Topic 5 – Supply Chain Business Processes

Outline

1.1 Customer Service Relationship Management

1.2 Customer Service Management

1.3 Demand Management

1.4 Customer Order Fulfillment

1.5 Manufacturing Flow Management

1.6 Procurement

Topic 5 – Supply Chain Business Processes

Outline (con’t)

1.7 Product Development & Commercialization

1.8 Returns

1.9 Business Process Chains

1.10 Management Components of Supply Chain Management

1.1 Customer Relationship Management

The customer is the primary focus in supply chain management.

Effective customer interfaces lead to improved communication and better predictions of customer demand, which in turn leads to improved service to customers.

Key steps in managing customer relationships:

a. Identify key customers or customer groups critical to the organization

b. Develop and implement partnering programs with these customers

1.1 Customer Relationship Management

Key steps in managing customer relationships: (con’t)

c. Incorporate product and service agreements into these programs

d. Tailor agreements to the needs of key individual customers

e. Identify and eliminate sources of demand variability

f. Measure performance and review service levels and customer profitability

1.2 Customer Service Management

Focus of customer service management is to provide a key point of contact for administering product and service agreements with customers

Typically requires an on-line, real-time system that interfaces with the organization’s production and distribution operations

Elements of customer service management include:

a. Providing product availability and pricing information

b. Facility for order placement and advice on promised shipping dates

1.2 Customer Service Management

Elements of customer service management include: (con’t)

c. Track and trace

d. After-sales service – faulty products, customer returns, etc.

e. Providing technical support and recommendations on product applications

1.3 Demand Management

Inventory is either:

a. Essential - includes factory work-in-process and in-transit pipeline products

b. Result of system variability – variances in process, supply and demand

Irregular customer demand is one of the largest source of variability

Demand management balances customer’s requirements with the organization’s supply capabilities.

1.3 Demand Management

Process involves:

a. Determining what customers will buy, how much and when

b. Using point-of-sale and key customer data to reduce uncertainty

c. Synchronize customer demand and production rates

d. Considering multiple sourcing and routing options

1.4 Customer Order Fulfillment

Objective is to meet or exceed “customer need dates” at the lowest possible total delivered cost to customers.

Important to achieve high order fill rates on either a line-item or an order basis

Requires integration of the organization’s manufacturing, distribution and transportation plans.

Partnerships with key supply chain members and carriers is key to achieving a seamless process from supplier to the organization and on to customers.

1.5 Manufacturing Flow Management

Matching Demand and Production Capability

In SCM, product is pulled through the plant based on confirmed customer orders.

a. Orders are processed on a just-in-time basis in minimum lot sizes.

b. Production priorities are driven by required delivery dates.

1.5 Manufacturing Flow Management

Manufacturing processes must be flexible to respond to market changes.

a. Ability to perform rapid changeover to accommodate mass customization

b. Keeping setup/changeover costs low.

Requires:

Reengineering of processes

Change in product design

Attention to product sequencing

1.6 Procurement

Long-term partnerships with key suppliers to support programs like JIT

Centralized procurement with global supply contracts to support world-wide manufacturing operations

Earlier supplier involvement in design cycle to “get it right the first time” and reduce time-to-market

Develop rapid communication mechanisms – EDI, Internet – to reduce time and money spent on transaction portion of the purchase

Frees purchasers to focus time and effort on value-added supplier development and management

1.7 Product Development & Commercialization

New products sustain an organization’s existence.

Product development is the lifeblood of an organization’s new products.

Customers and suppliers must be integrated into the product development process.

a. Coordination with customer relationship management to identify articulated and unarticulated customer needs

b. Select materials and suppliers in conjunction with procurement

c. Develop production technology in manufacturing flow to assess manufacturability and integration into the best supply chain flow for the product/market combination

1.8 Returns

Effective management of returns channel enables:

a. Enhancement of customer satisfaction with the total product experience

b. Identification of productivity improvement opportunities

“Return to available” is a measure of the cycle time required to return an asset to its useful status.

a. Important for products where customers are given immediate replacement in case of product failure

b. Equipment destined for scrap and waste from manufacturing is measured in terms of the time it takes for the organization to receive cash

1.9 Business Process Chains

A process is a structure of activities designed to manage dynamic flows of products, information, cash, knowledge and ideas, with a focus on the end customer.

Every company is involved in supply chain relationships.

a. When two companies establish a relationship, for example a manufacturer and its distributor, some of their internal activities will be linked and managed between them.

b. These two companies would have established relationships with other members of their supply chain. Therefore, a supply chain network is formed.

c. Structure of activities within and between companies is critical for creating unique and superior supply chain performance.

