of events that somehow

managed to get products out the door. A paper-heavy adventure, it often involved

questionable inventory forecasts, ironclad manufacturing plans and hypothetical shipping

schedules.The Internet changed all that. It has transformed this archaic in to some thing closer

to an exact science when we think of the internet enabled supply chain__ wit its just-in-time

delivery, precise the inventory visibility and to-the-minute distribution-tracking capabilities__

as strategic weapon that can:Help companies to avoid costly disastersReap cost cutting and revenue producing benefitsSlice the cost of holding too much or struggling with too little inventory

That potential so central to the operations of business that while automating a supply

chain requires careful planning and must start with an excellent understanding of

relationship with partner and customer.When evaluating SCM initiatives it will pay to keep the following basics in mind.

Visibility

yAll the players in the supply chain should be able to react to the order.All the players in the chain simultaneously manage inventory, control manufacturing

schedules and deliver an order on time to a customer.Architecture

ySupply chain application must link to existing enterprise resource planningapplication.


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Ideally, there should be single point of visibility for inventory and order taking.

Customer could place and track order with the web interface and customer service

representative would have access to same information customer see. A database would

store and manage orders, and customer would be able to check inventory and order

status in real time any time.

Rethink the Chain

yThe customer replaces the product line as the center of supply chainsuniverse.

As today, customer order touches multiple product lines and multiple channels of

distribution. The focus has to be on filling, delivering, and managing inventory for every

order that a customer places. Every order should penetrate to the same system that

manages inventory and connects to the suppliers and distributors.

Total Involvement

yCustomers and others links in the chain have to be ready to handle web-based technology.

When rolling out s project, company must decide which customer and supplier use it

first. That decision can be based on several factors.

Consider the salesmans 80/20 rule: 20 percent customers place 80 percent of

orders, so companies should consider offering web capability to that 20 percent

customer first.

Simplicity is the key: application that are easy to use and connect to will be mostpopular with the members of supply chain. Extensible markup language used in

application can provide a lingua franca for all the members of the chain

SUPPLY CHAIN DECISIONS


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We classify the decisions for supply chain management into two broad categories --

strategic and operational. As the term implies, strategic decisions are made typically over a

longer time horizon. These are closely linked to the corporate strategy (they sometimes {is\

are} the corporate strategy), and guide supply chain policies from a design perspective. On

the other hand, operational decisions are short term, and focus on activities over a day-to-

day basis. The effort in these type of decisions is to effectively and efficiently manage the

product flow in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: 1) location, 2)

production, 3) inventory, and 4) transportation (distribution), and there are both strategic

and operational elements in each of these decision areas.

Location Decisions

The geographic placement of production facilities, stocking points, and sourcing

points is the natural first step in creating a supply chain. The location of facilities involves a

commitment of resources to a long-term plan. Once the size, number, and location of these

are determined, so are the possible paths by which the product flows through to the final

customer. These decisions are of great significance to a firm since they represent the basic

strategy for accessing customer markets, and will have a considerable impact on revenue,

cost, and level of service. These decisions should be determined by an optimization routine

that considers production costs, taxes, duties and duty drawback, tariffs, local content,

distribution costs, production limitations, etc. Although location decisions are primarily

strategic, they also have implications on an operational level.Production Decisions

The strategic decisions include what products to produce, and which plants to

produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer

markets. As before, these decisions have a big impact on the revenues, costs and customer

service levels of the firm. These decisions assume the existence of the facilities, but

determine the exact path(s) through which a product flows to and from these facilities.

Another critical issue is the capacity of the manufacturing facilities--and this largely depends


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the degree of vertical integration within the firm. Operational decisions focus on detailed

production scheduling. These decisions include the construction of the master production

schedules, scheduling production on machines, and equipment maintenance. Other

considerations include workload balancing, and quality control measures at a production

facility.

Inventory Decisions

These refer to means by which inventories are managed. Inventories exist at every

stage of the supply chain as either raw materials, semi-finished or finished goods. They can

also be in-process between locations. Their primary purpose to buffer against any

uncertainty that might exist in the supply chain. Since holding of inventories can cost

anywhere between 20 to 40 percent of their value, their efficient management is critical in

supply chain operations. It is strategic in the sense that top management sets goals.

