2.3 INTEGRATED SUPPLY CHAIN MANAGEMENT MODEL
2.3.2 MANAGING THE FLOW OF MATERIALS ACROSS THE SUPPLY CHAIN
. Transformation of the business from within - managers who can see the "big picture" and accept the new forms of business processes and systems.
Improvements in supplier-customer relationships - to justify investments in technology linkages.
2.3.2 MANAGING THE FLOW OF MATERIALS ACROSS THE SUPPLY
Supply Chain Basics
Most organizations are simultaneously members of multiple supply chains. An organization in each chain typically offers a number of products and services, purchases materials from a wide range of suppliers, and sells to multiple customers. From the perspective of a typical organization, each of its supply chains will have both internal and external "linkages".
Internal Supply Chains
The internal supply chain is that portion of a given supply chain that occurs within an individual organization.
External Supply Chains
Once an understanding of the internal supply chain is gained, it is necessary to extend the analysis to the external portion of the supply chain (i.e., key suppliers and customers). This is an important step as significant opportunities for improvement often lie at the interfaces between the various supply chain member organizations.
Benefits of Interorganizational Supply Chain Collaboration:
External workshop participants indicate that a number of benefits are associated with these sessions in addition to documenting existing supply chain processes. Specific benefits include (1) establishing valuable contacts across the supply chain, (2) gaining insights into current organizational practices, and (3) identifying opportunities for joint projects between supply chain members. This phenomenon is consistent with other research findings in the area of interorganizational collaboration [23].
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Supply Chain Performance:
In order to assess the performance of an existing supply chain and its related processes accurately, it is necessary to have objective performance information.
Role of Benchmarking:
In developing an understanding of existing supply chains and their associated processes, benchmarking analysis has been shown to be an effective means to determine the supply chain's performance relative to those of other organizations. Cook (1995) defines benchmarking as "the process of identifying, understanding, and adapting
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outstanding practices from within the same organization or from other businesses to
help improve performance. This involves a process of comparing practices and procedures to those of the 'best' to identify ways in which an organization (or organizations) can make improvements. Thus new standards and goals can be set which, in turn, will help better satisf' the customer's requirements for quality, cost, product and service [24]".
Reengineering Supply Chain Logistics
Reengineering Supply Chain Logistics has the following considerations:
Logistics as a source of competitive advantage for the supply chain
Logistics is defined by the council of Logistics Management (CLM) as ...
the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements". Another
4' author defines logistics as "the design and operation of the physical, managerial, and informational systems needed to allow goods to overcome time and space". Logistics entails the planning and control of all factors that will have an impact on getting the correct product to where it is needed, on time and at the optimum cost. Superior logistical performance is one of the primary opportunity areas where organizations participating in an integrated SCM initiative can make significant improvements.
Logistical management is vital not only to manufacturing and assembly industries, which are goods-oriented, but also to retailing, transport, and other distribution or service—oriented industries. Due to intensive competition in global markets, logistical management is considered an important source of competitive advantage. David Gertz, the author of "Grow to Be Great: Breaking the Downsizing Cycle", says, "Supply chain and logistics are critical components of any successful growth strategy [25]".
International considerations
Relative to domestic supply chains, international supply chains often entail (1) greater geographic distances and time differences, (2) multiple national markets, (3) multiple national operations locations, and (4) greater opportunities because of diversity of supply and demand conditions. There are also additional costs associated with global supply chains. Major costs categories for a global supply chain include:
1. Manufacturing costs - purchased materials, labor, equipment charge, and supplier's margin;
Movement costs - transportation cost, inventory in pipeline and safety costs, and duty;
Incentive costs and subsidies - taxes and subsidies;
Intangible costs - quality costs, product adaptation or performance costs, and coordination;
Overhead costs - total current landed costs;
Sensitivity to long-term costs - productivity and wage changes, exchange rate changes, product design, and core competence.
The supply chain operations reference model (SCOR)
In November, 1996, Supply Chain Council introduced a Supply Chain Operations Reference (SCOR) model for supply chain process improvement planning, implementation, and management. This model has defined common supply chain management processes, matched these processes against "best practice" examples, and .4 benchmarked performance data as well as optimal software applications with the end results. This model is also a tool for (1) measuring both supply chain performance and the effectiveness of supply chain reengineering, as well as (2) testing and planning for future process improvement [26].
The Importance of Time
Individual organizations and supply chain organizations must be competitive in the areas of cost, quality, delivery, and technology and be able to get their products and services to their customers faster than the competition. Hence, organizations are realizing that they are competing on the basis of time. Reducing the time required to provide the end customer with products and services is one of the major forces that is leading organizations to participate in supply chain management initiatives. Adopting an integrated supply chain management approach provides the means to make significant reductions in the cycle-time required to move materials between supply chain members and to the end customers. Time has also been shown by several authors to be a highly effective area to focus overall improvement efforts within an individual organization [27].
The "balanced scorecard" approach to supply chain performance measurement The supply chain management requires that the member organizations have a means to assess the performance of the overall supply chain to meet the requirements of
the end customer. In addition, it is necessary to be able to assess the relative contribution of the individual member organizations within the supply chain. This requires a performance measurement system that can not only operate at several different levels but also link or integrate the efforts of these different levels to meeting the objectives of the supply chain. In their 1996 work, The Balanced Scorecard:
Translating Strategy into Action [28], Kaplan and Norton present an approach that holds great promise for supply chain performance measurement. The "balanced scorecard"
approach incorporates both financial and operating performance measures that are used at all levels of the supply chain. In an interorganizational supply chain environment, the supply chain level represents the starting point for the balanced scorecard.