SUPPLY CHAIN MANAGEMENT
The Ultimate Guide to 5 Most Popular Supply Chain Management Questions with Insightful and Practical Answers
Q1. What is Supply Chain Management with example?
Supply Chain Management is end to end management of supply chain activities and processes. Supply chain management activities involve procurement of materials, planning of finished goods and materials, production and storage of goods and movement and delivery of Finished goods to the customers and consumers.
Supply chain extends from supplier to manufacturer to distributor to retailer and ends at consumer. Consumer is also essential part of supply chain.
What is Supply chain management can be explained in further detail by three core activities it performs :
1. Sourcing :
Sourcing is defined as Procurement of Raw materials and Packaging Materials which are directly used in production of Finished goods. Key activities include Market Demand and supply assessment, Supplier selection, Pricing negotiation and contract management.
Material is to be ensured with high availability for production , best quality for consumers & lowest total cost of ownership for the organization.
2. Planning :
Planning function is responsible to plan activities in a way that right product is available in the right quantity and at right time for the customers and consumers.
It estimates Demand using Demand planning tools and arrange for supplies using supply planning activities by ensuring capacity, materials and inventories to meet and service the demand requirement.
It plans for finished goods production at product level basis the demand requirement and inventory stock levels. Materials are planned basis production requirement and targeted inventory levels.
Planning connects all the functions using Integrated Business planning process with Portfolio Management Review, Demand management review, Supply management review, Finance and Integrated reconciliation review and Management review.
3. Logistics and Customer Service :
Logistics is about goods and material storage and movement from one location to another. Warehousing Management, Transportation Management and Customer Service are the key activities.
Warehouse Management include network design, warehouse selection and management. Management includes unloading the goods from truck, ensuring proper storage in safe and hygienic work environment and loading and dispatch of goods basis customer orders.
Transportation Management is managing movement of goods from source to destination location like suppliers to factory warehouse and factory warehouses to customers.
Key activities are vehicle and route management, vehicle planning, slot scheduling, vehicle placement, freight negotiation and contract management and ensuring goods delivery to the customers on timely basis
Customer service is a new evolving function in supply chain. Key Activities are go to market strategy, joint business partnering with customers to improve order management process and serviceability. Purpose is to forge a mutual beneficial partnership for both the business partners
All these functions together define what supply chain management is and what it does.
Now, let us understand it with a simple and practical example :
A Food company Best foods wants to manufacture a new product Milk chocolate 100 gm and sell it in the market to consumers. Supply chain management activities in the entire process will be as follows:
- Milk Chocolate 100 gm Product forecast will be prepared by Planning basis inputs from sales and marketing
- Product forecast volumes will be used by planning for evaluating required production capacity and material requirements
- Material volumes will be shared with procurement and they will be responsible for supplier selection, purchase of ingredients to manufacture chocolate like cocoa butter, cocoa liquor, peanuts, milk fat and provide these materials to manufacturing unit for production.
- Product type, quantity and timing will be communicated to production by planning basis the requirement of chocolate in the market for the consumers
- Once goods are produced by manufacturing unit, logistics will be responsible for storing the goods in warehouses. Goods will be transported from factory to market warehouses and then to the customers and consumers
Fun Fact 1 : The amount of follow up supply chain management professionals need to do to get the activities done, sometimes they also call it Follow up chain management
Q2. Why Supply Chain Management is important in a company ?
Supply chain management is important for an organization in the following ways:
1. Supply Lead:
Supply Chain acts as Supply Lead to integrate, control and manage end to end supply network in the most efficient and effective way. It takes ownership of entire supply chain management function.
Solve common problems, resolve cross functional issues, integrate functions and proactively close communication loops to avoid any misses and business losses. It is single point of contact to management on supply availability and visibility and escalates for required support.
2. Key Supply Chain Management Activities and Improvements :
Supply chain management activities procurement, planning, logistics and customer service are required to be done efficiently and in an integrated manner with other functions to enable success of the organization.
Supply Chain Management drives continuous improvement in the organization by resolving issues for streamlined product flow, stretches all the functions and challenge the status quo to deliver and perform efficiently and effectively
3. Product Availability for Consumer :
Supply Chain management is responsible for delivery of goods to the customers and consumers as per their needs and requirements.
If demand is not forecasted properly and right product with right quality and at right time are not available to the consumer then company will lose on sales and profits.
4. Topline, Bottomline and Cashflow:
Efficient Supply chain management contributes toward company revenue by improving product availability for sales. Enhances profitability by reducing procurement and logistics cost. Improves cash flow and working capital by optimizing inventory and favourable payment terms with suppliers.
Q3. What is main goal and purpose of supply chain management ?
Main goal of supply chain management is to deliver value to the consumer and organization. Ensuring high product availability for the consumers and avoiding stocks outs which lead to sales loss is one of the prime goal of the supply chain function.
This value can be delivered as follows :
1. Deliver Excellent Customer Service:
Customer Service is about availability of the product to the customers and consumers. It is measured through order fill rate and their timeliness.