However, most researchers have approached the management of inventory from an

operational perspective. These include deployment strategies (push versus pull), control

policies --- the determination of the optimal levels of order quantities and reorder points, and

setting safety stock levels, at each stocking location. These levels are critical, since they are

primary determinants of customer service levels.

Transportation Decisions

The mode choice aspect of these decisions are the more strategic ones. These are

closely linked to the inventory decisions, since the best choice of mode is often found by

trading-off the cost of using the particular mode of transport with the indirect cost of

inventory associated with that mode. While air shipments may be fast, reliable, and warrant

lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much

cheaper, but they necessitate holding relatively large amounts of inventory to buffer against

the inherent uncertainty associated with them. Therefore customer service levels, and

geographic location play vital roles in such decisions. Since transportation is more than 30

percent of the logistics costs, operating efficiently makes good economic sense. Shipment

sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment

are key in effective management of the firm's transport strategy.


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definitions, organizational structure, business policies and culture in essence - creating a

new business model. And even if the current information technology (IT) applications

support today's business model, it is highly unlikely that these IT applications will effectively

support supply chain business model. The resulting acquisition and implementation of new

information technology will become the most costly and time-consuming component of

implementation.

There are some critical success factors particular to supply chain reengineering, such as

information technology, scope (breadth and focus), mobilizing within multiple cultures, and

building and sustaining momentum.

First we have to decide which comes first the reengineering or the IT acquisition,

especially if the objective is to enable superior business operations and management.

Reengineering creates a new business model, for which the business requirements are

documented and mapped to various technology solutions. The solution with the best fit is

selected, and the overall implementation begins.

But in many cases, we find that the organization has already acquired IT solution,

and is now considering how to reengineer the current business model for supply chain

management.

The solutions range from ignoring the reengineering and just installing IT application

to resetting the "go-live" date. But delay in "go-live" will be offset by the earlier achievement

of higher levels of benefits. The (relative) simplicity of the pure technology implementation

keeps beckoning, and the goal of implementing a superior new business model is easily

forgotten.

Do We Change It All at Once?THE SCOPE OF SUPPLY CHAIN MANAGEMENT IS HUGE; SOME DEFINITIONS START

WITH THE INTEGRATION OF CUSTOMER FULFILLMENT NEEDS THROUGH THE

OPTIMIZATION OF PRODUCT PRODUCTION AND DELIVERY, AND INCORPORATING

SUPPLY MANAGEMENT. VERY FEW OF THOSE WHO HAVE VENTURED DOWN THIS PATH

HAVE SUCCEEDED, ALTHOUGH MANY HAVE DECLARED VICTORY. THE PROBLEMS ARE


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THAT IT IS JUST TOO BIG, THE BREADTH OF CHANGE AND RESISTANCE FREQUENTLY

OVERCOMES ANY PROJECT TEAM (SEE FIGURE).

HOW TO CHANGE

The solution is to partition and prioritize. Think big, but implement in small steps.

Achieve early victories to sustain momentum. Use early delivery of benefits to help fund

additional costs. Even this is still a challenge, because the company will have to live with

some business units working in business model while others are still in the old. The

incongruities are troublesome at times, but still offer less risk than doing it all at once.What To Reengineer?

As the company looks for ways to partition and prioritize, the tendency is to

approach it from an organizational perspective. Because most companies operate, manage

and reward from an organizational perspective, it feels natural to develop a plan sequencing

the reengineering of various organizations (e.g. customer service, logistics, purchasing). It

is easy to identify the responsible managers, as well as point the finger at the change

targets.

Most business processes have many hand-offs, associated manual control systems,

many non-value steps, huge cycle times and high levels of cost. In a nutshell, it is the

process that is not managed. So when the reengineering efforts focus on organizational

activities, they fail to address the opportunities for improving the performance of the overall

business process. This may result in higher organizational performance, but may be of little

benefit to the customer and the company.

