SUPPLY CHAIN PRINCIPLES
Businesses have been trying
to solve four critical
problems for the last
decade:
•
Get more timely, detailed
and accurate information.
This has been accomplished
by making electronic
connections between
customers, suppliers, and
inter
nal functions using EDI,
bar-coding, and Internet
technologies
•
Reduce required
infrastructure.
This has been accom
plished by automating
business transactions with
ERP systems, ATMs, and
Internet technologies.
•
Shorten the cycle time to
market changes
to capital
ize on opportunities.
•
Make decisions that improve
the quality of business.
This is the expectation of
advanced planning systems.
There are two basic types of
decisions that businessesmake—capital
decisions that impact the
physical structure
of the supply chain. The
other is the execution of
plans that affect the asset
utilization of existing resources.
It would be tremendous if
business could respond
instantly to every customer
expectation, but the
reality for business is that
resources have to be
managed. This means that
business cannot afford to
keep
an unlimited amount of
resources lying around waiting
for customers to request
products and services. Further,
these resources act as
constraints that increase
cycle
time. The balance between
resources and customer service
determines the profitability
and health of a business.
Managing that fine line
should be the overriding
focus of practically
everyone in the business.
Finding efficiencies usually
focuses on internal operations
but as the marketplace has
become more global,
with more dramatic
improvements sought, supply
chain has become the
buzzword. What does this
really mean?
Supply chain can be
described in terms of
principles.
The first principle causes
us to take a broader look at
the supply chain for making
decisions. Decisions will
consider the impact
customers and suppliers.
Metrics
in the past have monitored
performance of individual
functions. This often led to
actions that hurt the bottom
line. The future tools will
factor in all relevant factors
that provide visibility into
the cause and effect on the
entire supply chain.
The second principle is
taking the raw data and putting
that data in a form that
basically shows the relationship
between supply and demand,
but goes beyond
that to assess the impact on
lead times, costs, profitability,
and risk. Tools will need to
be much more intelligent
in how they bring together
information that help
decision makers visualize
cost/benefits. A corollary
to this is the ability to
provide insight into where
there are
opportunities for supply
chain improvements (bottlenecks)
and scheduling limits.
The third principle is the
automation of business
decisions. Today many
decisions cannot be
automated due to the
insufficient availability of
information relative to
situations and the market
environment but even
more so because business
leadership has not
articulated
how they want to react to
the multiple possibilities
that
exist in how they can
deliver customer service.
These are
solvable problems. As they
are solved, decisions can be
more automated.
The fourth principle is the
creation of mathematical
models that rigorously
represent current supply
chain and alternative ways
of configuring and operating
the
supply chain. In the past
businesses made decisions on
limited data and with
minimal analysis. The future
models will more explicitly
model the supply chain and
run through thousands of
permutations to find the
best
solutions. Further, they
will provide for normal
variability
that occurs in business and
allow the user to select
their risk level relative to
the associated cost.
Continued