Supply Chain ManagementDelivering more value at less cost

In recent years there has been a growing recognition that companies no longer compete as individual entities, but rather as part of an extended network of suppliers and customers. Partly as a result of a long-established trend amongst organizations to outsource all non-core activities, today’s business is inevitably significantly more... read moredependent upon a wider network of other organizations.

Alongside this trend to outsource there has been the globalization of supply and distribution networks. Companies which once sourced their materials, components or products from local suppliers are now seeking out low-cost sources, often many thousands of miles away from their final markets. As a result managers are faced with the challenge of managing a complex web of flows of material and information across many boundaries and time zones. To compound the problem, at the same time that the trend to outsourcing and off-shoring has accelerated, the demand of customers for higher levels of responsiveness from their suppliers has increased.

Customers in all markets, industrial or consumer, are increasingly time-sensitive. The ability to be able to meet the demand of customers for ever-shorter delivery times and to ensure that supply can be synchronized to meet the peaks and troughs of demand, is clearly of critical importance in this era of time-based competition. To become more responsive to the needs of the market requires more than speed. It also requires a high level of manoeuvrability that today is termed ‘agility’.

Agile supply chains are able to respond rapidly to unpredictable changes in demand. Underpinning an agile capability is a continuing focus on time-compression. Whilst many companies have focused on internal process improvement, stripping out non-value adding activities wherever they are encountered, there has tended to be less emphasis on seeking out the opportunities for time-compression that exist across the wider supply chain, particularly at the interfaces between the different parties in the supply chain.

A further reason for the greater emphasis on supply chain management today is that supply chain decisions have such a big impact on a firm’s total costs. For example, decisions on sourcing and the location of manufacturing and distribution facilities can significantly influence cost. Equally, decisions taken at the product design stage can have subsequent effects on supply chain costs and performance.

Finally, because of turbulence and volatility in many markets, the level of risk and uncertainty in supply chains has increased considerably. Hence it is no longer viable to run the business in a conventional way i.e. make a forecast, plan ahead and build inventory in anticipation of demand. Now the challenge is to become demand-driven rather than forecast-driven to enable a lower risk, yet more responsive supply chain strategy to be achieved.