Article written by: PhD. George Ogrinja, Supply Chain Director, Associate Professor Faculty of Economic Cybernetics, Statistics and Informatics, ASE Bucharest
- The absence of an industry standard, universally accepted by professional organizations.
- Migrating to the logistics of a large number of people with professional backgrounds in other business areas: sales, IT, marketing, engineering, etc.
- The poor logistics professional training policy within the company.
So, without a strategy to “Put people first”, the IT solutions implemented will not solve logistical inefficient processes. In a series of articles that will follow, we will try to learn the language of the logistics and to use in a form of pragmatic through best practice that will be presented.
We begin with a brief introduction about Supply Chain Management (SCM):
Over the last decade there has been a growing interest in the use of methods of Supply Chain (SC) for improving the performance of companies. Many industries have recognized the importance of integrating the processes/activities of SC and as a result, SCM has become part of the standard business practices. At the same time, interest in research in SCM has boomed so continuous cycle practice-research-practice has led to the development of new concepts and the implementation of new practices.
Through the convergence of theory and practice we provide readers in the field of SCM:
- A set of tutorials on the key methods and practices;
- Presenting various practices are used successfully in multiple industries;
- Description of the new methodologies introduced into the practice of improving the efficiency of processes.
Why Supply Chain Management and Logistics Management (LM)?
There is some confusion among practitioners in understanding and differentiating the terms of SCM and LM. Sometimes these terms are used interchangeable, believing that refer to the same things, activities. It is no wonder, since there are many definitions of the two terms in scientific and professional circles.
Even the Council of Supply Chain Management Professionals (CSCMP) acknowledged this: “Most times SCM is confused with the LM (Logistics Management)”.
When talking about the evaluation of the performance of a SCM is important to fall off on to it. Therefore, we chose one of the most respected sources of standard definition, namely the Council of Supply Chain Management Professionals (CSCMP).
Definition Of Supply Chain Management
In the CSCMP’s, Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.
To view practice above SCM definition we present in Figure 1 the model of the supply chain of the company Apple.
Fig. 1 Supply Chain Model of Apple Inc. (source: scm-operations.com)
As you see, Apple Inc purchases raw materials (subassemblies) from various sources ( Sourcing) then get them shipped to assembling plant in China (Manufacturing). From here, the final products are delivered to consumers as follows:
- final customers who buy Online through global courier delivery services UPS/Fedex
- distribution channels such as retail stores, the companies proprietary communications networks, other wholesalers through the Distribution Center Elk Grove, Calif., who owns a CALL CENTER.
At the end of the life cycle of products, customers can return the product to the nearest Apple store or recycling companies.
Is this the single view of SC model?
a) Which is the vision of a sales manager about SC Model?
In current practices, for a Director of sales this representation of SC is not interesting. His sales plan contains both global and figures broken down by channel of distribution. Therefore, for him a plot on channels of distribution pattern of SC is more close to its interest.
In Figure 2 we present one of the distribution channels (the longest) of Apple SC network which represents the more traditional sales channel, namely selling through retail stores (RETAIL STORES).
Fig. 2 The Retail Distribution Channel
As can be seen in the model of Figure 1 Apple uses a “multichannel distribution system” in order to meet one or more segments of clients. We will be discussing in one of the following articles about the importance of SC segmentation in order to increase the level of service of customers demand.
b) How am I supposed to see the SCM manager the model of SC?
Performing the practical definition of CSCMP organization above, SCM encompasses, planning, design, control and implementation of all business processes related to procurement, manufacturing, distribution and sales order fulfillment functions of a business (Figure 3).
Fig. 3 A SCM model of business processes
This trend of development of SCM is already reflected in concerns of major companies to engage as a priority in the field of supply chain people with training in the field of processes (business process management) at the expense of people who have experience with the structure of hierarchical organizations. In the next chapters we present processes that make up these functions and what is change management from functional structures to process-oriented structures.
Council of Supply Chain Management Professionals (CSCMP) Definition Logistics Management
Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.
We call it further Logistics Management in a simple way, LOGISTICS.