The solution is construct a business model of the company's key business

processes. Describe the processes in verbs and nouns (so that no one will confuse them

with organizations). For clarity, any process that is depicted must be described by the 5 to 9

sub-processes that it comprises. Use a structured analysis concept of having multiple levels

of processes. If the top level is the enterprise/company, then the second level is the 5 to 9

major business processes that the enterprise does, and for each of those processes,

describe the 5 to 9 processes that comprise it. Now we have identified 25 to 81 key


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business processes, and they can be mapped to business strategies to determine which

business processes need superior or improved performance. The outline of a plan, based

on reengineering business processes, begins to emerge and it has focused on identifying

and prioritizing business processes for reengineering (see Figure).

Supply Chain Business Model

Mobilizing Multiple CulturesTypically, supply chain management reengineering involves external customers

and/or suppliers. If it doesn't, it is just an internal project masquerading as supply chain

reengineering.

A huge challenge exists the integration of the customers and suppliers into the

reengineering project. Issues include:

y Working with different engrained cultures based on past relationships

y Establishing trust in how benefits will be realized

y Coordinating resources across multiple companies

y Determining project leaders and resources

y Sharing funding

y Fearing loss of competitive information

The goal is to get the right people together to address these issues early and

develop a strong project charter so that the project team can be effective. Failure may doom

from the beginning, and this failure won't be discovered until considerable time and money

have been wasted.

There are no easy answers here, but there is an approach that works. We can take the

business model (from above), and identify the external and internal customers and suppliers

for the business processes being reengineered. Within those segments, we can identify

those who are most important to us both today and in the future. Using the desired project

outcomes, we can usually get a coordinated meeting of the external representatives

(probably one company at a time). Here is where many lose the opportunity usually by


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having a fairly fixed desired outcome and even to the point of having identified some

potential changes. The difficulty is that all the ownership is on one side, and there is

frequently neither partnership nor agreement. Further progress is seriously impaired.

But if the agenda is approached without preconception, and with a clear goal, then

we have a pretty good first cut at a team-based project charter. The details can be worked

out, and the partnership created to get off to the right start. The key point is to develop a

charter that all key stakeholders have ownership of, and provide clarification as to what is

being addressed, for what objectives, in what way, with what resources, and to what

schedule. Consider the charter to be a contract between management and the project team,

and remember a weak, vague contract inevitably results in a weak or failed project.

Building MomentumA critical success factor will become creating and sustaining momentum for the

project. It will be months before it is complete, and many of the participants still have their

normal job to do. The easiest and fastest place to start is the "as-is" assessment. The

techniques are easy to use; the data relatively fast to acquire; and within two months we

should have a pretty good picture of how the process works today and what its performance

measures are. It's likely that most of the process measures did not exist and the data for

them probably had to be created.

What should emerge through the walk-throughs of what was documented is the

identification of fast track opportunities small changes that can be quickly implemented with

little or no cost. These opportunities may or may not have significant tangible benefits; they

represent the beginning of real change. They demonstrate that change will happen and

begins to differentiate this project from others that produced no results. Project momentum

builds. Additionally, the ease in which the fast tracks are implemented provides significant

insight as to the barriers that can be expected during the implementation of major change

(see Figure 4).Sustaining Momentum

Sustaining Momentum


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We have reached the point where we generate the major redesign ideas. There are many

techniques here they generally revolve around structured workshops with team members

and employees from the process areas. A key tactic is to increase the number of people

involved, by having many participate in workshops of short duration (8-24 hours). By having

more people involved, we ultimately have more people committed to its implementation. At

this stage treat all ideas as good ideas (most are), with the emphasis on getting hundreds of

ideas out on the table. Some of the workshops can create different external scenarios such

as globalization, economic downturn and new competition so that the team can be building

change idea scenarios for economic conditions different from today. Special techniques

need to be used to get the participants to think outside of the current process and job.

When the workshops are over, the team returns to assessing each idea, adopting

the good ones, and then creating a conceptual view of how process works, and

subsequently defining jobs, organization, management systems, business polices and

technology requirements.