1.9 Business Process Chains

There is a lack of consistency in how each company within a supply chain structures its own activities.

a. Companies in the same supply chain may have different activity structures.

b. Examples:

Functional structure versus process structure versus combination of both

Different number of processes consisting of different activities and links between activities

Different names for similar processes, and similar names for different processes

c. Lack of inter-company consistency causes friction and inefficiencies in the supply chain.

1.9 Business Process Chains

Leadership and coordination is a pre-requisite for successful supply chain management.

a. Identify key business processes and manage them using cross-functional teams.

b. Where appropriate, extend internal business processes to external organizations such as suppliers and customers.

c. Synchronize structures, processes and activities across supply chain members.

d. Leadership role means an organization’s internal business processes can become the supply chain business processes.

1.10 Management Components of SCM

Certain management components are common across all business processes and members of the supply chain

Primary components are:

a. Planning & control methods

b. Work flow/activity structure

c. Organization structure

d. Communication and information flow facility structure

e. Product flow facility structure

f. Management methods

g. Power & leadership structure

h. Risk & reward structure

i. Culture & attitude

1.10 Management Components of SCM

Can be categorized into two groups:

a. Physical & technical management components - visible, tangible, measurable and easy to change

components

Planning & control methods

Work flow/activity structure

Organization structure

Communications & information flow facility structure

Product flow facility structure

1.10 Management Components of SCM

b. Managerial & behavioural management components – less tangible and visible, difficult to assess and alter

Management methods

Power & leadership structure

Risk & reward structure

Culture & attitude

These components define the organizational behaviour and influence how the physical and technical management components can be implemented.

1.10 Management Components of SCM

c. Organizations must focus on both groups.

d. If one or more physical and technical management components are changed, management components in the managerial and behavioual group likewise may have to be adjusted.

1.10 Management Components of SCM

Planning & Control Methods

a. Planning is key to moving an organization or supply chain in a desired direction to achieve desired objectives

b. Control should be operationalized into measurable performance metrics for appraising supply chain effectiveness

1.10 Management Components of SCM

Work Flow/Activity Structure

a. Work flow/activity structure dictates how an organization performs its tasks and activities.

b. Level of integration of processes is a measure of work flow/activity structure.

1.10 Management Components of SCM

Organizational Structure

a. Use of cross-functional teams indicates a process approach.

b. Supply chain integration occurs when such teams cross organizational boundaries.

Example : in-plant supplier personnel

1.10 Management Components of SCM

Communication & Information Flow Facility Structure

a. Usually the first component integrated across a supply chain

b. Type of information shared and timeliness affects supply chain efficiency

1.10 Management Components of SCM

Product Flow Facility Structure

a. Network structure for sourcing, manufacturing and distribution across the supply chain

b. Issues and dependencies:

i. Inventory reduction pressures

ii. Postponement strategies

iii. New product launch

iv. Complexity of product design

v. Promotions

vi. Seasonality of demand

1.10 Management Components of SCM

Management Methods

a. Include corporate philosophy and management techniques

b. Level of management involvement in daily operations can differ across supply chain members.

c. Integration of different management structures among supply chain members can be difficult.

Example : Top-down organization structure versus bottom-up structure

1.10 Management Components of SCM

Power & Leadership Structure

a. Affects supply chain form

b. Usually one or two strong leaders exist within a supply chain.

Strong leaders will drive direction of supply chain

c. Exercise or lack of power affects level of commitment of other supply chain members.

Given the opportunity, forced participation will encourage exit behaviour.

1.10 Management Components of SCM

Risk & Reward Structure

a. Anticipation of sharing of risks and rewards across supply chain affects members’ long-term commitment.

1.10 Management Components of SCM

Culture & Attitude

a. Corporate culture and its compatibility across supply chain members cannot be ignored.

b. Meshing cultures and individuals’ attitudes is time-consuming but necessary for supply chain to perform as a coordinated network.

Topic 5

Summary and

Conclusion

1. Successful supply chain management requires a change from managing individual functions to integrating activities within these functions into key supply chain processes.

2. Focusing effort on the key supply chain processes provides the foundation for an effective supply chain management philosophy.

3. The goals and outcomes of these processes are to:

a. Develop customer-focused teams that provide mutually beneficial product and service agreements to strategically important customers

b. Provide a point of contact that efficiently handles all customer enquiries

1. The goals and outcomes of these processes are to: (con’t)

c. Continuously gather, compile and update customer demand to match requirements with supply

d. Develop flexible manufacturing systems that respond quickly to changing market conditions