Risk management in supply chain management means identifying the risks in the supply chain and taking steps to mitigate those risks or eliminate them completely where it is possible. The risks in the supply chain should be identified and then prioritized. Prioritizing of risks helps in understanding which risks are more significant and which are less. The larger the supply chain of a business the more are the likely risks and vulnerabilities.
The risk identification process should cover every step of the supply chain, starting from the customers and going back to the suppliers of raw materials. What-if analysis is very helpful in identifying the contingent scenarios in supply chain management. Adequate response to scenarios that are likely to disrupt the supply chain should be devised.Transportation is an important aspect of supply chain management of a company. Back-up transportation should always be arranged. This ensures that if any type of disruption or breakdown in transportation takes place then it can be immediately replaced by the backup arrangement.
The evaluation of the risks and vulnerabilities of the supply chain should be done on a regular basis. This is necessary because the nature of risks can change due to factors like new suppliers or new government regulations or new contingent developments.The pursuit for supply chain efficiency through continuous cost control should not come at the cost of poor risk management. A business must not hesitate in incurring some extra costs in order to make risk management of supply chain more effective.
Continuous collaboration and communication with supply chain partners goes a long way in ensuring effective risk management of the supply chain. A diversified base of suppliers can help in a situation where one supplier is unable to make timely delivery of raw materials or components.It is to be remembered that any disruption in supply chain management can disrupt the entire operations of the business. It can cause a delay in delivery of goods to customers. This delay can result in customer dissatisfaction. Customer dissatisfaction can result in future loss of sales for the company. Therefore risk management is an important part of supply chain management. Good supply chain managers never ignore this aspect of supply chain management.
The Coca-Cola Company is among the biggest corporations in the world. More than 1 billion bottles of Coke and other beverages of the company are sold every day. The company is present in most of the major countries of the world. Its success in serving its customers in the past 120 years rests heavily on its success in supply chain management.The company, in order to streamline its supply chain management, has tried to keep the number of its bottling plants limited. The bottling plants of the company in America and other markets are often owned by other companies, mainly local ones. By keeping the number of bottling plants limited, Coca-Cola is able to monitor its supply chain more effectively.
In 1960 there were around 1000 bottling plants of Coca-Cola globally; in 2015 this number has come down to around 700.The company continuously strives to integrate demand with supply. Demand forecasts are made on the basis of regular interactions with the sales & marketing teams. These interactions take place on a daily and weekly basis. The demand forecasts are immediately conveyed to suppliers.
The transport division and other external transporters involved in movement of outbound logistics are also kept in the loop with regard to demand forecasts, so that they have transportation and resources ready to arrange transportation for meeting the demand. On the basis of this forecast the company also plans its production and operations. Inventory management process is also informed by this forecast.
It is not possible for Coca-Cola to make 100 per cent accurate demand forecasts. So it remains content with a demand forecast accuracy of 80%-to-85%. Actually most of the times, the demand forecasts are only as accurate as 70%. The difference between actual demand and demand forecast is met by Coca-Cola through a flexible supply chain management. This enables it to meet unexpected demand or shortages in relatively less time.
Supply chain management in Coca-Cola is a highly dynamic process. The supply chain management team remains constantly on its toes. The company has made supply chain management one of its main sources of competitive advantage. The company also retains its ability to implement course corrections every day in its supply chain. So in spite of having highly systematic supply chain processes in place, the supply chain of Coca-Cola is also highly fluid and flexible. Almost as fluid as Coke itself!
Peak seasons are those when the demand for the product of the business is at a high. Lean seasons are those when the demand is low. Many businesses are cyclical ones where the demand for the product or service is not constant throughout the year. It varies from season to season.Supply chain of a business should be capable of handling the excess demand during peak seasons.Many businesses suffer from order delays, inventory shortage and long waiting time for customers during peak seasons.
In peak season times supply chain management team should become more alert and proactive. Collaboration and coordination with supply chain partners should be enhanced. Bottlenecks in the supply chain should be identified and immediate steps should be taken for their elimination.Extra space should be created so that the excess inventory during peak seasons – to cater to the high demand – can be stored. More human resources may be required in managing supply chain processes during peak season. Human resource planning should be done beforehand and temporary employees can be hired to manage supply chain processes during peak season. When the peak season is over the temporary staff can be cut down.