INTEGRATING THE SUPPLY CHAIN

Information IntegrationThe concept of integrating information lies at the heart of most organizations' efforts

to improve business processes. Modern ERP systems are designed to accomplish this and

to provide organizations with a system for planning, controlling, and monitoring an

organization's business processes. ERP systems achieve high levels of integration by using

a standard mechanism for communications, developing a common understanding of what

the shared data represents, and establishing a set of rules for accessing data.

Dealing With Complexity Beyond TheEnterprise

Similar to ERP solutions, supply chain solutions also must integrate information

consistently. Unlike ERP systems, supply chain systems must cope with the complexity of


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integrating information from any number of disparate information systems anywhere along

the supply chain. If you look at the methods an ERP system uses to integrate operations,

you will find some that are applicable to supply chains and others that are not.

For example, ERP systems within a single company use a database as the basis of

communications within the organization; individual applications access data via any of a

number of standard networking protocols.

In addition to a standard means of communications, businesses must agree on what

the shared data represents and on rules governing its access, including authorization

procedures. The only way to reach this common ground is by adopting a common set of

standards.

Enabling Integrated Decision Making

SAP will continue to champion open standards in an effort to integrate business

processes across the supply chain. In the process, SAP will deliver the highest levels of

data integration available in supply chain software that, in turn, will enable integrated

decision making.

Integrated DecisionThe demand for high-performance supply chain solutions to manage and integrate

data from a wide variety of systems is just the beginning. These solutions also must

combine powerful decision-making capabilities with the ability to enact change within an

organization's business processes. Just as ERP systems integrate data within the

organization, supply chain solutions must integrate decisions within the extended

enterprise.

Real-Time Decision Support

The need for real-time decision support is complicated by the fact that this support

cannot be applied to just one or a few links in the supply chain. High-performance supply


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chain solutions must monitor all the elements of the chain, making critical decisions and

continuously affecting process change.

For years, companies have employed powerful computers to analyze business

process data and provide decision support. This analysis occurred on an as-needed basis

and changes were frequently enacted with little understanding of the effect on other

functional areas of the business.

Something as simple as a company's decision to launch a marketing campaign can

produce a flurry of orders for a product and a series of disruptions across the entire product

supply chain. These disruptions may begin with procurement's inability to secure parts and

end with customer dissatisfaction with delivery.

The Complete Supply chain Picture

The second step is to combine the core transaction system along with all of its

business intelligence with real-time information handling and decision making. This added

functionality will help you combine business data with information from the extended

enterprise to paint a more timely and accurate picture of the entire supply chain. Only then

can you make informed decisions that will cut the time to market, reduce inventory, lower

costs, and improve customer satisfaction.

Executive Excellence with the Enterprise


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Execution excellence is the capability of an organization to implement and execute

its business processes in such a way as to maximize business benefits.

The business applications driving this effort must be capable of processing

extremely high volumes of information. They must be open, robust, highly flexible, easily

configured and managed, and they must ensure a high level of data integrity throughout the

organization.

SAP R/3 System

The SAP R/3 System, SAP's enterprise resource planning (ERP) software, is

the world's most popular standard business software for client/server computing. R/3

delivers total solutions that span the organization, incorporating business functions such as

sales and materials planning, production planning, warehouse management, financial

accounting, and personnel management into an integrated workflow of business SAP is

committed to delivering solutions that automate critical supply chain processes in ways that

improve performance and provide a distinct competitive edge.

SAP is committed to delivering solutions that automate critical supply chain

processes in ways that improve performance and provide a distinct competitive edge. SAP

solutions deliver robust functionality, a high degree of configurability, and real-time data

integration so you can leverage the power of information to your fullest advantage.

R/3 in the Supply Chain Today

Achieving execution excellence and extending the enterprise were natural

milestones in the R/3 System's movement toward a total integrated supply chain solution.

Further, R/3 Release 3.1 leverages the optimized business data in the Business Information

Warehouse along with powerful messaging capabilities to provide the real-time decision

support required to perform effective supply chain management. Today, powerful third-party

programs using memory-resident analytical engines have taken advantage of R/3

messaging and extended its capabilities to include supply chain functionality. These tools

which range from supply planning, plant scheduling, and demand planning to logistics


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communicate directly with R/3 and help you make timely decisions to optimize supply chain

performance.

