Supply Chain Management Process Flows

Supply chain management flows consists of these three main flows:

1) The product flow
2) The information flow
3) The finances flow

The product flow usually involves movement of products from a supplier to a customer, and also the back end process such as any customer returns or service needs.

The information flow involves the flow of information on orders and updating the status of delivery.

The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements.

Here are some good example on the process flow of supply chain management:-

The Basic of Supply Chain

The most basic of supply chain process is where a company purchased raw materials from vendors and transformed it into a finished product in a single step. The company then sells it to the end users or customers. Let’s take a basic example, a boy who wants to sell lemonades. He gets all his materials from his parents. He makes the raw material into lemonades and sells it directly to customers. But, in a realistic business world, supply chains have multiple end products with many vendors supplying different parts of items, components and services that end up with a complete product that is ready to be shipped out or distribute. The flow of materials is also not usually in a linear network but sometimes along multiple networks. Here are a video showing a cartoon example of a very basic supply chain.

Supply Chain Rationalisation

Rationalising the supply chain is the activity of selecting the right number of suppliers and the most suitable suppliers within that numbers. Therefore the strategic consideration in rationalising the supply chain is that, the company has to look and evaluate the supply chain in a tier level perspective. The suppliers can be broken into several different tiers, with the first tier providing the major component to the company. By rationalizing the supply base, the company only needs to handle a few suppliers in delivering a complex product. This can be seen in the automotive industry and also aerospace industry. 

However minimizing the number of suppliers does not necessarily translate the action into an effective supply chain. The effectiveness is highly dependent on which suppliers the company chooses and the commitment it have for long term growth and contracts. Rationalisation of the supply base is closely related to the strategy of the company for long term growth. By limiting the company’s network, it can affect the flexibility of the company to move forward. This action can only be mitigated by the means of stringent selection criteria and choosing the best suppliers to become a part of the company.

As an example, Lotus Cars Ltd has taken the approach of rationalizing their supply chain in 2004. Working with 200 suppliers and producing 2800 products, Lotus Group produced value stream mapping to understand, simplify and restructure the value stream of their supply chain. These resulted in a closer alignment of the supply to demand and therefore reduce the inventory of Lotus with accurate scheduling and improved information. The activity has resulted in 50% improvement in delivery performance.

Supply Chain - The Toyota Way

The best example of a supplier’s development is Toyota. Their commitment to help their suppliers goes beyond the boundary of cost reduction. Toyota Motor Corporation have also stated in their purchasing rules that Toyota must be treated as a part of Toyota. In the stated rules of Toyota also, they have the responsibility to raise the performance of their nominated suppliers. They believe in helping the suppliers achieved their optimum level by teaching them the Toyota Production System and Total Quality Control.

Below are a video about the Japanese pattern of the supply chain:-

Strategic Considerations for Supply Chain Management

source: http://www.srgpartners.com
In Supply Chain Management, the suppliers are often considered as ‘extended enterprise’ and act as one entity for the buyers benefits. This entity is triggered by the buyer decision and the input of the buyer will cause an effect into the whole supply chain. The whole entity comprises of partnership between suppliers, manufacturers and distributors working together in fulfilling the demand of the buyer. There are many points or selection criteria in determining suppliers but as Eleni Hadjiconstantinou in her book "Quick Response in the Supply Chain", states that the basic rules of defining a partnership are:-

1) Scope of Work
2) Division of Responsibilities
3) Required Service Levels
4) Dedicated or Multi-user Facilities
5) Performance Monitoring
6) Open or Closed Book Accounting
7) Ownership of Assets
8) Length of Commitment
9) Exit Arrangements

These criteria must be well stated in the selection process as this process will lay the foundation for the relationship to grow and mature. Without these ground rules, there is high possibility that the relationship will falter.

Response Management in Supply Chain

Managing the entire supply chain requires companies to view their supply chain as a single entity. Strategic decision making and efficient management is essential in determining the success of the collaborative effort between the suppliers. Collective strategy is developed through mutual understanding and common objectives. Setting a clear goal post for the suppliers will help them in steering towards the same direction regardless of any setback they suffer along the way. Reaction to any disturbances caused by outside factors must also be dealt with collectively by suppliers as a group. The collaboration is also much stronger and enables them to compete effectively in either the local or global market.

An example of a response management in a supply chain management can be seen in this video:-

Integration of Supply Chain

source: http://b2btech.com

Organizations or companies that intend to use SCM should focus on the need for integration of their supply chain. The effectiveness of the company to deliver its goods to the end user is highly dependent on the integration of its linkages between their partners. A company can no longer compete effectively on its own but with support and integration with its downstream partners also. Supply Chain integration is a process integration of upstream and also downstream activities through a medium or platform interconnecting each other. With the rapid development of ICT, the process of integration has become much more easily compared to the past. As Martin stated in his book "Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service", “supply chain integration is defined by the collaborative activities between buyers and suppliers, joint product development, common systems and shared information”.

In the past, in the buyer-supplier relationship, the buyer will usually reduce the cost of purchased materials through aggressive negotiations. This usually bring to a win-lose situation whereby the supplier profit margin have been reduced drastically to meet the demands of the buyer. With supply chain integration, this is no longer the case. In a win-win situation, the buyer and supplier are in the form of strategic partnership. The approach is taken based on mutual benefits and continuous improvement on both sides. The approach is also less aggressive and commands the respect of each supplier. Each negotiation that occurs in this approach is done with focus on quality as the priority and follows by the cost.

Example of a local Malaysian company that integrates their supply chain is the Malaysian car automotive carmaker, Proton. After Proton suffers negative growth in the last few years, the new management of Proton has decided to integrate its supply chain and reduce their vendor based from 260 vendors to only 20 to 30 vendors only. Proton’s logistic provider companies have also been reduced from 14 companies to 3 companies only. The objective of the reducing was simply to cut waste and minimize the transaction that does not add value to the company. Reducing the vendors has helped Proton to cut the cost of the car they are selling and with higher quality.