It is important to properly train the temporary employees that are being hired for managing the supply chain processes. The effectiveness and efficiency of supply chain management will suffer if the temporary employees are inefficient in their work. The more challenging tasks of supply chain management should be entrusted with the permanent employees. The services of temporary staff should be used for simpler, routine work that requires little expertise.
During peak season supply chain can require 24 hour/ 7 days work. Scheduling of shifts should be done is such a way so that the employees are able to bear the extra workload. It should be take care of that extra workload doesn’t adversely affect the morale of employees. Supply chain efficiency and effectiveness will go down if the morale of employees, involved in supply chain management, is low.
In peak seasons the technological infrastructure and equipment used in supply chain management should be in good condition. Technology plays the most important role in handling customer orders and queries. Electronic Data Interchange can make coordination with supply chain partners very effective.Back-up facilities with regard to transportation should be arranged so that if any disruption occurs it can immediately be rectified. Inefficient and ineffective supply chain management during peak season often creates high customer dissatisfaction. This customer dissatisfaction results in loss of customers. Adequate planning, attention to detail and proper implementation of the plan can help a business tide over peak seasons and create high customer satisfaction.
Supply chain optimization means ensuring that the performance of the supply chain is at the optimal level. Optimal level of performance implies best level of performance possible. One of the initial steps in supply chain management is inventory management. Businesses can make their inventory management more efficient and effective by using tools like Six Sigma, Total Quality management, kaizen and lean manufacturing. There are many training consultancies in India that can help businesses in adopting and implementing these tools.
The supply chain extends right from the point of origin to the point of final destination. Every step of the supply chain should be monitored to identify points of inefficiencies. Improvement strategies should be devised and implemented so as to eliminate these inefficiencies. The improvement strategies should be shared with supply chain partners like suppliers and distributors. A mindset of continuous improvement is required for achieving supply chain optimization. This mindset of continuous improvement is characterized by high degree of flexibility.
Clear performance metrics should be established with regard to the supply chain. These performance metrics should be shared with supply chain partners. The workforce involved in supply chain management should be adequately trained and made aware of the key performance metrics of the supply chain management.
A lot of electronic data interchange takes place between the supply chain partners during the course of the supply chain. Those supply chain partners should be chosen who have the capability for electronic data interchange. Optimization of supply chain cannot be achieved without optimization of the information flow across the supply chain.
The implementation of Lean philosophy across the supply chain can make it compact. Businesses should try to keep supply chain as compact as possible because it is easier to monitor and manage such a supply chain. A compact supply chain is also more flexible and agile. Flexibility and agility in supply chain makes it possible for a business to reduce its inventory needs. Lower inventory results in cost savings for the business.
Implementation of Kanban philosophy makes supply chain agile and flexible. Kanban is a philosophy of managing logistics keeping in mind the production needs of the company. The implementation of Kanban in logistics management can help a business implement Just-in-Time (JIT) manufacturing. JIT ensures that raw material is received only when it is required in production and final products can be delivered as soon as customer demand comes. JIT minimizes the inventory requirement of the business and enhances operational efficiency.
Logistics outsourcing is a trend that has strengthened lately. Increasing number of companies have outsourced their logistics management to third party logistics providers (3PL).There are many companies whose core competency is logistics management of other companies.
These companies leverage their core competency to achieve high efficiency and effectiveness. Outsourcing the logistics management function enables a company to focus more on its core activities. Many businesses outsource their logistics in order to achieve cost savings. Some companies also outsource their logistics management in order to improve effectiveness. Dedicated logistics management companies with their extensive network and infrastructure can improve delivery time of the business and lead to higher customer satisfaction.
In its Request For Proposal (RFP) for choosing the logistics provider a business should clearly explain its exact requirements and needs. Different logistics companies have different areas of core competency. Some logistics providers have their core competency in warehousing, others have in transportation, while others have in managing global logistics. When the RFP clearly specifies the requirements of the company and capabilities needed on the part of the logistics provider it becomes easier to get the bids from the right logistics companies.
The 3PL partner chosen by the company should be one who can meet the level of operational excellence required by the company. Performance objectives of the logistics management should be clearly explained in the RFP.It is important that that logistics partner company is chosen whose organizational culture is similar to the company outsourcing its logistics. When the organizational culture is similar, strategic collaboration is enhanced. The two companies are able to communicate effectively and the logistics partner is able to understand the expectations of the outsourcer in a better way.
