Supply Chain Management – 6 Topics to Where it is Going
Supply chain management has grown in company importance and value contribution from its roots as “shipping and receiving”.
This is true for large corporations and for small-medium enterprises (SMEs). External events, such as deregulation and international sourcing, have driven the evolution. Questions revolve around the future of supply chain management. Tactical and strategic needs need to be addressed.
Assessment of internal (within the company) and external (outside the company) gaps in supply chain management can provide indications of what must be done. Some of these are:
Ongoing emphasis to compress time and increase inventory velocity. Time to bring new products to market, time to bring in hot selling products to stores and customers-these and other needs to move products more quickly to increase revenue and profits will continue as a pressure point of supply chain management and company demands. Longer time and slower inventory velocity create a great and hidden profit impact to P&Ls with diminished merchandising and sales impact and revenues and with capital tied up for extended time and generating lower returns. All this could reduce profits by 20% to 40%. Lean supply chain management for international, global supply chains will be mandated.
Increased supplier performance. Key to time compression and faster inventory velocity and turns, key to lean global logistics will be improved supplier performance. Experience shows that suppliers fail to meet ship dates or delivery dates over 25% of the time. This is especially so for international sourcing. Better reliability will also require vendors to change over production, make smaller runs and deliver product faster. And they will have to improve quality at the same time. The challenge will be ongoing with changes in where suppliers operate their factories.
Outsourcing transformation. Outsourcing will change. Much outsourcing has occurred to fix the symptoms of problems; it has not attacked the real, underlying problems. Transactions and functional supply chain elements have been transferred to outside parties, often 3PLs.
Supply chain management is a horizontal process that crosses the company and spans countries in scope. Time, distance and the nuances of operating in a vertical organization are challenges. Therefore identifying needs and problems requires that the process itself must be addressed and how outsourcing improves the overall process.
Outsourcing will focus on business process outsourcing (BPO). Supply chain outsourcing will be divided along the lines of key needs. For example, it will be separate for domestic supply chain management and international supply chain management. Or it will divided as to inventory velocity or inventory value with different supply chain processes for fast, medium and slow moving products or for high, medium or low value products. Supply chain BPO will be an active part as firms move to compress time and increase inventory velocity.
The outsourcing transformation will lead to competitive advantages and to increased company and shareholder value. Designing a dynamic and flexible supply chain process will not be a function of 3PLs utilized or a “one stop shopping” approach for 3PLs. It will require a blend of company and multiple 3PL participation. Key to the change will be the development a breed of logistics service provider that will manage the supply chain process, not just manage transactions, such as shipments, or manage one logistics element such as warehousing or ocean shipping.
Focused supply chain role for technology. Supply chain planning and supply chain execution are important areas for operating effective lean supply chains. They are required for strong supply chain performance. They will be process enablers, not silver bullets to fixed poor and flawed processes. Such focused technology applications will facilitate reducing time, improving supplier performance, collaborating among key trading partners and gaining visibility throughout the entire supply chain from purchase order to delivery order. The technology will be scaleable, easily configurable, be hosted by outside service and will be paid for as on a “per transaction” or similar approach. This will reduce the risk and large capital requirements that have accompanied such technology.
Penetration of NVOs as 3PLs into Small-Medium Enterprises. For SMEs that source internationally, the NVO has often been the transport service provider. Large ocean carriers have not aggressively pursed the small-medium shipper. The Federal Maritime Commission has given NVOs the ability to negotiate and establish service contract like agreements with customers. NVO Service Agreements (NSAs) will be used by NVOs to become 3PLs to the SME. This is a growth opportunity for the NVO to move from the traditional freight commodity service into customized, integrated logistics provider. NVOs, as 3PLs, can be the vehicle for SMEs to improve the inbound supply chain and manage supplier performance.
Impediments to supply chain evolution. Shippers want to be lean with compressed supply chain time and with fewer inventories, but there are obstacles to be dealt with. Transport and logistics infrastructure investment are needed both internationally and domestically. China has needs beyond the immediate port areas. The U.S. has needs with bridges, highways and rail equipment. Add the shortage of domestic truck drivers and you have issues that can delay the prompt movement of products at many points in the supply chain. Ocean carriers need to evaluate their ideas of ship sizes and sailing schedules with their customers needs for faster delivery. Increased security throughout the international supply chain will create situations that slow cargo movement; these will need additional technology at ports and other areas. Key to resolution of these hurdles will involve determining who all will pay for the needed investments and changes and how it will be paid.
Conclusion. Supply chain management will continue to evolve. Emphasis will be on being lean with compressed time and increased inventory velocity. Outsourcing, supplier management and technology will be steps in the changes. The question is how the changes will proceed.
LTD provides logistics consulting for strategic and tactical needs. The scope of capabilities is broad–supply chain management, outsourcing, transportation, warehousing, inventory management, and more for both domestic and international needs. Clients include retailers, wholesalers/distributors, manufacturers, logistics service providers and 3PLs.