Two concepts introduced in this definition determined practical essence of logistics:
- Flow/Movement = Transport (between locations)
- Storage = Inventory, Warehousing (at locations)
According to CSCMP Logistics activities typically include:
- inbound and outbound transportation management
- fleet management
- materials handling
- order fulfillment
- logistics network design
- inventory management
- supply/demand planning (in practice the common logistics manages only flows of merchandise associated with deliveries and purchasing)
- management of third party logistics services providers
To varying degrees, the logistics function also includes:
- sourcing and procurement
- production planning and scheduling
- packaging and assembly
- customer service
Logistics involves getting in the right way, the right product, in the right quantity and right quality, in the right place at the right time, for the right customer at the right cost (the 7’S Right).
Joining us at CSCMP definitions and to eliminate confusion among readers and practitioners we present in Figure 4 relationship between SCM and Logistics as follows:
Fig. 4 Relationship between logistics and SCM
Why do we say this representation?
Logistics model is part of the SC model, much broader in purpose and which integrates the processes of a complete cycle of the business.
Observation. There are also companies where, depending on the business model, the logistics can work independently. An example in this respect is the 3PL services (logistics service providers).
Conclusion: Contrary to the majority opinions Supply chain management is more than just a logistics integrator. The cornerstone in achieving a flexible and efficient supply chain is the alliances between key partners and the way in which IT allows the partners to be visible to the end-to-end by sharing real-time information accurate and up to date.
Once here, it is no wonder the speed with which circulate today terms such as LEAN and AGILE, Collaborative relationship, the Extended Enterprise. All these techniques have allowed the partners to be seen as an extension of the local decision-making processes to be taken by common accord and the response time of the system to changes in the market to be increasingly shorter.
Change Management – from the functional organizational structures to organizational structures process-oriented
PROCESSES, processes and …INTEGRATION
Process Definition: A series of interrelated activities, carried out in continuous sequence, that convert inputs into results (outputs) to meet target objectives.
According to non-profit organization American Productivity & Quality Center (APQC) author of open standard Process Classification Framework (PCF), with application in various industrial fields:
- processes consume resources
- require standards for repeatable performance
- respond to the control systems that direct the quality, rate and cost of performance
Due to significant importance of standards in achieving a stable performance of processes in the next chapters we will present few of the most popular standards in the field of SCM.
For understanding the importance of organizing a company-oriented processes follow this general case study.
Every company aims to maximize profit by carrying out the next strategic objectives:
- the best level of customer service
- the smaller investments in inventories
- the lower cost of production/acquisition
- the lower cost of distribution
We assume that your organization has a hierarchical and functional structure, according to Fig. 5
Fig. 5 Functional Organizational Structure
According to the image in Figure 5, each department is responsible for own commitments derived from the general objectives of the company. Solving goals assumed by each department will lead cross-department conflicts inherent in the following way:
To have a high level of demand fulfillment, marketing-sales department will require a high level of inventories products. This request meets the PRODUCTION Department (long production run). In this case the estimated demand model of the application (build to stock on the basis of demand forecasting work) could increase the risk of incorrect assessment of the actual demand and as a result the volume of stock hardly saleable will attract in conflict Finance Department.
And the list of conflicts continue, internal resources of the organization being consumed for the maintenance of company balance.
Change management: In permanent conflict, the CEO of the company requesting the initiation of a project for the supply chain.
A priori implementation of SC make change management: Because SCM requires organization on processes of the company, in which departments collaborate internally with common objectives and not specific (see the case presented above), our recommendation is to avoid the simultaneous change of internal management (cross-department collaboration) and external (cooperation between partners).
For a supply chain project to succeed, employees first need to be convinced that sharing common information between their own divisions is a good thing. Too often, companies will fail in their attempts at collaborating with key supply chain partners because their own internal groups don’t cooperate with each other. You have to be able to trust your own people before you can hope to collaborate with other companies.
Fig. 6 Functional Organizational structure (left) vs. Organizational Structure- process oriented (right)
In Figure 6 is shown the structure of a company process oriented
In the organizational structure focused on processes, functional teams working both hierarchical (vertical integration) and horizontally (cross-departmental) with specific objectives and targeted towards satisfying customers ‘ requirements.
Go to Part II: What are the processes of a SCM?