This article: Supply Chain Management (1/2)
Source: Business-improvement.eu
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![]() By Dr Jaap van Ede, editor-in-chief Business-improvement.eu, 01-10-2018 Supply Chain Management (SCM) is an umbrella term. Yet, all SCM activities have an overarching goal: increasing the value creation for the end customer, in a production chain with multiple partners. Part one of this article describes Supply Chain Management 1.0. This increases the flow of products and/or services. Supply chain wide, from 'sand to customer'. Part two of this article describes Supply Chain Management 2.0. Where SCM 1.0 is limited to the execution, SCM 2.0 also encompasses the design of supply chains. Thay way, it not only makes value chains faster and more customer-friendly, like SCM 1.0. It also makes supply chains cheaper, more innovative, smarter, more robust, more agile, more sustainable and more social. When the term Supply Chain Management (SCM) was introduced in the eighties and nineties of the last century, SCM was defined* as all activities aimed at chain-wide improving the flow of materials and information. ![]()
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![]() Scania is a nice example of a company that extended the scope of its Lean production to end-to-end. Their factories supply each other just-in-time.
TOC The TOC gives the best results if the suppliers and customers are involved in the analysis. Only then is it possible to trace and exploit the most important constraint in the entire supply chain. So, chain-wide thinking is prescribed by the TOC. According to this theory, only products or services that reach end customers are of importance: Profit = Throughput - Operating Expenses. This means that also the TOC entails SCM 1.0. This site has extensive sections describing Lean, QRM and the TOC, including dozens of case descriptions. Because we concluded that all these improvement methods include SCM 1.0, this justifies the question whether a separate article explaining SCM is needed. First, lets turn it around: could you apply SCM without doing anything concerning Lean and/or QRM and/or TOC? Probably not. Improvement methods like Lean add something essential to SCM: direction. The customers are placed centrally, supply chains are there to serve them. For this reason, perhaps SCM should have been called Demand Chain Management. It should however be noted, that this does not mean making anything a customer asks for, but responding as appropriately as possible to the customer needs. Another reason to give separate attention to SCM, is that there are actually not many companies yet, that really improve chain-wide. On the contrary, even within the walls of one company, it is already very difficult to prevent local optimization! Definition SCM Business-improvement.eu The activities within the scope of SCM range from chain-wide planning & execution - thus displaying, coordinating and optimizing the flow of materials and information - up to supply chain strategy & design. The latter covers for example the development of supply chains with the most appropriate and most innovative chain partners, the biggest agility, the lowest chance of disruptions, the lowest possible impact on the environment, and the best possible working conditions. SCM makes supply chains faster, more customer-friendly, cheaper, more innovative, smarter, more robust, more agile, more sustainable and/or more social. This is accomplished by optimizing the flows of goods and services - and matching streams of information, knowledge and money. This is done supply chain-wide, in cooperation with each other.
Michael Hammer and James Champy, who were in 1993 the founders of Business Process Reengineering (BPR), already said that it is needed to break through departmental boundaries. Companies should transform into process-oriented organizations. To this end, multidisciplinary teams are formed, who are responsible for complete processes. Within Lean, these processes are called value streams. In the context of SCM 1.0, those value streams should include the extended enterprise, which starts with the suppliers and ends with the customers. This means that you also have to eliminate boundaries between companies. ![]() SCM 1.0 aims to optimize the extended enterprise
Externally, still relationships are often managed via contracts, of which the thickness reflects the degree of distrust. This is less and less effective. Instead, you better join forces. To make this possible, the aforementioned ‘tilting’ should be extended to the supply chain. This message is not new, it was already told 20 to 30 years ago. However, today there is more reason than ever to take this message to heart. VUCA Trust A paradigm shift is required to built supply chains that are able to sense & respond. As a whole they should react faster to market changes. This asks for transparency, coordination and cooperation. Collaboration in chains requires trust. In addition, the partners must share a common goal that is being pursued. Third, all partners should receive a fair share of the profits of SCM. Dominant player Sometimes there is a dominant player who dictates the supply chain. Think of a large company, such as Toyota, Walmart, Apple, Unilever or Amazon. Sometimes, software-based control from a so-called supply chain control tower is applied, to calculate what each link should do at what time.
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Collaborate A supply chain will only reach his full potential, if all partners collaborate on the basis of equality. Contrary to what many people think, it is not enough if every partner internally strives for process excellence. Sometimes ‘negative’ measures are needed at one place, because these will bring larger advantages elsewhere. A bad example is forcing a supplier to deliver just-in-time, because this fits so nicely with your Lean production. Often this only leads to a shift of inventory to that supplier. In that case, supply-chain wide no improvement is realized. On the contrary, the situation has worsened: there is more transport, while the inventory costs did not decrease. Bullwhip effect This bullwhip effect can be prevented by passing on information about the actual consumption, based on the purchase of end products, to all links in the supply chain. Network Every company can be seen as the center of its own network of partners. You might compare this with a large railway station, along which several value streams run. This seems to make SCM to an almost impossible task. Visible Process improvement methods such as Lean make disruptions in value streams visible, as improvement possibilities. Everyone must be able to see his or her contribution to the production chain, and in case of problems, he or she should be able to restore the flow and (preferably) even enlarge it. ![]() Smart Industry, here in test facility at Audi, makes it easier to share data supply chain wide
However, a reservation should be made here. Under the heading of internet of things, also called smart industry and industry 4.0, it is sometimes suggested that it has become easy to connect everything and everyone with internet technology. That is not the case. For example, there are many safety-related issues. In addition, as mentioned earlier, the supply chain partners must trust each other enough to share their business data. An important reason to pay separate attention to SCM, are the many problems and challenges you encounter when you really want to improve chain-wide with Lean, QRM and / or the TOC. With this we conclude our description of SCM 1.0. However, there is much more to tell!
*) It is not true that there were no broader SCM definitions at that time, that for example took into account the possibility of co-innovation. In the early days, however, this was a purely academic (and utopian) discussion. Referral to this article on internet? Use this link: https://www.business-improvement.eu/other/Supply_Chain_Management.php |
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