R/3 in the Supply Chain Tomarrow

SAP continues to focus its development efforts on more robust supply chain

functionality in R/3. Just as SAP has responded to customers' requests for increased

functionality and performance from their R/3 systems, SAP will work to deliver the supply

chain management and optimization solutions its customers are seeking.

In the coming months, you will see comprehensive supply chain functionality built

into new R/3 releases and made available as add-ons to existing R/3 versions. These

solutions will feature powerful new computing techniques and will represent a dramatic

improvement over supply chain solutions currently available in the market today.

SCMFOR SMALL DISTRIBUTORS

Supply chain management is really about relationship management - andthat applies to distributors of all sizes.

Industrial distribution is a relationship business. Thats a common statement, butone that couldnt be more true when it comes to the concept of supply chain management.

As distributors of all sizes look to take costs out of the channel, experts should begin

by taking a good, hard look at their business relationships. Are they buying the right

products from the right suppliers? In turn, are they managing their prices, costs and margins

effectively? Are they selling to the right customers? Are they using information from both

suppliers and customers to manage and control inventory levels?

In its most basic form, supply chain management is all about taking costs out of the

channel. And thats something distributors of all sizes can get involved in.

Supply Chain Managementcan be broken down into four primary tenets: inventory

management, supplier management, customer management, and financial management.


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Inventory Management

One of the first steps to taking costs out of the channel for any size distributor

is getting a handle on inventory costs. And thats where technology can help. Inventory

management software systems can help distributors track demand history and forecast

future demand on an item-by-item basis. This will help optimize inventory levels, reduce

stock-outs and identify slow movers.

Keeping inventories as low as possible while also maintaining an acceptable in stock

level can help reduce the amount of working capital tied up in inventory and free up cash

for more strategic use.

Warehouse management systems are also effective. Even the most basic

warehouse management software packages can give distributors the information they need

to slim down inventory levels and identify slow-moving and obsolete stock.

Bar coding systems can also help distributors better manage inventory and run their

warehouses more profitably. Such technologies are more affordable than some small

distributors may realize.

The expansion of technology and the increase of competitive providers have combined topush costs down and the interest of selling to small distributors up across the industry,

Supplier Management

Inventory and warehouse management programs can help with supplier

management, but distributors can take other steps in that direction, as well. Distributors

should use activity based costing techniques to quantify the total cost of doing business

with each of their suppliers and with their supply base on the whole. Distributors can dothat by tracking costs by product line and supplier to identify where they are making and

losing money. That information should be used to fire the worst suppliers and re-negotiate

prices with good, but unprofitable suppliers, he says.


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To achieve customer goals, the distributor must first control his own costs. Suppliers

can help in that objective by providing the distributor with solutions which could be as

basic as offering EDI or electronic funds transfer to streamline administrative operations.

That allows to cut out those inefficient business transactions in business, so we can lower

costs. Anything youre doing to actively manage the relationships, both with your suppliers

and your end-user customers, is supply chain management.

Customer Management

There are a number of ways to manage customer relationships. For one, activity

based costing techniques can help identify profitable and unprofitable customers. A

relatively new concept called Customer Relationship Management can also help.

Distributors can use CRM to track customers purchasing needs and buying patterns in an

effort to develop and refine marketing and sales approaches to targeted customer groups,

says Skinner. In its most basic form, CRM can be achieved by using historical sales order

data to analyze how individual and groups of customers buy. Order management software

packages allow access to sales history and are available from many software providers.

Small distributors can take advantage of other technologies, as well. One thing they

can do, is link their computer system to their best customers systems without going

through the Internet. This allows the customer direct access to the distributors inventory.

Financial Management

Cash flow is the life and death of distribution

With that in mind, distributors need effective and advanced accounting systems. Its

important to have a system that tracks pricing, rebates, contracts, discounts, and

receivables and payables, for example. Many software companies offer systems with those

capabilities, specifically designed for distributors. Skinner notes that such tools are

becoming increasingly available and more affordable.


