GETTING TO THE CORE OF SCM

How then does SCM differ from logistics processes? Simply, SCM comprises cross-functional and inter-enterprise logistics processes. Here's how these unique processes overlap and intertwine:

Demand planning and sales forecasting. Who is responsible for forecasting the needs of the supply chain? Where does demand/usage begin? These are just two questions supply chain professionals might ask when focusing on the end user or consumer.

Without shared and readily available information on end user sales and demands, all other trading partners—and those within a company not directly related to end user demand—are working off "derived demand" from supply chain individual enterprise sales.

Within each echelon, several forecasts are alive but often without the consensus of all parties in a company, much less the entire supply chain. A company develops business forecasts and goals, as well as product/market forecasts, to achieve broad long-term financial development benchmarks. These forecasts provide a basis for resource planning, which ultimately leads to shorter-term, monthly forecasts aimed at deriving the "numbers" that drive earnings for the year.

Sales and operations planning next addresses resource loading to meet two- to six-month plans for capacity use and supply planning. Finally, short-term production forecasts are needed to set production, operations, and sales schedules.

For most businesses, a key question is whether they have consensus for forecasts to drive the company. Forecasts are often based on different assumptions and metrics—dollars, units, and shipments, for example.

Extend this thinking to supply chain forecasting among trading partners, and a similar question arises. Is there consensus-based communication among trading partners? Often, forecasts and schedules are not shared, leading to the bullwhip effect that Dr. Jay Forrester and his MIT colleagues first discussed in the late 1950s.

SCM manufacturing and operations strategies. Forecasting leads to supply chain manufacturing strategies that go beyond an individual business. Product Life Cycle Management strategies come into play when SCM addresses integrated research and process design targeted at getting products manufactured and to market as fast as possible. Processes dealing with postponement become extremely important in deciding where in the supply chain manufacturing and operations functionality are performed.

Instead of taking 20 years to achieve significant market share globally, companies now establish supply chains that get product from design to key world markets in one year or less. Otherwise, ROI payback is lost.

Purchasing and supply management. Suppliers need to be linked to production schedules and aware of demand throughout the supply chain. Purchasing and supply management occur at all stages of the supply chain. At each level, logisticians exercise their responsibilities to order and replenish products for their businesses from select suppliers to meet demand. Disjointed supply functions can occur anywhere in the supply chain when there is a fracture in communication.

Too often, purchasing professionals order products and supplies when they know there are excessive supplies of product already in the supply chain Purchasing goes well beyond getting the best price for the product from a supplier. It's knowing where and how much inventory already exists.

Supply chain logistics. Rationalizing the nodes in the supply chain and going beyond interpreting a company's assembly, manufacturing, and distribution nodal points is the ultimate vision of supply chain logistics professionals. For example, many businesses now work with their customers to justify the number of nodes for deploying inventories. They find that their customers have as much inventory in their systems as the manufacturing company, its suppliers, and intermediaries. Inventories in transit and at "dwell" points in supply chains need to be analyzed to streamline supply chain logistics. As a result, visibility of orders, supplies, inventories, and shipments is critical to supply chain planning.

Reverse business and supply chain systems. An often-overlooked area in supply chain applications is reverse logistics. The recycling of automobile batteries, for example, illustrates the role of reverse business systems and supply chains that are multi-echelon and inter-enterprise.

An end user orientation for auto batteries has both environmental and economical advantages, increasing reusability of materials while keeping the cost of batteries low. The end result is that approximately 95 percent of the lead used in new batteries is from recycled materials.

END USER METRICS

Businesses today need to develop and manage metrics so that they can measure order fill rates and meet managed usage.

A retail store manager, for example, indicated that his inventory performance was +98 percent—meaning that he gets the product he orders nearly 100 percent of the time. Yet, consumers were walking out the door with short fills on needs, returning home empty-handed or with 80 percent fill rates on the items they came to buy.

Why? The store was measuring the wrong metrics.

The retail merchant needs to solve consumer problems, build good relationships, and achieve high customer retention through high fill rates, low prices, and minimal end user supply chain costs. The store also needs easy in-and-out shopping with rapid payment, and fewer returns through more sophisticated consumer profiling.

Supply chain management, in all its varying constructions and perceptions, is made possible by new relationships among business partners, advancements in technology, and value analysis and reengineering. These innovations continually alter the perception of SCM, especially as it relates to different logistics functions and supply chain partners.