Order fill rates can be defined as follows : Customers raise orders to the manufacturing company defining SKU type, quantity and delivery requirement. Quantity of product and number of orders that is delivered by the manufacturing company on timely basis is order fill rate is a key metric for retail stores to measure performance of their suppliers.
Customer Service also includes how quickly supply chain can response to changing consumer trends and stock requirement with high manufacturing flexibility.
2. Ensure Product Quality:
Quality is what differentiate reputed companies from ordinary ones and commands a premium. Whenever in doubt, people buy quality product as it is promise of safety and assurance to consumers.
Supply chain management is responsible for handling of goods in the value chain in warehousing and transportation and they ensure that goods are reached in the hands of the consumer as at the time of manufacturing without any defects.
3. Optimize Cost:
Supply chain is responsible for big cost heads in the organization. Material and distribution cost are one of the major cost accounts. Cost includes purchase cost of materials, storage, warehousing and transportation cost.
Supply chain contribute towards profitability by using advanced optimization techniques and tools, negotiation skills and vendor management to deliver financial savings to the organization
4. Develop People :
Supply chain has daily challenges and people development and engagement is an essential responsibility to keep teams motivated. Teams needs to be aware about latest trends and opportunities in Supply chain for knowledge updation and skill development.
Q4. What are the supply chain drivers?
There are 6 drivers in Supply Chain function :
1. Facilities and Network design
Factories and warehouse form the supply chain network.
Factory location is decided basis various factors like closeness to market demand, government benefits, weather, labour availability, industry friendliness , local communities, infrastructure etc. Warehouse location is decided basis rentals, manpower availability , distance from customers and cost optimized network.
Inventory is stock of an item and resource. Inventory is key component of supply chain strategy to balance out availability and working capital requirement.
Different types of inventory are cycle stock basis frequency of replenishment , safety stock basis demand and supply variation and seasonality basis peak and lean seasons. Various inventory policies and strategies are used to arrive at correct inventory norms and meet market demand
Transportation is managing movement of goods from suppliers to factory warehouse and market warehouses to customers.
Key activities include route optimization, vehicle planning and scheduling, vehicle placement, freight negotiation and management and ensuring goods delivery to the customers as per requirements.
Purchase of Direct materials like Raw Materials and Packaging Materials which are directly used in production of Finished goods.
Key activities include Market Demand and supply assessment, Supplier selection, contract management and negotiation and ensuring material availability at the right service, quality and cost for production.
Information systems are used to collect data, analyze information and generate reports for accurate and fast decision making.
Systems support is essential to reduced complexity and handle scale. These reports and information are must for daily review and allow managers to analyse the facts and take the right decisions for solving problems and driving continuous improvements.
Inventory aggregation techniques use information systems to optimize inventory at multiple locations simultaneously.
6. Integrated business planning and Pricing
IBP connects all the functions using cross functional process and present clear picture to senior management on unconstrained demand, supply constraints and actual achievement against the business plan.
Ideas are brainstormed to bridge the gap between target vs actual. Process is conducted with Portfolio Management Review, Demand review, Supply review, Finance reconciliation review and Management business review. Pricing is an important driver to balance revenue and profitability in the organization
Q5. How does supply chain works?
Supply chain management working can be explained with flow of goods, information and money in the entire value chain.
Following are the regular Supply chain activities which explains how it moves from one node to next node to transfer information and goods from supplier to consumer.
1. Retailer/ Distributor
Retailer studies products which consumer lift on the shelf and set Minimum Order Quantities. Orders are raised to companies to service the orders. Companies pick the goods from warehouse and invoice to the customers in Retailer back-end storage warehouses . Payment is done basis agreed terms which can range from advance cheque or credit upto 7 days.
Demand planner aggregate demand and forecast from all the customers and create month level demand plan. This plan is aligned primarily between sales and operations function. Demand plan and Target inventory norms are used to arrive at production plan which is shared with factories.
Month level Production plan and forecast is used by factories to review capacity and manpower requirement and arrive at day level production plan. Basis production plans, material planners share firm orders and material forecast with suppliers.
Suppliers basis the customer forecast, share forecast with their suppliers to cover Raw materials and Packing Materials. Suppliers produce materials and delivery to factory warehouses basis firm orders as per agreed schedule on quantity, quality and timeliness. Goods are received in material warehouse and payment done to supplier as per payment terms.
Factory uses materials to produce the finished goods and store in factory warehouses. Product Dispatches are planned by Dispatch planner from Factory warehouse to Market distribution centres or exports basis direct customer orders
Finished goods are transported to market warehouses and distribution centres. Dispatches are executed to respective locations basis Demand plan and inventory norms.
Stocks are stored in DCs and invoiced to customers/ distributors basis customer orders. Finished goods are invoiced from Distribution centres basis the customer orders. End to end goods flow is managed by supply chain
6. Distributor/ Retailer
Distributors store goods at their smaller warehouse and dispatch to retailers in small distribution vans. Retailers store goods at their storage centres and move to stores on replenishment model. Products are made available at store shelf and picked by consumers
Fun Fact 2 : Supply chain professionals often wonder that what is the defined boundary of their work or is it limitless ?