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Limited human resources is one of the major hurdles for small distributors. With fewer

people to get the job done, outsourcing non-core business function collections and

receivables.

While outsourcing is catching on, many small distributors still feel like they have to

do everything themselves. They equate outsourcing with giving up control over certain parts

of their business. Those fears can be alleviated by finding the right outsource partner a

specialist the distributor can trust. Another way to tackle the outsourcing issue is to hire

intermittent help-consultants who can help achieve short-term business goals. For example,

distributors can hire someone to do a business analysis and recommend areas for

improvement

Technology and Beyond

There are many more affordable technology options out there than smallerdistributors realize

Most packages can be purchased individually or as integrated systems to cover all

four-business functions inventory, supplier, customer, and financial management. We also

notes that the Internet has overshadowed the advances in business management softwareand their increasing affordability .

E-commerce mania has kicked up a lot of dust, especially in the information

technology space. In the meantime, the evolution of basic business IT systems has been

ignored by the press and by many business leaders. When the dust settles, distributors will

be pleasantly surprised by the advances in business management software that have been

both enabled by and overshadowed by the Internet.

Technology is just a tool, Use technology to make things efficient, but never forget people

to make things effective,

DISTRIBUTION AND THE SUPPLY CHAIN


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Traditionally, distributors have been slow to react to technological change. In a

survey conducted by Industrial Distribution nine yrs ago, only 68% of the distributor

respondents said they were computerized. But distributors appear to be changing their

views on technology. Today, 80% of the respondents to a survey for this article say they

have Web sites and 46% of those distributors have actually sold products from those sites.

Clearly, the Internet is changing the way distributors sell products. It is allowing

distributors, manufacturers, and customers to exchange information for forecasting and

replenishing products on a just-in-time basis. The Internet also has the capability to be the

infrastructure that all of the partners in the channel can use to share real-time information.

THE INTERNET:THREAT OR OPPORTUNITY?

When manufacturers began establishing their own Web sites, many industry

watchers predicted the demise of distributors, as buyers would source products directly.

The vast majority (93%) of distributors told, that they now view the Internet as more

of an opportunity for them rather than a threat to their businesses.

Here are just some of the reasons industrial distributors now view the Internet as an

opportunity.

The Internet allows us better business exposure, to develop better leads and

allows us to check inventory from our vendors...

We can get instant information over the Internet that helps us forecast demand

from our customers through the chain and on to our vendors...

The Internet gives us more exposure and our customers easier access...

This is allowing us to reach new markets and customers and give them more

information about our products and services.


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The Internet, indeed, allows distributors to promote information about their new

products, schedule deliveries, conduct online transfers of funds, collaborate with their

supply chain partners, drive productivity, and improve customer service.

Many distributors are using the Internet as a sales tool, bringing greater exposure for

their company and allowing them to exchange information throughout the supply chain.

The information/Internet explosion is changing the channel, as customers seek ways

to reduce their costs of procuring product. But true cost savings can only occur when all

parties in the supply chain are linked via data communication. And that means that

distributors, their key manufacturers and customers must trust one another so much that

they are willing to exchange the necessary information to ensure a seamless delivery of

products to the end user/customer.

Information supplied from a survey of more than 900 distributors inIndustrialDistributions 54th Annual of Survey Operations.

THE INFORMATION SYSTEMS &SUPPLYCHAINMANAGEMENT

Over the past fifteen years, the development of computer technology and its

application to modern-day business problems has revolutionized the process of

management decision-making. Initially computers were applied in the financial and

accounting sectors but now their impact is felt in nearly every area of the business

organization. This includes the physical distribution function; though it is true to say that

computer development has progressed rather more slowly in this area than in many others.

It is to be hoped that as the supply chain functions receives increasing attention from top

management there will be a corresponding increase in the strategic applications of the

computer to solving distribution problems.

The Changing Pattern of Distribution


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The Consequent Need for Computers in

Distribution Planning

One of the main consequences of these changes for the distributor is that he now

needs information of a type, in a form and at a frequency, which is completely new. The

computer is particularly important in this respect because of its ability to deal with thousands

of detail in an orderly and systematic manner.