Due diligence with regard to the service record and operational capabilities of the prospective logistics partner should be done before the contract is finally awarded. Transparency and honesty should be there in the communications between the company and its logistics partner. In order to ensure that no disruption takes place once the logistics management is outsourced, sometimes it can be helpful to also look into the financial history and financial health of the company to whom logistics management is being outsourced. Any disruption at a later stage due to financial problems at the 3PL provider can derail the operations of the company and lead to customer complaints and customer dissatisfaction.
Transportation is the most critical activity in logistics management. Transportation becomes more challenging when the logistics is at the global scale. The business should clearly communicate its performance expectations to the transport partner. It should establish clear performance metrics for the transport partner.
Most businesses today outsource the transportation part to external vendors. Even large, multinational corporations like Royal Dutch Shell have outsourced shipping of crude oil to outside shipping companies. Outsourcing of transportation has resulted in cost savings for companies and businesses. Relatively few businesses now have in-house fleet of trucks or ships to transport their goods and services.
However outsourcing of transportation also means that businesses should be more careful when choosing the transportation partner.Those transporters should be chosen who are aware of the area in which most of the customers or suppliers are located. The invoices presented by the transportation partners should be thoroughly checked and audited to ensure that there are no pricing errors or over-charging for services rendered by them. The performance of transporters with respect to timely delivery of goods and services should be continuously monitored.
The trailers, trucks and other equipments that are being used by the transportation partner for transport of the company’s goods and services should be in good condition and maintained properly. When the equipment is not in good condition, the probability of delays in delivery increases. Therefore it is the responsibility of the business to take reasonable steps to ensure that the equipments of transportation partners are in good condition. Those transportation partners should be chosen who maintain their equipment in good condition.
In international logistics, it is necessary that the transporter has a dedicated team of customer service executives. The job of these customer service executives is to address the queries of customers with regard to the status of their shipment.Those transporters should be chosen who have the technological capability to offer real time tracking of shipment facility to customers. Transport partners should be clearly explained the importance of customer satisfaction for the company. When transporters fail in making timely deliveries it results in customer dissatisfaction. Therefore the decision of choosing the transportation partner is of strategic importance. It should be taken after careful consideration and due diligence by the management.
Businesses involved in logistics management at the global scale can do well by automating warehouse and other processes in the logistics chain, like picking and processing of shipping information. Automation also has the advantage that it leads to generation of electronic data. This electronic data can be used at the level of the enterprise for making better decisions.
Companies can also become more efficient and effective in their logistics management by using the value stream mapping tool. This involves mapping all the processes or steps that create value in the warehouse and rest of the logistics chain. The value stream should depict all the steps in the logistics chain that ultimately take the product to the doorsteps of the customer. This value stream map helps the management and the employees involved in logistics management in understanding the entire logistics process. Areas or steps which are the cause of inefficiencies can be identified. Employees can suggest ways of improving these areas. The company can cut wastage and make its logistics chain lean by using the value stream mapping tool.
Standardization of the work and processes involved in logistics management can result in minimization of errors and variances in the logistics process. A process-oriented approach should be taken towards logistics management. Such a process-oriented approach makes the logistics management more effective. Whenever a fault or error occurs in the logistics chain, the management should focus on the process that is the source of the error.
Implementation of just-in-time (JIT) philosophy in logistics chain processes, like warehouse management, can result in lower costs and more efficiency. JIT philosophy is about eliminating unnecessary inventory, unnecessary information and unnecessary processes and making the whole process more agile so that customers’ demand can be fulfilled as soon as it is raised.
Materials handling system in the warehouse should be chosen on the basis of the type of the product that is being stored in the warehouse. Similarly the transportation equipment should be chosen keeping in mind the nature of the product to be transported, the needs and destination of the customer, the business goals and also the regulatory environment.
Logistics is a critical component of supply chain management.Logistics can be defined as the management of flow of goods from the point of source to the point of consumption.The point of origin or source in most cases is the location of seller while the point of consumption is the location of the buyer.
Logistics providers nowadays have greatly enhanced their efficiency and effectiveness by employing smart devices like GPS-enabled trackers and sensors. Many have started employing containers equipped with tracking devices. These containers are therefore able to provide their location round-the-clock to the logistics manager sitting at a distant location. Improved efficiency has resulted in lower costs of logistics while effectiveness has translated into faster and accurate delivery.
