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

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