With the increase in the number of different products and the continual appearance

of new lines and replacement products for obsolescent ones, the distributor, if he is avoid

either over-stocking or serious gaps in his product mix, needs to have access to acontinuous flow of up-to-date information to help his decision making. He needs stock

information on what is moving and what is not; by supplier and by product group.

Equally, with the growth in size of distributive firms, more and more decisions have

to be taken automatically rather than on the basis of a series of individual judgments

coupled with entrepreneurial flair. Analytic techniques are now available to allow those

automatic decisions to be made but this implies that the flow of information is already there.

However the information system actually develops, it is certain that the computer will

play an increasingly important part in it. Also the distribution manager, will, in the future, be

expected to acquire a deeper understanding of the machines power and flexibility in dealing

with management problems.

The familiar accounting routines were the first application to be developed and the

main objective was the limited one of the reducing administrative overheads by replacing

clerical effort. As a result, in most of these large organizations, the familiar payroll and sales

and purchase ledger systems have been operating successfully for many years.

The next development in the evolution of computer applications was aimed at

improving some aspect of customer services in order to improve the firms competitive

position and increase the market penetration of the firms products. Typical objectives were


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speedier and more reliable delivery services, a faster process for dealing with customer

inquire and the placing of orders. Attention therefore started to be paid to designing systems

for order processing, inventory control and delivery load planning, all of which had an

impact on the physical distribution function.

The information generated by these second stage developments led directly to the

third evolutionary stage; the provision of improved decision-making at both strategic and

tactical levels through the building of sophisticated analytical models. This process of model

building involving mathematical and statistical methods requires the service of properly

qualified staff experienced in the use of Operational Research (OR) techniques.

Key Factors in Making Effective Use of

Computers

Firstly, senior management must have an appreciation of what computer can do for

the business. They must be able to approve new computer applications, monitor their

implementation and review them later for effectiveness and efficiency.

Secondly, it is also vital that the next level of line management acquires an

appreciation of the computer in its day-to-day operational role. They will be heavily involved

either as a provider for data input or as a user of output or both.

Thirdly, it must be recognized that computer system evolve over a period of years in

simple, discrete steps and that they are most effective where there are large volumes of

data to be processed or where there is a need for a faster information response.

Fourthly, the firm must take the decision on whether to buy, rent or lease its own

computer or use the services of a computer bureau. The use of a computer bureau is often

an attractive proposition for the medium or small-sized firm which does not have the

financial resources or technical expertise required for the purchase and efficient use of its

own machine.


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Fifthly, if the company decides to obtain its own computer, a decision must be taken

as to what hardware facilities to use. There are developing in range and capability at an

increasing rate and any decision taken must be made with a careful eye on any possible

future developments in the computer field.

Computer Application Packages and Supply

Chain Techniques

Applications packages are computer programs that have been designed and written

in standardized way for applications, which are common to many users. They are ready-

made programs that often involve the use of sophisticated analytical models. Any computeruser can therefore exploit this simply by thinking carefully about the nature of his own, say,

distribution problem and then by reading the accompanying manual to see how the package

can help him to solve it.

Packages are often obtained from the manufacturer of the computer being used as

they form part of the computers program support services. Packages are also available

from computer bureaux and software houses and the source to select will depend upon the

availability of the type of package required, how effectively each package produces thedesired results and the relative costs.

Application packages cover a wide field including programs for commercial,

scientific, mathematical and technical use. Some packages have been designed specially

for the physical distribution function. One such package is the vehicle-scheduling package,

which has suffered a chequered history of success. Early attempts to solve the problem

took an over-simplified approach and were consequently somewhat remote from the

practical considerations of the route planner and the drivers.

The two main trends can be discerned in the development of analytical techniques in

physical distribution and the corresponding design of application packages. Firstly, more

joint thinking is taking place between the user and the designer of the model. The OR

management scientist is becoming more responsive to the statement of the practically-


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minded distribution manager and conversely the manager is coming to accept the model-

builder as a person who genuinely has something to offer in his search to solve his

increasingly complex distribution problem.