Another change that is happening in logistics management is that last mile delivery is often being provided by specialized, local distribution companies. The supplier sends the goods to the warehouse of these companies who then deliver the goods to the doorsteps of the customers or buyers. This trend is currently at an early stage but is likely to strengthen in the near future. The employment of separate last mile distribution companies ensures effective delivery in areas which are densely populated, remote or large.
Employment of last mile distributors requires increased collaboration across the logistics chain. This collaboration is being achieved through employment of communications technology like cell-phones and GPS-enabled trackers. However employment of these technologies is capital-intensive. Global level logistics require common technological standards and protocols being adopted everywhere. Ensuring effective collaboration across the logistics chain, when there are last mile distributors involved, will remain a big challenge.
In an increasingly interconnected world driven by internet and globalization the significance of logistics will only increase. The growth of e-commerce is underpinned on effective logistics management. Logistics management may soon become the most important activity in supply chain management. Companies can make logistics a source of competitive advantage. Those who make the first move in modernizing their logistics may reap rich dividends later on.
Supply chain management is becoming one of the most important activities for companies. Supply chain includes all the activities and organizations that are involved in moving a product from the supplier to the customer.
A recent study by IBM’s Institute for Business value found that supply chain management plays a very important role in ensuring customer satisfaction and improving operational efficiency. The same study found that organizations, that have outperformed their rivals, value supply chain management as a very important strategic activity. Majority of the executives interviewed as part of this study said that supply chains are very effective in enhancing customer satisfaction. A large percentage of the executives also said that supply chain is very effective in generating higher revenues.
The role of supply chain management has increased in significance also because of the multi-channel distribution that many businesses now pursue. Companies now sell their products through a number of different channels. It is through effective supply chain management that they are able to serve the different distribution channels.
Large Fast Moving Consumer Goods (FMCG) companies like Unilever sell a large number of products to a large number of customers. They are able to achieve this feat largely because of a very effective and efficient supply chain management that is both flexible and agile. A flexible supply chain enables businesses like wine retailers to respond to seasonal demand variations. Companies are also focusing on the supply chain to identify points of inefficiencies and eliminate them. Wal-Mart attributes its cost leadership in the retail industry to its superior and more efficient supply chain.
Increasing number of businesses are also focusing on the supply chain to cut down their greenhouse gas emissions. A sustainable supply chain is one that causes minimal impact to the environment. Sustainable supply chain management is high on the agenda of many large multi-national companies like Unilever and Wal-Mart. Most companies, who realize the value of supply chain management, are leveraging it for improving customer satisfaction and controlling operational costs.
Higher customer satisfaction usually results in higher revenues and lower operational costs result in higher profitability. No wonder then that many more businesses are investing in improving their supply chain infrastructure and training their employees in supply chain management. Supply chain is fast emerging as one of the most important sources of competitive advantage across all industries and sectors.
In this series, we look at what global supply chain managers need to do to address the challenges of global supply chains.
Multinational companies have supply chains that transcend countries and extend across the globe. For effective management of such an extended supply chain, it is necessary that there should be at least a team that is devoted 24 hours and 7 days of the week to responding to any supply chain disruption that occurs.
This ensures that supply chain functions smoothly without any disruption that causes extended delay.Those responsible for management of supply chain should have all the data and information about the products of the company. Having all the information about the products of the company help the supply chain management team to have a better understanding about the nature of products as they move across the supply chain.
This understanding helps in recognizing the permits and other legal requirements that need to be fulfilled in case of certain products.
It is the duty of the supply chain management team of the multinational company to ensure that supply chain partners located in foreign countries are legal entities and not those outlawed by the law of that country.
The supply management team should track the total costs that are involved in moving the product of the company across the supply chain. These costs include duties, taxes and other tariffs that are there in international trade.
The logistics team of a multi-national operation should be cognizant of the legal requirements that need to be fulfilled for importing a product in a particular country. They need to communicate with the customs department of that country with regard to compliance of the company with those requirements.
The supply chain & logistics team should be aware of the common terms that are used in international trade. The understanding of these terms helps the supply chain management team to fulfill all the required formalities for movement of goods across national borders. Examples of such terms are tariff numbers, country of origin, units of measure etc.
The logistics team should be aware of the documents that are required for shipping the product of the company into a particular foreign market. Different companies have different documentation requirements with regard to imported goods.
It is recommended that the documents provided should be prepared in that country and in the language of that country. A local representative of the company in that country can help in local preparation of such documents. Developments in information & communication technology have greatly facilitated electronic movement of trade documents.