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6. MBA | Operations and Supply Chain | Strategic Planning in Supply Chain …
6. MBA | Operations and Supply Chain | Strategic Planning in Supply Chain
Getting started with operation and supply chain
What is a Supply Chain?
A supply chain includes all or some of the following stakeholders depending on the type of industry the organisation operates in:
Customers
Retailers
Wholesalers / Distributors
Storage locations
Manufacturers
Vendors or suppliers
Three distinct types of flows within a supply chain
Product flow: From manufacturer to customer
Demand flow: From customer to manufacturer
Cash flow: From customer to manufacturer
Goals and Pillars of Value Chain
Every process in an organisation has certain goals to achieve. The process is said to be performing well if it is meeting its specific goal
A supply chain is necessary to achieve certain organisational goals, which are as follows:
To understand the demand for the products
To plan the supply and availability of the products
To deliver customer service
To generate revenue
Further, supply chain planning process is divided into smaller activities. These activities are as follows:
Demand planning: It refers to the process of forecasting or predicting the demand for products to ensure that they can be delivered to satisfy customer needs. While planning for demand one must take into account the following:
'+ Pull Processes: Pull processes are performed in response to customer demand. A pull process happens when the market asks for supply and the manufacturer delivers the supply
'+ Push Processes: Push processes are performed in anticipation of customer demand. A push process happens when the manufacturer pushes the product out into the market, regardless of the market wanting the supply
Supply planning: It refers to the entire planning process including distribution, manufacturing and procurement operations, in accordance with the demand forecasts, considering capacity constraints and material availability.
The four pillars of value creation within a supply chain, which are as follows:
Effectiveness
Efficiency
Relevancy
Sustainability
Supply Chain Integration
The supply chain mechanism related to the product, cash, and demand information flow is possible only because of the inclusion of a set of specific business processes. These business processes are integrated with each other.
The different business processes of a typical and effective supply chain are always integrated. This integration occurs through the following set of interdependent processes:
Facility network
Material handling equipment (MHE)
Transportation
Inventory
Order management
The single biggest advantage of the integration of these processes is the continuous interaction between them which ensures that the integrated supply chain is capable of managing all the performance parameters.
A typical supply chain consists of certain touchpoints, which are as follows:
Supplier
Factory
Customer
Supply Chain Strategies
Supply chain surplus = Customer value - Supply chain cost
Organisations need to have a supply chain strategy that suits the kind of business and industry that they are operating in
Two types of strategies developed by organisations:
Competitive strategy
Supply chain strategy
Based on the strategic fit framework, the two types of supply chain strategies that can be achieved by an organisation are as follows:
Efficient supply chain strategy: This strategy ensures that cost is kept at the minimum. It mostly suits products with low demand uncertainty
Responsive supply chain strategy: The focus is more on giving a quick response to customer demand or change in demand. It mostly suits innovative products with high demand uncertainty
A stepwise framework used by organisations for achieving the best strategic fit. The framework consists of the following steps:
Understand the customer and supply chain uncertainties: There are certain products that have high demand certainty, whereas other products have a lot of uncertainties in their demand
Understand the organisation’s supply chain capabilities: Depending on the type of product an organisation supplies and the industry in which it operates, it can opt for either a highly efficient supply chain or a highly responsive supply chain
Achieve strategic fit: Organisations involved in selling products that have demand certainties should have a highly efficient supply chain, whereas organisations that are involved in selling products that have high demand uncertainty should have a highly responsive supply chain
The following drivers of a supply chain that play an important role in implementing the supply chain strategy in the most optimal manner:
Inventory: This refers to the raw material, work in progress (WIP) or finished goods within a supply chain. It also covers the inventory policies that are set by the organisation
Facilities: This refers to the places where inventory is either stored, assembled or fabricated. An organisation’s production sites and storage sites fall under this category
Transportation: This refers to the movement of inventory from one point to another in a supply chain
Information: This refers to the data and analysis of the inventory, facilities and transportation throughout a supply chain
Sourcing: This refers to the set of functions that are performed by an organisation in-house and the set of functions that are outsourced by it
Pricing: This refers to the prices that are associated with the goods and services provided by the organisation
Role of a Supply Chain Manager
The supply chain manager should be able to build and maintain key relationships. To summarise, a supply chain manager is expected to:
Plan and implement the overall supply chain strategy
Collaborate with Sales, Operations and Customer Service teams
Determine key performance indicators (KPIs) within the supply chain
Suggest solutions for improving the supply chain process
Identify process bottlenecks and implement solutions in a timely manner
Ensure continuous training of supply chain personnel
Work with Finance, Sales and Manufacturing teams to determine the best vendors and distributors to partner with
Build and maintain a good relationship with the vendors