Secondly, many of the models that were developed for planning purposes only are

now being assimilated into the ongoing operational management of the organization. The

impact of the analytical techniques is starting to be felt, therefore, at all level of

management as its become more widely recognized that the practical application of these

techniques cam result in significant cost savings for the company.

SUCCESSFUL SUPPLY CHAIN MANAGEMENT

Required Steps

Integrating information is the first step in supply chain management. You must then

analyze this information to determine which actions to take within the context of automated

business processes. Furthermore, to be most effective this information should automatically

trigger a corresponding product transition. The tight coupling of execution and decision-

making is an essential ingredient to effective supply chain management.

Today's information technologies remove communication barriers, enabling animproved flow of information among all members of the supply chain. Early adopters of

these technologies have intensified the competitive marketplace in which all businesses

must now operate.

The most successful companies realize they need a step-by-step approach to chart abusiness's course toward high-performance supply chain management. Those

steps include:

Achieving execution excellence by fully automating and optimizing business practices

Extending the enterprise to embrace all members of the supply chain

Integrating business systems with those of customers, suppliers, and partners tocreate a common information foundation


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Deploying real-time decision support to increase responsiveness

Investing in re-educating and re-orienting employees, vendors, and other members ofthe supply chain on the practices needed to optimize business processes

Making a company-wide commitment to creating and managing a more complexorganization capable of tackling global business issues

PARTNERSHIP TO IMPROVE SUPPLY CHAIN

Processes to solidify and streamline supplier-customer relationships can result inmutually beneficial commercial success.

Close work can result into highly competitive supply chain while failing to collaborate

results in the distortion of information as it moves through a supply chain, which, in turn, can

lead to costly inefficiencies? Which is called Bullwhip Effect which results in excess

inventories, slow response, and lost profits? Through the more open, frequent and accurate

exchange of information typical of a long-term supply-chain partnership, companies can

eliminate many of these problems and ensure ongoing improvement.These partnerships yield major benefits: increased market share, inventory

reductions, improved delivery service, improved quality and shorter product development

cycle.For Partnership

MORE PARTNERSHIPS THAT ARE MODEST LEAD TO RAPID IMPROVEMENTS IN

LOGISTICS FACILLATED BY CANDID INFORMATION EXCHANGE AND BETTER

COORDINATION. GIVEN THE EFFORT INVOLVED IN CRATING AND SUSTAINING

PARTNERSHIPS, CLEARLY A FIRM MUST FOCUS ON THE TRADING PARTNERS IT

CONSIDERS MOST IMPORTANT IN THE LONG RUN. THIS TYPE OF PARTNERSHIP

DIFFERS FROM A STRATEGIC ALLIANCE OR PROJECT-BASED PARTNERSHIP IN WHICH

TWO FIRMS MAY WORK TOWARD A COMMON GOAL BUT LATER DISSOLVE THE

ASSOCIATION AFTER ACHIEVING THE GOAL.


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Characteristics of Successful PartnershipsFree exchange of information (e.g., sharing cost and demand data) and coordinated

decision making reduce the inefficiencies inherent in less collaborative relationships. Mutual

trust is crucial to reassuring firms that information shared with a partner will not be used

against them. Longer-term commitment to the partnership encourages parties to invest in

further improvement of the joint supply chain to mutual advantage.Exit & Voice relationship; firms and suppliers co-operate to resolve problem rather than

abandoning their partnership and over come obstacles.Logistics Success is defined as the degree to which the overall supply chain is

improved, regardless of how costs and benefits are allocated. Commercial Success

depends on the degree to which trading with the partner in question becomes more

profitable, whether by getting a share of the logistics improvements or by obtaining better

trading terms. A supplier investing substantial effort in a joint supply-chain improvement

project with a customer will almost certainly be aiming for more than potential logistics

improvements; the suppliers wants to solidify its relationship with the customer to gain a

larger market share or reduce price pressure. We can say that sacrificing some short-term

logistics success may be worth achieving commercial benefits later.

An Introduction To Supply Chain

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