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Creating responsive supply chains

A supply chain is a network or linkage of organisations or partners who collectively convert a basic commodity (upstream) into a finished product (downstream) that is valued by the end customer, and the management of returns at each stage.

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In today’s globalised world, the demand has become volatile due to the fact that consumers now demand greater variety, product life-cycles have become shorter and competitive pressures are on the increase.

Faced with all these and other issues, supply chains have to be flexible and agile so as to be responsive to consumer needs. Agile supply chain is the development of a strategic structure and operation that allows for the rapid response to unpredictable changes in customer demand. This is achieved only when companies work together across the supply chain in order to fulfil customer requirements and to be flexible in the way they organise production and distribution. Agility is expressed in terms of speed and flexibility. Speed is a measure of the time it takes to ship or receive goods, while flexibility is the degree to which the firm is able to adjust the time in which it can ship or receive goods.

Inasmuch as integrated supply chains are beneficial, the process usually evolves levels of integration that can only grow deeper over time and should be implemented in such a way that specific supply chain strategies are perfectly aligned with the overall corporate business strategy. Many companies have fairly limited integration at a functional level, while achieving full integration has been relatively slow due inter-organisational differences in culture and corporate focus. Even though supply chain integration can bring benefits and competitive advantage to an organisation, the management and implementation of this system poses significant challenges to organisations, particularly in the third world countries where the adoption of technology is at infancy stage and utilisation capacity is below average. The initialising costs may be high and a lot of training is required to overcome resistance to change. The suggestions below are useful in the creation of agile supply chains.

l Synchronise activities through shared information — in any supply chain setup, information is the biggest supply chain driver, hence sharing of demand data as to done effectively and efficient. Failure to do so will lead to bullwhip effect. Synchronisation implies that all parties in the supply chain are ‘marching to the same drumbeat’. In other words, through shared information and process alignment there is in effect one set of numbers and a single schedule for the entire supply chain. In the fast moving consumer goods (fmcg), supply chain synchronisation is made possible by the retailers’ increasing willingness to share point-of-sale data with manufacturers.

l Work smarter, not harder — a detailed supply chain review will reveal that many of the activities along the chain have no value addition. In other words, time is being spent on activities that typically create cost but do not create a benefit for the customer. Time spent in inventory is a classic example of non-value-adding time. Process time is directly correlated with inventory. For instance if it takes three weeks from raising a purchase order to receiving the goods, at least three weeks of inventory will be required to buffer the organisation during that lead-time. How much internal lead-time is spent raising a purchase order in your organisation? In some organisations, there are layers and layers of signatories which can take up to a week for a very small value order to be released; agility becomes difficult in such a case and ultimately the organisation is incurs costs on the pretext of controlling costs.

l Partner with suppliers to reduce in-bound lead-times. Suppliers have often been chosen on the basis of price rather than their responsiveness. A major opportunity exists for reducing in-bound lead times through close working with key suppliers. Supplier agility is one of the main requirements in the creation of a more responsive supply chain, though it is surprising that some businesses have few or do not even have collaborative programmes with suppliers in place. Using joint supplier/customer teams to explore opportunities for re-aligning and re-engineering processes, on both sides of the interface, which impact overall responsiveness can produce significant dividends.

l Manage processes not just functions — functionally based organisations ensures the efficient use of resources but it is actually inwardly focused and tends to lead to a “silo” type mentality. These organisations tend to be slow to respond to changes in the market or business environment due to the fact that there are often multiple “hand-offs” as things get passed from one function to another, there is an inevitably lengthening in the time to respond. In contrast, processes are the horizontal, market-facing sequences of activities that create value for customers. They are cross-functional by definition and are usually best managed through the means of interdisciplinary teams.

l Utilise appropriate performance metrics — traditionally, the focus of many companies is primarily on efficiency, thus the search for lower costs, better use of capacity, reduced inventories and so on. These are still worthy goals today but the priority has shifted. Now the emphasis must be on effectiveness. In other words, the challenge is to create strategies and procedures that will enable organisations to become the supplier of choice and to sustain that position through higher levels of customer responsiveness. This is the logic that underpins the concept of the agile supply chain. Agility can be created by linking processes to customer-based metrics. One such widely used measure is “perfect order achievement”. A perfect order is one where the customer gets exactly what they want at the time and place they want it. A fundamental tenet of agility is customer responsiveness, hence the need to ensure that the primary measures of business performance reflect this imperative. Time to market and time to volume are powerful metrics employed by companies where short life cycles dictate a focus on rapid response to fast-changing technologies and volatile customer demand.

Globalisation of markets has brought about increased competition, hence the shift in the balance of power in the distribution channel has highlighted the need for the business to be driven by the market rather than by its own internal goals. However, for organisations to become truly market-driven, there has to be a sustained focus on responsiveness across the business and its wider supply chain.

Gibson Sibanda is a member of the Chartered Institute of Procurement and Supply (MCIPS), secretary of Cips Zimbabwe branch. The views expressed in the article are entirely personal. For feedback you may contact him on gibbiesibanda@gmail.com

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